Corporations Code — Part 9 | CORP — United States — California law | Esheria

Corporations Code

Part 9 of 13 · provisions 1,601–1,800

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Attorney General reporting Department of Justice information disclosure LLC compliance LLC formation filings LLC governance Membership interests Secretary of State Secretary of State filings Unincorporated associations acceptance location access to records accountability accounting accounting standards accredited investors accrued rights acknowledgment acquisition filings acquisition notice acquisition of control acquisition review adjourned meetings adjournment administration +2,294 more

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This section repeals the listed acts and sections, but it does not affect certain pre-1873 corporations that did not elect to continue under the Civil Code. This section repeals the acts and code sections listed in it. This section repeals the listed acts and code sections. This section repeals the listed acts and code sections. This section repeals Chapter 183 of the Statutes of 1941.

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Provisions of Corporations Code

Showing 200 of 2,411

  1. 3000.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 6. Amendment of Articles [3000 - 3002] ( Chapter 6 added by Stats. 2011, Ch. 740, Sec. 12. )

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    This section requires class approval for certain amendments to a social purpose corporation’s articles, and some amendments also need approval by at least two-thirds of each class of outstanding shares and the outstanding voting shares.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 6. Amendment of Articles [3000 - 3002] ( Chapter 6 added by Stats. 2011, Ch. 740, Sec. 12. ) ## 3000. (a) A proposed amendment to the articles of a social purpose corporation shall be approved by the outstanding shares of a class, regardless of whether that class is entitled to vote thereon by the provisions of the articles, if the amendment would: (1) Increase or decrease the aggregate number of authorized shares of that class, other than an increase as provided in either subdivision (b) of Section 405 or subdivision (b) of Section 902. (2) Effect an exchange, reclassification, or cancellation of all or part of the shares of that class, including a reverse stock split but excluding a stock split. (3) Effect an exchange, or create a right of exchange, of all or part of the shares of another class into the shares of that class. (4) Change the rights, preferences, privileges, or restrictions of the shares of that class. (5) Create a new class of shares having rights, preferences, or privileges prior to the shares of that class, or increase the rights, preferences, or privileges or the number of authorized shares of any class having rights, preferences, or privileges prior to the shares of that class. (6) In the case of preferred shares, divide the shares of any class into series having different rights, preferences, privileges, or restrictions or authorize the board to do so. (7) Cancel or otherwise affect dividends on the shares of that class that have accrued but have not been paid. (b) A proposed amendment shall be approved by an affirmative vote of at least two-thirds of the outstanding shares of each class, or a greater vote if required in the articles, regardless of whether that class is entitled to vote thereon by the provisions of the articles, if the amendment would materially alter any special purpose of the social purpose corporation stated in the articles pursuant to paragraph (2) of subdivision (b) of Section 2602, regardless of whether that purpose, as amended, would comply with the provisions of that paragraph. (c) Different series of the same class shall not constitute different classes for the purpose of voting by classes except when a series is adversely affected by an amendment in a different manner than other shares of the same class. (d) In addition to approval by a class as provided in subdivisions (a) and (b), a proposed amendment shall also be approved by the outstanding voting shares (Section 152). (Amended by Stats. 2014, Ch. 694, Sec. 47. (SB 1301) Effective January 1, 2015.)
  2. 3001.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 6. Amendment of Articles [3000 - 3002] ( Chapter 6 added by Stats. 2011, Ch. 740, Sec. 12. )

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    A social purpose corporation may amend its articles to change into certain nonprofit or cooperative forms. If shares have been issued, specific shareholder approval is required, and there is a special rule for mutual water companies changing to a nonprofit mutual benefit corporation.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 6. Amendment of Articles [3000 - 3002] ( Chapter 6 added by Stats. 2011, Ch. 740, Sec. 12. ) ## 3001. (a) A social purpose corporation may, by amendment of its articles pursuant to this section, change its status to that of a nonprofit public benefit corporation, nonprofit mutual benefit corporation, nonprofit religious corporation, or cooperative corporation. (b) The amendment of the articles to change its status to a nonprofit corporation shall revise the statement of purpose, delete the authorization for shares and any other provisions relating to authorized or issued shares, make other changes as may be necessary or desired, and, if any shares have been issued, provide either for the cancellation of those shares or for the conversion of those shares to memberships of the nonprofit corporation. The amendment of the articles to change status to a cooperative corporation shall revise the statement of purpose, make other changes as may be necessary or desired, and, if any shares have been issued, provide for the cancellation of those shares or for the change of those shares to memberships of the cooperative corporation, if necessary. (c) If shares have been issued, an amendment to change status to a nonprofit corporation shall be approved by all of the outstanding shares of all classes regardless of limitations or restrictions on their voting rights and an amendment to change status to a cooperative corporation shall be approved by the outstanding shares of each class regardless of limitations or restrictions on their voting rights. (d) If an amendment pursuant to this section is included in a merger agreement, the provisions of this section shall apply, except that any provision for cancellation or conversion of shares shall be in the merger agreement rather than in the amendment of the articles. (e) Notwithstanding subdivision (c), if a social purpose corporation is a mutual water company within the meaning of Section 2705 of the Public Utilities Code and under the terms of the status change each outstanding share is converted to a membership of a nonprofit mutual benefit corporation, an amendment to change status to a nonprofit mutual benefit corporation shall be approved by the outstanding shares of each class regardless of limitations or restrictions on their voting rights. (Amended by Stats. 2014, Ch. 694, Sec. 48. (SB 1301) Effective January 1, 2015.)
  3. 3002.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 6. Amendment of Articles [3000 - 3002] ( Chapter 6 added by Stats. 2011, Ch. 740, Sec. 12. )

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    A social purpose corporation may change into a business corporation by amending its articles, but the amendment must revise the purpose statement and, if shares have been issued, get the required shareholder vote.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 6. Amendment of Articles [3000 - 3002] ( Chapter 6 added by Stats. 2011, Ch. 740, Sec. 12. ) ## 3002. (a) A social purpose corporation may, by amendment of its articles pursuant to this section, change its status to that of a business corporation. (b) The amendment of the articles to change status to a business corporation shall revise the statement of purpose to delete any provisions in the articles that are permitted by Section 2602, but that are not permitted to be in the articles of a domestic corporation. (c) If shares have been issued, an amendment to change status to a business corporation shall be approved by an affirmative vote of at least two-thirds of the outstanding shares of each class, or a greater vote if required in the articles, regardless of whether that class is entitled to vote thereon by the provisions of the articles. If the status change is approved, shareholders with dissenting shares, as defined in subdivision (b) of Section 1300, may exercise dissenters’ rights pursuant to Section 3305 and Chapter 13 (commencing with Section 1300) of Division 1. (d) If an amendment pursuant to this section is included in a merger agreement, the provisions of this section shall apply, except that any provision for cancellation or conversion of shares shall be in the merger agreement rather than in the amendment of the articles. (Amended by Stats. 2014, Ch. 694, Sec. 49. (SB 1301) Effective January 1, 2015.)
  4. 301.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. )

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    Directors are elected at each annual shareholders’ meeting and generally serve until the next annual meeting, unless Section 301.5 applies or the articles set a shorter term for a voting shift.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. ) ## 301. (a) Except as provided in Section 301.5, at each annual meeting of shareholders, directors shall be elected to hold office until the next annual meeting. However, to effectuate a voting shift (Section 194.7) the articles may provide that directors hold office for a shorter term. The articles may provide for the election of one or more directors by the holders of the shares of any class or series voting as a class or series. (b) Each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified. (Amended by Stats. 1989, Ch. 876, Sec. 1.)
  5. 301.3.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. )

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    Certain publicly held corporations with principal executive offices in California must have minimum numbers of female directors by the stated deadlines.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. ) ## 301.3. (a) No later than the close of the 2019 calendar year, a publicly held domestic or foreign corporation whose principal executive offices, according to the corporation’s SEC 10-K form, are located in California shall have a minimum of one female director on its board. A corporation may increase the number of directors on its board to comply with this section. (b) No later than the close of the 2021 calendar year, a publicly held domestic or foreign corporation whose principal executive offices, according to the corporation’s SEC 10-K form, are located in California shall comply with the following: (1) If its number of directors is six or more, the corporation shall have a minimum of three female directors. (2) If its number of directors is five, the corporation shall have a minimum of two female directors. (3) If its number of directors is four or fewer, the corporation shall have a minimum of one female director. (c) No later than July 1, 2019, the Secretary of State shall publish a report on its internet website documenting the number of domestic and foreign corporations whose principal executive offices, according to the corporation’s SEC 10-K form, are located in California and who have at least one female director. (d) No later than March 1, 2020, and annually thereafter, the Secretary of State shall publish a report on its internet website regarding, at a minimum, information required by subdivision (c) of Section 301.4 and all of the following: (1) The number of corporations subject to this section that were in compliance with the requirements of this section during at least one point during the preceding calendar year. (2) The number of publicly held corporations that moved their United States headquarters to California from another state or out of California into another state during the preceding calendar year. (3) The number of publicly held corporations that were subject to this section during the preceding year, but are no longer publicly traded. (e) (1) The Secretary of State may adopt regulations to implement this section. The Secretary of State may impose fines for violations of this section as follows: (A) For failure to timely file board member information with the Secretary of State pursuant to a regulation adopted pursuant to this paragraph, the amount of one hundred thousand dollars ($100,000). (B) For a first violation, the amount of one hundred thousand dollars ($100,000). (C) For a second or subsequent violation, the amount of three hundred thousand dollars ($300,000). (2) For the purposes of this subdivision, each director seat required by this section to be held by a female, which is not held by a female during at least a portion of a calendar year, shall count as a violation. (3) For purposes of this subdivision, a female director having held a seat for at least a portion of the year shall not be a violation. (4) Fines collected pursuant to this section shall be available, upon appropriation by the Legislature, for use by the Secretary of State to offset the cost of administering this section. (f) For purposes of this section, the following definitions apply: (1) “Female” means an individual who self-identifies her gender as a woman, without regard to the individual’s designated sex at birth. (2) “Publicly held corporation” means a corporation with outstanding shares listed on a major United States stock exchange. (Amended by Stats. 2020, Ch. 316, Sec. 2. (AB 979) Effective January 1, 2021.)
  6. 301.4.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. )

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    Certain publicly held corporations with principal executive offices in California must maintain minimum board representation from underrepresented communities by the stated deadlines.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. ) ## 301.4. (a) No later than the close of the 2021 calendar year, a publicly held domestic or foreign corporation whose principal executive offices, according to the corporation’s SEC 10-K form, are located in California shall have a minimum of one director from an underrepresented community on its board. A corporation may increase the number of directors on its board to comply with this section. (b) No later than the close of the 2022 calendar year, a publicly held domestic or foreign corporation whose principal executive offices, according to the corporation’s SEC 10-K form, are located in California shall comply with the following: (1) If its number of directors is nine or more, the corporation shall have a minimum of three directors from underrepresented communities. (2) If its number of directors is more than four but fewer than nine, the corporation shall have a minimum of two directors from underrepresented communities. (3) If its number of directors is four or fewer, the corporation shall have a minimum of one director from an underrepresented community. (c) No later than March 1, 2022, and annually thereafter, the Secretary of State shall include in its report required by subdivision (d) of Section 301.3, at a minimum, all of the following: (1) The number of corporations subject to this section that were in compliance with the requirements of this section during at least one point during the preceding calendar year. (2) The number of publicly held corporations that moved their United States headquarters to California from another state or out of California into another state during the preceding calendar year. (3) The number of publicly held corporations that were subject to this section during the preceding year, but are no longer publicly traded. (d) (1) The Secretary of State may adopt regulations to implement this section. The Secretary of State may impose fines for violations of this section as follows: (A) For failure to timely file board member information with the Secretary of State pursuant to a regulation adopted pursuant to this paragraph, the amount of one hundred thousand dollars ($100,000). (B) For a first violation, as described in paragraph (2), the amount of one hundred thousand dollars ($100,000). (C) For a second or subsequent violation, as described in paragraph (2), the amount of three hundred thousand dollars ($300,000). (2) For the purposes of this subdivision, both of the following apply: (A) Each director seat required by this section to be held by a director from an underrepresented community, which is not held by a director from an underrepresented community during at least a portion of a calendar year, shall count as a violation. (B) A director from an underrepresented community having held a seat for at least a portion of the year shall not be a violation. (3) Fines collected pursuant to this section shall be available, upon appropriation by the Legislature, for use by the Secretary of State to offset the cost of administering this section. (e) For purposes of this section, the following definitions apply: (1) “Director from an underrepresented community” means an individual who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or who self-identifies as gay, lesbian, bisexual, or transgender. (2) “Publicly held corporation” means a corporation with outstanding shares listed on a major United States stock exchange. (Added by Stats. 2020, Ch. 316, Sec. 3. (AB 979) Effective January 1, 2021.)
  7. 301.5.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. )

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    This section lets listed corporations, and some corporations before they become listed, adopt charter or bylaw provisions to classify directors into two or three classes or eliminate cumulative voting, subject to approval and filing conditions.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. ) ## 301.5. (a) A listed corporation may, by amendment of its articles or bylaws, adopt provisions to divide the board of directors into two or three classes to serve for terms of two or three years respectively, or to eliminate cumulative voting, or both. After the issuance of shares, a corporation that is not a listed corporation may, by amendment of its articles or bylaws, adopt provisions to be effective when the corporation becomes a listed corporation to divide the board of directors into two or three classes to serve for terms of two or three years respectively, or to eliminate cumulative voting, or both. An article or bylaw amendment providing for division of the board of directors into classes, or any change in the number of classes, or the elimination of cumulative voting may only be adopted by the approval of the board and the outstanding shares (Section 152) voting as a single class, notwithstanding Section 903. (b) If the board of directors is divided into two classes pursuant to subdivision (a), the authorized number of directors shall be no less than six and one-half of the directors or as close an approximation as possible shall be elected at each annual meeting of shareholders. If the board of directors is divided into three classes, the authorized number of directors shall be no less than nine and one-third of the directors or as close an approximation as possible shall be elected at each annual meeting of shareholders. Directors of a listed corporation may be elected by classes at a meeting of shareholders at which an amendment to the articles or bylaws described in subdivision (a) is approved, but the extended terms for directors are contingent on that approval, and in the case of an amendment to the articles, the filing of any necessary amendment to the articles pursuant to Section 905 or 910. (c) If directors for more than one class are to be elected by the shareholders at any one meeting of shareholders and the election is by cumulative voting pursuant to Section 708, votes may be cumulated only for directors to be elected within each class. (d) For purposes of this section, a “listed corporation” means a corporation with outstanding shares listed on the New York Stock Exchange, the NYSE American, the NASDAQ Global Market, or the NASDAQ Capital Market. (e) Subject to subdivision (h), if a listed corporation having a board of directors divided into classes pursuant to subdivision (a) ceases to be a listed corporation for any reason, unless the articles of incorporation or bylaws of the corporation provide for the elimination of classes of directors at an earlier date or dates, the board of directors of the corporation shall cease to be divided into classes as to each class of directors on the date of the expiration of the term of the directors in that class and the term of each director serving at the time the corporation ceases to be a listed corporation (and the term of each director elected to fill a vacancy resulting from the death, resignation, or removal of any of those directors) shall continue until its expiration as if the corporation had not ceased to be a listed corporation. (f) Subject to subdivision (h), if a listed corporation having a provision in its articles or bylaws eliminating cumulative voting pursuant to subdivision (a) or permitting noncumulative voting in the election of directors pursuant to that subdivision, or both, ceases to be a listed corporation for any reason, the shareholders shall be entitled to cumulate their votes pursuant to Section 708 at any election of directors occurring while the corporation is not a listed corporation notwithstanding that provision in its articles of incorporation or bylaws. (g) Subject to subdivision (i), if a corporation that is not a listed corporation adopts amendments to its articles of incorporation or bylaws to divide its board of directors into classes or to eliminate cumulative voting, or both, pursuant to subdivision (a) and then becomes a listed corporation, unless the articles of incorporation or bylaws provide for those provisions to become effective at some other time and, in cases where classes of directors are provided for, identify the directors who, or the directorships that, are to be in each class or the method by which those directors or directorships are to be identified, the provisions shall become effective for the next election of directors after the corporation becomes a listed corporation at which all directors are to be elected. (h) If a corporation ceases to be a listed corporation on or after the record date for a meeting of shareholders and before the conclusion of the meeting, including the conclusion of the meeting after an adjournment or postponement that does not require or result in the setting of a new record date, then, solely for purposes of subdivisions (e) and (f), the corporation shall not be deemed to have ceased to be a listed corporation until the conclusion of the meeting of shareholders. (i) If a corporation becomes a listed corporation on or after the record date for a meeting of shareholders and before the conclusion of the meeting, including the conclusion of the meeting after an adjournment or postponement that does not require or result in the setting of a new record date, then, solely for purposes of subdivision (g), the corporation shall not be deemed to have become a listed corporation until the conclusion of the meeting of shareholders. (j) If an article amendment referred to in subdivision (a) is adopted by a listed corporation, the certificate of amendment shall include a statement of the facts showing that the corporation is a listed corporation within the meaning of subdivision (d). If an article or bylaw amendment referred to in subdivision (a) is adopted by a corporation which is not a listed corporation, the provision, as adopted, shall include the following statement or the substantial equivalent: “This provision shall become effective only when the corporation becomes a listed corporation within the meaning of Section 301.5 of the Corporations Code.” (Amended by Stats. 2022, Ch. 617, Sec. 9. (SB 1202) Effective January 1, 2023.)
  8. 301.7.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. )

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    Some listed corporations with golf-and-tennis recreation businesses may amend their articles or bylaws to split the board into two classes, if specific ownership and housing conditions are met and the required approvals are obtained.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. ) ## 301.7. (a) A listed corporation engaged in business limited to the operation and maintenance of a recreation venture having golf and tennis facilities and ancillary dining and beverage services may, by amendment of its articles or bylaws, adopt provisions allowing division of its board of directors into two classes, with one-half of the directors or as close an approximation as possible to be elected at each annual meeting of shareholders, provided that the corporation’s bylaws or articles limit each holder of the securities to no more than five shares and require some of those holders to occupy dwellings immediately contiguous to the real property of the corporation. An article or bylaw amendment providing for division of the board of directors into classes may only be adopted by the approval of the board and the outstanding shares (Section 152) voting as a single class, notwithstanding Section 903. Directors of a listed corporation that meet these conditions may be elected by classes at a meeting of shareholders at which an amendment to the articles or bylaws described in this paragraph is approved, but the extended terms for directors are contingent on that approval, and in the case of an amendment to the articles, the filing of any necessary amendment to the articles pursuant to Section 905 or 910. (b) For purposes of this section, a “listed corporation” means a corporation described in subdivision (d) of Section 301.5. (c) If an article amendment referred to in subdivision (a) is adopted by a listed corporation, the certificate of amendment shall include a statement of the facts showing that the corporation is a listed corporation within the meaning of subdivision (b). (Amended by Stats. 2009, Ch. 131, Sec. 2. (AB 991) Effective January 1, 2010.)
  9. 301.9.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. )

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    A mutual water company may elect directors to staggered four-year terms if its articles or bylaws allow it, and it must notify shareholders before any lot-based term determination election.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. ) ## 301.9. Notwithstanding Section 301, a mutual water company organized under this division may elect directors to serve staggered four-year terms if authorized in the corporation’s articles of incorporation or bylaws. Upon the initial election of directors to staggered terms, the elected directors shall determine by lot who among them shall serve initial two-year terms and who among them shall serve four-year terms. Prior to any election in which the terms of elected directors shall be determined by lot, the mutual water company shall notify its shareholders that the terms of the directors elected shall be determined among those directors by lot. (Added by Stats. 2011, Ch. 89, Sec. 1. (SB 918) Effective January 1, 2012.)
  10. 302.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. )

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    The board may declare a director’s office vacant if the director has been found of unsound mind by a court or convicted of a felony.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. ) ## 302. The board may declare vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony. (Repealed and added by Stats. 1975, Ch. 682.)
  11. 303.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. )

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    Directors may be removed without cause only if the removal is approved by the outstanding shares, but several voting-based exceptions limit removal.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. ) ## 303. (a) Any or all of the directors may be removed without cause if the removal is approved by the outstanding shares (Section 152), subject to the following: (1) Except for a corporation to which paragraph (3) is applicable, no director may be removed (unless the entire board is removed) when the votes cast against removal, or not consenting in writing to the removal, would be sufficient to elect the director if voted cumulatively at an election at which the same total number of votes were cast (or, if the action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of the director’s most recent election were then being elected. (2) When by the provisions of the articles the holders of the shares of any class or series, voting as a class or series, are entitled to elect one or more directors, any director so elected may be removed only by the applicable vote of the holders of the shares of that class or series. (3) A director of a corporation whose board of directors is classified pursuant to Section 301.5 may not be removed if the votes cast against removal of the director, or not consenting in writing to the removal, would be sufficient to elect the director if voted cumulatively (without regard to whether shares may otherwise be voted cumulatively) at an election at which the same total number of votes were cast (or, if the action is taken by written consent, all shares entitled to vote were voted) and either the number of directors elected at the most recent annual meeting of shareholders, or if greater, the number of directors for whom removal is being sought, were then being elected. (b) Any reduction of the authorized number of directors or amendment reducing the number of classes of directors does not remove any director prior to the expiration of the director’s term of office. (c) Except as provided in this section and Sections 302 and 304, a director may not be removed prior to the expiration of the director’s term of office. (Amended by Stats. 1989, Ch. 876, Sec. 3.)
  12. 304.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. )

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    A superior court may remove a director on a shareholder suit if the director engaged in fraudulent or dishonest acts or gross abuse of authority or discretion, and may also bar that director from reelection.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. ) ## 304. The superior court of the proper county may, at the suit of shareholders holding at least 10 percent of the number of outstanding shares of any class, remove from office any director in case of fraudulent or dishonest acts or gross abuse of authority or discretion with reference to the corporation and may bar from reelection any director so removed for a period prescribed by the court. The corporation shall be made a party to such action. (Repealed and added by Stats. 1975, Ch. 682.)
  13. 305.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. )

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    This section lets the board, shareholders, or a court fill board vacancies, and lets directors resign by written notice.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. ) ## 305. (a) Unless otherwise provided in the articles or bylaws and except for a vacancy created by the removal of a director, vacancies on the board may be filled by approval of the board (Section 151) or, if the number of directors then in office is less than a quorum, by (1) the unanimous written consent of the directors then in office, (2) the affirmative vote of a majority of the directors then in office at a meeting held pursuant to notice or waivers of notice complying with Section 307 or (3) a sole remaining director. Unless the articles or a bylaw adopted by the shareholders provide that the board may fill vacancies occurring in the board by reason of the removal of directors, such vacancies may be filled only by approval of the shareholders (Section 153). (b) The shareholders may elect a director at any time to fill any vacancy not filled by the directors. Any such election by written consent other than to fill a vacancy created by removal, which requires the unanimous consent of all shares entitled to vote for the election of directors, requires the consent of a majority of the outstanding shares entitled to vote. (c) If, after the filling of any vacancy by the directors, the directors then in office who have been elected by the shareholders shall constitute less than a majority of the directors then in office, then both of the following shall be applicable: (1) Any holder or holders of an aggregate of 5 percent or more of the total number of shares at the time outstanding having the right to vote for those directors may call a special meeting of shareholders, or (2) The superior court of the proper county shall, upon application of such shareholder or shareholders, summarily order a special meeting of shareholders, to be held to elect the entire board. The term of office of any director shall terminate upon that election of a successor. The hearing on any application filed pursuant to this subdivision shall be held on not less than 10 business days notice to the corporation. If the corporation intends to oppose the application, it shall file with the court a notice of opposition not later than five business days prior to the date set for the hearing. The application and any notice of opposition shall be supported by appropriate affidavits and the court’s determination shall be made on the basis of the papers in the record; but, for good cause shown, the court may receive and consider at the hearing additional evidence, oral or documentary, and additional points and authorities. The hearing shall take precedence over all other matters not of a similar nature pending on the date set for the hearing. (d) Any director may resign effective upon giving written notice to the chairperson of the board, the president, the secretary or the board of directors of the corporation, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective. (Amended by Stats. 2015, Ch. 98, Sec. 3. (SB 351) Effective January 1, 2016.)
  14. 306.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. )

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    A county superior court may appoint directors for a corporation if the section’s conditions are met and a party in interest applies.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. ) ## 306. If (a) a corporation has not issued shares and all the directors resign, die, or become incompetent, or (b) a corporation’s initial directors have not been named in the articles, and all the incorporators resign, die, or become incompetent prior to the election of the initial directors, the superior court of any county may appoint directors of the corporation upon application by any party in interest. (Amended by Stats. 2000, Ch. 485, Sec. 6. Effective January 1, 2001.)
  15. 307.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. )

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    This section sets rules for California corporate board meetings, including who may call meetings, notice for special meetings, quorum rules, remote participation, adjournments, and written consent without a meeting.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. ) ## 307. (a) Unless otherwise provided in the articles or, subject to paragraph (5) of subdivision (a) of Section 204, in the bylaws, all of the following apply: (1) Meetings of the board may be called by the chairperson of the board or the president or any vice president or the secretary or any two directors. (2) Regular meetings of the board may be held without notice if the time and place of the meetings are fixed by the bylaws or the board. Special meetings of the board shall be held upon four days’ notice by mail or 48 hours’ notice delivered personally or by telephone, including a voice messaging system or by electronic transmission by the corporation (Section 20). The articles or bylaws may not dispense with notice of a special meeting. A notice, or waiver of notice, need not specify the purpose of any regular or special meeting of the board. (3) Notice of a meeting need not be given to a director who provides a waiver of notice or a consent to holding the meeting or an approval of the minutes thereof in writing, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to that director. These waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. (4) A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another time and place. If the meeting is adjourned for more than 24 hours, notice of an adjournment to another time or place shall be given prior to the time of the adjourned meeting to the directors who were not present at the time of the adjournment. (5) Meetings of the board may be held at a place within or without the state that has been designated in the notice of the meeting or, if not stated in the notice or there is no notice, designated in the bylaws or by resolution of the board. (6) Members of the board may participate in a meeting through use of conference telephone, electronic video screen communication, or electronic transmission by and to the corporation (Sections 20 and 21). Participation in a meeting through use of conference telephone or electronic video screen communication pursuant to this subdivision constitutes presence in person at that meeting as long as all members participating in the meeting are able to hear one another. Participation in a meeting through electronic transmission by and to the corporation (other than conference telephone and electronic video screen communication), pursuant to this subdivision constitutes presence in person at that meeting if both of the following apply: (A) Each member participating in the meeting can communicate with all of the other members concurrently. (B) Each member is provided the means of participating in all matters before the board, including, without limitation, the capacity to propose, or to interpose an objection to, a specific action to be taken by the corporation. (7) A majority of the authorized number of directors constitutes a quorum of the board for the transaction of business. The articles or bylaws may not provide that a quorum shall be less than one-third the authorized number of directors or less than two, whichever is larger, unless the authorized number of directors is one, in which case one director constitutes a quorum. (8) An act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present is the act of the board, subject to the provisions of Section 310 and subdivision (e) of Section 317. The articles or bylaws may not provide that a lesser vote than a majority of the directors present at a meeting is the act of the board. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting. (b) An action required or permitted to be taken by the board may be taken without a meeting, if all members of the board shall individually or collectively consent in writing to that action and if the number of members of the board serving at the time constitutes a quorum. The written consent or consents shall be filed with the minutes of the proceedings of the board. For purposes of this subdivision only, “all members of the board” shall include an “interested director” as described in subdivision (a) of Section 310 or a “common director” as described in subdivision (b) of Section 310 who abstains in writing from providing consent, where the disclosures required by Section 310 have been made to the noninterested or noncommon directors, as applicable, prior to their execution of the written consent or consents, the specified disclosures are conspicuously included in the written consent or consents executed by the noninterested or noncommon directors, and the noninterested or noncommon directors, as applicable, approve the action by a vote that is sufficient without counting the votes of the interested or common directors. If written consent is provided by the directors in accordance with the immediately preceding sentence and the disclosures made regarding the action that is the subject of the consent do not comply with the requirements of Section 310, the action that is the subject of the consent shall be deemed approved, but in any suit brought to challenge the action, the party asserting the validity of the action shall have the burden of proof in establishing that the action was just and reasonable to the corporation at the time it was approved. (c) This section applies also to committees of the board and incorporators and action by those committees and incorporators, mutatis mutandis. (Amended by Stats. 2015, Ch. 98, Sec. 4. (SB 351) Effective January 1, 2016.)
  16. 308.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. )

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    A court may appoint a provisional director when a corporation’s directors or shareholders are deadlocked, and the provisional director has the rights and powers of a director until the deadlock ends or the court removes them.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. ) ## 308. (a) If a corporation has an even number of directors who are equally divided and cannot agree as to the management of its affairs, so that its business can no longer be conducted to advantage or so that there is danger that its property and business will be impaired or lost, the superior court of the proper county may, notwithstanding any provisions of the articles or bylaws and whether or not an action is pending for an involuntary winding up or dissolution of the corporation, appoint a provisional director pursuant to this section. Action for such appointment may be brought by any director or by the holders of not less than 331/3 percent of the voting power. (b) If the shareholders of a corporation are deadlocked so that they cannot elect the directors to be elected at an annual meeting of shareholders, the superior court of the proper county may, notwithstanding any provisions of the articles or bylaws, upon petition of a shareholder or shareholders holding 50 percent of the voting power, appoint a provisional director or directors pursuant to this section or order such other equitable relief as the court deems appropriate. (c) A provisional director shall be an impartial person, who is neither a shareholder nor a creditor of the corporation, nor related by consanguinity or affinity within the third degree according to the common law to any of the other directors of the corporation or to any judge of the court by which such provisional director is appointed. A provisional director shall have all the rights and powers of a director until the deadlock in the board or among shareholders is broken or until such provisional director is removed by order of the court or by approval of the outstanding shares (Section 152). Such person shall be entitled to such compensation as shall be fixed by the court unless otherwise agreed with the corporation. (d) This section does not apply to corporations subject to the Public Utilities Act (Part 1 (commencing with Section 201) of Division 1 of the Public Utilities Code). (Amended by Stats. 1995, Ch. 154, Sec. 3. Effective January 1, 1996.)
  17. 309.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. )

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    Directors must act in good faith, in the corporation’s and shareholders’ best interests, and with ordinary prudent care; they may rely on certain information sources when doing so.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. ) ## 309. (a) A director shall perform the duties of a director, including duties as a member of any committee of the board upon which the director may serve, in good faith, in a manner such director believes to be in the best interests of the corporation and its shareholders and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances. (b) In performing the duties of a director, a director shall be entitled to rely on information, opinions, reports or statements, including financial statements and other financial data, in each case prepared or presented by any of the following: (1) One or more officers or employees of the corporation whom the director believes to be reliable and competent in the matters presented. (2) Counsel, independent accountants or other persons as to matters which the director believes to be within such person’s professional or expert competence. (3) A committee of the board upon which the director does not serve, as to matters within its designated authority, which committee the director believes to merit confidence, so long as, in any such case, the director acts in good faith, after reasonable inquiry when the need therefor is indicated by the circumstances and without knowledge that would cause such reliance to be unwarranted. (c) A person who performs the duties of a director in accordance with subdivisions (a) and (b) shall have no liability based upon any alleged failure to discharge the person’s obligations as a director. In addition, the liability of a director for monetary damages may be eliminated or limited in a corporation’s articles to the extent provided in paragraph (10) of subdivision (a) of Section 204. (Amended by Stats. 1987, Ch. 1203, Sec. 2. Effective September 27, 1987.)
  18. 310.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. )

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    Certain corporation-director transactions are not automatically void or voidable if the required disclosures and approvals are made, and interested or common directors may be counted for quorum.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. ) ## 310. (a) No contract or other transaction between a corporation and one or more of its directors, or between a corporation and any corporation, firm or association in which one or more of its directors has a material financial interest, is either void or voidable because such director or directors or such other corporation, firm or association are parties or because such director or directors are present at the meeting of the board or a committee thereof which authorizes, approves or ratifies the contract or transaction, if (1) The material facts as to the transaction and as to such director’s interest are fully disclosed or known to the shareholders and such contract or transaction is approved by the shareholders (Section 153) in good faith, with the shares owned by the interested director or directors not being entitled to vote thereon, or (2) The material facts as to the transaction and as to such director’s interest are fully disclosed or known to the board or committee, and the board or committee authorizes, approves or ratifies the contract or transaction in good faith by a vote sufficient without counting the vote of the interested director or directors and the contract or transaction is just and reasonable as to the corporation at the time it is authorized, approved or ratified, or (3) As to contracts or transactions not approved as provided in paragraph (1) or (2) of this subdivision, the person asserting the validity of the contract or transaction sustains the burden of proving that the contract or transaction was just and reasonable as to the corporation at the time it was authorized, approved or ratified. A mere common directorship does not constitute a material financial interest within the meaning of this subdivision. A director is not interested within the meaning of this subdivision in a resolution fixing the compensation of another director as a director, officer or employee of the corporation, notwithstanding the fact that the first director is also receiving compensation from the corporation. (b) No contract or other transaction between a corporation and any corporation or association of which one or more of its directors are directors is either void or voidable because such director or directors are present at the meeting of the board or a committee thereof which authorizes, approves or ratifies the contract or transaction, if (1) The material facts as to the transaction and as to such director’s other directorship are fully disclosed or known to the board or committee, and the board or committee authorizes, approves or ratifies the contract or transaction in good faith by a vote sufficient without counting the vote of the common director or directors or the contract or transaction is approved by the shareholders (Section 153) in good faith, or (2) As to contracts or transactions not approved as provided in paragraph (1) of this subdivision, the contract or transaction is just and reasonable as to the corporation at the time it is authorized, approved or ratified. This subdivision does not apply to contracts or transactions covered by subdivision (a). (c) Interested or common directors may be counted in determining the presence of a quorum at a meeting of the board or a committee thereof which authorizes, approves or ratifies a contract or transaction. (Amended by Stats. 1976, Ch. 641.)
  19. 3100.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 7. Sales of Assets [3100- 3100.] ( Chapter 7 added by Stats. 2011, Ch. 740, Sec. 12. )

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    A social purpose corporation may dispose of substantially all of its assets only with board approval and the required shareholder vote; special higher-vote rules apply in some control transactions, and the board may abandon the deal before completion.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 7. Sales of Assets [3100- 3100.] ( Chapter 7 added by Stats. 2011, Ch. 740, Sec. 12. ) ## 3100. (a) A social purpose corporation may sell, lease, convey, exchange, transfer, or otherwise dispose of all or substantially all of its assets when the principal terms of the transaction are approved by the board and are approved by an affirmative vote of at least two-thirds of the outstanding shares of each class, or a greater vote if required in the articles, regardless of whether that class is entitled to vote thereon by the provisions of the articles, either before or after approval by the board and before the transaction. A transaction constituting a reorganization shall be subject to Chapter 12 (commencing with Section 1200) of Division 1 and Chapter 10 (commencing with Section 3400) of this division and shall not be subject to this section, other than subdivision (d). A transaction constituting a conversion shall be subject to Chapter 11.5 (commencing with Section 1150) of Division 1 and Chapter 9 (commencing with Section 3300) of this division and shall not be subject to this section. (b) Notwithstanding approval of two-thirds of the outstanding shares, the board may abandon the proposed transaction without further action by the shareholders, subject to the contractual rights, if any, of third parties. (c) The sale, lease, conveyance, exchange, transfer, or other disposition may be made upon those terms and conditions and for that consideration as the board may deem in the best interests of the social purpose corporation. The consideration may be money, securities, or other property. (d) If the acquiring party in a transaction pursuant to subdivision (a) or subdivision (g) of Section 2001 is in control of or under common control with the disposing social purpose corporation, the principal terms of the sale shall be approved by at least 90 percent of the voting power of the disposing social purpose corporation unless the disposition is to a domestic or foreign other business entity or social purpose corporation, the articles of incorporation of which specify materially the same purposes, in consideration of the nonredeemable common shares or nonredeemable equity securities of the acquiring party or its parent. (e) Subdivision (d) shall not apply to a transaction if the Commissioner of Financial Protection and Innovation, the Insurance Commissioner, or the Public Utilities Commission has approved the terms and conditions of the transaction and the fairness of those terms and conditions pursuant to Section 25142, Section 1209 of the Financial Code, Section 838.5 of the Insurance Code, or Section 822 of the Public Utilities Code. (Amended by Stats. 2022, Ch. 452, Sec. 52. (SB 1498) Effective January 1, 2023.)
  20. 31000.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. )

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    This division may be called the Franchise Investment Law.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. ) ## 31000. This division may be known as the “Franchise Investment Law.” References in this division to “this law” refer to the applicable provisions of this division. (Added by Stats. 1970, Ch. 1400.)
  21. 31001.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. )

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    This section says franchise sales have caused problems and states the law’s goals are to give prospective franchisees needed information and to stop franchise sales that could lead to fraud or unfulfilled promises.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. ) ## 31001. The Legislature hereby finds and declares that the widespread sale of franchises is a relatively new form of business which has created numerous problems both from an investment and a business point of view in the State of California. Prior to the enactment of this division, the sale of franchises was regulated only to the limited extent to which the Corporate Securities Law of 1968 applied to those transactions. California franchisees have suffered substantial losses where the franchisor or his or her representative has not provided full and complete information regarding the franchisor-franchisee relationship, the details of the contract between franchisor and franchisee, and the prior business experience of the franchisor. It is the intent of this law to provide each prospective franchisee with the information necessary to make an intelligent decision regarding franchises being offered. Further, it is the intent of this law to prohibit the sale of franchises where the sale would lead to fraud or a likelihood that the franchisor’s promises would not be fulfilled, and to protect the franchisor and franchisee by providing a better understanding of the relationship between the franchisor and franchisee with regard to their business relationship. (Amended by Stats. 2004, Ch. 458, Sec. 1. Effective September 10, 2004. Operative January 1, 2005, by Sec. 19 of Ch. 458.)
  22. 31001.1.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. )

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    The commissioner must use a risk-based process when reviewing franchise applications and filings.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. ) ## 31001.1. (a) To enhance the uniform and efficient administration, and the effective enforcement, of this division, it is the intent of the Legislature that the commissioner shall maintain a risk-based process of reviewing franchise applications as described in this section. (b) Under the risk-based review process, the commissioner shall focus on reviewing application information posing the most risk to prospective franchisees in accordance with Section 31115, with emphasis on risks associated with the franchisor’s financial condition, the franchisor’s compliance record, and significant deficiencies with the franchisor’s application. (c) When reviewing franchise filings under this section, the commissioner shall concentrate on helping to prevent misappropriation, mismanagement, and misrepresentation in connection with the offer or sale of any franchise subject to this division. (d) The commissioner shall consider guidelines, or other information developed by the North American Securities Administrators Association that are in effect, to assist in the implementation of the risk-based review process. The risk-based review procedures implemented by the commissioner shall be considered internal management criteria and guidelines within the meaning of subdivisions (d) and (e) of Section 11340.9 of the Government Code. (Added by Stats. 2004, Ch. 458, Sec. 2. Effective September 10, 2004. Operative January 1, 2005, by Sec. 19 of Ch. 458.)
  23. 31002.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    The definitions in this part apply throughout this division unless the context requires otherwise.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. ) ## 31002. Unless the context otherwise requires, the definitions in this part apply throughout this division. (Added by Stats. 1970, Ch. 1400.)
  24. 31003.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    This section defines “advertisement” for the franchise investment law.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. ) ## 31003. “Advertisement” means any written or printed communication or any communication by means of recorded telephone messages or spoken on radio, television, or similar communications media, published in connection with an offer or sale of a franchise. (Added by Stats. 1970, Ch. 1400.)
  25. 31003.5.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    “Business days” means all days except Saturdays, Sundays, and holidays specified or provided for in the Government Code.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. ) ## 31003.5. “Business days” are all days other than every Saturday, every Sunday, and such other days as are specified or provided for as holidays in the Government Code. (Added by Stats. 1973, Ch. 539.)
  26. 31004.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    This section defines “Commissioner” as the Commissioner of Financial Protection and Innovation.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. ) ## 31004. “Commissioner” means the Commissioner of Financial Protection and Innovation. (Amended by Stats. 2022, Ch. 728, Sec. 5. (AB 676) Effective January 1, 2023.)
  27. 31005.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    This section defines “franchise” and lists what counts as a franchise, including certain petroleum-related agreements, and what does not count.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. ) ## 31005. (a) “Franchise” means a contract or agreement, either expressed or implied, whether oral or written, between two or more persons by which: (1) A franchisee is granted the right to engage in the business of offering, selling or distributing goods or services under a marketing plan or system prescribed in substantial part by a franchisor; and (2) The operation of the franchisee’s business pursuant to such plan or system is substantially associated with the franchisor’s trademark, service mark, trade name, logotype, advertising or other commercial symbol designating the franchisor or its affiliate; and (3) The franchisee is required to pay, directly or indirectly, a franchise fee. (b) For the purposes of this division, the term “franchise” also means the following: (1) Any contractual agreement between a petroleum corporation or distributor and a gasoline dealer, or between a petroleum corporation and distributor, under which the petroleum distributor or the gasoline dealer is granted the right to use a trademark, trade name, service mark, or other identifying symbol or name owned by the other party to the agreement, or any agreement between a petroleum corporation or distributor and a gasoline dealer, or between a petroleum corporation and distributor, under which the petroleum distributor or the gasoline dealer is granted the right to occupy premises owned, leased, or controlled by the other party to the agreement, for the purposes of engaging in the retail sale of petroleum and other products of the other party to the agreement. (2) Any contract between a refiner and a petroleum distributor, between a refiner and a petroleum retailer, between a petroleum distributor and another petroleum distributor, or between a petroleum distributor and a petroleum retailer, under which a refiner or petroleum distributor authorizes or permits a petroleum retailer or petroleum distributor to use, in connection with the sale, consignment, or distribution of gasoline, diesel, gasohol, or aviation fuel, a trademark which is owned or controlled by such refiner or by a refiner which supplies fuel to the petroleum distributor which authorizes or permits such use. The term “franchise” as defined in this paragraph includes the following: (A) Any contract under which a petroleum retailer or petroleum distributor is authorized or permitted to occupy leased marketing premises, which premises are to be employed in connection with the sale, consignment, or distribution of fuel under a trademark which is owned or controlled by such refiner or by a refiner which supplies fuel to the petroleum distributor which authorizes or permits such occupancy. (B) Any contract pertaining to the supply of fuel which is to be sold, consigned, or distributed under a trademark owned or controlled by a refiner, or under a contract which has existed continuously since May 15, 1973, and pursuant to which, on May 15, 1973, fuel was sold, consigned, or distributed under a trademark owned and controlled on such date by a refiner. (C) The unexpired portion of any franchise, as defined by the preceding provisions of this subdivision, which is transferred or assigned as authorized by the provisions of such franchise or by any applicable provision of state law which permits such transfer or assignment without regard to any provision of the franchise. (c) For purposes of this division, the term “franchise” does not include a nonprofit organization operated on a cooperative basis by and for independent retailers which wholesales goods and services primarily to its member retailers and to which all of the following is applicable: (1) Control and ownership of each member is substantially equal. (2) Membership is limited to those who will avail themselves of the services furnished by the organization. (3) Transfer of ownership is prohibited or limited. (4) Capital investment receives no return. (5) Substantially equal benefits pass to the members on the basis of patronage of the organization. (6) Members are not personally liable for obligations of the organization in the absence of a direct undertaking or authorization by them. (7) Services of the organization are furnished primarily for the use of the members. (8) Each member and prospective member is provided with an offering circular which complies with the specifications of Section 31111. (9) No part of the receipts, income, or profit of the organization is paid to any profitmaking entity, except for arms-length payments for necessary goods and services, and members are not required to purchase goods or services from any designated profitmaking entity. (d) The nonprofit organization is subject to an action for rescission or damages under Section 3343.7 of the Civil Code if the organization fraudulently induced the plaintiff to join the organization. (Amended by Stats. 1989, Ch. 1380, Sec. 3.)
  28. 31005.5.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    This section defines key terms used in the Franchise Investment Law for petroleum-related franchises.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. ) ## 31005.5. For the purposes of this division and in respect only to a franchise as defined in subdivision (b) of Section 31005, the following terms shall have the following meanings: (a) “Franchisor” means a refiner or petroleum distributor who authorizes or permits, under a franchise, a petroleum retailer or petroleum distributor to use a trademark in connection with the sale, consignment, or distribution of fuel. (b) “Franchisee” means a petroleum retailer or petroleum distributor who is authorized or permitted, under a franchise, to use a trademark in connection with the sale, consignment, or distribution of fuel. (c) “Refiner” means any person engaged in the refining of crude oil to produce fuel, and includes any affiliate of such person. (d) “Petroleum distributor” means any person, including any affiliate of such person, who either purchases fuel for sale, consignment, or distribution to another, or receives fuel on consignment for consignment or distribution to his or her own fuel accounts or to accounts of his or her supplier, but shall not include a person who is an employee of, or merely serves as a common carrier providing transportation service for, such supplier. (e) “Petroleum retailer” means any person who purchases fuel for sale to the general public for ultimate consumption. (f) “Marketing premises” means, in the case of any franchise, premises which, under such franchise, are to be employed by the franchisee in connection with the sale, consignment, or distribution of fuel. (g) “Leased marketing premises” means marketing premises owned, leased, or in any way controlled by a franchisor and which the franchisee is authorized or permitted, under the franchise, to employ in connection with the sale, consignment, or distribution of fuel. (h) “Contract” means any oral or written agreement. For supply purposes, delivery levels during the same month of the previous year shall be prima facie evidence of an agreement to deliver such levels. (i) “Trademark” means any trademark, trade name, service mark, or other identifying symbol or name. (j) “Fuel” means gasoline, diesel, gasohol, or aviation fuel. (k) “Affiliate” means any person who, other than by means of a franchise, controls, is controlled by, or is under common control with, any other person. (l) “Petroleum corporation” means any corporation or person owning, managing, or controlling the exploration, production, processing, transportation, or sale of crude or refined petroleum or any petroleum product. (Added by Stats. 1981, Ch. 90, Sec. 11.)
  29. 31006.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    This section defines “franchisee” as a person to whom a franchise is granted.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. ) ## 31006. A “franchisee” is a person to whom a franchise is granted. (Added by Stats. 1970, Ch. 1400.)
  30. 31007.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    A franchisor is a person who grants a franchise.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. ) ## 31007. A “franchisor” is a person who grants a franchise. (Added by Stats. 1970, Ch. 1400.)
  31. 31008.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    “Area franchise” means a franchise where a franchisee may operate more than one unit in a specified geographical area.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. ) ## 31008. “Area franchise” means any franchise between a franchisor and a franchisee whereby the franchisee is granted the right to operate more than one unit within a specified geographical area. (Amended by Stats. 1988, Ch. 562, Sec. 1.)
  32. 31008.5.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    This section defines “subfranchise.”

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. ) ## 31008.5. “Subfranchise” means any contract or agreement between a franchisor and a subfranchisor whereby the subfranchisor is granted the right, for consideration given in whole or in part for that right, to sell or negotiate the sale of franchises in the name or on behalf of the franchisor. A contract or agreement which is a franchise does not become a subfranchise merely because under its terms a person is granted the right to receive compensation for referrals to a franchisor or subfranchisor or to receive compensation for acting as a sales representative on their behalf. (Added by Stats. 1988, Ch. 562, Sec. 2.)
  33. 31009.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    “Subfranchisor” means a person to whom a subfranchise is granted.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. ) ## 31009. A “subfranchisor” is a person to whom a subfranchise is granted. (Amended by Stats. 1988, Ch. 562, Sec. 3.)
  34. 31010.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    In this law, “franchise” also includes “area franchise” and “subfranchise” unless the text says otherwise.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. ) ## 31010. Where used in this law, unless specifically stated otherwise, “franchise” includes “area franchise” and “subfranchise.” (Amended by Stats. 1988, Ch. 562, Sec. 4.)
  35. 31011.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    This section defines “franchise fee” and lists payments that do not count as one.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. ) ## 31011. “Franchise fee” means any fee or charge that a franchisee or subfranchisor is required to pay or agrees to pay for the right to enter into a business under a franchise agreement, including, but not limited to, any payment for goods and services. However, the following shall not be considered the payment of a franchise fee: (a) The purchase or agreement to purchase goods at a bona fide wholesale price if no obligation is imposed upon the purchaser to purchase or pay for a quantity of the goods in excess of that which a reasonable businessperson normally would purchase by way of a starting inventory or supply or to maintain a going inventory or supply. (b) The payment of a reasonable service charge to the issuer of a credit card by an establishment accepting or honoring that credit card. (c) Amounts paid to a trading stamp company under Chapter 3 (commencing with Section 17750) of Part 3 of Division 7 of the Business and Professions Code by a person issuing trading stamps in connection with the retail sale of merchandise or service. (Amended by Stats. 2002, Ch. 664, Sec. 54. Effective January 1, 2003.)
  36. 31012.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    This section says “fraud” and “deceit” are not limited to common law fraud or deceit.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. ) ## 31012. “Fraud” and “deceit” are not limited to common law fraud or deceit. (Added by Stats. 1970, Ch. 1400.)
  37. 31013.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    This section defines when a franchise offer or sale is treated as made in this state, and gives exceptions for certain publications and out-of-state broadcasts.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. ) ## 31013. (a) An offer or sale of a franchise is made in this state when an offer to sell is made in this state, or an offer to buy is accepted in this state, or if the franchise business is intended to or will be operated in this state. (b) An offer to sell is made in this state when the offer either originates from this state or is directed by the offeror to this state and received at the place to which it is directed. An offer to sell is accepted in this state when acceptance is communicated to the offeror in this state, and acceptance is communicated to the offeror in this state when the offeree directs it to the offeror in this state reasonably believing the offeror to be in this state and it is received at the place to which it is directed. (c) An offer to sell is not made in this state merely because (1) the publisher circulates or there is circulated on their behalf in this state any bona fide newspaper or other publication of general, regular, and paid circulation that has had more than two-thirds of its circulation outside this state during the past 12 months, or (2) a radio or television program originating outside this state is received in this state. (Amended by Stats. 2022, Ch. 728, Sec. 6. (AB 676) Effective January 1, 2023.)
  38. 31014.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    “Order” means a case-specific consent, authorization, approval, prohibition, or requirement issued by the commissioner.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. ) ## 31014. “Order” means a consent, authorization, approval, prohibition or requirement applicable to a specific case issued by the commissioner. (Added by Stats. 1970, Ch. 1400.)
  39. 31015.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    This section defines “person” for this part of the Corporations Code.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. ) ## 31015. “Person” means an individual, a corporation, a partnership, a limited liability company, a joint venture, an association, a joint stock company, a trust or an unincorporated organization. (Amended by Stats. 1994, Ch. 1010, Sec. 95. Effective January 1, 1995.)
  40. 31016.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    “Publish” means publicly issuing or circulating something by newspaper, mail, radio, television, or other means of public dissemination.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. ) ## 31016. “Publish” means publicly to issue or circulate by newspaper, mail, radio or television, or otherwise to disseminate to the public. (Added by Stats. 1970, Ch. 1400.)
  41. 31017.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    “Rule” means a published regulation or standard of general application issued by the commissioner.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. ) ## 31017. “Rule” means any published regulation or standard of general application issued by the commissioner. (Added by Stats. 1970, Ch. 1400.)
  42. 31018.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    This section defines “sale,” “sell,” “offer,” and “offer to sell” for franchise law.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. ) ## 31018. (a) “Sale” or “sell” includes every contract or agreement of sale of, a contract to sell, or disposition of, a franchise or interest in a franchise for value. (b) “Offer” or “offer to sell” includes every attempt to dispose of, or solicitation of an offer to buy, a franchise or interest in a franchise for value. (c) The terms defined in this section do not include the renewal or extension of an existing franchise where there is no interruption in the operation of the franchised business by the franchisee; provided, that a material modification of an existing franchise, whether upon renewal or otherwise, is a “sale” within the meaning of this section. (Amended by Stats. 1977, Ch. 762.)
  43. 31019.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    “State” means any state, territory, or possession of the United States, the District of Columbia, and Puerto Rico.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. ) ## 31019. “State” means any state, territory, or possession of the United States, the District of Columbia and Puerto Rico. (Added by Stats. 1970, Ch. 1400.)
  44. 31020.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    This section defines “franchise broker” and lists who is not included in that definition.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 1. DEFINITIONS [31000 - 31020] ( Part 1 added by Stats. 1970, Ch. 1400. ) ## 31020. (a) “Franchise broker” means a person who directly or indirectly engages in the business of the offer or sale of a franchise, regardless of the title used by the person or any organization with which they are affiliated, and receives or is promised a fee, commission, or other form of consideration from a franchisor, subfranchisor, franchisee, or affiliate of a franchisor, subfranchisor, or franchisee. Common titles franchise brokers use include, but are not limited to, franchise seller, broker network, broker organization, franchise sales organization, consultant, and coach. (b) A “franchise broker” does not include any of the following: (1) A franchisor or its officers, directors, or employees. (2) A subfranchisor or its officers, directors, or employees. (3) An area representative or its officers, directors, or employees. (4) An employee of an affiliate of a franchisor or subfranchisor. (5) A franchisee of the franchise offering being presented to a prospective franchisee, unless the franchisee operates a franchised broker business. (Added by Stats. 2024, Ch. 518, Sec. 1. (SB 919) Effective January 1, 2025.)
  45. 311.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. )

    Verify source ↗

    The board may create committees, appoint alternate committee members, and give committees board authority, but not for certain reserved matters.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. ) ## 311. The board may, by resolution adopted by a majority of the authorized number of directors, designate one or more committees, each consisting of two or more directors, to serve at the pleasure of the board. The board may designate one or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. The appointment of members or alternate members of a committee requires the vote of a majority of the authorized number of directors. Any such committee, to the extent provided in the resolution of the board or in the bylaws, shall have all the authority of the board, except with respect to: (a) The approval of any action for which this division also requires shareholders’ approval (Section 153) or approval of the outstanding shares (Section 152). (b) The filling of vacancies on the board or in any committee. (c) The fixing of compensation of the directors for serving on the board or on any committee. (d) The amendment or repeal of bylaws or the adoption of new bylaws. (e) The amendment or repeal of any resolution of the board which by its express terms is not so amendable or repealable. (f) A distribution (Section 166), except at a rate, in a periodic amount or within a price range set forth in the articles or determined by the board. (g) The appointment of other committees of the board or the members thereof. (Amended by Stats. 1983, Ch. 1223, Sec. 4.)
  46. 31100.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Exemptions [31100 - 31109.1] ( Chapter 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    The commissioner may exempt certain transactions from Chapter 2 requirements by rule.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Exemptions [31100 - 31109.1] ( Chapter 1 added by Stats. 1970, Ch. 1400. ) ## 31100. There shall be exempted from any or all of the provisions of Chapter 2 (commencing with Section 31110) any other transaction which the commissioner by rule exempts as not being comprehended within the purposes of this law and the registration of which the commissioner finds is not necessary or appropriate in the public interest or for the protection of investors. (Amended by Stats. 1989, Ch. 1026, Sec. 1.)
  47. 31101.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Exemptions [31100 - 31109.1] ( Chapter 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    A franchise sale is exempt from Chapter 2 if the franchisor meets the listed net worth, experience, disclosure, and notice-filing requirements.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Exemptions [31100 - 31109.1] ( Chapter 1 added by Stats. 1970, Ch. 1400. ) ## 31101. There shall be exempted from the provisions of Chapter 2 (commencing with Section 31110) of this part the offer and sale of a franchise if the franchisor complies with each of the following minimum net worth, experience, disclosure, and notice filing requirements: (a) Net worth. The franchisor and, when necessary, a corporation owning at least 80 percent of the franchisor (parent) meet one of the following net worth requirements, according to financial statements for the fiscal year just ended. The franchisor and the parent, when necessary, may rely upon the immediately preceding fiscal year’s audited financial statement for 15 months from that fiscal year end date. (1) The franchisor has a net worth on a consolidated basis of not less than five million dollars ($5,000,000), according to its audited financial statement. (2) The franchisor has a net worth of not less than one million dollars ($1,000,000) and its parent has a net worth of five million dollars ($5,000,000), according to the audited financial statements of the franchisor and its parent, respectively. (3) The franchisor has a net worth of one million dollars ($1,000,000), according to its unaudited financial statement, and the parent has a net worth on a consolidated basis of not less than five million dollars ($5,000,000), according to its audited financial statement, and the parent absolutely and unconditionally guarantees to assume the duties and obligations of the franchisor under the franchise agreement should the franchisor become unable to perform its duties and obligations. (b) Experience. The franchisor or a corporation owning at least 80 percent of the franchisor (parent) complies with one or more of the following conditions throughout the five-year period immediately preceding the offer and sale of the franchise, or complies with one of the following conditions during part of the period and one or more of the following conditions during the balance of the period: (1) The franchisor has had at least 25 franchisees conducting business which is the subject of the franchise. (2) The franchisor has conducted business which is the subject of the franchise. (3) The parent has had at least 25 franchisees conducting business which is the subject of the franchise. (4) The parent has conducted business which is the subject of the franchise. (c) Disclosure. (1) Except as provided in paragraph (2), the franchisor discloses in writing to each prospective franchisee, at least 14 days prior to the execution by the prospective franchisee of any binding franchise or other agreement, or at least 14 days prior to the receipt of any consideration, the following information: (A) The name of the franchisor, the name under which the franchisor is doing or intends to do business, and the name of any parent or affiliated company that will engage in business transactions with franchisees. (B) The franchisor’s principal business address and the name and address of its agent in the State of California authorized to receive service of process. (C) The business form of the franchisor, whether corporate, partnership, or otherwise. (D) The business experience of the franchisor, including the length of time the franchisor (i) has conducted a business of the type to be operated by the franchisees, (ii) has granted franchises for such business, and (iii) has granted franchises in other lines of business. (E) A copy of the typical franchise contract or agreement proposed for use or in use in this state. (F) A statement of the franchise fee charged, the proposed application of the proceeds of such fee by the franchisor, and the formula by which the amount of the fee is determined if the fee is not the same in all cases. (G) A statement describing any payments or fees other than franchise fees that the franchisee or subfranchisor is required to pay to the franchisor, including royalties and payments or fees which the franchisor collects in whole or in part on behalf of a third party or parties. (H) A statement of the conditions under which the franchise agreement may be terminated or renewal refused, or repurchased at the option of the franchisor. (I) A statement as to whether, by the terms of the franchise agreement or by other device or practice, the franchisee or subfranchisor is required to purchase from the franchisor or his or her designee services, supplies, products, fixtures, or other goods relating to the establishment or operation of the franchise business, together with a description thereof. (J) A statement as to whether, by the terms of the franchise agreement or other device or practice, the franchisee is limited in the goods or services offered by him or her to his or her customers. (K) A statement of the terms and conditions of any financing arrangements when offered directly or indirectly by the franchisor or his or her agent or affiliate. (L) A statement of any past or present practice or of any intent of the franchisor to sell, assign, or discount to a third party any note, contract, or other obligation of the franchisee or subfranchisor in whole or in part. (M) If any statement of estimated or projected franchisee earnings is used, a statement of such estimation or projection and the data upon which it is based. (N) A statement as to whether franchisees or subfranchisors receive an exclusive area or territory. (O) A copy of the financial statement or statements required by subdivision (a). (P) A copy of the unconditional guaranty, if applicable, required by paragraph (3) of subdivision (a). (2) In the case of a material modification of an existing franchise, the franchisor discloses in writing to each franchisee information concerning the specific sections of the franchise agreement proposed to be modified and such additional information as may be required by rule or order of the commissioner. Any agreement by such franchisee to such material modifications shall not be binding upon the franchisee if the franchisee, within 14 days after the receipt of such writing identifying the material modification, notifies the franchisor in writing that the agreement to such modification is rescinded. A writing identifying the material modification is received when delivered to the franchisee. A written notice by the franchisee rescinding an agreement to a material modification is effective when delivered to the franchisor or when deposited in the mail, postage prepaid, and addressed to the franchisor in accordance with any notice provisions in the franchise agreement, or when delivered or mailed to the person designated in the franchise agreement for the receipt of notices on behalf of the franchisor. (d) Notice filing. The franchisor has filed with the commissioner a notice of exemption and paid the fee required by subdivision (f) of Section 31500 prior to an offer or sale of a franchise in this state during any calendar year in which one or more franchises are sold, excluding any material modification. (Amended by Stats. 2013, Ch. 334, Sec. 1. (SB 537) Effective January 1, 2014.)
  48. 31102.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Exemptions [31100 - 31109.1] ( Chapter 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    Some franchise sales are exempt from Section 31110 if they are not made by or through a franchisor.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Exemptions [31100 - 31109.1] ( Chapter 1 added by Stats. 1970, Ch. 1400. ) ## 31102. The offer or sale of a franchise by a franchisee for his own account or the offer or sale of the entire area franchise owned by a subfranchisor for his own account, is exempted from the provisions of Section 31110 if the sale is not effected by or through a franchisor. A sale is not effected by or through a franchisor merely because a franchisor has a right to approve or disapprove a different franchisee. (Added by Stats. 1970, Ch. 1400.)
  49. 31103.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Exemptions [31100 - 31109.1] ( Chapter 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    This division does not apply to transactions involving a bank credit card plan.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Exemptions [31100 - 31109.1] ( Chapter 1 added by Stats. 1970, Ch. 1400. ) ## 31103. This division shall not be applicable to any transaction relating to a bank credit card plan. “Bank credit card plan” means a credit card plan in which the issuers of credit cards, as defined in subdivision (a) of Section 1747.02 of the Civil Code are only: banks regulated by or under the supervision of the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Comptroller of the Currency of the United States, or the Commissioner of Financial Institutions of this state under Division 1 (commencing with Section 99) of the Financial Code; or, persons controlling these banks, provided that the assets of such a bank or banks represent a majority of the assets on a consolidated basis of any holding company system of which the card issuers may be a party; or, persons controlled by these banks. (Amended by Stats. 1996, Ch. 1064, Sec. 20. Effective January 1, 1997. Operative July 1, 1997, by Sec. 814 of Ch. 1064.)
  50. 31104.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Exemptions [31100 - 31109.1] ( Chapter 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    This section exempts certain franchise offers and sales from Chapter 2 if the franchisor is a qualifying petroleum corporation or distributor and meets the stated conditions.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Exemptions [31100 - 31109.1] ( Chapter 1 added by Stats. 1970, Ch. 1400. ) ## 31104. There shall be exempted from the provisions of Chapter 2 (commencing with Section 31110) of this part the offer and sale of a franchise if the franchisor: (a) Is a petroleum corporation or distributor who is a wholesale distributor or marketer of petroleum products; doing business continuously for the past five years and who does not require an advance of funds in the nature of a fee or lease for such franchise agreements; not engaged in the production or the refining of petroleum; and (b) Complies with the provisions of subdivisions (c) and (d) of Section 31101. (c) For the purposes of subdivision (a) of this section: (1) A “wholesale distributor” or “marketer” means any entity which, for wholesale, purchases or receives through transfer, or otherwise obtains, by consignment or otherwise, refined petroleum products and resells or otherwise transfers such products, without substantially changing their form, to other purchasers. (2) An “advance of funds” means (A) a fee or lease for a franchise agreement, and (B) does not mean rent for the possession or use, or both, of premises or property, the purchase of inventory for resale or supplies, utility deposits, and other consideration or expenditures for the formation or operation, or both, of a wholesale distributor or marketer entity. (Amended by Stats. 1991, Ch. 379, Sec. 1.)
  51. 31105.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Exemptions [31100 - 31109.1] ( Chapter 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    Some franchise transfers to out-of-state, territorial, or foreign-country residents are exempt if all locations tied to the franchised business are outside this state.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Exemptions [31100 - 31109.1] ( Chapter 1 added by Stats. 1970, Ch. 1400. ) ## 31105. Any offer, sale, or other transfer of a franchise, or any interest in a franchise, to a resident of another state or any territory or foreign country, shall be exempted from the provisions of Chapter 2 (commencing with Section 31110) of this part, if all locations from which sales, leases or other transactions between the franchised business and its customers are made, or goods or services are distributed, are physically located outside this state. (Added by Stats. 1996, Ch. 477, Sec. 4. Effective January 1, 1997.)
  52. 31106.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Exemptions [31100 - 31109.1] ( Chapter 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    Certain franchise offers, sales, or transfers are exempt from Chapter 2 if the stated conditions are met.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Exemptions [31100 - 31109.1] ( Chapter 1 added by Stats. 1970, Ch. 1400. ) ## 31106. There shall be exempted from the provisions of Chapter 2 (commencing with Section 31110) of this part, any offer, sale, or other transfer of a franchise or any interest in a franchise, provided that the offer, sale or transfer meets the requirements in subdivisions (a) and (b): (a) Any of the following conditions apply: (1) One or more of the owners of the prospective franchisee owning at least a 50 percent interest in the prospective franchisee meet both of the following: (A) The owner or owners have had, within the seven years before the date of the sale or other transaction, at least 24 months’ experience being responsible for the financial and operational aspects of a business offering products or services substantially similar to those offered by the franchised business. (B) The owner or owners are not controlled by the franchisor. (2) One or more of the owners of the prospective franchisee owning at least a 50 percent interest in the prospective franchisee meet both of the following: (A) The owner or owners are, or have been within 60 days prior to the sale or other transaction, an officer, director, managing agent, or an owner of at least a 25 percent interest in the franchisor for at least 24 months. (B) The owner or owners are not controlled by the franchisor. (3) The offer, sale, or other transfer is of an additional franchise to an existing franchisee of the franchisor, or to an entity, one or more of the officers, directors, managing agents or owners of at least a 25 percent interest of which is an existing franchisee of the franchisor; provided that, in either case, for 24 months or more the franchisee, or the qualifying person, has been engaged in a business offering products or services substantially similar to those to be offered by the franchise being sold, or otherwise transferred. (b) The franchisor files with the commissioner a notice of exemption and pays the fee prescribed in subdivision (f) of Section 31500 no later than 15 calendar days after the sale of a franchise in this state pursuant to this section. (Added by Stats. 1996, Ch. 477, Sec. 5. Effective January 1, 1997.)
  53. 31107.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Exemptions [31100 - 31109.1] ( Chapter 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    A franchisor’s offer of a franchise is exempt from Chapter 2 while a renewal or amendment application is pending, but not the sale, if the prospective franchisee gets the required disclosure materials and statement.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Exemptions [31100 - 31109.1] ( Chapter 1 added by Stats. 1970, Ch. 1400. ) ## 31107. There shall be exempted from the provisions of Chapter 2 (commencing with Section 31110) of this part, any offer (but not the sale) by a franchisor of a franchise while an application for renewal or amendment is pending if the prospective franchisee receives all of the following: (a) The franchise disclosure document and its exhibits as filed with the commissioner with the application for renewal or amendment. (b) A written statement from the franchisor that (1) the filing has been made but is not effective, (2) the information in the franchise disclosure document and exhibits has not been reviewed by the commissioner, and (3) the franchisor will deliver to the prospective franchisee an effective franchise disclosure document and exhibits at least 14 days prior to execution by the prospective franchisee of a binding agreement or payment of any consideration to the franchisor, or any person affiliated with the franchisor, whichever occurs first, showing all material changes from the franchise disclosure document and exhibits received by the prospective franchisee under subdivision (a) of this section. (c) The franchise disclosure document and exhibits in accordance with paragraph (3) of subdivision (b) of this section. (Amended by Stats. 2013, Ch. 334, Sec. 2. (SB 537) Effective January 1, 2014.)
  54. 31108.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Exemptions [31100 - 31109.1] ( Chapter 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    This section exempts certain franchise offers or sales from Chapter 2 if the franchise adds a new product or service line to the prospective franchisee’s existing business and all listed conditions are met.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Exemptions [31100 - 31109.1] ( Chapter 1 added by Stats. 1970, Ch. 1400. ) ## 31108. There shall be exempted from the provisions of Chapter 2 (commencing with Section 31110), any offer or sale of a franchise if the franchise involves the adding of a new product or service line to the existing business of a prospective franchisee, provided all of the following requirements are met: (a) For at least the last 24 months prior to the date of sale of the franchise, the prospective franchisee, or if the prospective franchisee is not a natural person, an existing officer, director, or managing agent of the prospective franchisee who has held that position with the prospective franchisee for at least the last 24 months, has been engaged in a business offering products or services substantially similar or related to those to be offered by the franchised business. (b) The new product or service is substantially similar or related to the product or service being offered by the prospective franchisee’s existing business. (c) The franchised business is to be operated from the same business location as the prospective franchisee’s existing business. (d) The parties anticipated, in good faith, at the time the agreement establishing the franchise relationship was reached, that sales resulting from the franchised business will not represent more than 20 percent of the total sales in dollar volume of the franchisee on an annual basis. (e) The prospective franchisee is not controlled by the franchisor. (f) The franchisor files with the commissioner a notice of exemption and pays the fee prescribed in subdivision (f) of Section 31500 prior to an offer or sale of such a franchise in this state during any calendar year in which one or more of those franchises are sold. (Added by Stats. 1999, Ch. 325, Sec. 1. Effective January 1, 2000.)
  55. 31109.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Exemptions [31100 - 31109.1] ( Chapter 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    This section exempts certain franchise offers or sales from Chapter 2 if all listed purchaser, knowledge, investment-use, cash-payment, and notice requirements are met.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Exemptions [31100 - 31109.1] ( Chapter 1 added by Stats. 1970, Ch. 1400. ) ## 31109. Any offer or sale of a franchise that meets all of the following requirements shall be exempt from Chapter 2 (commencing with Section 31110): (a) Each and every purchaser of the franchise is one of the following: (1) Any partner, executive officer, or director of the franchisor, or any executive officer of its corporate general partner if the franchisor is a partnership, or any manager if the franchisor is a limited liability company. (2) Any entity with total assets exceeding five million dollars ($5,000,000) according to its most recent financial statements and not specifically formed for the purpose of acquiring the franchise offered. For purposes of this section, “entity” shall mean an organization described in Section 501(c)(3) of the Internal Revenue Code, a corporation, Massachusetts or similar business trust, limited liability company, or partnership. The financial statements referred to in this paragraph shall meet both of the following requirements: (A) Be as of date not more than 90 days prior to the earlier of either the date on which the first prospective purchaser signs any binding franchise or other agreement with the franchisor in connection with the award of the franchise, or the date on which the franchisor receives any consideration from the first prospective purchaser in connection with the award of the franchise. (B) Be prepared in accordance with either of the following: (i) Generally accepted accounting principles and, if the entity has consolidated subsidiaries, on a consolidated basis. (ii) The rules and requirements of the Securities and Exchange Commission, whether or not required by law to be prepared in accordance with those rules and requirements. (3) Any natural person whose net worth, or joint net worth with that person’s spouse, exceeds one million dollars ($1,000,000) at the time of his or her purchase of the franchise, excluding the value of that person’s personal residence, any and all retirement or pension plan accounts or benefits, home furnishings, and automobiles. (4) Any natural person whose gross income exceeds three hundred thousand dollars ($300,000) per year in each of the two most recent years, or whose joint gross income with that person’s spouse exceeds five hundred thousand dollars ($500,000) per year in each of those years, and who reasonably expects to reach the same income level in the current year. (5) Any entity, in which all of the equity owners are persons or entities described in either paragraph (1), (2), (3), or (4). (b) Each and every purchaser of the franchise has knowledge and experience in financial and business matters, either alone or with professional advisers of the purchaser who are unaffiliated with, and not directly or indirectly compensated by, the franchisor or an affiliate or selling agent of the franchisor, such that the franchisor reasonably believes, based on reasonable inquiry before the sale, that each and every purchaser has the capacity to evaluate the merits and risks of, and protect their own interests in, the franchise investment. (c) Each and every purchaser of the franchise purchases the franchise for the purchaser’s own account, or a trust account if the purchaser is a trustee, for the purpose of conducting the business as a franchise and not with a view to, or for a sale in connection with, any resale or distribution of the franchise or any interest in the franchise. (d) The immediate cash payment required from a purchaser of the franchise who is a natural person, upon the purchase of the franchise, shall not exceed 10 percent of that person’s net worth or joint net worth with that person’s spouse, exclusive of that person’s personal residence, any and all retirement or pension accounts or benefits, home furnishings and automobiles. (e) The franchisor files with the commissioner a notice of exemption and pays the fee prescribed in subdivision (f) of Section 31500 prior to any offer or sale of a franchise in this state for which the exemption is claimed during any calendar year in which one or more franchises are sold, excluding any material modification. (f) No franchisor or any of its officers, directors, employees, or agents shall form, organize, engage, or assist any person to purchase a franchise for resale or distribution to avoid the registration requirements of Chapter 2 (commencing with Section 31110). (Added by Stats. 2004, Ch. 458, Sec. 3. Effective September 10, 2004. Operative January 1, 2005, by Sec. 19 of Ch. 458.)
  56. 31109.1.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Exemptions [31100 - 31109.1] ( Chapter 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    This section exempts certain registered franchise offers and sales on different terms if listed notice, certification, and benefit conditions are met.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Exemptions [31100 - 31109.1] ( Chapter 1 added by Stats. 1970, Ch. 1400. ) ## 31109.1. (a) There shall be exempted from the provisions of Chapter 2 (commencing with Section 31110) the offer and sale of a franchise registered under Section 31111, 31121, or 31123 on terms different from the terms of the offer registered thereunder if all of the following requirements are met: (1) The initial offer is the offer registered under Section 31111, 31121, or 31123. (2) The prospective franchisee receives all of the following in a separate written appendix to the franchise disclosure document: (A) A summary description of each material negotiated term that was negotiated by the franchisor for a California franchise during the 12-month period ending in the calendar month immediately preceding the month in which the negotiated offer or sale is made under this section. (B) A statement indicating that copies of the negotiated terms are available upon written request. (C) The name, telephone number, and address of the representative of the franchisor to whom requests for a copy of the negotiated terms may be obtained. (3) The franchisor certifies or declares in an appendix to its application for renewal that it has complied with all of the requirements of this section, in the event this exemption is claimed. (4) The negotiated terms, on the whole, confer additional benefits on the franchisee. (b) The franchisor shall provide a copy of the negotiated terms described in subdivision (a) to the prospective franchisee within five business days following the request of the franchisee. (c) The franchisor shall maintain copies of all material negotiated terms for which this exemption is claimed for a period of five years from the effective date of the first agreement containing the relevant negotiated term. Upon the request of the commissioner, the franchisor shall make the copies available to the commissioner for review. For purposes of this section, the commissioner may prescribe by rule or order the format and content of the summary description of the negotiated terms required by subparagraph (A) of paragraph (2) of subdivision (a). (d) For purposes of this section, “material” means that a reasonable franchisee would view the terms as important in negotiating the franchise. (Amended by Stats. 2013, Ch. 334, Sec. 3. (SB 537) Effective January 1, 2014.)
  57. 31110.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Disclosure [31110 - 31126] ( Chapter 2 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    A person may not offer or sell a franchise in this state unless the franchise offer is registered or exempted.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Disclosure [31110 - 31126] ( Chapter 2 added by Stats. 1970, Ch. 1400. ) ## 31110. On and after April 15, 1971, it shall be unlawful for any person to offer or sell any franchise in this state unless the offer of the franchise has been registered under this part or exempted under Chapter 1 (commencing with Section 31100) of this part. (Added by Stats. 1970, Ch. 1400.)
  58. 31111.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Disclosure [31110 - 31126] ( Chapter 2 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    Franchise registration materials must use the Uniform Franchise Registration Application, and an authorization allowing the commissioner to examine certain financial records must be filed with the application.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Disclosure [31110 - 31126] ( Chapter 2 added by Stats. 1970, Ch. 1400. ) ## 31111. (a) The application for registration of an offer shall be filed with the commissioner upon the Uniform Franchise Registration Application, as identified, modified, and supplemented by rule of the commissioner. (b) An authorization for the commissioner to examine the registrant’s financial records of the sale of the franchise pursuant to Section 7473 of the Government Code shall be filed with the application. (Amended by Stats. 1989, Ch. 1026, Sec. 4.)
  59. 31112.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Disclosure [31110 - 31126] ( Chapter 2 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    Applications or amendments under this law must be signed and verified by the franchisor or subfranchisor.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Disclosure [31110 - 31126] ( Chapter 2 added by Stats. 1970, Ch. 1400. ) ## 31112. Any application or amendment under this law shall be signed and verified by the franchisor or by the subfranchisor. Such verification shall be in the same manner provided in the Code of Civil Procedure for the verification of pleadings. (Amended by Stats. 1988, Ch. 562, Sec. 7.)
  60. 31113.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Disclosure [31110 - 31126] ( Chapter 2 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    The commissioner may require franchisee fees and other funds to be escrowed or impounded, and the franchisor may instead choose to provide a surety bond.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Disclosure [31110 - 31126] ( Chapter 2 added by Stats. 1970, Ch. 1400. ) ## 31113. If the commissioner finds that it is necessary and appropriate for the protection of prospective franchisees or subfranchisors because the applicant has failed to demonstrate that adequate financial arrangements have been made to fulfill the franchisor’s obligations to provide real estate, improvements, equipment, inventory, training, or other items included in the offering, the commissioner may by rule or order require the escrow or impound of franchisee fees and other funds paid by the franchisee or subfranchisor until such obligations have been satisfied. At the option of the franchisor, the franchisor may furnish a surety bond as provided by rule of the commissioner. (Amended by Stats. 1982, Ch. 517, Sec. 195.)
  61. 31114.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Disclosure [31110 - 31126] ( Chapter 2 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    A registration application must include a proposed franchise disclosure document, and the document must contain specified material information and a bold disclaimer that registration is not approval, recommendation, or endorsement by the commissioner.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Disclosure [31110 - 31126] ( Chapter 2 added by Stats. 1970, Ch. 1400. ) ## 31114. The application for registration shall be accompanied by a proposed franchise disclosure document, which shall contain the material information set forth in the application for registration, as specified by rule of the commissioner, and such additional disclosures as the commissioner may require. The franchise disclosure document shall recite in bold type of not less than 10-point type that registration does not constitute approval, recommendation, or endorsement by the commissioner. (Amended by Stats. 2013, Ch. 334, Sec. 4. (SB 537) Effective January 1, 2014.)
  62. 31115.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Disclosure [31110 - 31126] ( Chapter 2 added by Stats. 1970, Ch. 1400. )

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    The commissioner may issue a stop order to deny, suspend, or revoke a registration if specified problems are found.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Disclosure [31110 - 31126] ( Chapter 2 added by Stats. 1970, Ch. 1400. ) ## 31115. The commissioner may summarily issue a stop order denying the effectiveness of or suspending or revoking effectiveness of any registration if the commissioner finds any of the following: (a) That there has been a failure to comply with any of the provisions of this law or the rules of the commissioner pertaining thereto. (b) That the offer or sale of the franchise would constitute misrepresentation to, or deceit or fraud of the purchasers, or that, in the case of a franchise other than a subfranchise, a major inducement to prospective franchisees is fees or other compensation from participation in the sale of additional franchises. (c) That the applicant has failed to comply with any rule or order of the commissioner issued pursuant to Section 31113. (d) That any person identified in the application or any officer or director of the franchisor, whether or not identified in the application, meets one or more of the following conditions, and the involvement of this person in the sale or management of the franchise creates an unreasonable risk to prospective franchisees: (1) Has been convicted of a felony, or pleaded nolo contendere to a felony charge, or held liable in a civil action by final judgment if the felony or civil action involved fraud, embezzlement, fraudulent conversion, or misappropriation of property. (2) Is subject to any currently effective order of the United States Securities and Exchange Commission or the securities administrator of any state denying registration to or revoking or suspending the registration of the person as a securities broker or dealer or investment adviser or is subject to any currently effective order of any national securities association or national securities exchange (as defined in the Securities Exchange Act of 1934) suspending or expelling the person from membership in the association or exchange. (3) Is subject to any currently effective order or ruling of the Federal Trade Commission. (4) Is subject to any currently effective injunctive or restrictive order relating to business activity as a result of an action brought by any public agency or department, including, without limitation, actions affecting a license as a real estate broker or sales person. (e) The franchisor’s method of business includes or would include activities that are or would be illegal where performed. (f) The franchise agreement contains a provision that is contrary to law. (Amended by Stats. 2022, Ch. 728, Sec. 7. (AB 676) Effective January 1, 2023.)
  63. 31116.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Disclosure [31110 - 31126] ( Chapter 2 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    The registration of a franchise offer becomes effective automatically after the filing of a complete application, unless a stop order is in effect or a special timing rule applies.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Disclosure [31110 - 31126] ( Chapter 2 added by Stats. 1970, Ch. 1400. ) ## 31116. (a) Except as provided in subdivision (b), if no stop order under Section 31115 is in effect under this law, registration of the offer of franchises automatically becomes effective at 12 p.m., California time, of the 30th business day after the filing of a complete application for registration or the last preeffective amendment thereto, or at an earlier time that the commissioner determines. (b) With respect to any application for registration or the last amendment thereto filed between January 1, 1971, and March 15, 1971, if no stop order under Section 31115 is in effect under this law, registration becomes effective on April 15, 1971; with respect to any application filed after March 15, 1971, and before May 10, 1971, if no stop order under Section 31115 is in effect under this law, registration becomes effective on June 1, 1971, or the 15th business day after the filing, whichever is the later, or at an earlier time that the commissioner determines. (c) For purposes of this section, “complete application” means an application that contains the appropriate filing fee, Uniform Franchise Disclosure Document, and all additional exhibits, including financial statements in conformity with regulations of the commissioner. “Preeffective amendment” means an amendment to an application that is filed before the effective date of the registration of the sale of franchises. (Amended by Stats. 2015, Ch. 303, Sec. 48. (AB 731) Effective January 1, 2016.)
  64. 31117.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Disclosure [31110 - 31126] ( Chapter 2 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    After a stop order is entered, the commissioner must notify the applicant and, if requested, set a hearing within 15 business days unless the applicant agrees to a later date.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Disclosure [31110 - 31126] ( Chapter 2 added by Stats. 1970, Ch. 1400. ) ## 31117. Upon the entry of a stop order under Section 31115 the commissioner shall promptly notify the applicant that it has been entered and of the reasons therefor and that upon receipt of written request the matter will be set down for hearing to commence within 15 business days after such receipt unless the applicant consents to a later date. If no hearing is requested within 30 days after receipt of the notice and none is ordered by the commissioner, the order will remain in effect until it is modified or vacated by the commissioner. If a hearing is requested or ordered, the commissioner, after notice and hearing in accordance with the provisions of Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, in connection with which the commissioner shall have all of the powers granted thereunder, may modify or vacate the order or extend it until its final determination. (Amended by Stats. 1988, Ch. 562, Sec. 9.)
  65. 31118.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Disclosure [31110 - 31126] ( Chapter 2 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    The commissioner may vacate or modify a stop order if the conditions that led to it have changed or if doing so is in the public interest.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Disclosure [31110 - 31126] ( Chapter 2 added by Stats. 1970, Ch. 1400. ) ## 31118. The commissioner may vacate or modify a stop order if he or she finds that the conditions which caused its entry have changed or that it is otherwise in the public interest to do so. (Amended by Stats. 2014, Ch. 64, Sec. 7. (AB 2742) Effective January 1, 2015.)
  66. 31119.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Disclosure [31110 - 31126] ( Chapter 2 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    A franchise seller must give the prospective franchisee the disclosure document and proposed agreements at least 14 days before the earlier of signing or paying consideration.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Disclosure [31110 - 31126] ( Chapter 2 added by Stats. 1970, Ch. 1400. ) ## 31119. (a) It is unlawful to sell any franchise in this state that is subject to registration under this law without first providing to the prospective franchisee, at least 14 days prior to the execution by the prospective franchisee of any binding franchise or other agreement, or at least 14 days prior to the receipt of any consideration, whichever occurs first, a copy of the franchise disclosure document, together with a copy of all proposed agreements relating to the sale of the franchise. (b) Nothing in this division shall be construed to prevent a franchisor from providing copies of the franchise disclosure documents to prospective franchisees through electronic means pursuant to any requirements or conditions that may be imposed by rule or order of the commissioner. (Amended by Stats. 2013, Ch. 334, Sec. 5. (SB 537) Effective January 1, 2014.)
  67. 31120.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Disclosure [31110 - 31126] ( Chapter 2 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    A franchise offering is treated as duly registered for one year after the registration becomes effective, unless the commissioner sets a different period by order or rule.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Disclosure [31110 - 31126] ( Chapter 2 added by Stats. 1970, Ch. 1400. ) ## 31120. A franchise offering shall be deemed duly registered for a period of one year from the effective date of the registration, unless the commissioner by order or rule specifies a different period. (Added by Stats. 1970, Ch. 1400.)
  68. 31121.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Disclosure [31110 - 31126] ( Chapter 2 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    A franchise registration may be renewed for one-year periods, unless the commissioner sets a different period, if a renewal application is filed before expiration.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Disclosure [31110 - 31126] ( Chapter 2 added by Stats. 1970, Ch. 1400. ) ## 31121. (a) The registration may be renewed for additional periods of one year each, unless the commissioner by rule or order specifies a different period, by submitting to the commissioner a renewal application before the expiration of the registration. If no stop order or other order under Section 31115 is in effect under this law, registration of the offer of the franchises automatically becomes renewed effective at 12 p.m., California time, of the 30th business day after the filing of a complete application for registration or the last preeffective amendment or at an earlier time that the commissioner determines. (b) For purposes of this section, “complete application” means an application that contains the appropriate filing fee, Uniform Franchise Disclosure Document, and all additional exhibits, including financial statements in conformity with regulations of the commissioner. “Preeffective amendment” means an amendment to an application that is filed before the effective date of the registration of the sale of franchises. (Amended by Stats. 2015, Ch. 303, Sec. 49. (AB 731) Effective January 1, 2016.)
  69. 31122.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Disclosure [31110 - 31126] ( Chapter 2 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    A registration renewal statement must follow the form and content the commissioner prescribes, include a proposed offering prospectus, and be accompanied by the required fee.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Disclosure [31110 - 31126] ( Chapter 2 added by Stats. 1970, Ch. 1400. ) ## 31122. The registration renewal statement shall be in the form and content prescribed by the commissioner, and shall be accompanied by a proposed offering prospectus. Each such registration renewal statement shall be accompanied by the fee prescribed in Part 5 (commencing with Section 31500) of this division. (Added by Stats. 1970, Ch. 1400.)
  70. 31123.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Disclosure [31110 - 31126] ( Chapter 2 added by Stats. 1970, Ch. 1400. )

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    A franchisor must promptly notify the commissioner in writing, through an application to amend registration, when there is any material change in the application information.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Disclosure [31110 - 31126] ( Chapter 2 added by Stats. 1970, Ch. 1400. ) ## 31123. A franchisor shall promptly notify the commissioner in writing, by an application to amend the registration, of any material change in the information contained in the application as originally submitted, amended or renewed. The commissioner may by rule further define what shall be considered a material change for such purposes, and the circumstances under which a revised offering prospectus must accompany such application. (Added by Stats. 1970, Ch. 1400.)
  71. 31124.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Disclosure [31110 - 31126] ( Chapter 2 added by Stats. 1970, Ch. 1400. )

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    If the commissioner approves an amendment to a franchise-sale application, the commissioner may set when the amendment becomes effective.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Disclosure [31110 - 31126] ( Chapter 2 added by Stats. 1970, Ch. 1400. ) ## 31124. An amendment to an application filed after the effective date of the registration of the sale of franchises, if such amendment is approved by the commissioner, shall become effective on such date as the commissioner may determine, having due regard for the public interest and the protection of franchisees. (Added by Stats. 1970, Ch. 1400.)
  72. 31125.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Disclosure [31110 - 31126] ( Chapter 2 added by Stats. 1970, Ch. 1400. )

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    This section requires certain franchise modification disclosures, bars solicitation without prior disclosure unless an exemption applies, and lets the commissioner set required forms and information.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Disclosure [31110 - 31126] ( Chapter 2 added by Stats. 1970, Ch. 1400. ) ## 31125. (a) An application for registration of a material modification of an existing franchise or of existing franchises shall be in a form and contain information as the commissioner may by rule prescribe, and shall be accompanied by a proposed disclosure form as specified in subdivision (b). The application may be included with an application pursuant to Section 31111 or 31121. (b) Except as provided in subdivisions (c) and (d), it is unlawful to solicit the agreement of a franchisee to a proposed material modification of an existing franchise without first delivering to the franchisee a written disclosure, in a form and containing information as the commissioner may by rule or order require, identifying the proposed modification, either five business days prior to the execution of any binding agreement by the franchisee to the modification or containing a statement that the franchisee may, by written notice mailed or delivered to the franchisor or a specified agent of the franchisor within not less than five business days following the execution of the agreement, rescind the agreement to the material modification. (c) Any modification of a franchise agreement with an existing franchisee of a franchisor shall be exempted from the provisions of this chapter, if all of the following are met: (1) The franchisee receives the complete written modification at least five business days prior to the execution of a binding agreement, or providing that the franchisee may, by written notice mailed or delivered to the franchisor or a specified agent of the franchisor within not less than five business days following the execution of the agreement, rescind the agreement to the material modification; provided (A) the agreement is not executed within 12 months after the date of the franchise agreement, and (B) the modification does not waive any right of the franchisee under the California Franchise Relations Act (Chapter 5.5 (commencing with Section 20000) of Division 8 of the Business and Professions Code), but the modification may include a general release of all known and unknown claims by a party to the modification. (2) The modification meets one of the following: (A) The proposed modification is in connection with the resolution of a bona fide dispute between the franchisor and the franchisee or the resolution of a claimed or actual franchisee or franchisor default, and the modification is not applied on a franchise systemwide basis at or about the time the modification is executed. A modification shall not be deemed to be made on a franchise systemwide basis if it is offered on a voluntary basis to fewer than 25 percent of the franchisor’s California franchises within any 12-month period. (B) The proposed modification is offered on a voluntary basis to fewer than 25 percent of the franchisor’s California franchises within any 12-month period, provided each franchisee is given a right to rescind the modification agreement if the modification is not made in compliance with paragraph (1) of subdivision (c). (d) Any modification of a franchise agreement with an existing franchise of a franchisee shall be exempted from this chapter if the modification is offered on a voluntary basis and does not substantially and adversely impact the franchisee’s rights, benefits, privileges, duties, obligations, or responsibilities under the franchise agreement. (e) For purposes of this section, “California franchise” means: (1) an existing franchise of a franchisee with any location in this state from which sales, leases, or other transactions between the franchised business and its customers are made or goods or services are distributed, or (2) an existing franchise of a franchisee that is a resident of this state and that owns, controls, or has an equity interest in the franchise. (f) A franchisor shall not make modifications in consecutive years for the purpose of evading the 25 percent requirements set forth above. (Amended by Stats. 2004, Ch. 458, Sec. 6. Effective September 10, 2004. Operative January 1, 2005, by Sec. 19 of Ch. 458.)
  73. 31126.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Disclosure [31110 - 31126] ( Chapter 2 added by Stats. 1970, Ch. 1400. )

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    A prospective franchisee buying an existing franchise transfer must give the franchisor specified information, and the franchisor must respond within set time limits.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Disclosure [31110 - 31126] ( Chapter 2 added by Stats. 1970, Ch. 1400. ) ## 31126. (a) A prospective franchisee seeking to buy an existing franchise, all or substantially all of the assets of an existing franchise business, or an interest in an existing franchise business shall do all of the following when applying with the franchisor to buy that franchise, those assets, or that interest: (1) Provide their name and address to the franchisor. (2) Provide to the franchisor a copy of all agreements related to the sale, assignment, or transfer of the franchise, the assets of the franchise business, or the interest in the franchise business. (3) Provide an application to the franchisor for approval of the transfer, which shall include all forms, financial disclosures, and related information required by the franchisor in reviewing prospective franchisees. (b) (1) If a form or document required to be submitted with an application pursuant to paragraph (3) of subdivision (a) is not reasonably available to the prospective franchisee, the prospective franchisee may make a written request for the form or document to the franchisor, and the franchisor shall deliver the form or document to the prospective franchisee by email, courier, or certified mail within 15 calendar days of receiving the request. (2) If the franchisor’s then-existing standards for approval of an application required by paragraph (3) of subdivision (a) are not reasonably available to the prospective franchisee, the prospective franchisee may make a written request for the standards to the franchisor, and the franchisor shall communicate the standards to the prospective franchisee within 15 calendar days of receiving the request. (c) As soon as practicable after receiving the application required by paragraph (3) of subdivision (a), the franchisor shall notify the prospective franchisee in writing of any additional information or documentation necessary to complete the application. (d) (1) The franchisor shall notify the prospective franchisee of the approval or disapproval of their application within 60 days after receiving the information and documentation required by subdivision (a) and requested by the franchisor pursuant to subdivision (c). The notice shall be in writing and shall be delivered to the prospective franchisee by email, courier, or certified mail. If the application is disapproved, the franchisor shall include in the notice a statement setting forth the reasons for the disapproval. (2) In any legal action in which the franchisor’s disapproval of a sale, assignment, or transfer pursuant to this subdivision is an issue, the reasonableness of the franchisor’s decision shall be a question of fact requiring consideration of all relevant circumstances. However, nothing in this paragraph shall prohibit summary judgment when the reasonableness of the disapproval can be decided as a matter of law. (e) This section neither prohibits a franchisor from exercising nor requires a franchisor to exercise a contractual right of first refusal to purchase an existing franchise, all or substantially all of the assets of an existing franchise business, or an interest in an existing franchise business. (f) This section shall not be interpreted to prevent the franchisor, in connection with a proposed sale under subdivision (a), from requiring that the prospective franchisee and the prospective seller comply with the transfer conditions specified in the franchise agreement. (Added by Stats. 2022, Ch. 728, Sec. 8. (AB 676) Effective January 1, 2023.)
  74. 31150.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 3. General Provisions [31150 - 31158] ( Chapter 3 added by Stats. 1970, Ch. )

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    Franchisors and subfranchisors offering franchises for sale in this state must keep complete books, records, and accounts of those sales at all times.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 3. General Provisions [31150 - 31158] ( Chapter 3 added by Stats. 1970, Ch. ) ## 31150. Every franchisor or subfranchisor offering franchises for sale in this state shall at all times keep and maintain a complete set of books, records, and accounts of such sales. (Added by Stats. 1970, Ch. 1400.)
  75. 31151.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 3. General Provisions [31150 - 31158] ( Chapter 3 added by Stats. 1970, Ch. )

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    The commissioner may rely on expert opinions and may also order expert investigation, appraisal, review, and certification of facts about franchises proposed for sale.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 3. General Provisions [31150 - 31158] ( Chapter 3 added by Stats. 1970, Ch. ) ## 31151. The commissioner may accept and act upon the opinions, appraisements and reports of any engineers, appraisers, or other experts which may be presented by an applicant or any interested party, on any question of fact concerning or affecting the franchises proposed to be offered and sold. In lieu of, or in addition to, such opinions, appraisements, and reports, the commissioner may have any or all matters concerning or affecting such franchises investigated, appraised, passed upon and certified to him by engineers, appraisers or other experts selected by him. (Added by Stats. 1970, Ch. 1400.)
  76. 31152.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 3. General Provisions [31150 - 31158] ( Chapter 3 added by Stats. 1970, Ch. )

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    A filed document may be incorporated by reference into a later application if it was filed within four years, is available in the commissioner’s files, and is still accurate.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 3. General Provisions [31150 - 31158] ( Chapter 3 added by Stats. 1970, Ch. ) ## 31152. Any document filed under this law or under the Corporate Securities Law of 1968 or a predecessor statute thereto may be incorporated by reference in a subsequent application filed under this law if it was filed within four years prior to the filing of such application, or is otherwise available in the files of the commissioner, to the extent that the document is currently accurate. (Added by Stats. 1970, Ch. 1400.)
  77. 31153.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 3. General Provisions [31150 - 31158] ( Chapter 3 added by Stats. 1970, Ch. )

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    A person claiming an exemption or exception from a definition must prove it in any proceeding under this law.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 3. General Provisions [31150 - 31158] ( Chapter 3 added by Stats. 1970, Ch. ) ## 31153. In any proceeding under this law, the burden of proving an exemption or an exception from a definition is upon the person claiming it. (Added by Stats. 1970, Ch. 1400.)
  78. 31154.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 3. General Provisions [31150 - 31158] ( Chapter 3 added by Stats. 1970, Ch. )

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    This section says filing or effective registration does not mean the commissioner has found the filing true or approved anyone, and it forbids inconsistent representations to prospective purchasers or offerees.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 3. General Provisions [31150 - 31158] ( Chapter 3 added by Stats. 1970, Ch. ) ## 31154. (a) Neither (1) the fact that an application for registration under this law has been filed, nor (2) the fact that such registration has become effective constitutes a finding by the commissioner that any document filed under this law is true, complete or not misleading. Neither any such fact nor the fact that an exemption is available for a transaction means that the commissioner has passed in any way upon the merits or qualifications of, or recommended or given approval to, any person, franchise or transaction. (b) It is unlawful to make or cause to be made to any prospective purchaser or offeree any representation inconsistent with subdivision (a) of this section. (Added by Stats. 1970, Ch. 1400.)
  79. 31155.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 3. General Provisions [31150 - 31158] ( Chapter 3 added by Stats. 1970, Ch. )

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    Certain franchise-registration applicants must file an irrevocable consent with the commissioner to accept service of process, and a prior filer does not need to file again.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 3. General Provisions [31150 - 31158] ( Chapter 3 added by Stats. 1970, Ch. ) ## 31155. Every applicant for registration of an offer to sell franchises under this law, by other than a California corporation, California limited partnership, or California limited liability company, shall file with the commissioner, in such form as he or she by rule prescribed, an irrevocable consent appointing the commissioner or his or her successor in office to be his or her attorney to receive service of any lawful process in any noncriminal suit, action or proceeding against him or her or his or her successor, executor or administrator, which arises under this law or any rule or order hereunder after the consent has been filed, with the same force and validity as if served personally on the person filing the consent. A person who has filed such a consent in connection with a previous registration under this law need not file another. Service may be made by leaving a copy of the process in the office of the commissioner but it is not effective unless (a) the plaintiff, who may be the commissioner in a suit, action, or proceeding instituted by him or her, forthwith sends notice of the service and a copy of the process by registered or certified mail to the defendant or respondent at his or her last address on file with the commissioner, and (b) the plaintiff’s affidavit of compliance with this section is filed in the case on or before the return day of the process, if any, or within such further time as the court allows. (Amended by Stats. 2009, Ch. 140, Sec. 41. (AB 1164) Effective January 1, 2010.)
  80. 31156.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 3. General Provisions [31150 - 31158] ( Chapter 3 added by Stats. 1970, Ch. )

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    You cannot publish a franchise advertisement in the state unless a true copy was filed with the commissioner at least three business days before first publication, or the commissioner exempted it by rule.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 3. General Provisions [31150 - 31158] ( Chapter 3 added by Stats. 1970, Ch. ) ## 31156. No person shall publish in this state any advertisement offering a franchise subject to the registration requirements of this law unless a true copy of the advertisement has been filed in the office of the commissioner at least three business days prior to the first publication or such shorter period as the commissioner by rule or order may allow, or unless such advertisement has been exempted by rule of the commissioner. (Added by Stats. 1970, Ch. 1400.)
  81. 31157.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 3. General Provisions [31150 - 31158] ( Chapter 3 added by Stats. 1970, Ch. )

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    A person may not publish a franchise advertisement in California after the commissioner finds it is false or misleading, or missing needed statements, and gives written notice.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 3. General Provisions [31150 - 31158] ( Chapter 3 added by Stats. 1970, Ch. ) ## 31157. No person shall publish any advertisement concerning any franchise in this state after the commissioner finds that the advertisement contains any statement that is false or misleading or omits to make any statement necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading and so notifies the person in writing. Such notification may be given summarily without notice of hearing. At any time after the issuance of a notification under this section, the person desiring to use the advertisement may in writing request that the order be rescinded. Upon the receipt of such a written request, the matter shall be set down for hearing to commence within 15 business days after such receipt unless the person making the request consents to a later date. After such hearing, which shall be conducted in accordance with the provisions of Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, the commissioner shall determine whether to affirm and continue or to rescind such order, and the commissioner shall have all the powers granted under such act. (Amended by Stats. 1973, Ch. 539.)
  82. 31158.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 3. General Provisions [31150 - 31158] ( Chapter 3 added by Stats. 1970, Ch. )

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    The commissioner may set by rule or order when electronic records or electronic signatures may be accepted, but is not required to accept them.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 2. REGULATION OF THE SALE OF FRANCHISES [31100 - 31158] ( Part 2 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 3. General Provisions [31150 - 31158] ( Chapter 3 added by Stats. 1970, Ch. ) ## 31158. (a) Notwithstanding any other law, the commissioner may by rule or order prescribe circumstances under which to accept electronic records or electronic signatures. This section does not require the commissioner to accept electronic records or electronic signatures. (b) For purposes of this section, the following terms have the following meanings: (1) “Electronic record” means an initial registration application, registration renewal statement, preeffective amendment, posteffective amendment, or material modification and any other record created, generated, sent, communicated, received, or stored by electronic means. “Electronic record” also includes, but is not limited to, all of the following: (A) An application, amendment, supplement, and exhibit, filed for any registration, order, license, consent, or other authority. (B) A financial statement, report, or advertising. (C) An order, license, consent, or other authority. (D) A notice of public hearing, accusation, and statement of issues in connection with any application, registration, order, license, consent, or other authority. (E) A proposed decision of a hearing officer and a decision of the commissioner. (F) The transcripts of a hearing. (G) A release, newsletter, interpretive opinion, determination, or specific ruling. (H) Correspondence between a party and the commissioner directly relating to any document listed in subparagraphs (A) to (G), inclusive. (2) “Electronic signature” means an electronic sound, symbol, or process attached to or logically associated with an electronic record and executed or adopted by a person with the intent to sign the electronic record. (c) The Legislature finds and declares that the Department of Financial Protection and Innovation has continuously implemented methods to accept records filed electronically, including broker-dealer and investment adviser applications, and is encouraged to continue to expand its use of electronic filings to the extent feasible, as budget, resources, and equipment are made available to accomplish that goal. (Amended by Stats. 2022, Ch. 452, Sec. 92. (SB 1498) Effective January 1, 2023.)
  83. 312.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. )

    Verify source ↗

    A corporation must have specified officers, including a board chairperson, secretary, and chief financial officer, and the board may choose officers and set titles and duties for additional officers.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. ) ## 312. (a) A corporation shall have (1) a chairperson of the board, who may be given the title of chair of the board, chairperson of the board, chairperson, or a president or both, (2) a secretary, (3) a chief financial officer, and (4) such other officers with such titles and duties as shall be stated in the bylaws or determined by the board and as may be necessary to enable it to sign instruments and share certificates. The president, or if there is no president the chairperson of the board, is the general manager and chief executive officer of the corporation, unless otherwise provided in the articles or bylaws. Any number of offices may be held by the same person unless the articles or bylaws provide otherwise. (b) Except as otherwise provided by the articles or bylaws, officers shall be chosen by the board and serve at the pleasure of the board, subject to the rights, if any, of an officer under any contract of employment. Any officer may resign at any time upon written notice to the corporation without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. (Amended by Stats. 2022, Ch. 617, Sec. 10. (SB 1202) Effective January 1, 2023.)
  84. 31200.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 3. FRAUDULENT AND PROHIBITED PRACTICES [31200 - 31221] ( Part 3 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Fraudulent Practices [31200 - 31204] ( Chapter 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    Any person must not willfully make a false material statement, omit a required material fact, or fail to notify the commissioner of a material change required by Section 31123.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 3. FRAUDULENT AND PROHIBITED PRACTICES [31200 - 31221] ( Part 3 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Fraudulent Practices [31200 - 31204] ( Chapter 1 added by Stats. 1970, Ch. 1400. ) ## 31200. It is unlawful for any person willfully to make any untrue statement of a material fact in any application, notice or report filed with the commissioner under this law, or willfully to omit to state in any such application, notice, or report any material fact which is required to be stated therein, or fail to notify the commissioner of any material change as required by Section 31123. (Added by Stats. 1970, Ch. 1400.)
  85. 31201.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 3. FRAUDULENT AND PROHIBITED PRACTICES [31200 - 31221] ( Part 3 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Fraudulent Practices [31200 - 31204] ( Chapter 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    A person may not offer or sell a franchise in California using a written or oral communication covered by this section if it contains a material false statement or leaves out a material fact that makes the statement misleading.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 3. FRAUDULENT AND PROHIBITED PRACTICES [31200 - 31221] ( Part 3 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Fraudulent Practices [31200 - 31204] ( Chapter 1 added by Stats. 1970, Ch. 1400. ) ## 31201. It is unlawful for any person to offer or sell a franchise in this state by means of any written or oral communication not enumerated in Section 31200 which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading. (Added by Stats. 1970, Ch. 1400.)
  86. 31202.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 3. FRAUDULENT AND PROHIBITED PRACTICES [31200 - 31221] ( Part 3 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Fraudulent Practices [31200 - 31204] ( Chapter 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    Any person must not willfully make a false statement of a material fact or omit a required material fact in a written disclosure under Section 31101.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 3. FRAUDULENT AND PROHIBITED PRACTICES [31200 - 31221] ( Part 3 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Fraudulent Practices [31200 - 31204] ( Chapter 1 added by Stats. 1970, Ch. 1400. ) ## 31202. It is unlawful for any person willfully to make any untrue statement of a material fact in any statement required to be disclosed in writing pursuant to Section 31101, or willfully to omit to state in any such statement any material fact which is required to be stated therein. (Added by Stats. 1970, Ch. 1400.)
  87. 31203.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 3. FRAUDULENT AND PROHIBITED PRACTICES [31200 - 31221] ( Part 3 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Fraudulent Practices [31200 - 31204] ( Chapter 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    It is unlawful for any person to violate a commissioner order or a condition tied to the effectiveness of franchise registration for an offer or sale.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 3. FRAUDULENT AND PROHIBITED PRACTICES [31200 - 31221] ( Part 3 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Fraudulent Practices [31200 - 31204] ( Chapter 1 added by Stats. 1970, Ch. 1400. ) ## 31203. It is unlawful for any person to violate any order of the commissioner or condition to the effectiveness of the registration of the offer or sale of franchises. (Added by Stats. 1970, Ch. 1400.)
  88. 31204.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 3. FRAUDULENT AND PROHIBITED PRACTICES [31200 - 31221] ( Part 3 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Fraudulent Practices [31200 - 31204] ( Chapter 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    It is unlawful for any person to knowingly interfere with records or make false statements to the commissioner, if done to impede or influence enforcement of this division.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 3. FRAUDULENT AND PROHIBITED PRACTICES [31200 - 31221] ( Part 3 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Fraudulent Practices [31200 - 31204] ( Chapter 1 added by Stats. 1970, Ch. 1400. ) ## 31204. (a) It is unlawful for any person to knowingly alter, destroy, mutilate, conceal, cover up, falsify, or make a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the administration or enforcement of any provision of this division. (b) It is unlawful for any person to knowingly make an untrue statement to the commissioner during the course of licensing, investigation, or examination, with the intent to impede, obstruct, or influence the administration or enforcement of any provision of this division. (Added by Stats. 2007, Ch. 101, Sec. 13. Effective January 1, 2008.)
  89. 31210.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 3. FRAUDULENT AND PROHIBITED PRACTICES [31200 - 31221] ( Part 3 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Prohibited Practices [31210 - 31212] ( Chapter 2 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    A person may not sell or try to sell a franchise in this state unless an exemption or listed licensing/registration condition applies.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 3. FRAUDULENT AND PROHIBITED PRACTICES [31200 - 31221] ( Part 3 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Prohibited Practices [31210 - 31212] ( Chapter 2 added by Stats. 1970, Ch. 1400. ) ## 31210. It is unlawful for any person to effect or attempt to effect a sale of a franchise in this state, except in transactions exempted under Chapter 1 (commencing with Section 31100) of Part 2 of this division, unless that person is any of the following: (a) Identified in Item 2 of a franchise disclosure document submitted with an application or amended application filed with the commissioner pursuant to Part 2 (commencing with Section 31100) of this division. (b) Licensed by the Department of Real Estate as a real estate broker or real estate salesperson. (c) Licensed by the commissioner as a broker-dealer or agent pursuant to the Corporate Securities Law of 1968. (d) Registered as a franchise broker pursuant to Part 7 (commencing with Section 31520). (Amended by Stats. 2024, Ch. 518, Sec. 2. (SB 919) Effective January 1, 2025.)
  90. 31211.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 3. FRAUDULENT AND PROHIBITED PRACTICES [31200 - 31221] ( Part 3 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Prohibited Practices [31210 - 31212] ( Chapter 2 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    If the commissioner thinks a person is violating Section 31210, the commissioner may order that person to stop. If the person requests a hearing in writing, the hearing must begin within 15 business days unless the person agrees to a later date; otherwise, the order is rescinded.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 3. FRAUDULENT AND PROHIBITED PRACTICES [31200 - 31221] ( Part 3 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Prohibited Practices [31210 - 31212] ( Chapter 2 added by Stats. 1970, Ch. 1400. ) ## 31211. If in the opinion of the commissioner any person is acting in violation of Section 31210, the commissioner may order such person to desist and refrain from further activity. If, after such an order has been made, a request for a hearing is filed in writing by the person to whom such order was directed, a hearing shall be held in accordance with the provisions of Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner shall have all of the powers granted thereunder; unless such hearing is commenced within 15 business days after the request is made (or the person affected consents to a later date), such order shall be deemed rescinded. (Amended by Stats. 1973, Ch. 539.)
  91. 31212.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 3. FRAUDULENT AND PROHIBITED PRACTICES [31200 - 31221] ( Part 3 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Prohibited Practices [31210 - 31212] ( Chapter 2 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    A franchisor must not refuse a franchise or financial assistance based solely on protected characteristics or neighborhood/geographic characteristics.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 3. FRAUDULENT AND PROHIBITED PRACTICES [31200 - 31221] ( Part 3 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Prohibited Practices [31210 - 31212] ( Chapter 2 added by Stats. 1970, Ch. 1400. ) ## 31212. No franchisor shall refuse to grant a franchise, or refuse to provide financial assistance, to a franchisee or prospective franchisee that has been granted or provided to other similarly situated franchisees or prospective franchisees based solely on any characteristic of the franchisee or prospective franchisee, or any characteristic of the composition of the neighborhood or geographic area where the franchise is located or the proposed franchise would be located, listed or defined in subdivision (b) or (e) of Section 51 of the Civil Code. Nothing in this section shall be interpreted to prohibit a franchisor from granting a franchise to a prospective franchisee as part of a program to make franchises available to persons lacking the capital, training, business experience, or other qualifications ordinarily required of franchisees, or any other affirmative action program adopted by the franchisor. (Added by Stats. 2022, Ch. 728, Sec. 9. (AB 676) Effective January 1, 2023.)
  92. 31220.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 3. FRAUDULENT AND PROHIBITED PRACTICES [31200 - 31221] ( Part 3 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 3. Unfair Practices [31220 - 31221] ( Chapter 3 added by Stats. 1977, Ch. 510. )

    Verify source ↗

    Franchisors may not restrict or block franchisees from joining trade associations or freely associating for lawful purposes.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 3. FRAUDULENT AND PROHIBITED PRACTICES [31200 - 31221] ( Part 3 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 3. Unfair Practices [31220 - 31221] ( Chapter 3 added by Stats. 1977, Ch. 510. ) ## 31220. It shall be a violation of this division for any franchisor, directly or indirectly, through any officer, agent or employee, to restrict or inhibit the right of franchisees to join a trade association or to prohibit the right of free association among franchisees for any lawful purposes. Notwithstanding Section 31410, a violation of this section shall not constitute a crime. (Added by Stats. 1977, Ch. 510.)
  93. 31221.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 3. FRAUDULENT AND PROHIBITED PRACTICES [31200 - 31221] ( Part 3 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 3. Unfair Practices [31220 - 31221] ( Chapter 3 added by Stats. 1977, Ch. 510. )

    Verify source ↗

    A franchisor must not, directly or indirectly through an officer, agent, or employee, violate Section 31126.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 3. FRAUDULENT AND PROHIBITED PRACTICES [31200 - 31221] ( Part 3 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 3. Unfair Practices [31220 - 31221] ( Chapter 3 added by Stats. 1977, Ch. 510. ) ## 31221. It shall be a violation of this division for any franchisor, directly or indirectly, through any officer, agent, or employee, to violate the provisions of Section 31126. (Added by Stats. 2022, Ch. 728, Sec. 10. (AB 676) Effective January 1, 2023.)
  94. 313.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. )

    Verify source ↗

    Certain corporate writings signed by specified officers are not invalidated for lack of authority if the other party did not actually know the officers lacked authority.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. ) ## 313. Subject to the provisions of subdivision (a) of Section 208, any note, mortgage, evidence of indebtedness, contract, share certificate, initial transaction statement or written statement, conveyance, or other instrument in writing, and any assignment or endorsement thereof, executed or entered into between any corporation and any other person, when signed by the chairperson of the board, the president or any vice president and the secretary, any assistant secretary, the chief financial officer or any assistant treasurer of such corporation, is not invalidated as to the corporation by any lack of authority of the signing officers in the absence of actual knowledge on the part of the other person that the signing officers had no authority to execute the same. (Amended by Stats. 2015, Ch. 98, Sec. 6. (SB 351) Effective January 1, 2016.)
  95. 31300.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Civil Liability [31300 - 31306] ( Chapter 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    If a franchise is sold in violation of specified franchise law provisions, the seller or broker can be liable for damages, and in some cases the franchisee may also seek rescission or the franchisor may seek damages or indemnity.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Civil Liability [31300 - 31306] ( Chapter 1 added by Stats. 1970, Ch. 1400. ) ## 31300. (a) Any person who offers or sells a franchise in violation of Section 31101, 31110, 31119, 31200, or 31202, or in violation of any provision of this division that provides an exemption from the provisions of Chapter 2 (commencing with Section 31110) of Part 2 or any portions of Part 2, shall be liable to the franchisee or subfranchisor, who may sue for damages caused thereby, and if the violation is willful, the franchisee may also sue for rescission, unless, in the case of a violation of Section 31200 or 31202, the defendant proves that the plaintiff knew the facts concerning the untruth or omission, or that the defendant exercised reasonable care and did not know, or, if they had exercised reasonable care, would not have known, of the untruth or omission. (b) (1) Any franchise broker who offers or sells a franchise in violation of Part 7 (commencing with Section 31520) or Chapter 1 (commencing with Section 31200) of Part 3 shall be liable to the franchisee, who may sue for damages caused thereby. (2) Any franchise broker who offers or sells a franchise in violation of Part 7 (commencing with Section 31520) or Chapter 1 (commencing with Section 31200) of Part 3 shall be liable to the franchisor, who may sue for damages or may assert claims of indemnity against the franchise broker caused by the violation, including, but not limited to, indemnity for any damages awarded in connection with rescission awarded to the franchisee. (Amended by Stats. 2024, Ch. 518, Sec. 3. (SB 919) Effective January 1, 2025.)
  96. 31301.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Civil Liability [31300 - 31306] ( Chapter 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    A person who violates Section 31201 may be liable for damages to a buyer who relied on the statement when purchasing a franchise.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Civil Liability [31300 - 31306] ( Chapter 1 added by Stats. 1970, Ch. 1400. ) ## 31301. Any person who violates Section 31201 shall be liable to any person (not knowing or having cause to believe that such statement was false or misleading) who, while relying upon such statement shall have purchased a franchise, for damages, unless the defendant proves that the plaintiff knew the facts concerning the untruth or omission or that the defendant exercised reasonable care and did not know, (or if he had exercised reasonable care would not have known) of the untruth or omission. (Added by Stats. 1970, Ch. 1400.)
  97. 31302.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Civil Liability [31300 - 31306] ( Chapter 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    Certain controllers, partners, officers, directors, similar-function persons, and aiding employees can be jointly and severally liable for violations under Sections 31300 or 31301, unless the knowledge-based exception applies.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Civil Liability [31300 - 31306] ( Chapter 1 added by Stats. 1970, Ch. 1400. ) ## 31302. Every person who directly or indirectly controls a person liable under Section 31300 or 31301, every partner in a firm so liable, every principal executive officer or director of a corporation so liable, every person occupying a similar status or performing similar functions, every employee of a person so liable who materially aids in the act or transaction constituting the violation, are also liable jointly and severally with and to the same extent as such person, unless the other person who is so liable had no knowledge of or reasonable grounds to believe in the existence of the facts by reason of which the liability is alleged to exist. (Added by Stats. 1970, Ch. 1400.)
  98. 31302.5.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Civil Liability [31300 - 31306] ( Chapter 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    A person who violates Section 31220 may be sued in superior court for injunctions, damages, suit costs, and reasonable attorneys’ fees.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Civil Liability [31300 - 31306] ( Chapter 1 added by Stats. 1970, Ch. 1400. ) ## 31302.5. (a) Any person who violates Section 31220 may be sued in the superior court in the county in which the defendant resides or where a franchise affected by the violation does business, for temporary and permanent injunctive relief and for damages, if any, and the costs of suit, including reasonable attorneys’ fees. A plaintiff shall not be required to allege or prove that actual damages have been suffered in order to obtain injunctive relief. (b) No action shall be maintained to enforce any liability created under Section 31220 unless brought before the expiration of two years after the violation upon which it is based or the expiration of one year after the discovery by the plaintiff of the facts constituting such violation, whichever occurs first. (Added by Stats. 1977, Ch. 510.)
  99. 31303.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Civil Liability [31300 - 31306] ( Chapter 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    A lawsuit to enforce liability under Section 31300 must be filed before the earliest of three deadlines: 4 years after the violation, 1 year after the plaintiff discovers the violation, or 90 days after delivery of a qualifying written notice.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Civil Liability [31300 - 31306] ( Chapter 1 added by Stats. 1970, Ch. 1400. ) ## 31303. No action shall be maintained to enforce any liability created under Section 31300 unless brought before the expiration of four years after the act or transaction constituting the violation, the expiration of one year after the discovery by the plaintiff of the fact constituting the violation, or 90 days after delivery to the franchisee of a written notice disclosing any violation of Section 31110 or 31200, which notice shall be approved as to form by the commissioner, whichever shall first expire. (Added by Stats. 1970, Ch. 1400.)
  100. 31304.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Civil Liability [31300 - 31306] ( Chapter 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    A lawsuit to enforce liability under Section 31301 must be filed within the earliest of three deadlines: 2 years after the violation, 1 year after the plaintiff discovers the facts, or 90 days after delivery of certain written notice.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Civil Liability [31300 - 31306] ( Chapter 1 added by Stats. 1970, Ch. 1400. ) ## 31304. No action shall be maintained to enforce any liability created under Section 31301 unless brought before the expiration of two years after the violation upon which it is based, expiration of one year after the discovery by the plaintiff of the facts constituting such violation, or 90 days after delivery to the franchisee of a written notice disclosing any violation of Section 31201 or 31202 which notice shall be approved as to form by the commissioner, whichever shall first expire. (Added by Stats. 1970, Ch. 1400.)
  101. 31305.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Civil Liability [31300 - 31306] ( Chapter 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    Causes of action under this chapter survive the death of a person who could have been a plaintiff or defendant.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Civil Liability [31300 - 31306] ( Chapter 1 added by Stats. 1970, Ch. 1400. ) ## 31305. Every cause of action under this chapter survives the death of any person who might have been a plaintiff or defendant. (Added by Stats. 1970, Ch. 1400.)
  102. 31306.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Civil Liability [31300 - 31306] ( Chapter 1 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    This chapter does not limit liability that may exist under another statute or under common law.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 1. Civil Liability [31300 - 31306] ( Chapter 1 added by Stats. 1970, Ch. 1400. ) ## 31306. Nothing in this chapter shall limit any liability which may exist by virtue of any other statute or under common law if this law were not in effect. (Amended by Stats. 2022, Ch. 728, Sec. 11. (AB 676) Effective January 1, 2023.)
  103. 314.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. )

    Verify source ↗

    Certain corporate records, if in written or convertible legible form and certified by the secretary or assistant secretary, count as prima facie evidence of the bylaws, resolutions, meetings, and stated matters.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. ) ## 314. The original or a copy in writing or in any other form capable of being converted into clearly legible tangible form of the bylaws or of the minutes of any incorporators’, shareholders’, directors’, committee or other meeting or of any resolution adopted by the board or a committee thereof, or shareholders, certified to be a true copy by a person purporting to be the secretary or an assistant secretary of the corporation, is prima facie evidence of the adoption of such bylaws or resolution or of the due holding of such meeting and of the matters stated therein. (Amended by Stats. 2004, Ch. 254, Sec. 7. Effective January 1, 2005.)
  104. 31400.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Powers of the Commissioner [31400 - 31408] ( Chapter 2 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    The commissioner may bring an enforcement action, or ask the Attorney General to do so, to stop violations or require compliance. If the commissioner finds it is in the public interest, the action may also seek restitution, disgorgement, or damages for injured persons.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Powers of the Commissioner [31400 - 31408] ( Chapter 2 added by Stats. 1970, Ch. 1400. ) ## 31400. (a) Whenever it appears to the commissioner that any person has engaged or is about to engage in any act or practice constituting a violation of any provision of this law or any rule or order hereunder, the commissioner may in the commissioner’s discretion bring an action, or the commissioner may request the Attorney General to bring an action in the name of the people of the State of California, in the superior court to enjoin the acts or practices or to enforce compliance with this law or any rule or order hereunder. Upon a proper showing a permanent or preliminary injunction, restraining order or writ of mandate shall be granted and a receiver or conservator may be appointed for the defendant or the defendant’s assets. (b) If the commissioner determines it is in the public interest, the commissioner may include in any action authorized by subdivision (a) a claim for ancillary relief, including, but not limited to, a claim for restitution or disgorgement or damages on behalf of the persons injured by the act or practice constituting the subject matter of the action, and the court shall have jurisdiction to award that additional relief. (Amended by Stats. 1986, Ch. 698, Sec. 5.)
  105. 31400.1.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Powers of the Commissioner [31400 - 31408] ( Chapter 2 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    In a Section 31400 proceeding, the court may bar a person who violated Sections 31200, 31201, or 31202 from serving as an officer or director of a franchisor if the person is unfit to serve.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Powers of the Commissioner [31400 - 31408] ( Chapter 2 added by Stats. 1970, Ch. 1400. ) ## 31400.1. In any proceeding under Section 31400, the court may prohibit, conditionally or unconditionally, and permanently or for such period of time as it shall determine, any person who violated Section 31200, 31201, or 31202 from acting as an officer or director of any franchisor if the person’s conduct demonstrates unfitness to serve as an officer or director of the franchisor. (Added by Stats. 2007, Ch. 101, Sec. 14. Effective January 1, 2008.)
  106. 31401.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Powers of the Commissioner [31400 - 31408] ( Chapter 2 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    The commissioner may investigate, issue subpoenas, take evidence, and require records in enforcement matters; people must comply, and noncompliance can lead to a court contempt order.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Powers of the Commissioner [31400 - 31408] ( Chapter 2 added by Stats. 1970, Ch. 1400. ) ## 31401. (a) The commissioner may in his discretion (1) make such public or private investigations within or outside of this state as he deems necessary to determine whether any person has violated or is about to violate any provision of this law or any rule or order hereunder or to aid in the enforcement of this law or in the prescribing of rules and forms hereunder, and (2) publish information concerning the violation of this law or any rule or order hereunder. (b) For the purpose of any investigation or proceeding under this law, the commissioner or any officer designated by him may administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence, and require the production of any books, papers, correspondence, memoranda, agreements, or other documents or records which the commissioner deems relevant or material to the inquiry. (c) In case of contumacy by, or refusal to obey a subpoena issued to, any person, the superior court, upon application by the commissioner, may issue to the person an order requiring him to appear before the commissioner, or the officer designated by him, there to produce documentary evidence, if so ordered, or to give evidence touching the matter under investigation or in question. Failure to obey the order of the court may be punished by the court as a contempt. (d) No person is excused from attending and testifying or from producing any document or record before the commissioner, or in obedience to the subpoena of the commissioner or any officer designated by him, or in any proceeding instituted by the commissioner, on the ground that the testimony or evidence (documentary or otherwise) required of him may tend to incriminate him or subject him to a penalty or forfeiture; but no individual may be prosecuted or subjected to any penalty or forfeiture for or on account of any transaction, matter, or thing concerning which he is compelled, after validly claiming his privilege against self-incrimination, to testify or produce evidence (documentary or otherwise), except that the individual testifying is not exempt from prosecution and punishment for perjury or contempt committed in testifying. (Added by Stats. 1970, Ch. 1400.)
  107. 31402.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Powers of the Commissioner [31400 - 31408] ( Chapter 2 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    The commissioner may order a franchisor or offeror to stop offering or selling a franchise if the offer should have been registered and was not.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Powers of the Commissioner [31400 - 31408] ( Chapter 2 added by Stats. 1970, Ch. 1400. ) ## 31402. If, in the opinion of the commissioner, the offer of any franchise is subject to registration under this law and it is being, or it has been, offered for sale without the offer first being registered, the commissioner may order the franchisor or offeror of that franchise to desist and refrain from the further offer or sale of that franchise unless and until the offer has been duly registered under this law. If, after that order has been made, a request for a hearing is filed in writing within 60 days from the date of service of the order by the person to whom the order was directed, a hearing shall be held in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner shall have all of the powers granted under that chapter. Unless that hearing is commenced within 15 business days after the request is made (or the person affected consents to a later date), the order shall be deemed rescinded. If that person fails to file a written request for a hearing within 60 days from the date of service of the order, the order shall be deemed a final order of the commissioner and shall not be subject to review by any court or agency, notwithstanding Section 31501. (Amended by Stats. 2004, Ch. 458, Sec. 8. Effective September 10, 2004. Operative January 1, 2005, by Sec. 19 of Ch. 458.)
  108. 31403.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Powers of the Commissioner [31400 - 31408] ( Chapter 2 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    The commissioner may order a franchisor or franchise offeror to stop offering or selling a franchise if the exemption conditions were not followed.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Powers of the Commissioner [31400 - 31408] ( Chapter 2 added by Stats. 1970, Ch. 1400. ) ## 31403. If, in the opinion of the commissioner, the offer of any franchise exempt from registration under this law is being or has been offered for sale without complying with Section 31201, or any other provision that provides an exemption from Chapter 2 (commencing with Section 31110) of Part 2, the commissioner may order the franchisor or offeror of the franchise to desist and refrain from the further offer or sale of the franchise unless and until the offer is made in compliance with this law. If, after that order has been made, a request for a hearing is filed in writing within 60 days from the date of service of the order by the person to whom the order was directed, a hearing shall be held in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code and the commissioner shall have all of the powers granted under that chapter. Unless that hearing is commenced within 15 business days after the request is made, or the person affected consents to a later date, the order shall be deemed rescinded. If that person fails to file a written request for a hearing within 60 days from the date of service of the order, the order shall be deemed a final order of the commissioner and shall not be subject to review by any court or agency, notwithstanding Section 31501. (Amended by Stats. 2004, Ch. 458, Sec. 9. Effective September 10, 2004. Operative January 1, 2005, by Sec. 19 of Ch. 458.)
  109. 31404.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Powers of the Commissioner [31400 - 31408] ( Chapter 2 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    The commissioner may refer evidence of violations to the local district attorney, who may start criminal proceedings even without that referral.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Powers of the Commissioner [31400 - 31408] ( Chapter 2 added by Stats. 1970, Ch. 1400. ) ## 31404. The commissioner may refer evidence that is available concerning any violation of this law or of any rule or order hereunder to the district attorney of the county in which the violation occurred, who may, with or without such a reference, institute appropriate criminal proceedings under this law. Upon request of the district attorney, the commissioner and the counsel, deputies, or assistants of the commissioner may assist the district attorney in presenting the law or facts at the trial. (Amended by Stats. 1984, Ch. 936, Sec. 1.)
  110. 31405.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Powers of the Commissioner [31400 - 31408] ( Chapter 2 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    A person who violates this law or related rules/orders can be fined up to $10,000 per violation, enforced by the commissioner in a civil action.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Powers of the Commissioner [31400 - 31408] ( Chapter 2 added by Stats. 1970, Ch. 1400. ) ## 31405. (a) Any person who violates any provision of this law, or who violates any rule or order made under this law, shall be liable for a civil penalty not to exceed ten thousand dollars ($10,000) for each violation, which shall be assessed and recovered in a civil action brought in the name of the people of the State of California by the commissioner in any court of competent jurisdiction. (b) As applied to the penalties for acts in violation of this division, the remedies provided by this section and by other sections of this division are not exclusive, and may be sought and employed in any combination to enforce the provisions of this division. (c) No action shall be maintained to enforce any liability created under subdivision (a) unless brought before the expiration of four years after the act or transaction constituting the violation. (Amended by Stats. 2004, Ch. 458, Sec. 10. Effective September 10, 2004. Operative January 1, 2005, by Sec. 19 of Ch. 458.)
  111. 31406.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Powers of the Commissioner [31400 - 31408] ( Chapter 2 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    The commissioner may issue a written citation, including a desist-and-refrain order and an administrative penalty up to $2,500 per violation, when there is cause to believe a person violated the division or related rules or orders.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Powers of the Commissioner [31400 - 31408] ( Chapter 2 added by Stats. 1970, Ch. 1400. ) ## 31406. (a) If, upon inspection or investigation, based upon a complaint or otherwise, the commissioner has cause to believe that a person is violating or has violated any provision of this division or any rule or order promulgated pursuant to this division, the commissioner may issue a citation to that person in writing describing with particularity the basis of the citation. Each citation may contain an order to desist and refrain and an assessment of an administrative penalty not to exceed two thousand five hundred dollars ($2,500) per violation and shall contain reference to this section, including the provisions of subdivision (c). All penalties collected under this section shall be deposited in the State Corporations Fund. (b) The sanctions authorized under this section shall be separate from, and in addition to, all other administrative, civil, or criminal remedies. (c) If within 60 days from the receipt of the citation, the person cited fails to notify the commissioner that the person intends to request a hearing as described in subdivision (d), the citation shall be deemed final. (d) Any hearing under this section shall be conducted in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code. (e) After the exhaustion of the review procedures provided for in this section, the commissioner may apply to the appropriate superior court for a judgment in the amount of the administrative penalty and order compelling the cited person to comply with the order of the commissioner. The application shall include a certified copy of the final order of the commissioner and shall constitute a sufficient showing to warrant the issuance of the judgment and order. (Amended by Stats. 2022, Ch. 188, Sec. 5. (AB 2433) Effective January 1, 2023.)
  112. 31407.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Powers of the Commissioner [31400 - 31408] ( Chapter 2 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    The commissioner may order a person to stop violating the division or related binding rules or orders, and the person must stop the named practices once the order becomes final.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Powers of the Commissioner [31400 - 31408] ( Chapter 2 added by Stats. 1970, Ch. 1400. ) ## 31407. (a) If, after examination or investigation, the commissioner has reasonable grounds to believe that any person is conducting or has conducted business in violation of any provision of this division or related rule or order binding upon it, the commissioner may, by written order addressed to the person, direct the discontinuance of the violation. The order shall be effective immediately, but shall not become final except in accordance with subdivision (b). (b) An order issued pursuant to this section shall not become final except after notice to the affected person of the commissioner’s intention to make the order final and of the reasons for the finding. The commissioner shall also notify the person that upon receiving a request the matter shall be set for hearing to commence within 15 business days after receipt of the request. The person may consent to have the hearing commence at a later date. If no hearing is requested within 60 days after the mailing or service of the required notice, and none is ordered by the commissioner, the order may become final without a hearing and that person shall immediately discontinue the practices named in the order. If a hearing is requested or ordered it shall be held in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner shall have all of the powers granted under that chapter. If, upon the conclusion of the hearing, it appears to the commissioner that the person is violating or has violated any provision of this division or any related rule or order binding upon it, the commissioner shall make the order of discontinuance final and the person shall immediately discontinue the practices named in the order. (Amended by Stats. 2022, Ch. 188, Sec. 6. (AB 2433) Effective January 1, 2023.)
  113. 31408.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Powers of the Commissioner [31400 - 31408] ( Chapter 2 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    The commissioner may add ancillary relief to certain administrative actions if the public interest justifies it, and the commissioner can require the affected person to attend remedial education. The commissioner is also entitled to recover costs, and an administrative law judge may award additional relief.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 2. Powers of the Commissioner [31400 - 31408] ( Chapter 2 added by Stats. 1970, Ch. 1400. ) ## 31408. (a) If the commissioner determines it is in the public interest, the commissioner may include in any administrative action brought under this division, including a stop order, a claim for ancillary relief, including, but not limited to, a claim for rescission, restitution or disgorgement or damages on behalf of the persons injured by the act or practice constituting the subject matter of the action, and the administrative law judge shall have jurisdiction to award additional relief. The person affected may be required to attend remedial education, as directed by the commissioner. (b) In an administrative action brought under this part the commissioner is entitled to recover costs, which in the discretion of the administrative law judge may include any amount representing reasonable attorney’s fees and investigative expenses for the services rendered, for deposit into the State Corporations Fund for the use of the Department of Financial Protection and Innovation. (Amended by Stats. 2022, Ch. 452, Sec. 93. (SB 1498) Effective January 1, 2023.)
  114. 31410.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 3. Crimes [31410 - 31412] ( Chapter 3 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    A person who willfully violates this law or its rules/orders can be fined or imprisoned after conviction.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 3. Crimes [31410 - 31412] ( Chapter 3 added by Stats. 1970, Ch. 1400. ) ## 31410. Any person who willfully violates any provision of this law, or who willfully violates any rule or order under this law, shall upon conviction be fined not more than one hundred thousand dollars ($100,000) or imprisoned pursuant to subdivision (h) of Section 1170 of the Penal Code, or in a county jail for not more than one year, or be punished by both that fine and imprisonment; but no person may be imprisoned for the violation of any rule or order if he or she proves that he or she had no knowledge of the rule or order. (Amended by Stats. 2011, Ch. 15, Sec. 53. (AB 109) Effective April 4, 2011. Operative October 1, 2011, by Sec. 636 of Ch. 15, as amended by Stats. 2011, Ch. 39, Sec. 68.)
  115. 31411.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 3. Crimes [31410 - 31412] ( Chapter 3 added by Stats. 1970, Ch. 1400. )

    Verify source ↗

    A person who willfully uses fraud or deceit in connection with the offer, purchase, or sale of a franchise can be criminally punished.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 3. Crimes [31410 - 31412] ( Chapter 3 added by Stats. 1970, Ch. 1400. ) ## 31411. Any person who willfully employs, directly or indirectly, any device, scheme, or artifice to defraud in connection with the offer or sale of any franchise or willfully engages, directly or indirectly, in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person in connection with the offer, purchase, or sale of any franchise shall upon conviction be fined not more than one hundred thousand dollars ($100,000) or imprisoned pursuant to subdivision (h) of Section 1170 of the Penal Code, or in a county jail for not more than one year, or be punished by both that fine and imprisonment. (Amended by Stats. 2011, Ch. 15, Sec. 54. (AB 109) Effective April 4, 2011. Operative October 1, 2011, by Sec. 636 of Ch. 15, as amended by Stats. 2011, Ch. 39, Sec. 68.)
  116. 31412.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 3. Crimes [31410 - 31412] ( Chapter 3 added by Stats. 1970, Ch. 1400. )

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    This section says the law does not restrict the state’s power to punish conduct that is a crime under another statute.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 3. Crimes [31410 - 31412] ( Chapter 3 added by Stats. 1970, Ch. 1400. ) ## 31412. Nothing in this law limits the power of the state to punish any person for any conduct which constitutes a crime under any other statute. (Added by Stats. 1970, Ch. 1400.)
  117. 31420.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 4. Service of Process [31420- 31420.] ( Chapter 4 added by Stats. 1970, Ch. 1400. )

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    If a person engages in prohibited or actionable conduct under this law and personal jurisdiction cannot otherwise be obtained, the commissioner is treated as appointed to receive service of process. The plaintiff must also send notice and file an affidavit to make service effective.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 4. ENFORCEMENT [31300 - 31420] ( Part 4 added by Stats. 1970, Ch. 1400. ) ## CHAPTER 4. Service of Process [31420- 31420.] ( Chapter 4 added by Stats. 1970, Ch. 1400. ) ## 31420. When any person, including any nonresident of this state, engages in conduct prohibited or made actionable by this law or any rule or order hereunder, whether or not he has filed a consent to service of process under Section 31155, and personal jurisdiction over him cannot otherwise be obtained in this state, that conduct shall be considered equivalent to his appointment of the commissioner or his successor in office to be his attorney to receive service of any lawful process in any noncriminal suit, action, or proceeding against him or his successor, executor, or administrator which grows out of that conduct and which is brought under this law or any rule or order hereunder, with the same force and validity as if served on him personally. Service may be made by leaving a copy of the process in the office of the commissioner, but it is not effective unless (a) the plaintiff, who may be the commissioner in a suit, action, or proceeding instituted by him, forthwith sends notice of the service and a copy of the process by registered or certified mail to the defendant or respondent at his last known address or takes other steps which are reasonably calculated to give actual notice, and (b) the plaintiff’s affidavit of compliance with this section is filed in the case on or before the return day of the process, if any, or within such further time as the court allows. (Added by Stats. 1970, Ch. 1400.)
  118. 315.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. )

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    A corporation generally may not lend to or guarantee debts for its directors, officers, or certain other persons unless shareholder approval or a listed exception applies.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. ) ## 315. (a) A corporation shall not make any loan of money or property to, or guarantee the obligation of, any director or officer of the corporation or of its parent, unless the transaction, or an employee benefit plan authorizing the loans or guaranties after disclosure of the right under such a plan to include officers or directors, is approved by a majority of the shareholders entitled to act thereon. (b) Notwithstanding subdivision (a), if the corporation has outstanding shares held of record by 100 or more persons (determined as provided in Section 605) on the date of approval by the board, and has a bylaw approved by the outstanding shares (Section 152) authorizing the board alone to approve such a loan or guaranty to an officer, whether or not a director, or an employee benefit plan authorizing such a loan or guaranty to an officer, such a loan or guaranty or employee benefit plan may be approved by the board alone by a vote sufficient without counting the vote of any interested director or directors if the board determines that such a loan or guaranty or plan may reasonably be expected to benefit the corporation. (c) A corporation shall not make any loan of money or property to, or guarantee the obligation of, any person upon the security of shares of the corporation or of its parent if the corporation’s recourse in the event of default is limited to the security for the loan or guaranty, unless the loan or guaranty is adequately secured without considering these shares, or the loan or guaranty is approved by a majority of the shareholders entitled to act thereon. (d) Notwithstanding subdivision (a), a corporation may advance money to a director or officer of the corporation or of its parent for any expenses reasonably anticipated to be incurred in the performance of the duties of the director or officer, provided that in the absence of the advance the director or officer would be entitled to be reimbursed for the expenses by the corporation, its parent, or any subsidiary. (e) The provisions of subdivision (a) do not apply to the payment of premiums in whole or in part by a corporation on a life insurance policy on the life of a director or officer so long as repayment to the corporation of the amount paid by it is secured by the proceeds of the policy and its cash surrender value. (f) This section does not apply to any of the following: (1) Any transaction, plan, or agreement permitted under Section 408. (2) Any depository institution, as defined in Section 202 of the Depository Institutions Management Interlocks Act (12 U.S.C. Sec. 3201). (3) Any loan or guaranty made by a corporation that makes loans or guaranties in the ordinary course of its business if statutes or regulations pertaining to the corporation expressly regulate the making by the corporation of loans to its officers or directors or the undertaking of guaranties of the obligations of its officers or directors. (g) For the purposes of subdivisions (a) and (c), “approval by a majority of the shareholders entitled to act” means either (1) written consent of a majority of the outstanding shares without counting as outstanding or as consenting any shares owned by any officer or director eligible to participate in the plan or transaction that is subject to this approval, (2) the affirmative vote of a majority of the shares present and voting at a duly held meeting at which a quorum is otherwise present, without counting for purposes of the vote as either present or voting any shares owned by any officer or director eligible to participate in the plan or transaction that is subject to the approval, or (3) the unanimous vote or written consent of the shareholders. In the case of a corporation which has more than one class or series of shares outstanding, the “shareholders entitled to act” within the meaning of this section includes only holders of those classes or series entitled under the articles to vote on all matters before the shareholders or to vote on the subject matter of this section, and includes a requirement for separate class or series voting, or for more or less than one vote per share, only to the extent required by the articles. (Amended by Stats. 1984, Ch. 812, Sec. 1.)
  119. 31500.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 5. ADMINISTRATION [31500 - 31506] ( Part 5 added by Stats. 1970, Ch. 1400. )

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    The commissioner must collect the fees set by this section, and the collected amounts must be sent to the Treasurer at least weekly with a detailed statement and credited to the Financial Protection Fund.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 5. ADMINISTRATION [31500 - 31506] ( Part 5 added by Stats. 1970, Ch. 1400. ) ## 31500. (a) The commissioner shall charge and collect the fees fixed by this section. All fees and charges collected under this section shall be transmitted to the Treasurer at least weekly, accompanied by a detailed statement thereof and shall be credited to the Financial Protection Fund. (b) The fee for filing an application for registration of the offer of franchises under Section 31111 is one thousand eight hundred sixty-five dollars ($1,865). (c) The fee for filing an application for renewal of a registration under Section 31121 is one thousand two hundred forty-five dollars ($1,245). (d) The fee for filing an amendment to the application filed under Section 31111 or 31121 after the effective date of the registration of the offer of franchises, is fifty dollars ($50). (e) The fee for filing an application for material modification under Section 31125 is fifty dollars ($50), whether or not it accompanies an application under Section 31111 or 31121. (f) The fee for filing the initial notice of exemption under Section 31101 is one thousand two hundred forty-five dollars ($1,245) and the fee for filing each consecutive subsequent notice of exemption under these provisions is four hundred fifteen dollars ($415). (g) The fee for filing an application for approval of a written notice of violation under Section 31303 or 31304 is one thousand eight hundred sixty-five dollars ($1,865). (h) The fee for filing an application for registration as a franchise broker under Part 7 (commencing with Section 31520) is four hundred fifty dollars ($450). (i) The fee for filing an application for amendment of a registration as a franchise broker under Part 7 (commencing with Section 31520) is fifty dollars ($50). (Amended by Stats. 2025, Ch. 20, Sec. 6. (AB 137) Effective June 30, 2025.)
  120. 31501.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 5. ADMINISTRATION [31500 - 31506] ( Part 5 added by Stats. 1970, Ch. 1400. )

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    The commissioner’s final orders, decisions, licenses, and other official acts can be reviewed by a court under the law.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 5. ADMINISTRATION [31500 - 31506] ( Part 5 added by Stats. 1970, Ch. 1400. ) ## 31501. Every final order, decision, license, or other official act of the commissioner is subject to judicial review in accordance with law. (Added by Stats. 1970, Ch. 1400.)
  121. 31502.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 5. ADMINISTRATION [31500 - 31506] ( Part 5 added by Stats. 1970, Ch. 1400. )

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    The commissioner may make, amend, and rescind rules, forms, and orders needed to carry out this law.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 5. ADMINISTRATION [31500 - 31506] ( Part 5 added by Stats. 1970, Ch. 1400. ) ## 31502. The commissioner may from time to time make, amend and rescind such rules, forms, and orders as are necessary to carry out the provisions of this law, including rules and forms governing applications and reports, and defining any terms, whether or not used in this law, insofar as the definitions are not inconsistent with the provisions of this law. (Added by Stats. 1970, Ch. 1400.)
  122. 31503.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 5. ADMINISTRATION [31500 - 31506] ( Part 5 added by Stats. 1970, Ch. 1400. )

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    Commissioner rules must be made, amended, or rescinded under Chapter 4.5 procedures, except rules only about the department’s internal administration.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 5. ADMINISTRATION [31500 - 31506] ( Part 5 added by Stats. 1970, Ch. 1400. ) ## 31503. All rules of the commissioner, other than those relating solely to the internal administration of the Department of Financial Protection and Innovation, shall be made, amended, or rescinded in accordance with the provisions of Chapter 4.5 (commencing with Section 11371) of Part 1 of Division 3 of Title 2 of the Government Code. (Amended by Stats. 2022, Ch. 452, Sec. 94. (SB 1498) Effective January 1, 2023.)
  123. 31504.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 5. ADMINISTRATION [31500 - 31506] ( Part 5 added by Stats. 1970, Ch. 1400. )

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    Most filings with the commissioner must be open to public inspection, but the commissioner may withhold information in limited cases and may publish information when it is in the public interest.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 5. ADMINISTRATION [31500 - 31506] ( Part 5 added by Stats. 1970, Ch. 1400. ) ## 31504. (a) All applications, reports and other papers and documents filed with the commissioner under this law shall be open to public inspection, except that the commissioner may, in his discretion, withhold from public inspection any information the disclosure of which is, in the judgment of the commissioner, not necessary in the public interest or for the protection of investors. The commissioner may publish any information filed with him or obtained by him, if, in the judgment of the commissioner, such action is in the public interest. No provision of this law authorizes the commissioner or any of his assistants, clerks, or deputies to disclose any information withheld from public inspection except among themselves or when necessary or appropriate in a proceeding or investigation under this law or to other federal or state regulatory agencies. No provision of this law either creates or derogates from any privilege which exists at common law or otherwise when documentary or other evidence is sought under a subpoena directed to the commissioner or any of his assistants, clerks, or deputies. (b) It is unlawful for the commissioner or any of his assistants, clerks, or deputies to use for personal benefit any information which is filed with or obtained by the commissioner and which is not then generally available to the public. (Added by Stats. 1970, Ch. 1400.)
  124. 31505.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 5. ADMINISTRATION [31500 - 31506] ( Part 5 added by Stats. 1970, Ch. 1400. )

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    The commissioner must provide copies of public-record documents on request, may charge reasonable fees set by rule, and must not charge public officers using the copies officially.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 5. ADMINISTRATION [31500 - 31506] ( Part 5 added by Stats. 1970, Ch. 1400. ) ## 31505. Upon request and at such reasonable charges as he prescribes by rule, the commissioner shall furnish to any person photostatic or other copies (certified under his seal of office if requested) of any document which is retained as a matter of public record, except that he shall not charge or collect any fee for photostatic or other copies of any document furnished to public officers for use in their official capacity. In any judicial proceeding or prosecution, any copy so certified is prima facie evidence of the contents of the document certified. (Added by Stats. 1970, Ch. 1400.)
  125. 31506.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 5. ADMINISTRATION [31500 - 31506] ( Part 5 added by Stats. 1970, Ch. 1400. )

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    The commissioner may destroy certain records after four years, if the Department of General Services approves, and must keep a permanent record of disciplinary action. Certified copies kept by the commissioner may be treated as originals.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 5. ADMINISTRATION [31500 - 31506] ( Part 5 added by Stats. 1970, Ch. 1400. ) ## 31506. (a) The commissioner may destroy any applications or orders, together with the files and folders, as useless or obsolete, four years after the date of filing or issuance, with the approval of the Department of General Services; provided that a permanent record shall be maintained of any disciplinary action taken by the commissioner. (b) Copies on microfilm or in other form which may be retained by the commissioner in his discretion of any records destroyed under this section shall be accepted for all purposes as equivalent to the original when certified by the commissioner. (Added by Stats. 1970, Ch. 1400.)
  126. 31510.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 6. GENERAL PROVISIONS [31510 - 31516] ( Part 6 added by Stats. 1970, Ch. 1400. )

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    The commissioner may, at his discretion, honor requests from interested persons for interpretive opinions.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 6. GENERAL PROVISIONS [31510 - 31516] ( Part 6 added by Stats. 1970, Ch. 1400. ) ## 31510. The commissioner in his discretion may honor requests from interested persons for interpretive opinions. (Added by Stats. 1970, Ch. 1400.)
  127. 31511.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 6. GENERAL PROVISIONS [31510 - 31516] ( Part 6 added by Stats. 1970, Ch. 1400. )

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    Liability under this law does not apply to acts or omissions done in good faith while following certain official rules, forms, orders, or interpretive opinions.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 6. GENERAL PROVISIONS [31510 - 31516] ( Part 6 added by Stats. 1970, Ch. 1400. ) ## 31511. No provision of this law imposing any liability applies to any act done or omitted in good faith in conformity with any rule, form, order, or any written interpretive opinion of the commissioner, or any opinion of the Attorney General, notwithstanding that the rule, form, order, or written interpretive opinion may later be amended or rescinded or be determined by judicial or other authority to be invalid for any reason. (Added by Stats. 1970, Ch. 1400.)
  128. 31512.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 6. GENERAL PROVISIONS [31510 - 31516] ( Part 6 added by Stats. 1970, Ch. 1400. )

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    A franchise-related clause that requires someone to waive compliance with this law, or with a rule or order under it, is void.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 6. GENERAL PROVISIONS [31510 - 31516] ( Part 6 added by Stats. 1970, Ch. 1400. ) ## 31512. Any condition, stipulation or provision purporting to bind any person acquiring any franchise to waive compliance with any provision of this law or any rule or order hereunder is void. (Added by Stats. 1970, Ch. 1400.)
  129. 31512.1.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 6. GENERAL PROVISIONS [31510 - 31516] ( Part 6 added by Stats. 1970, Ch. 1400. )

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    A franchise-related writing cannot disclaim or deny listed franchisor representations, franchisee reliance, or violations of this division; any such term is void and unenforceable.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 6. GENERAL PROVISIONS [31510 - 31516] ( Part 6 added by Stats. 1970, Ch. 1400. ) ## 31512.1. Any provision of a franchise agreement, franchise disclosure document, acknowledgment, questionnaire, or other writing, including any exhibit thereto, disclaiming or denying any of the following shall be deemed contrary to public policy and shall be void and unenforceable: (a) Representations made by the franchisor or its personnel or agents to a prospective franchisee. (b) Reliance by a franchisee on any representations made by the franchisor or its personnel or agents. (c) Reliance by a franchisee on the franchise disclosure document, including any exhibit thereto. (d) Violations of any provision of this division. (Added by Stats. 2022, Ch. 728, Sec. 12. (AB 676) Effective January 1, 2023.)
  130. 31513.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 6. GENERAL PROVISIONS [31510 - 31516] ( Part 6 added by Stats. 1970, Ch. 1400. )

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    A person entitled to a hearing may, with consent, substitute a formal hearing before the Department of Financial Protection and Innovation with an independent hearing officer.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 6. GENERAL PROVISIONS [31510 - 31516] ( Part 6 added by Stats. 1970, Ch. 1400. ) ## 31513. Whenever a person is entitled under this law to a hearing in accordance with the provisions of Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, a formal hearing before the Department of Financial Protection and Innovation may be substituted with the consent of such person and of the commissioner for such hearing before an independent hearing officer; and in that case after such hearing before the Department of Financial Protection and Innovation such person shall not be entitled to any further administrative remedy. (Amended by Stats. 2022, Ch. 452, Sec. 95. (SB 1498) Effective January 1, 2023.)
  131. 31514.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 6. GENERAL PROVISIONS [31510 - 31516] ( Part 6 added by Stats. 1970, Ch. 1400. )

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    This section says that if part of the law is invalid, the rest of the law still applies if it can work without the invalid part.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 6. GENERAL PROVISIONS [31510 - 31516] ( Part 6 added by Stats. 1970, Ch. 1400. ) ## 31514. If any provision of this law or the application thereof to any person or circumstance is held invalid, the invalidity shall not affect other provisions or applications of this law which can be given effect without the invalid provision or application, and to this end the provisions of this law are declared to be severable. (Added by Stats. 1970, Ch. 1400.)
  132. 31515.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 6. GENERAL PROVISIONS [31510 - 31516] ( Part 6 added by Stats. 1970, Ch. 1400. )

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    Prior law continues to control lawsuits and proceedings that were already pending, or that are later started, if they are based on facts or events before this law took effect.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 6. GENERAL PROVISIONS [31510 - 31516] ( Part 6 added by Stats. 1970, Ch. 1400. ) ## 31515. Prior law exclusively governs all suits, actions, prosecutions or proceedings which are pending or may be initiated on the basis of facts or circumstances occurring before the effective date of this law. (Added by Stats. 1970, Ch. 1400.)
  133. 31516.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 6. GENERAL PROVISIONS [31510 - 31516] ( Part 6 added by Stats. 1970, Ch. 1400. )

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    This section says the Franchise Investment Law does not prevent the Real Estate Law from applying to any sale or lease of real property.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 6. GENERAL PROVISIONS [31510 - 31516] ( Part 6 added by Stats. 1970, Ch. 1400. ) ## 31516. Nothing in this law is intended to preclude the applicability of the Real Estate Law, Part 1 (commencing with Section 10000), Division 4 of the Business and Professions Code, to any sale or lease of real property. (Added by Stats. 1970, Ch. 1400.)
  134. 31520.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 7. FRANCHISE BROKERS [31520 - 31528] ( Part 7 added by Stats. 2024, Ch. 518, Sec. 5. )

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    A franchise broker must register online with the commissioner and submit the required form, documents, fee, and any required securities or insurance records.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 7. FRANCHISE BROKERS [31520 - 31528] ( Part 7 added by Stats. 2024, Ch. 518, Sec. 5. ) ## 31520. (a) A franchise broker shall register by filing online all of the following with the commissioner: (1) A completed Uniform Franchise Broker Disclosure Document, as created and modified by the commissioner, that is signed and verified as true and correct by the filer. (2) Any additional documents or exhibits prescribed by the commissioner. (3) The required registration fee, as set forth in Section 31500. (4) Copies of financial securities and insurance policies the commissioner requires the franchise broker to obtain and maintain. (b) Subject to Section 31522, the registration shall be effective upon filing a complete application, including all required documents, and paying all applicable fees. (c) Subject to Section 31522, a registration pursuant to this section shall expire on December 31 of the year in which the registration became effective. (Added by Stats. 2024, Ch. 518, Sec. 5. (SB 919) Effective January 1, 2025. Conditionally operative on or after July 1, 2026, pursuant to Sec. 31528)
  135. 31521.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 7. FRANCHISE BROKERS [31520 - 31528] ( Part 7 added by Stats. 2024, Ch. 518, Sec. 5. )

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    A registered franchise broker must promptly tell the commissioner in writing about any material change in the latest filed Uniform Franchise Broker Disclosure Document.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 7. FRANCHISE BROKERS [31520 - 31528] ( Part 7 added by Stats. 2024, Ch. 518, Sec. 5. ) ## 31521. (a) A registered franchise broker shall promptly notify the commissioner in writing by an application to amend the registration of any material change in the information contained in the latest Uniform Franchise Broker Disclosure Document filed by the franchise broker. (b) The commissioner may by rule further define what shall be considered a material change for those purposes, and the circumstances under which an amended Uniform Franchise Broker Disclosure Document must be filed. (c) The commissioner may issue a stop order pursuant to Section 31522 if the commissioner finds that any of the material changes provided pursuant to this section constitute a failure to comply with any of the provisions of this division or any rule issued by the commissioner pertaining to this division. (Added by Stats. 2024, Ch. 518, Sec. 5. (SB 919) Effective January 1, 2025. Conditionally operative on or after July 1, 2026, pursuant to Sec. 31528)
  136. 31522.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 7. FRANCHISE BROKERS [31520 - 31528] ( Part 7 added by Stats. 2024, Ch. 518, Sec. 5. )

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    The commissioner can issue a stop order against a franchise broker’s registration, and the broker cannot offer or sell a franchise in California while that order is in effect.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 7. FRANCHISE BROKERS [31520 - 31528] ( Part 7 added by Stats. 2024, Ch. 518, Sec. 5. ) ## 31522. (a) The commissioner may summarily issue a stop order suspending or revoking any registration under this part if the commissioner finds that the franchise broker has failed to comply with any of the provisions of this division or any rule issued by the commissioner pertaining to this division. (b) A franchise broker shall not offer or sell a franchise in this state while a stop order issued pursuant to subdivision (a) is in effect. (c) Upon issuance of a stop order, the commissioner shall promptly provide a notice to the franchise broker that contains all of the following: (1) Notice that the stop order has been issued. (2) The reasons for issuance of the stop order. (3) Notice that the matter will be set for hearing within 15 business days after the commissioner receives a written request for hearing from the franchise broker, unless the franchise broker consents to a later date. (d) The commissioner may modify, vacate, or extend a stop order until there has been a final determination of the matter at the hearing. (e) A hearing under this section shall be conducted pursuant to Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner shall have all the powers granted under those provisions. (f) If the franchise broker does not request a hearing within 30 days after receipt of the notice required by subdivision (c), the stop order shall remain in effect until it is modified or vacated by the commissioner. (Added by Stats. 2024, Ch. 518, Sec. 5. (SB 919) Effective January 1, 2025. Conditionally operative on or after July 1, 2026, pursuant to Sec. 31528)
  137. 31523.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 7. FRANCHISE BROKERS [31520 - 31528] ( Part 7 added by Stats. 2024, Ch. 518, Sec. 5. )

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    A registered franchise broker offering a franchise for sale in this state must keep a complete set of books, records, and accounts for that offer for five calendar years.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 7. FRANCHISE BROKERS [31520 - 31528] ( Part 7 added by Stats. 2024, Ch. 518, Sec. 5. ) ## 31523. A registered franchise broker offering a franchise for sale in this state shall keep and maintain a complete set of books, records, and accounts of that offer for a period of five calendar years. (Added by Stats. 2024, Ch. 518, Sec. 5. (SB 919) Effective January 1, 2025. Conditionally operative on or after July 1, 2026, pursuant to Sec. 31528)
  138. 31524.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 7. FRANCHISE BROKERS [31520 - 31528] ( Part 7 added by Stats. 2024, Ch. 518, Sec. 5. )

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    A registered franchise broker must comply with Sections 31154 through 31158.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 7. FRANCHISE BROKERS [31520 - 31528] ( Part 7 added by Stats. 2024, Ch. 518, Sec. 5. ) ## 31524. A registered franchise broker is subject to, and shall comply with, all of the following: (a) Section 31154. (b) Section 31155. (c) Section 31156. (d) Section 31157. (e) Section 31158. (Added by Stats. 2024, Ch. 518, Sec. 5. (SB 919) Effective January 1, 2025. Conditionally operative on or after July 1, 2026, pursuant to Sec. 31528)
  139. 31525.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 7. FRANCHISE BROKERS [31520 - 31528] ( Part 7 added by Stats. 2024, Ch. 518, Sec. 5. )

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    A franchise broker may not offer or sell a franchise in this state unless the broker is registered under this part.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 7. FRANCHISE BROKERS [31520 - 31528] ( Part 7 added by Stats. 2024, Ch. 518, Sec. 5. ) ## 31525. (a) It is unlawful for a franchise broker to offer or sell a franchise in this state unless the franchise broker is registered pursuant to this part. (b) For purposes of this section, an offer or sale of a franchise is made in this state if any of the following apply: (1) The prospective franchisee resides in this state. (2) The prospective franchisee has its principal place of business in this state. (3) The franchised business will be located in this state. (Added by Stats. 2024, Ch. 518, Sec. 5. (SB 919) Effective January 1, 2025. Conditionally operative on or after July 1, 2026, pursuant to Sec. 31528)
  140. 31526.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 7. FRANCHISE BROKERS [31520 - 31528] ( Part 7 added by Stats. 2024, Ch. 518, Sec. 5. )

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    A franchise broker must give a prospective franchisee the completed Uniform Franchise Broker Disclosure Document before communicating about a registered franchise opportunity. The broker may deliver the document electronically if commissioner-imposed requirements or conditions are met.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 7. FRANCHISE BROKERS [31520 - 31528] ( Part 7 added by Stats. 2024, Ch. 518, Sec. 5. ) ## 31526. (a) It is unlawful for a franchise broker to communicate with a prospective franchisee about investing in a franchise opportunity that is subject to registration pursuant to this division unless the franchise broker first provides to the prospective franchisee a copy of the completed Uniform Franchise Broker Disclosure Document. (b) A franchise broker may provide the Uniform Franchise Broker Disclosure Document to a prospective franchisee through electronic means, subject to any requirements or conditions imposed by the commissioner. (Added by Stats. 2024, Ch. 518, Sec. 5. (SB 919) Effective January 1, 2025. Conditionally operative on or after July 1, 2026, pursuant to Sec. 31528)
  141. 31527.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 7. FRANCHISE BROKERS [31520 - 31528] ( Part 7 added by Stats. 2024, Ch. 518, Sec. 5. )

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    The Uniform Franchise Broker Disclosure Document must include specified information about the broker, its experience, actions, compensation, and franchise sales.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 7. FRANCHISE BROKERS [31520 - 31528] ( Part 7 added by Stats. 2024, Ch. 518, Sec. 5. ) ## 31527. For purposes of this part, the Uniform Franchise Broker Disclosure Document shall contain all of the following information: (a) A franchise broker cover page, as created and modified by the commissioner, that contains standardized language regarding franchise brokers, including, but not limited to, all of the following: (1) The types of sellers. (2) The franchise brokers’ role in the franchise sales process. (3) Services a franchise broker might provide. (4) Different ways a franchise broker might be compensated for its services. (5) Examples of questions a prospective franchisee might ask a franchise broker. (b) All of the following information about the franchise broker: (1) Legal name. (2) Trade name. (3) Year and state of formation. (4) Principal place of business. (5) Owners. (6) Directors and officers. (7) Contact information. (8) The franchise broker’s broker network or franchise sales organization. (c) The franchise broker’s professional experience during the last five years, including, but not limited to, employers, principal positions, each position’s location, and the month and year of each position’s start date and end date. (d) Administrative, civil, or criminal actions alleging that the franchise broker, or an owner, officer, or director of the franchise broker, violated any franchise, antitrust, or securities law, or committed fraud, unfair or deceptive practices, or similar violations, whether pending or resolved, within the last five years. (e) The industries of the brands the franchise broker represents and how many brands within each industry the franchise broker represents. (f) A description of the services performed by the franchise broker. (g) How the franchise broker is compensated, including, but not limited to, how the amount of any consideration the franchise broker receives is calculated. (h) Whether a broker network, broker organization, or franchise sales organization may receive any additional consideration. (i) The brands for whom the franchise broker sold a franchise anywhere in the United States or its territories during the last calendar year for which the franchise broker received or is entitled to receive compensation, including, but not limited to, the total number of units sold for the brand. (Added by Stats. 2024, Ch. 518, Sec. 5. (SB 919) Effective January 1, 2025. Conditionally operative on or after July 1, 2026, pursuant to Sec. 31528)
  142. 31528.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 7. FRANCHISE BROKERS [31520 - 31528] ( Part 7 added by Stats. 2024, Ch. 518, Sec. 5. )

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    This part only becomes operative after the required legislative appropriation, and then on the later of July 1, 2026, or the first anniversary of that appropriation.

    ## Corporations Code - CORP ## TITLE 4. SECURITIES [25000 - 31528] ( Title 4 added by Stats. 1949, Ch. 384. ) ## DIVISION 5. FRANCHISE INVESTMENT LAW [31000 - 31528] ( Division 5 added by Stats. 1970, Ch. 1400. ) ## PART 7. FRANCHISE BROKERS [31520 - 31528] ( Part 7 added by Stats. 2024, Ch. 518, Sec. 5. ) ## 31528. The implementation of this part is contingent upon an appropriation for its purposes by the Legislature in the annual Budget Act or other statute. This part shall become operative on the later of: (1) July 1, 2026, or (2) the first anniversary of the date on which the appropriation is made. (Added by Stats. 2024, Ch. 518, Sec. 5. (SB 919) Effective January 1, 2025.)
  143. 316.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. )

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    Directors of a corporation may be jointly and severally liable if they approve certain unlawful distributions, asset distributions during dissolution, or loans and guaranties that violate related sections.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. ) ## 316. (a) Subject to the provisions of Section 309, directors of a corporation who approve any of the following corporate actions shall be jointly and severally liable to the corporation for the benefit of all of the creditors or shareholders entitled to institute an action under subdivision (c): (1) The making of any distribution to its shareholders to the extent that it is contrary to the provisions of Sections 500 to 503, inclusive. (2) The distribution of assets to shareholders after institution of dissolution proceedings of the corporation, without paying or adequately providing for all known liabilities of the corporation, excluding any claims not filed by creditors within the time limit set by the court in a notice given to creditors under Chapters 18 (commencing with Section 1800), 19 (commencing with Section 1900) and 20 (commencing with Section 2000). (3) The making of any loan or guaranty contrary to Section 315. (b) A director who is present at a meeting of the board, or any committee thereof, at which action specified in subdivision (a) is taken and who abstains from voting shall be considered to have approved the action. (c) Suit may be brought in the name of the corporation to enforce the liability (1) under paragraph (1) of subdivision (a) against any or all directors liable by the persons entitled to sue under subdivision (b) of Section 506, (2) under paragraph (2) or (3) of subdivision (a) against any or all directors liable by any one or more creditors of the corporation whose debts or claims arose prior to the time of any of the corporate actions specified in paragraph (2) or (3) of subdivision (a) and who have not consented to the corporate action, whether or not they have reduced their claims to judgment, or (3) under paragraph (3) of subdivision (a) against any or all directors liable by any one or more holders of shares outstanding at the time of any corporate action specified in paragraph (3) of subdivision (a) who have not consented to the corporate action, without regard to the provisions of Section 800. (d) The damages recoverable from a director under this section shall be the amount of the illegal distribution (or if the illegal distribution consists of property, the fair market value of that property at the time of the illegal distribution) plus interest thereon from the date of the distribution at the legal rate on judgments until paid, together with all reasonably incurred costs of appraisal or other valuation, if any, of that property or loss suffered by the corporation as a result of the illegal loan or guaranty, as the case may be, but not exceeding the liabilities of the corporation owed to nonconsenting creditors at the time of the violation and the injury suffered by nonconsenting shareholders, as the case may be. (e) Any director sued under this section may implead all other directors liable and may compel contribution, either in that action or in an independent action against directors not joined in that action. (f) Directors liable under this section shall also be entitled to be subrogated to the rights of the corporation: (1) With respect to paragraph (1) of subdivision (a), against shareholders who received the distribution. (2) With respect to paragraph (2) of subdivision (a), against shareholders who received the distribution of assets. (3) With respect to paragraph (3) of subdivision (a), against the person who received the loan or guaranty. Any director sued under this section may file a cross-complaint against the person or persons who are liable to the director as a result of the subrogation provided for in this subdivision or may proceed against them in an independent action. (Amended by Stats. 1994, Ch. 1064, Sec. 1. Effective January 1, 1995.)
  144. 317.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. )

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    This section lets a corporation indemnify certain agents for covered proceedings, advance defense expenses in some cases, and buy insurance for agents, subject to stated standards and exceptions.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. ) ## 317. (a) For the purposes of this section, “agent” means any person who is or was a director, officer, employee or other agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or was a director, officer, employee or agent of a foreign or domestic corporation which was a predecessor corporation of the corporation or of another enterprise at the request of the predecessor corporation; “proceeding” means any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative; and “expenses” includes without limitation attorneys’ fees and any expenses of establishing a right to indemnification under subdivision (d) or paragraph (4) of subdivision (e). (b) A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any proceeding (other than an action by or in the right of the corporation to procure a judgment in its favor) by reason of the fact that the person is or was an agent of the corporation, against expenses, judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with the proceeding if that person acted in good faith and in a manner the person reasonably believed to be in the best interests of the corporation and, in the case of a criminal proceeding, had no reasonable cause to believe the conduct of the person was unlawful. The termination of any proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in the best interests of the corporation or that the person had reasonable cause to believe that the person’s conduct was unlawful. (c) A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action by or in the right of the corporation to procure a judgment in its favor by reason of the fact that the person is or was an agent of the corporation, against expenses actually and reasonably incurred by that person in connection with the defense or settlement of the action if the person acted in good faith, in a manner the person believed to be in the best interests of the corporation and its shareholders. No indemnification shall be made under this subdivision for any of the following: (1) In respect of any claim, issue or matter as to which the person shall have been adjudged to be liable to the corporation in the performance of that person’s duty to the corporation and its shareholders, unless and only to the extent that the court in which the proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for expenses and then only to the extent that the court shall determine. (2) Of amounts paid in settling or otherwise disposing of a pending action without court approval. (3) Of expenses incurred in defending a pending action which is settled or otherwise disposed of without court approval. (d) To the extent that an agent of a corporation has been successful on the merits in defense of any proceeding referred to in subdivision (b) or (c) or in defense of any claim, issue, or matter therein, the agent shall be indemnified against expenses actually and reasonably incurred by the agent in connection therewith. (e) Except as provided in subdivision (d), any indemnification under this section shall be made by the corporation only if authorized in the specific case, upon a determination that indemnification of the agent is proper in the circumstances because the agent has met the applicable standard of conduct set forth in subdivision (b) or (c), by any of the following: (1) A majority vote of a quorum consisting of directors who are not parties to such proceeding. (2) If such a quorum of directors is not obtainable, by independent legal counsel in a written opinion. (3) Approval of the shareholders (Section 153), with the shares owned by the person to be indemnified not being entitled to vote thereon. (4) The court in which the proceeding is or was pending upon application made by the corporation or the agent or the attorney or other person rendering services in connection with the defense, whether or not the application by the agent, attorney or other person is opposed by the corporation. (f) Expenses incurred in defending any proceeding may be advanced by the corporation prior to the final disposition of the proceeding upon receipt of an undertaking by or on behalf of the agent to repay that amount if it shall be determined ultimately that the agent is not entitled to be indemnified as authorized in this section. The provisions of subdivision (a) of Section 315 do not apply to advances made pursuant to this subdivision. (g) The indemnification authorized by this section shall not be deemed exclusive of any additional rights to indemnification for breach of duty to the corporation and its shareholders while acting in the capacity of a director or officer of the corporation to the extent the additional rights to indemnification are authorized in an article provision adopted pursuant to paragraph (11) of subdivision (a) of Section 204. The indemnification provided by this section for acts, omissions, or transactions while acting in the capacity of, or while serving as, a director or officer of the corporation but not involving breach of duty to the corporation and its shareholders shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of shareholders or disinterested directors, or otherwise, to the extent the additional rights to indemnification are authorized in the articles of the corporation. An article provision authorizing indemnification “in excess of that otherwise permitted by Section 317” or “to the fullest extent permissible under California law” or the substantial equivalent thereof shall be construed to be both a provision for additional indemnification for breach of duty to the corporation and its shareholders as referred to in, and with the limitations required by, paragraph (11) of subdivision (a) of Section 204 and a provision for additional indemnification as referred to in the second sentence of this subdivision. The rights to indemnity hereunder shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of the person. Nothing contained in this section shall affect any right to indemnification to which persons other than the directors and officers may be entitled by contract or otherwise. (h) No indemnification or advance shall be made under this section, except as provided in subdivision (d) or paragraph (4) of subdivision (e), in any circumstance where it appears: (1) That it would be inconsistent with a provision of the articles, bylaws, a resolution of the shareholders, or an agreement in effect at the time of the accrual of the alleged cause of action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification. (2) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement. (i) A corporation shall have power to purchase and maintain insurance on behalf of any agent of the corporation against any liability asserted against or incurred by the agent in that capacity or arising out of the agent’s status as such whether or not the corporation would have the power to indemnify the agent against that liability under this section. The fact that a corporation owns all or a portion of the shares of the company issuing a policy of insurance shall not render this subdivision inapplicable if either of the following conditions are satisfied: (1) if the articles authorize indemnification in excess of that authorized in this section and the insurance provided by this subdivision is limited as indemnification is required to be limited by paragraph (11) of subdivision (a) of Section 204; or (2) (A) the company issuing the insurance policy is organized, licensed, and operated in a manner that complies with the insurance laws and regulations applicable to its jurisdiction of organization, (B) the company issuing the policy provides procedures for processing claims that do not permit that company to be subject to the direct control of the corporation that purchased that policy, and (C) the policy issued provides for some manner of risk sharing between the issuer and purchaser of the policy, on one hand, and some unaffiliated person or persons, on the other, such as by providing for more than one unaffiliated owner of the company issuing the policy or by providing that a portion of the coverage furnished will be obtained from some unaffiliated insurer or reinsurer. (j) This section does not apply to any proceeding against any trustee, investment manager, or other fiduciary of an employee benefit plan in that person’s capacity as such, even though the person may also be an agent as defined in subdivision (a) of the employer corporation. A corporation shall have power to indemnify such a trustee, investment manager, or other fiduciary to the extent permitted by subdivision (f) of Section 207. (Amended by Stats. 1995, Ch. 154, Sec. 4. Effective January 1, 1996.)
  145. 318.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. )

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    The Secretary of State must run and maintain a registry for distinguished women and minorities who can serve on corporate boards, set access rules, charge fees, and report periodically on the registry’s impact.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 3. Directors and Management [300 - 318] ( Chapter 3 added by Stats. 1975, Ch. 682. ) ## 318. (a) The Secretary of State shall develop and maintain a registry of distinguished women and minorities who are available to serve on corporate boards of directors. As used in this section, “minority” means an ethnic person of color including American Indians, Asians (including, but not limited to, Chinese, Japanese, Koreans, Pacific Islanders, Samoans, and Southeast Asians), Blacks, Filipinos, and Hispanics. (b) For each woman or minority who participates in the registry, the Secretary of State shall maintain information on his or her educational, professional, community service, and corporate governance background. That information may include, but is not limited to: (1) Paid or volunteer employment. (2) Service in elected public office or on public boards or commissions. (3) Directorships, officerships, and trusteeships of business and nonprofit entities, including committee experience. (4) Professional, academic, or community awards or honors. (5) Publications. (6) Government relations experience. (7) Experience with corporate constituents. (8) Any other areas of special expertise. (c) In addition to the information subdivision (b) requires, each woman or minority who participates in the registry may disclose any number of personal attributes that may contribute to board diversity. Those attributes may include, but are not limited to, gender, physical disability, race, or ethnic origin. (d) In addition to the information subdivision (b) requires, each woman or minority who participates in the registry may indicate characteristics of corporations for which he or she would consider, or is especially interested in, serving as a director. These characteristics may include, but are not limited to, company size, industry, geographic location, board meeting frequency, director time commitments, director compensation, director insurance or indemnification, or social policy concerns. (e) Any woman or minority may nominate himself or herself to the registry by filing with the Secretary of State the information required by subdivision (b) on a form the secretary prescribes. Any registrant may attach a copy of his or her resume and up to two letters of recommendation to his or her registration form. Each registrant’s registration form, together with any attached resume or letters of recommendation, shall constitute his or her registry transcript. (f) The Secretary of State shall make appropriate rules requiring registrants to renew or update their filings with the registry, as necessary to ensure continued accuracy of registry information. (g) The Secretary of State shall assign each registrant a file number, then enter the information described in subdivisions (b), (c), and (d) into a data base, using the registrant’s file number to identify him or her. The registry data base shall not disclose any registrant’s name or street address, but may list the city, county, or ZIP Code of his or her business or residence address. The secretary shall make data base information available to those persons described in subdivisions (i) and (j). The secretary may provide that access either by permitting direct data base searches or by performing data base searches on written request. (h) The Secretary of State may also make information contained in the registry data base available to any person or entity qualified to transact business in California that regularly engages in the business of providing data base access or search services; provided, that data base access will not be construed to entitle the user to access to any registrant’s transcript. (i) The Secretary of State shall make information contained in a reasonable number of registrants’ transcripts available to any corporation or its representative. A “representative,” for purposes of this subdivision, may be an attorney, an accountant, or a retained executive recruiter. A “retained executive recruiter,” for purposes of this subdivision, is an individual or business entity engaged in the executive search business that is regularly retained to locate qualified candidates for appointment or election as corporate directors or executive officers. (j) The Secretary of State may also grant access to a reasonable number of registrants’ transcripts to any other person who demonstrates to the secretary’s satisfaction that the person does both of the following: (1) Seeks access to the registry in connection with an actual search for a corporate director. (2) Intends to use any information obtained from the registry only for the purpose of finding qualified candidates for an open position on a corporate board of directors. (k) The Secretary of State may employ reasonable means to verify that any party seeking access to registry transcript information is one of those specified in subdivision (i) or (j). To that end, the secretary may require a representative to identify its principal, but may not disclose that principal’s identity to any other person. (l) Upon written request specifying the registrant’s file number, the Secretary of State shall provide any party entitled to access to registry transcripts with a copy of any registrant’s transcript. The secretary may by rule or regulation specify other reasonable means by which persons entitled thereto may order copies of registrants’ transcripts. (m) Notwithstanding any other law, a person shall not be entitled to access to information the registry contains, except as this section specifically provides. (n) The Secretary of State shall charge fees for registering with the registry, obtaining access to the registry data base, and obtaining copies of registrants’ transcripts. The Secretary of State, in consultation with the Senate Commission on Corporate Governance, Shareholder Rights, and Securities Transactions, shall fix those fees by regulation. Fees shall be fixed so that the aggregate amount of all fees collected shall be sufficient to cover the total cost of administering the registry program. Registration fees shall be fixed so as to encourage qualified women and minorities to participate. Fees shall be deposited into the Secretary of State’s Business Fee Fund. (o) The Secretary of State may make any rule, regulation, guideline, or agreement the secretary deems necessary to carry out the purposes and provisions of this section. (p) The Secretary of State may cooperate with the Commission on the Status of Women and Girls, the California Council to Promote Business Ownership by Women, the Senate Commission on Corporate Governance, Shareholder Rights, and Securities Transactions, women’s organizations, minority organizations, business and professional organizations, and any other individual or entity the secretary deems appropriate, for any of the following purposes: (1) Promoting corporate use of the registry. (2) Locating qualified women and minorities and encouraging them to participate in the registry. (3) Educating interested parties on the purpose and most effective use of the registry. The secretary may also prepare and distribute publications designed to promote informed use of the registry. (q) The Secretary of State may seek registrants’ consent to be listed in a published directory of women and minorities eligible to serve as corporate directors, which will contain a summary of each listed registrant’s qualifications. The secretary may periodically publish, or cause to be published, such a directory. Only those registrants who so consent in writing may be included in the directory. The printed directory shall be provided to any person upon payment of a fee, which the Secretary of State will determine by regulation, in consultation with the Senate Commission on Corporate Governance, Shareholder Rights, and Securities Transactions. (r) The Secretary of State shall implement this section no later than January 1, 1995. (s) At least once in each three-year period during which the registry is available for corporate use, the Secretary of State, in consultation with the Senate Commission on Corporate Governance, Shareholder Rights, and Securities Transactions, shall report to the Legislature on the extent to which the registry has helped women and minorities progress toward achieving parity in corporate board appointments or elections. (t) The Secretary of State shall notify each University of California campus and each California State University campus of the opportunity to maintain the registry created pursuant to this section. If more than one campus of the university or state university expresses interest in maintaining the registry, the Secretary of State shall select a campus based on a competitive selection process. If a campus is selected, the Secretary of State shall transfer the information contained in the registry, free of cost, to that campus. Any University of California or California State University campus selected to maintain the registry shall do so in a manner consistent with this section. Funds deposited in the Secretary of State’s Business Fees Fund pursuant to this section shall be transferred to the university selected to maintain the registry, and shall be used to administer the registry program. The Secretary of State shall maintain the registry until a University of California or California State University campus agrees to do so. (Amended by Stats. 2012, Ch. 46, Sec. 2. (SB 1038) Effective June 27, 2012.)
  146. 3200.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 8. Merger [3200 - 3203] ( Chapter 8 added by Stats. 2011, Ch. 740, Sec. 12. )

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    A merger involving a disappearing close social purpose corporation and a surviving non-close social purpose corporation must be approved by at least two-thirds of each class of outstanding shares, unless the articles require more or allow a lower vote of at least a majority.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 8. Merger [3200 - 3203] ( Chapter 8 added by Stats. 2011, Ch. 740, Sec. 12. ) ## 3200. If any disappearing social purpose corporation in a merger is a close social purpose corporation and the surviving social purpose corporation is not a close social purpose corporation, the merger shall be approved by an affirmative vote of at least two-thirds of the outstanding shares of each class, or a greater vote if required in the articles, regardless of whether that class is entitled to vote thereon by the provisions of the articles, of the disappearing social purpose corporation. The articles may provide for a lesser vote, but not less than a majority of the outstanding shares of each class. (Amended by Stats. 2014, Ch. 694, Sec. 51. (SB 1301) Effective January 1, 2015.)
  147. 3201.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 8. Merger [3200 - 3203] ( Chapter 8 added by Stats. 2011, Ch. 740, Sec. 12. )

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    A merger involving a disappearing social purpose corporation needs approval by at least two-thirds of the outstanding shares of each class, unless the articles require a higher vote; dissenting shareholders may then exercise dissenters' rights.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 8. Merger [3200 - 3203] ( Chapter 8 added by Stats. 2011, Ch. 740, Sec. 12. ) ## 3201. If any disappearing corporation in a merger is a social purpose corporation and the surviving entity is not a social purpose corporation, or is a social purpose corporation the articles of incorporation of which set forth materially different purposes, the merger shall be approved by an affirmative vote of at least two-thirds of the outstanding shares of each class, or a greater vote if required in the articles, regardless of whether that class is entitled to vote thereon by the provisions of the articles, of the disappearing social purpose corporation. If the merger is approved, shareholders with dissenting shares, as defined in subdivision (b) of Section 1300, may exercise dissenters’ rights pursuant to Section 3305 and Chapter 13 (commencing with Section 1300) of Division 1. (Amended by Stats. 2014, Ch. 694, Sec. 52. (SB 1301) Effective January 1, 2015.)
  148. 3202.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 8. Merger [3200 - 3203] ( Chapter 8 added by Stats. 2011, Ch. 740, Sec. 12. )

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    A disappearing social purpose corporation in a merger must have the merger approved by all outstanding shares of all classes if the surviving corporation is a qualifying nonprofit corporation.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 8. Merger [3200 - 3203] ( Chapter 8 added by Stats. 2011, Ch. 740, Sec. 12. ) ## 3202. If a disappearing social purpose corporation in a merger is a social purpose corporation governed by this division and the surviving corporation is a nonprofit public benefit corporation, a nonprofit mutual benefit corporation, or a nonprofit religious corporation, the merger shall be approved by all of the outstanding shares of all classes of the disappearing social purpose corporation, regardless of limitations or restrictions on their voting rights, notwithstanding any provision of Chapter 10 (commencing with Section 3400). (Amended by Stats. 2014, Ch. 694, Sec. 53. (SB 1301) Effective January 1, 2015.)
  149. 3203.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 8. Merger [3200 - 3203] ( Chapter 8 added by Stats. 2011, Ch. 740, Sec. 12. )

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    This section lets social purpose corporations merge with other business entities, but the merger must be approved, documented, and filed as required.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 8. Merger [3200 - 3203] ( Chapter 8 added by Stats. 2011, Ch. 740, Sec. 12. ) ## 3203. (a) Any one or more social purpose corporations may merge with one or more other business entities. One or more domestic social purpose corporations not organized under this division and one or more foreign corporations may be parties to the merger. Notwithstanding this section, the merger of any number of social purpose corporations with any number of other business entities may be effected only if: (1) In a merger in which a domestic social purpose corporation not organized under this division or a domestic other business entity is a party, it is authorized by the laws under which it is organized to effect the merger. (2) In a merger in which a foreign corporation is a party, it is authorized by the laws under which it is organized to effect the merger. (3) In a merger in which a foreign other business entity is a party, it is authorized by the laws under which it is organized to effect the merger. (b) Each social purpose corporation and each other party that desires to merge shall approve, and shall be a party to, an agreement of merger. Other persons, including a parent party, may be parties to the agreement of merger. The board of each social purpose corporation that desires to merge, and, if required, the shareholders, shall approve the agreement of merger. The agreement of merger shall be approved on behalf of each party by those persons required to approve the merger by the laws under which it is organized. The agreement of merger shall state: (1) The terms and conditions of the merger. (2) The name and place of incorporation or organization of each party to the merger and the identity of the surviving party. (3) The amendments, if any, subject to Sections 900, 902, 907, and 3002 to the articles of the surviving social purpose corporation, if applicable, to be effected by the merger. If any amendment changes the name of the surviving social purpose corporation, if applicable, the new name may be, subject to subdivision (b) of Section 2601, the same as or similar to the name of a disappearing party to the merger. (4) The manner of converting the shares of each constituent social purpose corporation into shares, interests, or other securities of the surviving party. If any shares of any constituent social purpose corporation are not to be converted solely into shares, interests, or other securities of the surviving party, the agreement of merger shall state (A) the cash, rights, securities, or other property that the holders of those shares are to receive in exchange for the shares, which cash, rights, securities, or other property may be in addition to or in lieu of shares, interests, or other securities of the surviving party, or (B) that the shares are canceled without consideration. (5) Any other details or provisions required by the laws under which any party to the merger is organized, including, if a domestic corporation is a party to the merger, Section 3203, if a public benefit corporation or a religious corporation is a party to the merger, Section 6019.1, if a mutual benefit corporation is a party to the merger, Section 8019.1, if a consumer cooperative corporation is a party to the merger, Section 12540.1, if a domestic limited partnership is a party to the merger, Section 15911.12, if a domestic partnership is a party to the merger, Section 16911, and if a domestic limited liability company is a party to the merger, Section 17551. (6) Any other details or provisions as are desired, including, without limitation, a provision for the payment of cash in lieu of fractional shares or for any other arrangement with respect thereto consistent with the provisions of Section 407. (c) Each share of the same class or series of any constituent social purpose corporation, other than the cancellation of shares held by a party to the merger or its parent, or a wholly owned subsidiary of either, in another constituent social purpose corporation, shall, unless all shareholders of the class or series consent and except as provided in Section 407, be treated equally with respect to any distribution of cash, rights, securities, or other property. Notwithstanding paragraph (4) of subdivision (b), the nonredeemable common shares of a constituent social purpose corporation may be converted only into nonredeemable common shares of a surviving social purpose corporation or a parent party or nonredeemable equity securities of a surviving party other than a social purpose corporation if another party to the merger or its parent owns, directly or indirectly, prior to the merger shares of that corporation representing more than 50 percent of the voting power of that social purpose corporation, unless all of the shareholders of the class consent and except as provided in Section 407. (d) Notwithstanding its prior approval, an agreement of merger may be amended prior to the filing of the agreement of merger or the certificate of merger, as is applicable, if the amendment is approved by the board of each constituent social purpose corporation and, if the amendment changes any of the principal terms of the agreement, by the outstanding shares, if required by Chapter 10 (commencing with Section 3400), in the same manner as the original agreement of merger. If the agreement of merger as so amended and approved is also approved by each of the other parties to the agreement of merger, the agreement of merger as so amended shall then constitute the agreement of merger. (e) The board of a constituent social purpose corporation may, in its discretion, abandon a merger, subject to the contractual rights, if any, of third parties, including other parties to the agreement of merger, without further approval by the outstanding shares, at any time before the merger is effective. (f) Each constituent social purpose corporation shall sign the agreement of merger by its chairperson of the board, president, or a vice president and also by its secretary or an assistant secretary acting on behalf of their respective corporations. (g) (1) If the surviving party is a domestic social purpose corporation, or if a domestic corporation or a foreign corporation, a public benefit corporation, a mutual benefit corporation, a religious corporation, or a corporation organized under the Consumer Cooperative Corporation Law (Part 2 (commencing with Section 12200) of Division 3) is a party to the merger, after required approvals of the merger by each constituent social purpose corporation through approval of the board and any approval of the outstanding shares required by Chapter 10 (commencing with Section 3400) and by the other parties to the merger, the surviving party shall file a copy of the agreement of merger with an officers’ certificate of each constituent domestic social purpose corporation and foreign social purpose corporation attached stating the total number of outstanding shares of each class entitled to vote on the merger, and identifying any other person or persons whose approval is required, that the agreement of merger in the form attached or its principal terms, as required, were approved by that social purpose corporation by a vote of a number of shares of each class that equaled or exceeded the vote required, specifying each class entitled to vote and the percentage vote required of each class and, if applicable, by that other person or persons whose approval is required, or that the merger agreement was entitled to be and was approved by the board alone, as provided in Section 3401, in the case of a social purpose corporation subject to that section. If equity securities of a parent party are to be issued in the merger, the officers’ certificate of that controlled party shall state either that no vote of the shareholders of the parent party was required or that the required vote was obtained. In lieu of an officers’ certificate, a certificate of merger, on a form prescribed by the Secretary of State, shall be filed for each constituent other business entity. The certificate of merger shall be executed and acknowledged by each domestic constituent limited liability company by all managers of the limited liability company, unless a lesser number is specified in its articles or organization or operating agreement, and by each domestic constituent limited partnership by all general partners, unless a lesser number is provided in its certificate of limited partnership or partnership agreement, and by each domestic constituent general partnership by two partners, unless a lesser number is provided in its partnership agreement, and by each foreign constituent limited liability company by one or more managers and by each foreign constituent general partnership or foreign constituent limited partnership by one or more general partners, and by each constituent reciprocal insurer by the chairperson of the board, president, or vice president, and by the secretary or assistant secretary, or, if a constituent reciprocal insurer has not appointed those officers, by the chairperson of the board, president, or vice president, and by the secretary or assistant secretary of the constituent reciprocal insurer’s attorney-in-fact, and by each other party to the merger by those persons required or authorized to execute the certificate of merger by the laws under which that party is organized, specifying for that party the provision of law or other basis for the authority of the signing persons. The certificate of merger shall set forth, if a vote of the shareholders, members, partners, or other holders of interests of the constituent other business entity was required, a statement setting forth the total number of outstanding interests of each class entitled to vote on the merger and that the agreement of merger in the form attached or its principal terms, as required, were approved by a vote of the number of interests of each class that equaled or exceeded the vote required, specifying each class entitled to vote and the percentage vote required of each class, and any other information required to be set forth under the laws under which the constituent other business entity is organized, including, if a domestic limited partnership is a party to the merger, subdivision (a) of Section 15911.14, if a domestic partnership is a party to the merger, subdivision (b) of Section 16915, and, if a domestic limited liability company is a party to the merger, subdivision (a) of Section 17552. The certificate of merger for each constituent foreign other business entity, if any, shall also set forth the statutory or other basis under which that foreign other business entity is authorized by the laws under which it is organized to effect the merger. The merger and any amendment of the articles of the surviving social purpose corporation, if applicable, contained in the agreement of merger shall be effective upon filing of the agreement of merger with an officer’s certificate of each constituent domestic corporation and foreign corporation and a certificate of merger for each constituent other business entity, subject to subdivision (c) of Section 110 and subject to the provisions of subdivision (j), and the several parties thereto shall be one entity. If a domestic reciprocal insurer organized after 1974 to provide medical malpractice insurance is a party to the merger, the agreement of merger or certificate of merger shall not be filed until there has been filed the certificate issued by the Insurance Commissioner approving the merger pursuant to Section 1555 of the Insurance Code. The Secretary of State may certify a copy of the agreement of merger separate from the officers’ certificates and certificates of merger attached thereto. (2) If the surviving entity is an other business entity, and no public benefit corporation, mutual benefit corporation, religious corporation, or corporation organized under the Consumer Cooperative Corporation Law (Part 2 (commencing with Section 12200) of Division 3) is a party to the merger, after required approvals of the merger by each constituent social purpose corporation through approval of the board and any approval of the outstanding shares required by Chapter 10 (commencing with Section 3400) and by the other parties to the merger, the parties to the merger shall file a certificate of merger in the office of, and on a form prescribed by, the Secretary of State. The certificate of merger shall be executed and acknowledged by each constituent domestic and foreign social purpose corporation by its chairperson of the board, president, or a vice president and also by its secretary or an assistant secretary and by each domestic constituent limited liability company by all managers of the limited liability company, unless a lesser number is specified in its articles of organization or operating agreement, and by each domestic constituent limited partnership by all general partners, unless a lesser number is provided in its certificate of limited partnership or partnership agreement, and by each domestic constituent general partnership by two partners, unless a lesser number is provided in its partnership agreement, and by each foreign constituent limited liability company by one or more managers and by each foreign constituent general partnership or foreign constituent limited partnership by one or more general partners, and by each constituent reciprocal insurer by the chairperson of the board, president, or vice president, and by the secretary or assistant secretary, or, if a constituent reciprocal insurer has not appointed those officers, by the chairperson of the board, president, or vice president, and by the secretary or assistant secretary of the constituent reciprocal insurer’s attorney-in-fact. The certificate of merger shall be signed by each other party to the merger by those persons required or authorized to execute the certificate of merger by the laws under which that party is organized, specifying for that party the provision of law or other basis for the authority of the signing persons. The certificate of merger shall set forth all of the following: (A) The name, place of incorporation or organization, and the Secretary of State’s file number, if any, of each party to the merger, separately identifying the disappearing parties and the surviving party. (B) If the approval of the outstanding shares of a constituent social purpose corporation was required by Chapter 10 (commencing with Section 3400), a statement setting forth the total number of outstanding shares of each class entitled to vote on the merger and that the principal terms of the agreement of merger were approved by a vote of the number of shares of each class entitled to vote and the percentage vote required of each class. (C) The future effective date or time, not more than 90 days subsequent to the date of filing of the merger, if the merger is not to be effective upon the filing of the certificate of merger with the Secretary of State. (D) A statement, by each party to the merger that is a domestic corporation not organized under this division, a foreign corporation or foreign other business entity, or an other business entity, of the statutory or other basis under which that party is authorized by the laws under which it is organized to effect the merger. (E) Any other information required to be stated in the certificate of merger by the laws under which each respective party to the merger is organized, including, if a domestic limited liability company is a party to the merger, subdivision (a) of Section 17552, if a domestic partnership is a party to the merger, subdivision (b) of Section 16915, and, if a domestic limited partnership is a party to the merger, subdivision (a) of Section 15911.14. (F) Any other details or provisions that may be desired. Unless a future effective date or time is provided in a certificate of merger, in which event the merger shall be effective at that future effective date or time, a merger shall be effective upon the filing of the certificate of merger with the Secretary of State and the several parties thereto shall be one entity. The surviving other business entity shall keep a copy of the agreement of merger at its principal place of business which, for purposes of this subdivision, shall be the office referred to in Section 17057 if a domestic limited liability company, at the business address specified in paragraph (5) of subdivision (a) of Section 17552 if a foreign limited liability company, at the office referred to in subdivision (a) of Section 16403 if a domestic general partnership, at the business address specified in subdivision (f) of Section 16911 if a foreign partnership, at the office referred to in subdivision (a) of Section 15901.14 if a domestic limited partnership, or at the business address specified in paragraph (5) of subdivision (a) of Section 15911.14 if a foreign limited partnership. Upon the request of a holder of equity securities of a party to the merger, a person with authority to do so on behalf of the surviving other business entity shall promptly deliver to that holder, a copy of the agreement of merger. A waiver by that holder of the rights provided in the foregoing sentence shall be unenforceable. If a domestic reciprocal insurer organized after 1974 to provide medical malpractice insurance is a party to the merger the agreement of merger or certificate of merger shall not be filed until there has been filed the certificate issued by the Insurance Commissioner approving the merger in accordance with Section 1555 of the Insurance Code. (h) (1) A copy of an agreement of merger certified on or after the effective date by an official having custody thereof has the same force in evidence as the original and, except as against the state, is conclusive evidence of the performance of all conditions precedent to the merger, the existence on the effective date of the surviving party to the merger, and the performance of the conditions necessary to the adoption of any amendment to the articles, if applicable, contained in the agreement of merger. (2) For all purposes for a merger in which the surviving entity is a domestic other business entity and the filing of a certificate of merger is required by paragraph (2) of subdivision (g), a copy of the certificate of merger duly certified by the Secretary of State is conclusive evidence of the merger of the constituent corporations, either by themselves or together with the other parties to the merger, into the surviving other business entity. (i) (1) Upon a merger pursuant to this section, the separate existences of the disappearing parties to the merger cease and the surviving party to the merger shall succeed, without other transfer, to all the rights and property of each of the disappearing parties to the merger and shall be subject to all the debts and liabilities of each in the same manner as if the surviving party to the merger had itself incurred them. (2) All rights of creditors and all liens upon the property of each of the constituent social purpose corporations and other parties to the merger shall be preserved unimpaired, provided that those liens upon property of a disappearing party shall be limited to the property affected thereby immediately prior to the time the merger is effective. (3) Any action or proceeding pending by or against any disappearing social purpose corporation or disappearing party to the merger may be prosecuted to judgment, which shall bind the surviving party, or the surviving party may be proceeded against or substituted in its place. (4) Nothing in this section shall be construed to affect the liability a general partner of a disappearing limited partnership or general partnership may have in connection with the debts and liabilities of the disappearing limited partnership or general partnership existing prior to the time the merger is effective. (j) (1) The merger of domestic social purpose corporations with foreign corporations or foreign other business entities in a merger in which one or more other business entities is a party shall comply with subdivision (a) and this subdivision. (2) If the surviving party is a domestic social purpose corporation or domestic other business entity, the merger proceedings with respect to that party and any domestic disappearing social purpose corporation shall conform to the provisions of this section. If the surviving party is a foreign corporation or foreign other business entity, then, subject to the requirements of subdivision (c), Section 407, Chapter 10 (commencing with Section 3400), and Chapter 13 (commencing with Section 1300) of Division 1, and, if applicable, corresponding provisions of the Nonprofit Corporation Law (Division 2 (commencing with Section 5002)) or the Consumer Cooperative Corporation Law (Part 2 (commencing with Section 12200) of Division 3), with respect to any domestic constituent corporations, Chapter 13 (commencing with Section 17600) of Title 2.5 with respect to any domestic constituent limited liability companies, Article 6 (commencing with Section 16601) of Chapter 5 of Title 2 with respect to any domestic constituent general partnerships, and Article 11.5 (commencing with Section 15911.20) of Chapter 5.5 of Title 2 with respect to any domestic constituent limited partnerships, the merger proceedings may be in accordance with the laws of the state or place of incorporation or organization of the surviving party. (3) If the surviving party is a domestic social purpose corporation or domestic other business entity, the certificate of merger or the agreement of merger with attachments shall be filed as provided in subdivision (g) and thereupon, subject to subdivision (c) of Section 110 or paragraph (2) of subdivision (g), as applicable, the merger shall be effective as to each domestic constituent social purpose corporation and domestic constituent other business entity. (4) If the surviving party is a foreign corporation or foreign other business entity, the merger shall become effective in accordance with the law of the jurisdiction in which the surviving party is organized, but, except as provided in paragraph (5), the merger shall be effective as to any domestic disappearing social purpose corporation as of the time of effectiveness in the foreign jurisdiction upon the filing in this state of a copy of the agreement of merger with an officers’ certificate of each constituent foreign and domestic social purpose corporation and a certificate of merger of each constituent other business entity attached, which officers’ certificates and certificates of merger shall conform to the requirements of paragraph (1) of subdivision (g). If one or more domestic other business entities is a disappearing party in a merger pursuant to this subdivision in which a foreign other business entity is the surviving entity, a certificate of merger required by the laws under which that domestic other business entity is organized, including subdivision (a) of Section 15911.14, subdivision (b) of Section 16915, or subdivision (a) of Section 17552, as is applicable, shall also be filed at the same time as the filing of the agreement of merger. (5) If the date of the filing in this state pursuant to this subdivision is more than six months after the time of the effectiveness in the foreign jurisdiction, or if the powers of a domestic disappearing social purpose corporation are suspended at the time of effectiveness in the foreign jurisdiction, the merger shall be effective as to the domestic disappearing social purpose corporation as of the date of filing in this state. (6) In a merger described in paragraph (3) or (4), each foreign disappearing social purpose corporation that is qualified for the transaction of intrastate business shall by virtue of the filing pursuant to this subdivision, subject to subdivision (c) of Section 110, automatically surrender its right to transact intrastate business in this state. The filing of the agreement of merger or certificate of merger, as is applicable, pursuant to this subdivision, by a disappearing foreign other business entity registered for the transaction of intrastate business in this state shall, by virtue of that filing, subject to subdivision (c) of Section 110, automatically cancel the registration for that foreign other business entity, without the necessity of the filing of a certificate of cancellation. (Amended by Stats. 2014, Ch. 694, Sec. 54. (SB 1301) Effective January 1, 2015.)
  150. 3300.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 9. Conversions [3300 - 3307] ( Chapter 9 added by Stats. 2011, Ch. 740, Sec. 12. )

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    This section defines several conversion-related terms used in Chapter 9 of the Corporations Code.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 9. Conversions [3300 - 3307] ( Chapter 9 added by Stats. 2011, Ch. 740, Sec. 12. ) ## 3300. For purposes of this chapter, the following definitions shall apply: (a) “Converted social purpose corporation” means a social purpose corporation that results from a conversion of an other business entity or a foreign other business entity or a foreign corporation pursuant to Section 3307. (b) “Converted entity” means a domestic other business entity that results from a conversion of a social purpose corporation under this chapter. (c) “Converting social purpose corporation” means a social purpose corporation that converts into a domestic other business entity pursuant to this chapter. (d) “Converting entity” means an other business entity or a foreign other business entity or foreign corporation that converts into a social purpose corporation pursuant to Section 3307. (e) “Domestic other business entity” has the meaning provided in Section 167.7. (f) “Foreign other business entity” has the meaning provided in Section 171.07. (g) “Other business entity” has the meaning provided in Section 174.5. (Amended by Stats. 2014, Ch. 694, Sec. 55. (SB 1301) Effective January 1, 2015.)
  151. 3301.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 9. Conversions [3300 - 3307] ( Chapter 9 added by Stats. 2011, Ch. 740, Sec. 12. )

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    A social purpose corporation may convert into a domestic other business entity if the listed conditions are met.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 9. Conversions [3300 - 3307] ( Chapter 9 added by Stats. 2011, Ch. 740, Sec. 12. ) ## 3301. (a) A social purpose corporation may be converted into a domestic other business entity pursuant to this chapter if, pursuant to the proposed conversion, each of the following conditions is met: (1) Each share of the same class or series of the converting social purpose corporation shall, unless all the shareholders of the class or series consent, be treated equally with respect to any cash, rights, securities, or other property to be received by, or any obligations or restrictions to be imposed on, the holder of that share. (2) The conversion is approved by an affirmative vote of at least two-thirds of the outstanding shares of each class, or a greater vote if required in the articles, regardless of whether that class is entitled to vote thereon by the provisions of the articles. (3) Nonredeemable common shares of the converting social purpose corporation shall be converted only into nonredeemable equity securities of the converted entity unless all of the shareholders of the class consent. (4) Paragraph (1) shall not restrict the ability of the shareholders of a converting social purpose corporation to appoint one or more managers, if the converted entity is a limited liability company, or one or more general partners, if the converted entity is a limited partnership, in the plan of conversion or in the converted entity’s governing documents. (b) Notwithstanding subdivision (a), the conversion of a social purpose corporation into a domestic other business entity may be effected only if both of the following conditions are met: (1) The law under which the converted entity will exist expressly permits the formation of that entity pursuant to a conversion. (2) The social purpose corporation complies with any and all other requirements of any other law that applies to conversion to the converted entity. (Amended by Stats. 2014, Ch. 694, Sec. 56. (SB 1301) Effective January 1, 2015.)
  152. 3302.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 9. Conversions [3300 - 3307] ( Chapter 9 added by Stats. 2011, Ch. 740, Sec. 12. )

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    A social purpose corporation converting to another domestic business entity must approve a plan of conversion, and the plan must be approved by the board and required shareholder majorities.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 9. Conversions [3300 - 3307] ( Chapter 9 added by Stats. 2011, Ch. 740, Sec. 12. ) ## 3302. (a) A social purpose corporation that desires to convert to a domestic other business entity shall approve a plan of conversion. The plan of conversion shall state all of the following: (1) The terms and conditions of the conversion. (2) The jurisdiction of the organization of the converted entity and of the converting social purpose corporation and the name of the converted entity after conversion. (3) The manner of converting the shares of each of the shareholders of the converting social purpose corporation into securities of, or interests in, the converted entity. (4) The provisions of the governing documents for the converted entity, including the articles and bylaws, partnership agreement or limited liability company articles of organization and operating agreement, to which the holders of interests in the converted entity are to be bound. (5) Any other details or provisions that are required by the laws under which the converted entity is organized, or that are desired by the converting social purpose corporation. (b) The plan of conversion shall be approved by the board of the converting social purpose corporation, and the principal terms of the plan of the conversion shall be approved by at least two-thirds of the outstanding shares of each class, or a greater vote if required in the articles, regardless of whether that class is entitled to vote thereon by the provisions of the articles of the converting social purpose corporation. The approval of at least two-thirds of the outstanding shares may be given before or after approval by the board. If the plan is approved, shareholders with dissenting shares, as defined in subdivision (b) of Section 1300, may exercise dissenters’ rights pursuant to Section 3305 and Chapter 13 (commencing with Section 1300) of Division 1. (c) If the social purpose corporation is converting into a general or limited partnership or into a limited liability company, then in addition to the approval of the shareholders set forth in subdivision (b), the plan of conversion shall be approved by each shareholder who will become a general partner or manager, as applicable, of the converted entity pursuant to the plan of conversion unless the shareholders have dissenters’ rights pursuant to Section 3305 and Chapter 13 (commencing with Section 1300) of Division 1. (d) Upon the effectiveness of the conversion, all shareholders of the converting social purpose corporation, except those that exercise dissenters’ rights as provided in Section 3305 and Chapter 13 (commencing with Section 1300) of Division 1, shall be deemed parties to any agreement or agreements constituting the governing documents for the converted entity adopted as part of the plan of conversion, regardless of whether a shareholder has executed the plan of conversion or those governing documents for the converted entity. Any adoption of governing documents made pursuant thereto shall be effective at the effective time or date of the conversion. (e) Notwithstanding its prior approval by the board and the outstanding shares, or either of them, a plan of conversion may be amended before the conversion takes effect if the amendment is approved by the board and, if it changes any of the principal terms of the plan of conversion, by the shareholders of the converting social purpose corporation in the same manner and to the same extent as was required for approval of the original plan of conversion. (f) A plan of conversion may be abandoned by the board of a converting social purpose corporation, or by the shareholders of a converting social purpose corporation if the abandonment is approved by the outstanding shares, in each case in the same manner as required for approval of the plan of conversion, subject to the contractual rights of third parties, at any time before the conversion is effective. (g) The converted entity shall keep the plan of conversion at the principal place of business of the converted entity if the converted entity is a domestic partnership, or at the office at which records are to be kept under Section 15901.14 if the converted entity is a domestic limited partnership, or at the office at which records are to be kept under Section 17701.13 if the converted entity is a domestic limited liability company. Upon the request of a shareholder of a converting social purpose corporation, the authorized person on behalf of the converted entity shall promptly deliver to the shareholder, at the expense of the converted entity, a copy of the plan of conversion. A waiver by a shareholder of the rights provided in this subdivision shall be unenforceable. (Amended by Stats. 2014, Ch. 694, Sec. 57. (SB 1301) Effective January 1, 2015.)
  153. 3303.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 9. Conversions [3300 - 3307] ( Chapter 9 added by Stats. 2011, Ch. 740, Sec. 12. )

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    A converting social purpose corporation must file all documents required to complete the conversion after the required approvals, and the conversion becomes effective at that point.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 9. Conversions [3300 - 3307] ( Chapter 9 added by Stats. 2011, Ch. 740, Sec. 12. ) ## 3303. (a) After the approval, as provided in Section 3302, of a plan of conversion by the board and the outstanding shares of a social purpose corporation converting into a domestic other business entity, the converting social purpose corporation shall cause the filing of all documents required by law to effect the conversion and create the converted entity, which documents shall include a certificate of conversion or a statement of conversion as required by Section 3304, and the conversion shall thereupon be effective. (b) A copy of the statement of partnership authority, certificate of limited partnership, or articles of organization complying with Section 3304, duly certified by the Secretary of State on or after the effective date, shall be conclusive evidence of the conversion of the social purpose corporation. (Amended by Stats. 2014, Ch. 694, Sec. 58. (SB 1301) Effective January 1, 2015.)
  154. 3304.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 9. Conversions [3300 - 3307] ( Chapter 9 added by Stats. 2011, Ch. 740, Sec. 12. )

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    A social purpose corporation converting into certain domestic entity forms must complete and execute conversion documents, include specified information, use the Secretary of State’s form, and the filing has dissolution and tax-compliance effects.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 9. Conversions [3300 - 3307] ( Chapter 9 added by Stats. 2011, Ch. 740, Sec. 12. ) ## 3304. (a) To convert a social purpose corporation: (1) If the social purpose corporation is converting into a domestic limited partnership, a statement of conversion shall be completed on the certificate of limited partnership for the converted entity. (2) If the social purpose corporation is converting into a domestic partnership, a statement of conversion shall be completed on the statement of partnership authority for the converted entity, or if no statement of partnership authority is filed, then a certificate of conversion shall be filed separately. (3) If the social purpose corporation is converting into a domestic limited liability company, a statement of conversion shall be completed on the articles of organization for the converted entity. (b) Any statement or certificate of conversion of a converting social purpose corporation shall be executed and acknowledged by those officers of the converting social purpose corporation as would be required to sign an officers’ certificate, and shall set forth all of the following: (1) The name and the Secretary of State’s file number of the converting social purpose corporation. (2) A statement of the total number of outstanding shares of each class entitled to vote on the conversion, that the principal terms of the plan of conversion were approved by a vote of the number of shares of each class which equaled or exceeded the vote required under Section 3302, specifying each class entitled to vote and the percentage vote required of each class. (3) The name, form, and jurisdiction of organization of the converted entity. (4) The name and street address of the converted entity’s agent for service of process. If a corporation qualified under Section 1505 is designated as the agent, no address for it shall be set forth. (c) The certificate of conversion shall be on a form prescribed by the Secretary of State. (d) The filing with the Secretary of State of a statement of conversion on an organizational document or a certificate of conversion as set forth in subdivision (a) shall have the effect of the filing of a certificate of dissolution by the converting social purpose corporation and no converting social purpose corporation that has made the filing is required to file a certificate of election under Section 1901 or a certificate of dissolution under Section 1905 as a result of that conversion. (e) Upon the effectiveness of a conversion pursuant to this chapter, a converted entity that is a domestic partnership, domestic limited partnership, or domestic limited liability company shall be deemed to have assumed the liability of the converting social purpose corporation to prepare and file or cause to be prepared and filed all tax and information returns otherwise required of the converting social purpose corporation under the Corporation Tax Law (Part 11 (commencing with Section 23001) of Division 2 of the Revenue and Taxation Code) and to pay any tax liability determined to be due pursuant to that law. (Amended by Stats. 2014, Ch. 834, Sec. 9.5. (SB 1041) Effective January 1, 2015.)
  155. 3305.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 9. Conversions [3300 - 3307] ( Chapter 9 added by Stats. 2011, Ch. 740, Sec. 12. )

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    Dissenting shareholders of a converting social purpose corporation get the Chapter 13 rights, and the converting corporation takes the Chapter 13 obligations.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 9. Conversions [3300 - 3307] ( Chapter 9 added by Stats. 2011, Ch. 740, Sec. 12. ) ## 3305. The shareholders with dissenting rights, as defined in subdivision (b) of Section 1300, of a converting social purpose corporation shall have all of the rights under Chapter 13 (commencing with Section 1300) of Division 1 of the shareholders of a corporation involved in a reorganization requiring the approval of its outstanding shares, and the converting social purpose corporation shall have all of the obligations under Chapter 13 (commencing with Section 1300) of Division 1 of a corporation involved in the reorganization. Solely for purposes of applying the provisions of Chapter 13 (commencing with Section 1300) of Division 1, and not for purposes of this chapter, a conversion pursuant to Section 3301 or 3307 shall be deemed to constitute a reorganization. (Amended by Stats. 2014, Ch. 694, Sec. 60. (SB 1301) Effective January 1, 2015.)
  156. 3306.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 9. Conversions [3300 - 3307] ( Chapter 9 added by Stats. 2011, Ch. 740, Sec. 12. )

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    The Secretary of State must charge a fee of up to $150 for an entity’s conversion under this chapter.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 9. Conversions [3300 - 3307] ( Chapter 9 added by Stats. 2011, Ch. 740, Sec. 12. ) ## 3306. Notwithstanding any other provision of law, the Secretary of State shall charge an entity a fee not to exceed one hundred fifty dollars ($150) for its conversion made under this chapter. (Added by Stats. 2011, Ch. 740, Sec. 12. (SB 201) Effective January 1, 2012.)
  157. 3307.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 9. Conversions [3300 - 3307] ( Chapter 9 added by Stats. 2011, Ch. 740, Sec. 12. )

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    Certain business entities may convert into a social purpose corporation only if their organizing law allows it, required approvals are obtained, and the conversion filing is made with the Secretary of State.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 9. Conversions [3300 - 3307] ( Chapter 9 added by Stats. 2011, Ch. 740, Sec. 12. ) ## 3307. (a) An other business entity or a foreign other business entity or a foreign corporation may be converted into a social purpose corporation pursuant to this chapter only if the converting entity is authorized by the laws under which it is organized to effect the conversion. (b) An other business entity or a foreign other business entity or a foreign corporation that desires to convert into a social purpose corporation shall approve a plan of conversion or other instrument as is required to be approved to effect the conversion pursuant to the laws under which that entity is organized. (c) The conversion of an other business entity or a foreign other business entity or a foreign corporation shall be approved by the number or percentage of the partners, members, shareholders, or other holders of interest of the converting entity that is required by the laws under which that entity is organized, or a greater or lesser percentage as may be set forth in the converting entity’s partnership agreement, articles of organization, operating agreement, articles of incorporation, or other governing document in accordance with applicable laws. (d) The conversion by an other business entity or a foreign other business entity or a foreign corporation shall be effective under this chapter upon the filing with the Secretary of State of the articles of incorporation of the converted corporation, containing a statement of conversion that complies with subdivision (e). (e) A statement of conversion of an entity converting into a social purpose corporation pursuant to this chapter shall set forth all of the following: (1) The name, form, and jurisdiction of organization of the converting entity. (2) The Secretary of State’s file number, if any, of the converting entity. (3) If the converting entity is a foreign other business entity or a foreign corporation, the statement of conversion shall contain the following: (A) A statement that the converting entity is authorized to effect the conversion by the laws under which it is organized. (B) A statement that the converting entity has approved a plan of conversion or other instrument as is required to be approved to effect the conversion pursuant to the laws under which the converting entity is organized. (C) A statement that the conversion has been approved by the number or percentage of the partners, members, shareholders, or other holders of interest of the converting entity that is required by the laws under which that entity is organized, or a greater or lesser percentage as may be set forth in the converting entity’s partnership agreement, articles of organization, operating agreement, articles of incorporation, or other governing document in accordance with applicable laws. (f) The filing with the Secretary of State of articles of incorporation containing a statement pursuant to subdivision (e) shall have the effect of the filing of a certificate of cancellation by a converting foreign limited liability company or foreign limited partnership, and no converting foreign limited liability company or foreign limited partnership that has made the filing is required to file a certificate of cancellation under Section 17708.06 or 15909.07 as a result of that conversion. If a converting entity is a foreign corporation qualified to transact business in this state, the foreign corporation shall, by virtue of the filing, automatically surrender its right to transact intrastate business. (Added by Stats. 2014, Ch. 694, Sec. 61. (SB 1301) Effective January 1, 2015.)
  158. 3400.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 10. Reorganizations [3400 - 3401] ( Chapter 10 added by Stats. 2011, Ch. 740, Sec. 12. )

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    The board must approve a reorganization or share exchange tender offer for the listed social purpose corporations involved.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 10. Reorganizations [3400 - 3401] ( Chapter 10 added by Stats. 2011, Ch. 740, Sec. 12. ) ## 3400. A reorganization or a share exchange tender offer shall be approved by the board of all of the following: (a) Each constituent social purpose corporation in a merger reorganization. (b) The acquiring social purpose corporation in an exchange reorganization. (c) The acquiring social purpose corporation and the social purpose corporation whose property and assets are acquired in a sale-of-assets reorganization. (d) The acquiring social purpose corporation in a share exchange tender offer. (e) The social purpose corporation in control of any constituent or acquiring domestic or foreign social purpose corporation or other business entity under subdivision (a), (b), or (c) and whose equity securities are issued, transferred, or exchanged in the reorganization, hereafter a “parent party.” (Amended by Stats. 2014, Ch. 694, Sec. 62. (SB 1301) Effective January 1, 2015.)
  159. 3401.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 10. Reorganizations [3400 - 3401] ( Chapter 10 added by Stats. 2011, Ch. 740, Sec. 12. )

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    This section requires shareholder approval for the principal terms of certain social purpose corporation reorganizations, with several exceptions and higher-vote rules in specified cases.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 10. Reorganizations [3400 - 3401] ( Chapter 10 added by Stats. 2011, Ch. 740, Sec. 12. ) ## 3401. (a) The principal terms of a reorganization shall be approved by the outstanding shares of each class of each social purpose corporation the approval of whose board is required under Section 3400, except as provided in subdivision (b) and except that, unless otherwise provided in the articles, no approval of any class of outstanding preferred shares of the surviving or acquiring social purpose corporation or parent party shall be required if the rights, preferences, privileges, and restrictions granted to or imposed upon that class of shares remain unchanged, subject to the provisions of subdivision (c). For the purpose of this subdivision, two classes of common shares differing only as to voting rights shall be considered as a single class of shares. (b) No approval of the outstanding shares is required by subdivision (a) if the social purpose corporation, or its shareholders immediately before the reorganization, or both, shall own, immediately after the reorganization, equity securities, other than any warrant or right to subscribe to or purchase those equity securities, of the surviving or acquiring social purpose corporation or a parent party possessing more than five-sixths of the voting power of the surviving or acquiring social purpose corporation or parent party. In making the determination of ownership by the shareholders of a social purpose corporation, immediately after the reorganization, of equity securities pursuant to the preceding sentence, equity securities that they owned immediately before the reorganization as shareholders of another party to the transaction shall be disregarded. For the purpose of this section, the voting power of a social purpose corporation shall be calculated by assuming the conversion of all equity securities convertible, immediately or at some future time, into shares entitled to vote but not assuming the exercise of any warrant or right to subscribe to or purchase those shares. (c) Notwithstanding subdivisions (a) and (b), the principal terms of a reorganization shall be approved by the outstanding shares of the surviving social purpose corporation in a merger reorganization, as otherwise required by Chapter 10 (commencing with Section 3400), if any amendment is made to its articles that would otherwise require that approval. (d) Notwithstanding subdivisions (a) and (b), the principal terms of a reorganization shall be approved by the affirmative vote of at least two-thirds of each class, or a greater vote if required in the articles, of the outstanding shares of any class of a social purpose corporation that is a party to a merger or sale-of-assets reorganization if holders of shares of that class receive shares of the surviving or acquiring social purpose corporation or parent party having different rights, preferences, privileges, or restrictions than those surrendered. Shares in a foreign corporation received in exchange for shares in a domestic social purpose corporation shall be deemed to have different rights, preferences, privileges, and restrictions within the meaning of the preceding sentence. (e) Notwithstanding subdivisions (a) and (b), the principal terms of a reorganization shall be approved by the affirmative vote of at least two-thirds of each class, or a greater vote if required in the articles, of the outstanding shares of any social purpose corporation that is a close social purpose corporation if the reorganization would result in the holders receiving shares or other interests of a corporation or other business entity that is not a close social purpose corporation. The articles may provide for a lesser vote, but not less than a majority of the outstanding shares of each class. (f) Notwithstanding subdivisions (a) and (b), the principal terms of a reorganization shall be approved by a vote of at least two-thirds of the outstanding shares of each class, or a greater vote if required in the articles, of a social purpose corporation that is a party to a merger reorganization, regardless of whether that class is entitled to vote thereon by the provisions of the articles, if holders of shares of that class receive interests of a surviving other business entity in the merger that is not a social purpose corporation, or receive interests of a surviving social purpose corporation the articles of incorporation of which specify a materially different purpose as part of the reorganization. (g) Notwithstanding subdivisions (a) and (b), the principal terms of a reorganization shall be approved by all shareholders of any class or series if, as a result of the reorganization, the holders of that class or series become personally liable for any obligations of a party to the reorganization, unless all holders of that class or series have the dissenters’ rights provided in Chapter 13 (commencing with Section 1300) of Division 1. (h) Any approval required by this section may be given before or after the approval by the board. Notwithstanding approval required by this section, the board may abandon the proposed reorganization without further action by the shareholders, subject to the contractual rights, if any, of third parties. (Amended by Stats. 2014, Ch. 694, Sec. 63. (SB 1301) Effective January 1, 2015.)
  160. 3500.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 11. Records and Reports [3500 - 3503] ( Chapter 11 added by Stats. 2011, Ch. 740, Sec. 12. )

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    A social purpose corporation’s board must send shareholders an annual report within 120 days after fiscal year end, include a special purpose MD&A and required financial information, and provide certain reports on request.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 11. Records and Reports [3500 - 3503] ( Chapter 11 added by Stats. 2011, Ch. 740, Sec. 12. ) ## 3500. (a) The board of a social purpose corporation shall cause an annual report to be sent to the shareholders not later than 120 days after the close of the fiscal year. The annual report shall contain (1) a balance sheet as of the end of that fiscal year and an income statement and a statement of cashflows for that fiscal year, accompanied by any report thereon of independent accountants or, if there is no report, the certificate of an authorized officer of the social purpose corporation that the statements were prepared without audit from the books and records of the corporation, and (2) the information required by subdivision (b). (b) The board shall cause to be provided with the annual report, a management discussion and analysis (special purpose MD&A) concerning the social purpose corporation’s stated purpose or purposes as set forth in its articles pursuant to paragraph (2) of subdivision (b) of Section 2602, and, to the extent consistent with reasonable confidentiality requirements, shall cause the special purpose MD&A to be made publicly available by posting it on the social purpose corporation’s Internet Web site or providing it through similar electronic means. The special purpose MD&A shall include the information specified in this subdivision and any other information that the social purpose corporation’s officers and directors believe to be reasonably necessary or appropriate to an understanding of the social purpose corporation’s efforts in connection with its special purpose or purposes. The special purpose MD&A shall also include the following information: (1) Identification and discussion of the overall objectives of the social purpose corporation relating to its special purpose or purposes, and an identification and explanation of any changes made in those special purpose objectives during the fiscal year. (2) Identification and discussion of the material actions taken by the social purpose corporation during the fiscal year to achieve its special purpose objectives, the impact of those actions, including the causal relationships between the actions and the reported outcomes, and the extent to which those actions achieved the special purpose objectives for the fiscal year. (3) Identification and discussion of material actions, including the intended impact of those actions, that the social purpose corporation expects to take in the short term and long term with respect to achievement of its special purpose objectives. (4) A description of the process for selecting, and an identification and description of, the financial, operating, and other measures used by the social purpose corporation during the fiscal year for evaluating its performance in achieving its special purpose objectives, including an explanation of why the social purpose corporation selected those measures and identification and discussion of the nature and rationale for any material changes in those measures made during the fiscal year. (5) Identification and discussion of any material operating and capital expenditures incurred by the social purpose corporation during the fiscal year in furtherance of achieving the special purpose objectives, a good faith estimate of any additional material operating or capital expenditures the social purpose corporation expects to incur over the next three fiscal years in order to achieve its special purpose objectives, and other material expenditures of resources incurred by the social purpose corporation during the fiscal year, including employee time, in furtherance of achieving the special purpose objectives, including a discussion of the extent to which that capital or use of other resources serves purposes other than and in addition to furthering the achievement of the special purpose objectives. (c) Except as may otherwise be excused pursuant to subdivision (h) of Section 1501.5, the reports specified in subdivisions (a) and (b) shall be sent to the shareholders at least 15 days, or, if sent by bulk mail, 35 days, prior to the annual meeting of shareholders to be held during the next fiscal year. This requirement shall not limit the requirement for holding an annual meeting as required by Section 600. (d) If no annual report for the last fiscal year has been sent to shareholders, the social purpose corporation shall, upon the written request of any shareholder made more than 120 days after the end of that fiscal year, deliver or mail to the person making the request within 30 days following the request, the statements required by subdivisions (a) and (b) for that fiscal year. (e) A shareholder or shareholders holding at least 5 percent of the outstanding shares of any class of a social purpose corporation may make a written request to the social purpose corporation for an income statement of the social purpose corporation for the three-month, six-month, or nine-month period of the current fiscal year ended more than 30 days prior to the date of the request and a balance sheet of the social purpose corporation as at the end of that period and, in addition, if no annual report for the most recent fiscal year has been sent to the shareholders, the statements referred to in subdivisions (a) and (b) relating to that fiscal year. The statements shall be delivered or mailed to the person making the request within 30 days following the request. A copy of the statements shall be kept on file in the principal office of the social purpose corporation for 12 months and shall be exhibited at all reasonable times to any shareholder demanding an examination of the statements or a copy shall be mailed to the shareholder. The quarterly income statements and balance sheets referred to in this subdivision shall be accompanied by the report thereon, if any, of any independent accountants engaged by the social purpose corporation or the certificate of an authorized officer of the social purpose corporation that the financial statements were prepared without audit from the books and records of the social purpose corporation. (Amended by Stats. 2014, Ch. 694, Sec. 64. (SB 1301) Effective January 1, 2015.)
  161. 3501.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 11. Records and Reports [3500 - 3503] ( Chapter 11 added by Stats. 2011, Ch. 740, Sec. 12. )

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    The board must send a special purpose current report to shareholders within 45 days after covered events and, unless already reported in the latest annual report, the report must describe certain expenditures and board or management decisions; it may be posted publicly if confidentiality requirements allow.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 11. Records and Reports [3500 - 3503] ( Chapter 11 added by Stats. 2011, Ch. 740, Sec. 12. ) ## 3501. (a) The board shall cause a special purpose current report to be sent to the shareholders not later than 45 days following the occurrence of any one or more of the events specified in subdivision (b) or (c), and, to the extent consistent with reasonable confidentiality requirements, shall cause the special purpose current report to be made publicly available by posting it on the social purpose corporation’s Internet Web site or providing it through similar electronic means. (b) Unless previously reported in the most recent annual report, the special purpose current report shall identify and discuss, in reasonable detail, any expenditure or group of related or planned expenditures, excluding compensation of officers and directors, made in furtherance of the special purpose objectives, whether an operating expenditure, a capital expenditure, or some other expenditure of corporate resources, including, but not limited to, employee time, whether the expenditure was direct or indirect, and whether the expenditure was categorized as overhead or otherwise where the expenditure has or is likely to have a material adverse impact on the social purpose corporation’s results of operations or financial condition for a quarterly or annual fiscal period. (c) Unless previously reported in the most recent annual report, the special purpose current report shall identify and discuss, in reasonable detail, any decision by the board or action by management to do either of the following: (1) Withhold expenditures or a group of related or planned expenditures, whether temporarily or permanently, that were to have been made in furtherance of the special purpose as contemplated in the most recent annual report, whether those planned expenditures were an operating expenditure, a capital expenditure, or some other expenditure of corporate resources, including, but not limited to, employee time, whether the planned expenditure was direct or indirect, and whether the planned expenditure to be made would have been categorized as overhead or otherwise, in any case, where the planned expenditure was likely to have had a material positive impact on the social purpose corporation’s impact in furtherance of its special purpose objectives, as contemplated in the most recent annual report. (2) Determine that the special purpose has been satisfied or should no longer be pursued, whether temporarily or permanently. (Amended by Stats. 2014, Ch. 694, Sec. 65. (SB 1301) Effective January 1, 2015.)
  162. 3502.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 11. Records and Reports [3500 - 3503] ( Chapter 11 added by Stats. 2011, Ch. 740, Sec. 12. )

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    This section sets reporting and record-keeping rules for social purpose corporations, including limits on how detailed reports must be, when reports may be sent electronically, and how long reports and notices must be kept.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 11. Records and Reports [3500 - 3503] ( Chapter 11 added by Stats. 2011, Ch. 740, Sec. 12. ) ## 3502. (a) Nothing contained in subdivision (b) of Section 3500 or Section 3501 shall require a detailing or itemization of every relevant expenditure incurred, or planned or action taken or planned, by the corporation. Management and the board shall use their discretion in providing that information, including the reasonable detail that a reasonable investor would consider important in understanding the corporation’s objectives, actions, impacts, measures, rationale, and results of operations as they relate to the nature and achievement of the special purpose objectives. (b) Where best practices emerge for providing the information required by subdivision (b) of Section 3500 or Section 3501, use of those best practices shall create a presumption that the social purpose corporation caused all the information required by those provisions to be provided. This presumption can only be rebutted by showing that the reporting contained either a misstatement of a material fact or omission of a material fact. (c) Notwithstanding subdivision (b) of Section 3500 and Section 3501, under no circumstances shall the social purpose corporation be required to provide information that would result in a violation of state or federal securities laws or other applicable laws. (d) The social purpose corporation and its officers and directors are expressly excluded from liability for any and all forward looking statements supplied in the report required by subdivision (b) of Section 3500 and Section 3501, so long as those statements are supplied in good faith. Statements are deemed to be forward looking as that term is defined in the federal securities laws. (e) The special purpose MD&A and any special purpose current report shall be written in plain English and shall be provided in an efficient and understandable manner, avoiding repetition and disclosure of immaterial information. (f) Unless otherwise provided by the articles or bylaws, and if approved by the board of directors, the reports specified in Sections 3500 and 3501 and any accompanying material sent pursuant to this section may be sent by electronic transmission by the corporation. (g) The financial statements of any social purpose corporation with fewer than 100 holders of record of its shares, determined as provided in Section 605, required to be furnished by Sections 3500 and 3501 are not required to be prepared in conformity with generally accepted accounting principles if they reasonably set forth the assets and liabilities and the income and expense of the social purpose corporation and disclose the accounting basis used in their preparation. (h) The requirements described in Section 3500 shall be satisfied if a corporation with an outstanding class of securities registered under Section 12 of the Securities Exchange Act of 1934 both complies with Section 240.14a-16 of Title 17 of the Code of Federal Regulations, as amended from time to time, with respect to the obligation of a corporation to furnish an annual report to shareholders pursuant to Section 240.14a-3(b) of Title 17 of the Code of Federal Regulations, and includes the information required by subdivision (b) of Section 3500 in the annual report. (i) The requirements described in Section 3501 shall be satisfied if a corporation with an outstanding class of securities registered under Section 12 of the Securities Exchange Act of 1934 both complies with Section 240.13a-13 of Title 17 of the Code of Federal Regulations, as amended from time to time, with respect to the obligation of a corporation to furnish a quarterly report to shareholders, and includes the information required by subdivision (b) of Section 3501 in the quarterly report. (j) In addition to the penalties provided for in this division, the superior court of the proper county shall enforce the duty of making and mailing or delivering the information and financial statements required by Sections 3500 and 3501 and, for good cause shown, may extend the time therefor. (k) In any action or proceeding with respect to Section 3500 or 3501, if the court finds the failure of the social purpose corporation to comply with the requirements of those sections to have been without justification, the court may award an amount sufficient to reimburse the shareholder for the reasonable expenses incurred by the shareholder, including attorney’s fees, in connection with the action or proceeding. (l) Section 3500 and Section 3501 apply to any domestic social purpose corporation and also to a foreign social purpose corporation having its principal office in California or customarily holding meetings of its board in this state. (m) All reports and notices required by Section 3500 and Section 3501 shall be maintained by the social purpose corporation, in an electronic form for a period of not less than 10 years. (Amended by Stats. 2022, Ch. 617, Sec. 42. (SB 1202) Effective January 1, 2023.)
  163. 3503.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 11. Records and Reports [3500 - 3503] ( Chapter 11 added by Stats. 2011, Ch. 740, Sec. 12. )

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    Officers, directors, employees, or agents of a social purpose corporation can be jointly and severally liable for damages if they make or alter false or misleading corporate records or reports.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503] ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. ) ## CHAPTER 11. Records and Reports [3500 - 3503] ( Chapter 11 added by Stats. 2011, Ch. 740, Sec. 12. ) ## 3503. Any officers, directors, employees, or agents of a social purpose corporation who do any of the following shall be liable jointly and severally for all the damages resulting therefrom to the social purpose corporation or any person injured by those actions who relied on those actions or to both: (a) Make, issue, deliver, or publish any prospectus, report, including the reports required pursuant to Sections 3500 and 3501, circular, certificate, financial statement, balance sheet, public notice, or document respecting the social purpose corporation or its shares, assets, liabilities, capital, dividends, business, earnings, or accounts which is false in any material respect, knowing it to be false, or participate in the making, issuance, delivery, or publication thereof with knowledge that the same is false in a material respect. (b) Make or cause to be made in the books, minutes, records, or accounts of a social purpose corporation any entry that is false in any material particular knowing it to be false. (c) Remove, erase, alter, or cancel any entry in any books or records of the social purpose corporation, with intent to deceive. (d) With respect to the reports required pursuant to subdivision (b) of Section 3500 and Section 3501, omit to state any material fact necessary in order to make the statements contained therein, in light of the circumstances under which those statements were made, not misleading in a material respect, knowing the omission to be misleading. (Amended by Stats. 2014, Ch. 694, Sec. 67. (SB 1301) Effective January 1, 2015.)
  164. 4.

    ## Corporations Code - CORP ## GENERAL PROVISIONS ( General Provisions enacted by Stats. 1947, Ch. 1038. )

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    Earlier actions or proceedings, and accrued rights, are not affected, but later procedure in those matters should conform to this code as far as possible.

    ## Corporations Code - CORP ## GENERAL PROVISIONS ( General Provisions enacted by Stats. 1947, Ch. 1038. ) ## 4. No action or proceeding commenced before this code takes effect, and no right accrued, is affected by the provisions of this code, but all procedure thereafter taken therein shall conform to the provisions of this code so far as possible. (Enacted by Stats. 1947, Ch. 1038.)
  165. 400.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. )

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    A corporation may issue one or more classes or series of shares, including shares with different voting rights, if those rights and restrictions are stated or authorized in its articles.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. ) ## 400. (a) A corporation may issue one or more classes or series of shares or both, with full, limited or no voting rights and with such other rights, preferences, privileges and restrictions as are stated or authorized in its articles. No denial or limitation of voting rights shall be effective unless at the time one or more classes or series of outstanding shares or debt securities, singly or in the aggregate, are entitled to full voting rights; and no denial or limitation of dividend or liquidation rights shall be effective unless at the time one or more classes or series of outstanding shares, singly or in the aggregate, are entitled to unlimited dividend and liquidation rights. (b) All shares of any one class shall have the same voting, conversion and redemption rights and other rights, preferences, privileges and restrictions, unless the class is divided into series. If a class is divided into series, all the shares of any one series shall have the same voting, conversion and redemption rights and other rights, preferences, privileges and restrictions. (Amended by Stats. 1976, Ch. 641.)
  166. 401.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. )

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    Before issuing certain shares, a corporation must file an officers’ certificate. The board may change share terms or the number of shares in a series, but only through the procedures stated here and subject to listed exceptions.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. ) ## 401. (a) Before any corporation issues any shares of any class or series of which the rights, preferences, privileges, and restrictions, or any of them, or the number of shares constituting any series or the designation of the series, are not set forth in its articles but are fixed in a resolution adopted by the board pursuant to authority given by its articles, an officers’ certificate shall be executed and filed, setting forth: (1) a copy of the resolution; (2) the number of shares of the class or series; and (3) that none of the shares of the class or series has been issued. (b) After any certificate of determination has been filed, but before the corporation issues any shares of the class or series covered thereby, the board may alter or revoke any right, preference, privilege, or restriction fixed or determined by the resolution set forth therein by the adoption of another resolution appropriate for that purpose and the execution and filing of an officers’ certificate setting forth a copy of the resolution, and stating that none of the shares of the class or the series affected has been issued. (c) After any certificate of determination has been filed, the board may, if authorized in the articles pursuant to subdivision (e) of Section 202, increase or decrease the number of shares constituting any series, by the adoption of another resolution appropriate for that purpose and the execution and filing of an officers’ certificate setting forth a copy of the resolution, the number of shares of the series then outstanding and the increase or decrease in the number of shares constituting the series. If any certificate of determination has been incorporated in restated articles filed pursuant to Section 910, the action authorized by this subdivision may, notwithstanding Section 902, be accomplished by an amendment of the articles approved by the board alone. (d) After shares of a class or series have been issued, the provisions of the resolution set forth in a certificate of determination may be amended only by the adoption and approval of an amendment in accordance with Section 902, 903, or 904 and the filing of a certificate of amendment in accordance with Sections 905 and 908. Notwithstanding the preceding sentence, a certificate to increase or decrease the number of shares of a series also may be filed as permitted by subdivision (c). (e) A provision in a certificate of determination being amended pursuant to subdivision (b), (c), or (d) shall be identified in the amendment in accordance with subdivision (a) of Section 907. (f) If a certificate is filed pursuant to subdivision (c) to decrease the number of shares of a series to zero, the certificate of determination whereby the series was established is thereupon no longer in force and the series is no longer an authorized series of the corporation. (g) If the rights, preferences, privileges, and restrictions of the class or series contain a supermajority vote provision, as defined in subdivision (b) of Section 710, subject to Section 710, the officers’ certificate shall also state that the provision has been approved by the shareholders in accordance with subdivision (c) of Section 710. (Amended by Stats. 1993, Ch. 128, Sec. 4. Effective January 1, 1994.)
  167. 402.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. )

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    This section lets corporations set up redeemable shares in their articles, but it also limits when redeemable common shares may be issued or redeemed and ties redemptions to Chapter 5 rules.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. ) ## 402. (a) A corporation may provide in its articles for one or more classes or series of shares which are redeemable, in whole or in part, (1) at the option of the corporation or (2) to the extent and upon the happening of one or more specified events, and not otherwise except as herein provided. A corporation may provide in its articles for one or more classes or series of preferred shares which are redeemable, in whole or in part, (1) as specified above, (2) at the option of the holder, or (3) upon the vote of at least a majority of the outstanding shares of the class or series to be redeemed. An open-end investment company registered under the United States Investment Company Act of 1940 may, if its articles so provide, issue shares which are redeemable at the option of the holder at a price approximately equal to the shares’ proportionate interest in the net assets of the corporation and a shareholder may compel redemption of such shares in accordance with their terms. (b) Any such redemption shall be effected at such price or prices, within such time and upon such terms and conditions as are stated in the articles. When the articles permit partial redemption of a class or series of shares, the articles shall prescribe the method of selecting the shares to be redeemed, which may be pro rata, by lot, at the discretion of, or in a manner approved by, the board or upon such other terms as are specified in the articles. (c) No redeemable common shares, other than (1) shares issued by an open-end investment company registered under the United States Investment Company Act of 1940, (2) shares of a corporation which has a license or franchise from a governmental agency to conduct its business or is a member corporation of a national securities exchange registered under the United States Securities Exchange Act of 1934, which license, franchise or membership is conditioned upon some or all of the holders of its stock possessing prescribed qualifications, to the extent necessary to prevent the loss of such license, franchise or membership or to reinstate it, or (3) shares of a professional corporation, as defined in Part 4 (commencing with Section 13400) of Division 3 of Title 1, shall be issued or redeemed unless the corporation at the time has outstanding a class of common shares that is not subject to redemption. (d) Any redemption by a corporation of its shares shall be subject to the provisions of Chapter 5 (commencing with Section 500). Nothing in this section shall prevent a corporation from creating a sinking fund or similar provision for, or entering into an agreement for, the redemption or purchase of its shares to the extent permitted by Chapter 5, but unless such purchase or redemption is permitted under Chapter 5, the holder of shares to be so purchased or redeemed shall not become a creditor of the corporation. (Amended by Stats. 2022, Ch. 617, Sec. 11. (SB 1202) Effective January 1, 2023.)
  168. 402.5.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. )

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    Preferred shares whose designation includes “preferred” or “preference” may set special voting thresholds, allow voluntary winding up and dissolution only on a specified vote, and allow distributions without regard to certain arrears or preferential amounts.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. ) ## 402.5. The rights, preferences, privileges, and restrictions granted to or imposed upon a class or series of preferred shares (Section 176), the designation of which includes either the word “preferred” or the word “preference,” may: (a) Notwithstanding paragraph (9) of subdivision (a) of Section 204, include a provision requiring a vote of a specified percentage or proportion of the outstanding shares of the class or series that is less than a majority of the class or series to approve any corporate action, except where the vote of a majority or greater proportion of the class or series is required by this division, regardless of restrictions or limitations on the voting rights thereof. (b) Notwithstanding paragraph (5) of subdivision (a) of Section 204, provide that in addition to the requirement of subdivision (a) of Section 1900 the corporation may voluntarily wind up and dissolve only upon the vote of a specified percentage (which shall not exceed 662/3 percent) of such class or series. (c) Notwithstanding subdivision (a) of Section 500, provide that a distribution may be made without regard to the preferential dividends arrears amount, or any preferential rights amount, or both, as described in paragraphs (1) and (2) of subdivision (a) of Section 500. (Amended by Stats. 2014, Ch. 71, Sec. 22. (SB 1304) Effective January 1, 2015.)
  169. 403.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. )

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    A corporation may issue convertible shares if the articles allow it, and may also issue convertible debt securities unless the articles say otherwise.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. ) ## 403. (a) When so provided in the articles, a corporation may issue shares convertible within the time or upon the happening of one or more specified events and upon the terms and conditions that are stated in the articles if any of the following conditions apply: (1) At the option of the holder or automatically upon either the vote of at least a majority of the outstanding shares of the class or series to be converted or upon the happening of one or more specified events, into shares of any class or series. (2) If it is a corporation which has a license or franchise from a governmental agency to conduct its business or a member corporation of a national securities exchange registered under the United States Securities Exchange Act of 1934, the license, franchise or membership of which is conditioned upon some or all of the holders of its stock possessing prescribed qualifications, to the extent necessary to prevent the loss of such license, franchise or membership or to reinstate it, at the option of the corporation, into shares of any class or series or into any other security of the corporation. (3) If the corporation is a “listed corporation” as defined in subdivision (d) of Section 301.5, both at the time of the original issuance of the convertible shares and at the time of the conversion, at the option of the corporation into shares of any class or series or into any other security of the corporation, provided that any such securities received upon conversion are listed or qualified for trading on a stock exchange or market system defined in subdivision (d) of Section 301.5. (b) Unless otherwise provided in the articles, a corporation may issue its debt securities convertible into other debt securities or into shares of the corporation within such time or upon the happening of one or more specified events and upon such terms and conditions as are fixed by the board. (Amended by Stats. 1996, Ch. 477, Sec. 1. Effective January 1, 1997.)
  170. 404.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. )

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    A corporation may grant options to buy or subscribe for shares, and the option terms may be set as the corporation deems expedient.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. ) ## 404. Either in connection with the issue, subscription or sale of any of its shares, bonds, debentures, notes or other securities or independently thereof, a corporation may grant options to purchase or subscribe for shares of any class or series upon such terms and conditions as may be deemed expedient. Option rights may be transferable or nontransferable and separable or inseparable from other securities of the corporation. (Added by Stats. 1975, Ch. 682.)
  171. 405.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. )

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    If a corporation lacks enough authorized shares for option or conversion rights, the articles must be amended to authorize the needed shares. If shareholder approval under Section 152 has already been obtained, the board may increase authorized shares by amending the articles without further shareholder approval.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. ) ## 405. (a) If at the time of granting option or conversion rights or at any later time the corporation is not authorized by its articles to issue all the shares required for the satisfaction of the rights, if and when exercised, the additional number of shares required to be issued upon the exercise of such option or conversion rights shall be authorized by an amendment to the articles. (b) If a corporation has obtained approval of the outstanding shares (Section 152) for the issue of options to purchase shares or of securities convertible into shares of the corporation, the board may, without further approval of the outstanding shares (Section 152), amend the articles to increase the authorized shares of any class or series to such number as will be sufficient from time to time, when added to the previously authorized but unissued shares of such class or series, to satisfy any such option or conversion rights. (Added by Stats. 1975, Ch. 682.)
  172. 406.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. )

    Verify source ↗

    The board may issue shares, options, or securities with conversion or option rights without first offering them to shareholders, unless the articles say otherwise.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. ) ## 406. Unless the articles provide otherwise, the board may issue shares, options or securities having conversion or option rights without first offering them to shareholders of any class. (Added by Stats. 1975, Ch. 682.)
  173. 407.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. )

    Verify source ↗

    A corporation may issue fractional shares, but if it does not, it must handle the fractions by arranging disposition, paying cash, or issuing scrip or warrants. It may not pay cash if that would cancel more than 10% of a class’s outstanding shares.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. ) ## 407. A corporation may, but is not required to, issue fractions of a share originally or upon transfer. If it does not issue fractions of a share, it shall in connection with any original issuance of shares (a) arrange for the disposition of fractional interests by those entitled thereto, (b) pay in cash the fair value of fractions of a share as of the time when those entitled to receive those fractions are determined or (c) issue scrip or warrants in registered form, as certificated securities or uncertificated securities, or bearer form as certificated securities, which shall entitle the holder to receive a certificate for a full share upon the surrender of the scrip or warrants aggregating a full share; provided, however, that if the fraction of a share that any person would otherwise be entitled to receive in a merger, conversion, or reorganization is less than one-half of 1 percent of the total shares that person is entitled to receive, a merger, conversion, or reorganization agreement may provide that fractions of a share will be disregarded or that shares issuable in the merger or conversion will be rounded off to the nearest whole share; and provided, further, that a corporation may not pay cash for fractional shares if that action would result in the cancellation of more than 10 percent of the outstanding shares of any class. A determination by the board of the fair value of fractions of a share shall be conclusive in the absence of fraud. A certificate for a fractional share shall, but scrip or warrants shall not unless otherwise provided therein, entitle the holder to exercise voting rights, to receive dividends thereon and to participate in any of the assets of the corporation in the event of liquidation. The board may cause scrip or warrants to be issued subject to the condition that they shall become void if not exchanged for full shares before a specified date or that the shares for which scrip or warrants are exchangeable may be sold by the corporation and the proceeds thereof distributed to the holder of the scrip or warrants or any other condition that the board may impose. (Amended by Stats. 2002, Ch. 480, Sec. 2. Effective January 1, 2003.)
  174. 408.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. )

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    A corporation may create and run stock purchase or stock option plans, and those plans can set many terms about shares, payment, and employment termination. Certain employees and officers receiving shares in the described ways are not subject to Labor Code sections 406 and 407.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. ) ## 408. (a) A corporation may adopt and carry out a stock purchase plan or agreement or stock option plan or agreement providing for the issue and sale for such consideration as may be fixed of its unissued shares, or of issued shares acquired or to be acquired, to one or more of the employees or directors of the corporation or of a subsidiary or parent thereof or to a trustee on their behalf and for the payment for such shares in installments or at one time, and may provide for aiding any such persons in paying for such shares by compensation for services rendered, promissory notes or otherwise. (b) A stock purchase plan or agreement or stock option plan or agreement may include, among other features, the fixing of eligibility for participation therein, the class and price of shares to be issued or sold under the plan or agreement, the number of shares which may be subscribed for, the method of payment therefor, the reservation of title until full payment therefor, the effect of the termination of employment, an option or obligation on the part of the corporation to repurchase the shares upon termination of employment, subject to the provisions of Chapter 5, restrictions upon transfer of the shares and the time limits of and termination of the plan. (c) Sections 406 and 407 of the Labor Code shall not apply to shares issued by any foreign or domestic corporation to the following persons: (1) Any employee of the corporation or of any parent or subsidiary thereof, pursuant to a stock purchase plan or agreement or stock option plan or agreement provided for in subdivision (a). (2) In any transaction in connection with securing employment, to a person who is or is about to become an officer of the corporation or of any parent or subsidiary thereof. (Amended by Stats. 1982, Ch. 266, Sec. 1.)
  175. 409.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. )

    Verify source ↗

    Shares may be issued for board-determined consideration, and partly paid shares are allowed subject to call and disclosure requirements.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. ) ## 409. (a) Shares may be issued: (1) For such consideration as is determined from time to time by the board, or by the shareholders if the articles so provide, consisting of any or all of the following: money paid; labor done; services actually rendered to the corporation or for its benefit or in its formation or reorganization; debts or securities canceled; and tangible or intangible property actually received either by the issuing corporation or by a wholly owned subsidiary; but neither promissory notes of the purchaser (unless adequately secured by collateral other than the shares acquired or unless permitted by Section 408) nor future services shall constitute payment or part payment for shares of the corporation; or (2) As a share dividend or upon a stock split, reverse stock split, reclassification of outstanding shares into shares of another class, conversion of outstanding shares into shares of another class, exchange of outstanding shares for shares of another class or other change affecting outstanding shares. (b) Except as provided in subdivision (d), shares issued as provided in this section or Section 408 shall be declared and taken to be fully paid stock and not liable to any further call nor shall the holder thereof be liable for any further payments under the provisions of this division. In the absence of fraud in the transaction, the judgment of the directors as to the value of the consideration for shares shall be conclusive. (c) If the articles reserve to the shareholders the right to determine the consideration for the issue of any shares, such determination shall be made by approval of the outstanding shares (Section 152). (d) A corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. On the certificate issued to represent any such partly paid shares or, for uncertificated securities, on the initial transaction statement for such partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon. (e) The board shall state by resolution its determination of the fair value to the corporation in monetary terms of any consideration other than money for which shares are issued. This subdivision does not affect the accounting treatment of any transaction, which shall be in conformity with generally accepted accounting principles. (Amended by Stats. 1986, Ch. 766, Sec. 13.)
  176. 410.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. )

    Verify source ↗

    Subscribers to shares and original recipients of shares are liable for the full agreed share consideration, which generally must be paid before or when the shares are issued.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. ) ## 410. (a) Every subscriber to shares and every person to whom shares are originally issued is liable to the corporation for the full consideration agreed to be paid for the shares. (b) The full agreed consideration for shares shall be paid prior to or concurrently with the issuance thereof, unless the shares are issued as partly paid pursuant to subdivision (d) of Section 409, in which case the consideration shall be paid in accordance with the agreement of subscription or purchase. (Added by Stats. 1975, Ch. 682.)
  177. 411.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. )

    Verify source ↗

    A good-faith transferee of partly unpaid shares is liable only for the unpaid amount shown on the certificate or initial transaction statement, until the transferee passes the shares to someone else who becomes liable.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. ) ## 411. A transferee of shares for which the full agreed consideration has not been paid to the issuing corporation, who acquired them in good faith, without knowledge that they were not paid in full or to the extent stated on the certificate representing them or, in the case of uncertificated securities, on the applicable initial transaction statement, is liable only for the amount shown by the certificate or statement to be unpaid on the shares represented thereby, until the transferee transfers the shares to one who becomes liable therefor; provided that the transferor shall remain personally liable if so provided on the certificate or statement or agreed upon in writing. The liability of any holder of such shares who derives title through such a transferee and who is not a party to any fraud affecting the issue of the shares is the same as that of the transferee through whom title is derived. (Amended by Stats. 1986, Ch. 766, Sec. 14.)
  178. 412.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. )

    Verify source ↗

    Certain transferees of partly paid shares are personally liable to the corporation for unpaid installments until the shares are transferred to someone else who becomes liable. The transferor can also remain personally liable if that is stated or agreed in writing.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. ) ## 412. Every transferee of partly paid shares who acquired them under a certificate or initial transaction statement showing the fact of part payment, and every transferee of such shares (other than a transferee who derives title through a holder in good faith without knowledge and who is not a party to any fraud affecting the issue of such shares) who acquired them with actual knowledge that the full agreed consideration had not been paid to the extent stated on the certificate or initial transaction statement, is personally liable to the corporation for installments of the amount unpaid becoming due until the shares are transferred to one who becomes liable therefor; provided that the transferor shall remain personally liable if so provided on the certificate, initial transaction statement, or written statement, or agreed upon in writing. (Amended by Stats. 1986, Ch. 766, Sec. 15.)
  179. 413.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. )

    Verify source ↗

    A person holding shares in a fiduciary or representative role is not personally liable for unpaid subscription balance on those shares.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. ) ## 413. A person holding shares as pledgee, executor, administrator, guardian, conservator, trustee, receiver or in any representative or fiduciary capacity is not personally liable for any unpaid balance of the subscription price of the shares because the shares are so held but the estate and funds in the hands of such fiduciary or representative are liable and the shares are subject to sale therefor. (Amended by Stats. 1979, Ch. 730.)
  180. 414.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. )

    Verify source ↗

    A creditor usually cannot sue to collect a shareholder’s unpaid share liability unless the creditor has a final judgment against the corporation and collection has failed, unless going through that process would be useless.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. ) ## 414. (a) No action shall be brought by or on behalf of any creditor to reach and apply the liability, if any, of a shareholder to the corporation to pay the amount due on such shareholder’s shares unless final judgment has been rendered in favor of the creditor against the corporation and execution has been returned unsatisfied in whole or in part or unless such proceedings would be useless. (b) All creditors of the corporation, with or without reducing their claims to judgment, may intervene in any such creditor’s action to reach and apply unpaid subscriptions and any or all shareholders who hold partly paid shares may be joined in such action. Several judgments may be rendered for and against the parties to the action or in favor of a receiver for the benefit of the respective parties thereto. (c) All amounts paid by any shareholder in any such action shall be credited on the unpaid balance due the corporation upon such shareholder’s shares. (Added by Stats. 1975, Ch. 682.)
  181. 415.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. )

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    This section preserves existing rights and remedies for creditors, shareholders, and the corporation in cases involving fraud or illegality tied to the issue or sale of shares or other securities.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. ) ## 415. Nothing in this division shall be construed as a derogation of any rights or remedies which any creditor or shareholder may have against any promoter, shareholder, director, officer or the corporation because of participation in any fraud or illegality practiced upon such creditor or shareholder by any such person or by the corporation in connection with the issue or sale of shares or other securities or in derogation of any rights which the corporation may have by rescission, cancellation or otherwise because of any fraud or illegality practiced on it by any such person in connection with the issue or sale of shares or other securities. (Added by Stats. 1975, Ch. 682.)
  182. 416.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. )

    Verify source ↗

    Shareholders are entitled to a share certificate, and a corporation may use an approved electronic or other non-certificate system for issuing, recording, and transferring shares.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. ) ## 416. (a) Every holder of shares in a corporation shall be entitled to have a certificate signed in the name of the corporation by the chairperson or vice chairperson of the board or the president or a vice president and by the chief financial officer or an assistant treasurer or the secretary or any assistant secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. (b) Notwithstanding subdivision (a), a corporation may adopt a system of issuance, recordation and transfer of its shares by electronic or other means not involving any issuance of certificates, including provisions for notice to purchasers in substitution for the required statements on certificates under Sections 417, 418, and 1302, and as may be required by the commissioner in administering the Corporate Securities Law of 1968, which system (1) has been approved by the United States Securities and Exchange Commission, (2) is authorized in any statute of the United States, or (3) is in accordance with Division 8 (commencing with Section 8101) of the Commercial Code. Any system so adopted shall not become effective as to issued and outstanding certificated securities until the certificates therefor have been surrendered to the corporation. (Amended by Stats. 2015, Ch. 98, Sec. 7. (SB 351) Effective January 1, 2016.)
  183. 417.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. )

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    If a corporation has classified shares or multiple series, it must include one of the listed statements on the relevant share certificate or related written statements. Shareholders may also request a copy of the statement without charge.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. ) ## 417. If the shares of the corporation are classified or if any class of shares has two or more series, there shall appear on the certificate or, in the case of uncertificated securities, the initial transaction statement and written statements, one of the following: (a) A statement of the rights, preferences, privileges and restrictions granted to or imposed upon each class or series of shares authorized to be issued and upon the holders thereof. (b) A summary of such rights, preferences, privileges and restrictions with reference to the provisions of the articles and any certificates of determination establishing the same. (c) A statement setting forth the office or agency of the corporation from which shareholders may obtain, upon request and without charge, a copy of the statement referred to in subdivision (a). (Amended by Stats. 1986, Ch. 766, Sec. 17.)
  184. 418.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. )

    Verify source ↗

    Share certificates and related written statements must disclose certain share restrictions and features, and some restrictions are unenforceable against a transferee unless they are stated or the transferee has actual knowledge.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. ) ## 418. (a) There shall also appear on the certificate, the initial transaction statement, and written statements (unless stated or summarized under subdivision (a) or (b) of Section 417) the statements required by all of the following clauses to the extent applicable: (1) The fact that the shares are subject to restrictions upon transfer. (2) If the shares are assessable or are not fully paid, a statement that they are assessable or the statements required by subdivision (d) of Section 409 if they are not fully paid. (3) The fact that the shares are subject to a voting agreement under subdivision (a) of Section 706 or an irrevocable proxy under subdivision (e) of Section 705 or restrictions upon voting rights contractually imposed by the corporation. (4) The fact that the shares are redeemable. (5) The fact that the shares are convertible and the period for conversion. Any such statement or reference thereto (Section 174) on the face of the certificate, the initial transaction statement, and written statements required by paragraph (1) or (2) shall be conspicuous. (b) Unless stated on the certificate, the initial transaction statement, and written statements as required by subdivision (a), no restriction upon transfer, no right of redemption and no voting agreement under subdivision (a) of Section 706, no irrevocable proxy under subdivision (e) of Section 705, and no voting restriction imposed by the corporation shall be enforceable against a transferee of the shares without actual knowledge of such restriction, right, agreement or proxy. With regard only to liability to assessment or for the unpaid portion of the subscription price, unless stated on the certificate as required by subdivision (a), that liability shall not be enforceable against a transferee of the shares. For the purpose of this subdivision, “transferee” includes a purchaser from the corporation. (c) All certificates representing shares of a close corporation shall contain in addition to any other statements required by this section, the following conspicuous legend on the face thereof: “This corporation is a close corporation. The number of holders of record of its shares of all classes cannot exceed ____ [a number not in excess of 35]. Any attempted voluntary inter vivos transfer which would violate this requirement is void. Refer to the articles, bylaws and any agreements on file with the secretary of the corporation for further restrictions.” (d) Any attempted voluntary inter vivos transfer of the shares of a close corporation which would result in the number of holders of record of its shares exceeding the maximum number specified in its articles is void if the certificate contains the legend required by subdivision (c). (Amended by Stats. 1986, Ch. 766, Sec. 18.)
  185. 419.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. )

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    A corporation may replace a lost, stolen, or destroyed certificate, and may require security before doing so. If the corporation refuses, the owner or legal representative may ask the superior court to order issuance of a new certificate.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. ) ## 419. (a) A domestic or foreign corporation may issue a new share certificate or a new certificate for any other security in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate or the owner’s legal representative to give the corporation a bond (or other adequate security) sufficient to indemnify it against any claim that may be made against it (including any expense or liability) on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. (b) If a corporation refuses to issue a new share certificate or other certificate in place of one theretofore issued by it, or by any corporation of which it is the lawful successor, alleged to have been lost, stolen or destroyed, the owner of the lost, stolen or destroyed certificate or the owner’s legal representative may bring an action in the superior court of the proper county for an order requiring the corporation to issue a new certificate in place of the one lost, stolen or destroyed. (c) If the court is satisfied that the plaintiff is the lawful owner of the number of shares or other securities, or any part thereof, described in the complaint and that the certificate therefor has been lost, stolen or destroyed, and no sufficient cause has been shown why a new certificate should not be issued in place thereof, it shall make an order requiring the corporation to issue and deliver to the plaintiff a new certificate for such shares or other securities. In its order the court shall direct that, prior to the issuance and delivery to the plaintiff of such new certificate, the plaintiff give the corporation a bond (or other adequate security) as to the court appears sufficient to indemnify the corporation against any claim that may be made against it (including any expense or liability) on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. (Added by Stats. 1975, Ch. 682.)
  186. 420.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. )

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    This section limits liability for corporations, transfer agents, and registrars when they transfer shares or securities in specified situations.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. ) ## 420. Neither a domestic nor foreign corporation nor its transfer agent or registrar is liable: (a) For transferring or causing to be transferred on the books of the corporation to the surviving joint tenant or tenants any share or shares or other securities issued to two or more persons in joint tenancy, whether or not the transfer is made with actual or constructive knowledge of the existence of any understanding, agreement, condition or evidence that the shares or securities were held other than in joint tenancy or of a breach of trust by any joint tenant. (b) To a minor or incompetent person in whose name shares or other securities are of record on its books or to any transferee of or transferor to either for transferring the shares or other securities on its books at the instance of or to the minor or incompetent or for the recognition of or dealing with the minor or incompetent as a shareholder or security holder, whether or not the corporation, transfer agent or registrar had notice, actual or constructive, of the nonage or incompetency, unless a guardian or conservator of the property of the minor or incompetent has been appointed and the corporation, transfer agent or registrar has received written notice thereof. (c) To any married person or to any transferee of such person for transferring shares or other securities on its books at the instance of the person in whose name they are registered, without the signature of such person’s spouse and regardless of whether the registration indicates that the shares or other securities are community property, in the same manner as if such person were unmarried. (d) For transferring or causing to be transferred on the books of the corporation shares or other securities pursuant to a judgment or order of a court which has been set aside, modified or reversed unless, prior to the registration of the transfer on the books of the corporation, written notice is served upon the corporation or its transfer agent in the manner provided by law for the service of a summons in a civil action, stating that an appeal or other further court proceeding has been or is to be taken from or with regard to such judgment or order. After the service of such notice neither the corporation nor its transfer agent has any duty to register the requested transfer until the corporation or its transfer agent has received a certificate of the clerk of the court in which the judgment or order was entered or made, showing that the judgment or order has become final. (e) The Commercial Code shall not affect the limitations of liability set forth in this section. Section 1100 of the Family Code shall be subject to the provisions of this section and shall not be construed to prevent transfers, or result in liability to the corporation, transfer agent or registrar permitting or effecting transfers, which comply with this section. (Amended by Stats. 2002, Ch. 784, Sec. 89. Effective January 1, 2003.)
  187. 421.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. )

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    A close corporation shareholder who accepts share certificates with the required legend agrees not to transfer shares in a way that violates Section 418(d), and gives up certain rights to sell to more purchasers or demand registration.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. ) ## 421. Each holder of shares of a close corporation, whether original or subsequent, by accepting the certificates for the shares which contain the legend required by subdivision (c) of Section 418 agrees and consents that such holder cannot make any transfer of shares which would violate the provisions of subdivision (d) of Section 418 and waives any right which such holder might otherwise have under any other law to sell such shares to a greater number of purchasers or to demand any registration thereof under the Securities Act of 1933, as now or hereafter amended, or as provided in any statute adopted in substitution therefor, or otherwise, so long as the corporation is a close corporation. (Added by Stats. 1975, Ch. 682.)
  188. 422.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. )

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    The board may require holders of outstanding share certificates to surrender them and get new certificates, and may issue updated statements for uncertificated securities.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. ) ## 422. (a) When the articles are amended in any way affecting the statements contained in the certificates for outstanding shares, or it becomes desirable for any reason, in the discretion of the board, to cancel any outstanding certificate for shares and issue a new certificate therefor conforming to the rights of the holder, the board may order any holders of outstanding certificates for shares to surrender and exchange them for new certificates within a reasonable time to be fixed by the board. (b) The order may provide that a holder of any certificates so ordered to be surrendered is not entitled to vote or to receive dividends or exercise any of the other rights of shareholders until the holder has complied with the order, but such order operates to suspend such rights only after notice and until compliance. The duty of surrender of any outstanding certificates may also be enforced by civil action. (c) When the articles are amended in any way affecting the statements contained in the initial transaction statement or other written statements for outstanding uncertificated securities, or it becomes desirable for any reason, in the discretion of the board, to amend, revise, or supersede outstanding initial transaction statements or written statements, the board may order the issuance and delivery to holders of record of amended, revised, or superseding initial transaction statements or written statements. (Amended by Stats. 1986, Ch. 766, Sec. 19.)
  189. 423.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. )

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    This section limits when shares may be assessed and sets the rules for levying, noticing, collecting, selling, and forfeiting delinquent shares.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 4. Shares and Share Certificates [400 - 423] ( Chapter 4 added by Stats. 1975, Ch. 682. ) ## 423. (a) Shares are not assessable except as provided in this section or as otherwise provided by a statute other than this division. If the articles expressly confer such authority upon the corporation or the board, and subject to any limitations therein contained, the board may in its discretion levy and collect assessments upon all shares of any or all classes made subject to assessment by the articles. This authority is in addition to the right of the corporation to recover the unpaid subscription price of shares or the remainder of the consideration to be paid therefor. (b) Every levy of an assessment shall: specify the amount thereof and to whom and where it is payable; fix, or if proceedings or filings with any governmental or other agency for any qualification, permit, registration or exemption therefrom are required as a condition precedent to the levy or payment of an assessment provide for the establishment of, a date on which the assessment is payable; fix a date, not less than 30 nor more than 60 days from the date on which the assessment is payable, on which such assessment becomes delinquent if not paid; and fix a date, not less than 15 nor more than 60 days from the date on which the unpaid assessment becomes delinquent, for the sale of delinquent shares. The levy also shall fix the hour and place of sale, which place shall be in the county where the corporation is required to keep a copy of its bylaws pursuant to Section 213, or if there is no such county, in Sacramento. (c) On or before the date an assessment is payable, the secretary of the corporation shall give notice thereof in substantially the following form: (Name of corporation in full. Location of principal office.) Notice is hereby given that the board of directors on (date) has levied an assessment of (amount) per share upon the (name or designation of class or series of shares) of the corporation payable (to whom and where). Any shares upon which this assessment remains unpaid on (date fixed) will be delinquent. Unless payment is made before delinquency, the said shares, or as many of them as may be necessary, will be sold at (particular place) on (date) at (hour) of such date, to pay the delinquent assessment, together with a penalty of 5 percent of the amount of the assessment on such shares, or be forfeited to the corporation. (Name of secretary with location of office.) (d) The notice shall be served personally upon each holder of record of shares assessed; provided, however, that in lieu of personal service the notice may be mailed to each such shareholder addressed to the last address of the shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice, or if no such address appears or is given, at the place where the principal office of the corporation is located, and published once in some newspaper of general circulation in the county in which the principal office of the corporation is located. If there is no such newspaper in such county, the publication shall be made in some newspaper of general circulation in an adjoining county. (e) The assessment is a lien upon the shares assessed from the time of personal service or the publication of the notice of assessment, unless the articles provide for such lien from the time of the levy. Unless otherwise provided by law, a transfer of the shares on the books of the corporation after the lien of an assessment has attached is a waiver of the lien unless a conspicuous legend is placed on the face of any certificate issued upon such transfer or, in the case of uncertificated securities, on the initial transaction statement, setting forth the information contained in the notice required by subdivision (c). Such legend shall be removed if the assessment on the shares evidenced by the certificate is paid or if the shares are sold to pay the assessment or forfeited for nonpayment. (f) The date of sale of delinquent shares fixed in any levy of an assessment may be extended from time to time for not more than 30 days at a time by order of the board entered on the records of the corporation, or when the sale is restrained by order of a court. Notice of such extension shall be given by announcement by the secretary, or other person authorized to conduct the sale, made at the time and place of sale last theretofore fixed. If a date of sale of delinquent shares is extended for more than five days the corporation shall cause a notice to be mailed to the shareholder or shareholders whose shares are to be the subject of such sale setting forth the date and time to which the date of sale has been extended. (g) If payment is made after delinquency and before the sale, the shareholder shall pay a penalty of 5 percent of the amount of the assessment on the shares in addition to the assessment. (h) At the place and time appointed in the notice of levy any officer or an agent of the corporation, shall, unless otherwise ordered by the board, sell or cause to be sold to the highest bidder for cash as many shares of each delinquent holder of the assessed shares as may be necessary to pay the assessment and charges thereon according to the notice. The person offering at the sale to pay the assessment and penalty for the smallest number of shares is the highest bidder. The shares purchased shall be transferred to the highest bidder on the share register of the corporation on the payment of the assessment and penalty and a new certificate or initial transaction statement therefor issued to such highest bidder. A corporation is not required to accept an offer for a fraction of a share. (i) If no bidder offers to pay the amount due on the shares, together with the penalty of 5 percent thereof, the shares shall be forfeited to the corporation in satisfaction of the assessment and penalty thereon. (j) After a sale or forfeiture of shares for nonpayment of an assessment, the holder or owner of delinquent shares shall, if they are certificated securities, surrender the certificate for such shares to the corporation for cancellation or, if they are uncertificated securities, have no further rights with respect to such shares. This duty may be enforced by order or decree of court and such holder or owner shall be liable for damages to the corporation for failure to surrender the certificate for cancellation upon demand without good cause or excuse. Any certificate not so surrendered forthwith becomes null and void and ceases to be evidence of the right or title of the holder or any transferee to the shares purporting to be represented thereby, and neither the corporation nor the purchaser of such shares incurs any liability thereon to any such transferee. The purchaser of any shares, at a sale for delinquent assessments thereon, whenever made, is entitled to the issue of a new certificate representing the shares so purchased. (k) The certificate of the secretary or assistant secretary of the corporation is prima facie evidence of the time and place of sale and any postponement thereof, of the quantity and particular description of the shares sold, to whom, for what price, and of the fact of payment of the purchase money. The certificate shall be filed in the office of the corporation, and copies of the certificate, certified by the secretary or an assistant secretary of the corporation, are prima facie evidence of the facts therein stated. (l) An assessment is not invalidated by a failure to publish the notice of assessment, nor by the nonperformance of any act required in order to enforce the payment of the assessment; but in case of any substantial error or omission in the course of proceedings for collection of an assessment on any shares, all previous proceedings, except the levy of the assessment, are void as to such shares, and shall be taken anew. (m) No action shall be maintained to recover shares sold for delinquent assessments, upon the ground of irregularity in the assessment, irregularity or defect of the notice of sale, or defect or irregularity in the sale, unless the party seeking to maintain the action first pays or tenders to the corporation, or the party holding the shares sold, the sum for which the shares were sold, together with all subsequent assessments which may have been paid thereon and interest on such sums from the time they were paid. No such action shall be maintained unless it is commenced by the filing of a complaint and the issuing of a summons thereon within six months after the sale was made. (n) The only remedy for the collection of an assessment on fully paid shares is sale or forfeiture of the shares unless (1) remedy by action is expressly authorized in the original articles or by an amendment of the articles adopted before August 21, 1933, or by an amendment adopted on or after August 21, 1933, by unanimous consent of the shareholders, and (2) unless a statement of such remedy appears on the face of any share certificate issued on or after August 21, 1933. (Amended by Stats. 2022, Ch. 617, Sec. 12. (SB 1202) Effective January 1, 2023.)
  190. 5.

    ## Corporations Code - CORP ## GENERAL PROVISIONS ( General Provisions enacted by Stats. 1947, Ch. 1038. )

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    These general provisions, rules of construction, and definitions govern how this code is construed unless the provision or context requires otherwise.

    ## Corporations Code - CORP ## GENERAL PROVISIONS ( General Provisions enacted by Stats. 1947, Ch. 1038. ) ## 5. Unless the provision or the context otherwise requires, these general provisions, rules of construction, and definitions govern the construction of this code. (Enacted by Stats. 1947, Ch. 1038.)
  191. 500.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 5. Dividends and Reacquisitions of Shares [500 - 511] ( Chapter 5 added by Stats. 1975, Ch. 682. )

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    A corporation or its subsidiaries generally cannot make distributions to shareholders unless the board of directors in good faith finds one of two financial tests is met.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 1. GENERAL CORPORATION LAW [100 - 2319] ( Division 1 repealed and added by Stats. 1975, Ch. 682. ) ## CHAPTER 5. Dividends and Reacquisitions of Shares [500 - 511] ( Chapter 5 added by Stats. 1975, Ch. 682. ) ## 500. (a) Neither a corporation nor any of its subsidiaries shall make any distribution to the corporation’s shareholders (Section 166) unless the board of directors has determined in good faith either of the following: (1) The amount of retained earnings of the corporation immediately prior to the distribution equals or exceeds the sum of (A) the amount of the proposed distribution plus (B) the preferential dividends arrears amount. (2) Immediately after the distribution, the value of the corporation’s assets would equal or exceed the sum of its total liabilities plus the preferential rights amount. (b) For the purpose of applying paragraph (1) of subdivision (a) to a distribution by a corporation, “preferential dividends arrears amount” means the amount, if any, of cumulative dividends in arrears on all shares having a preference with respect to payment of dividends over the class or series to which the applicable distribution is being made, provided that if the articles of incorporation provide that a distribution can be made without regard to preferential dividends arrears amount, then the preferential dividends arrears amount shall be zero. For the purpose of applying paragraph (2) of subdivision (a) to a distribution by a corporation, “preferential rights amount” means the amount that would be needed if the corporation were to be dissolved at the time of the distribution to satisfy the preferential rights, including accrued but unpaid dividends, of other shareholders upon dissolution that are superior to the rights of the shareholders receiving the distribution, provided that if the articles of incorporation provide that a distribution can be made without regard to any preferential rights, then the preferential rights amount shall be zero. In the case of a distribution of cash or property in payment by the corporation in connection with the purchase of its shares, (1) there shall be added to retained earnings all amounts that had been previously deducted therefrom with respect to obligations incurred in connection with the corporation’s repurchase of its shares and reflected on the corporation’s balance sheet, but not in excess of the principal of the obligations that remain unpaid immediately prior to the distribution and (2) there shall be deducted from liabilities all amounts that had been previously added thereto with respect to the obligations incurred in connection with the corporation’s repurchase of its shares and reflected on the corporation’s balance sheet, but not in excess of the principal of the obligations that will remain unpaid after the distribution, provided that no addition to retained earnings or deduction from liabilities under this subdivision shall occur on account of any obligation that is a distribution to the corporation’s shareholders (Section 166) at the time the obligation is incurred. (c) The board of directors may base a determination that a distribution is not prohibited under subdivision (a) or under Section 501 on any of the following: (1) Financial statements prepared on the basis of accounting practices and principles that are reasonable under the circumstances. (2) A fair valuation. (3) Any other method that is reasonable under the circumstances. (d) The effect of a distribution under paragraph (1) or (2) of subdivision (a) is measured as of the date the distribution is authorized if the payment occurs within 120 days after the date of authorization. (e) (1) If terms of indebtedness provide that payment of principal and interest is to be made only if, and to the extent that, payment of a distribution to shareholders could then be made under this section, indebtedness of a corporation, including indebtedness issued as a distribution, is not a liability for purposes of determinations made under paragraph (2) of subdivision (a). (2) If indebtedness is issued as a distribution, each payment of principal or interest on the indebtedness shall be treated as a distribution, the effect of which is measured on the date the payment of the indebtedness is actually made. (f) This section does not apply to a corporation licensed as a broker-dealer under Chapter 2 (commencing with Section 25210) of Part 3 of Division 1 of Title 4, if immediately after giving effect to any distribution the corporation is in compliance with the net capital rules of the Commissioner of Financial Protection and Innovation and the Securities and Exchange Commission. (Amended by Stats. 2022, Ch. 452, Sec. 45. (SB 1498) Effective January 1, 2023.)
  192. 5000.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 2. NONPROFIT CORPORATION LAW [5000 - 10841] ( Heading of Division 2 amended by Stats. 1978, Ch. 567. )

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    This division is known as the Nonprofit Corporation Law and may be cited by that name.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 2. NONPROFIT CORPORATION LAW [5000 - 10841] ( Heading of Division 2 amended by Stats. 1978, Ch. 567. ) ## 5000. This division shall be known and may be cited as the Nonprofit Corporation Law. (Added by Stats. 1978, Ch. 567.)
  193. 5001.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 2. NONPROFIT CORPORATION LAW [5000 - 10841] ( Heading of Division 2 amended by Stats. 1978, Ch. 567. )

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    This section says the division, or any part of it, may be amended or repealed at any time.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 2. NONPROFIT CORPORATION LAW [5000 - 10841] ( Heading of Division 2 amended by Stats. 1978, Ch. 567. ) ## 5001. This division of the Nonprofit Corporation Law, or any part, chapter, article or section thereof, may at any time be amended or repealed. (Added by Stats. 1978, Ch. 567.)
  194. 5002.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 2. NONPROFIT CORPORATION LAW [5000 - 10841] ( Heading of Division 2 amended by Stats. 1978, Ch. 567. ) ## PART 1. GENERAL PROVISIONS AND DEFINITIONS GOVERNING PARTS 1 THROUGH 5 [5002 - 5080] ( Part 1 added by Stats. 1978, Ch. 567. )

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    This section says the general provisions and definitions in Part 1 control how Part 1 and Parts 2 through 5 are interpreted, unless the text or context says otherwise.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 2. NONPROFIT CORPORATION LAW [5000 - 10841] ( Heading of Division 2 amended by Stats. 1978, Ch. 567. ) ## PART 1. GENERAL PROVISIONS AND DEFINITIONS GOVERNING PARTS 1 THROUGH 5 [5002 - 5080] ( Part 1 added by Stats. 1978, Ch. 567. ) ## 5002. Unless the provisions or the context otherwise requires, the general provisions and definitions set forth in this part govern the construction of this part and of Part 2 (commencing with Section 5110), Part 3 (commencing with Section 7110), Part 4 (commencing with Section 9110), and Part 5 (commencing with Section 9910) of this division. (Added by Stats. 1978, Ch. 567.)
  195. 5003.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 2. NONPROFIT CORPORATION LAW [5000 - 10841] ( Heading of Division 2 amended by Stats. 1978, Ch. 567. ) ## PART 1. GENERAL PROVISIONS AND DEFINITIONS GOVERNING PARTS 1 THROUGH 5 [5002 - 5080] ( Part 1 added by Stats. 1978, Ch. 567. )

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    This section says which corporations are covered by this part, and preserves existing corporations and preexisting liabilities from being wiped out by the part’s enactment, reenactment, repeal, or amendment.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 2. NONPROFIT CORPORATION LAW [5000 - 10841] ( Heading of Division 2 amended by Stats. 1978, Ch. 567. ) ## PART 1. GENERAL PROVISIONS AND DEFINITIONS GOVERNING PARTS 1 THROUGH 5 [5002 - 5080] ( Part 1 added by Stats. 1978, Ch. 567. ) ## 5003. (a) The provisions of this part apply to: (1) Corporations organized under Part 2, Part 3, and Part 4 of this division; (2) Corporations expressly subject to Part 2, Part 3 or Part 4 of this division pursuant to a particular provision of this division or Division 3 (commencing with Section 12000) or other specific statutory provision; (3) Corporations which pursuant to the express provisions of Part 1, Division 2 (commencing with Section 9000) in effect immediately prior to January 1, 1980, are subject to the provisions of Part 1 of Division 2 and which, on or after January 1, 1980, are subject to the Nonprofit Public Benefit Corporation Law, the Nonprofit Mutual Benefit Corporation Law or the Nonprofit Religious Corporation Law, pursuant to Section 9912. (4) Corporations expressly subject to Part 1, Division 2 (commencing with Section 9000) in effect immediately prior to January 1, 1980, pursuant to a particular provision of this division or Division 3 (commencing with Section 12000) or other specific statutory provision in effect immediately prior to January 1, 1980, and which, on or after January 1, 1980, are subject to the Nonprofit Public Benefit Corporation Law, the Nonprofit Mutual Benefit Corporation Law, or the Nonprofit Religious Corporation Law, pursuant to Section 9912; and (5) Corporations incorporated as permitted by subdivision (d) of Section 9911. (b) The existence of corporations formed or existing on the date of enactment or reenactment of this part, Part 2, Part 3, Part 4 or Part 5 shall not be affected by the enactment or reenactment of such parts or by any change in the requirements for the formation of corporations or by the amendment or repeal of the laws under which they were formed or created. (c) Neither the repeals effected by the enactment or reenactment of this part or of Part 2, Part 3, Part 4 or Part 5, nor the amendment thereof shall impair or take away any existing liability or cause of action against any corporation, its members, directors or officers incurred prior to the time of such enactment, reenactment or amendment. (Amended by Stats. 1979, Ch. 724.)
  196. 5004.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 2. NONPROFIT CORPORATION LAW [5000 - 10841] ( Heading of Division 2 amended by Stats. 1978, Ch. 567. ) ## PART 1. GENERAL PROVISIONS AND DEFINITIONS GOVERNING PARTS 1 THROUGH 5 [5002 - 5080] ( Part 1 added by Stats. 1978, Ch. 567. )

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    A corporation may be sued under the rules in the Code of Civil Procedure.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 2. NONPROFIT CORPORATION LAW [5000 - 10841] ( Heading of Division 2 amended by Stats. 1978, Ch. 567. ) ## PART 1. GENERAL PROVISIONS AND DEFINITIONS GOVERNING PARTS 1 THROUGH 5 [5002 - 5080] ( Part 1 added by Stats. 1978, Ch. 567. ) ## 5004. A corporation may be sued as provided in the Code of Civil Procedure. (Added by Stats. 1978, Ch. 567.)
  197. 5005.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 2. NONPROFIT CORPORATION LAW [5000 - 10841] ( Heading of Division 2 amended by Stats. 1978, Ch. 567. ) ## PART 1. GENERAL PROVISIONS AND DEFINITIONS GOVERNING PARTS 1 THROUGH 5 [5002 - 5080] ( Part 1 added by Stats. 1978, Ch. 567. )

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    Any corporation must be subject to the Code of Civil Procedure rules that allow attachment of corporate property, as a condition of existing as a corporation.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 2. NONPROFIT CORPORATION LAW [5000 - 10841] ( Heading of Division 2 amended by Stats. 1978, Ch. 567. ) ## PART 1. GENERAL PROVISIONS AND DEFINITIONS GOVERNING PARTS 1 THROUGH 5 [5002 - 5080] ( Part 1 added by Stats. 1978, Ch. 567. ) ## 5005. Any corporation shall, as a condition of its existence as a corporation, be subject to the provisions of the Code of Civil Procedure authorizing the attachment of corporate property. (Added by Stats. 1978, Ch. 567.)
  198. 5005.1.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 2. NONPROFIT CORPORATION LAW [5000 - 10841] ( Heading of Division 2 amended by Stats. 1978, Ch. 567. ) ## PART 1. GENERAL PROVISIONS AND DEFINITIONS GOVERNING PARTS 1 THROUGH 5 [5002 - 5080] ( Part 1 added by Stats. 1978, Ch. 567. )

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    Authorized corporations may insure specified liabilities and property, but the pooling arrangement rules, notices, resource minimums, and a prohibition on punitive-damages coverage also apply.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 2. NONPROFIT CORPORATION LAW [5000 - 10841] ( Heading of Division 2 amended by Stats. 1978, Ch. 567. ) ## PART 1. GENERAL PROVISIONS AND DEFINITIONS GOVERNING PARTS 1 THROUGH 5 [5002 - 5080] ( Part 1 added by Stats. 1978, Ch. 567. ) ## 5005.1. (a) Except for a liability that may be insured against pursuant to Division 4 (commencing with Section 3200) of the Labor Code, an authorized corporation may do any of the following: (1) Insure itself against all or any part of any tort liability. (2) Insure any employee of the corporation against all or any part of his or her liability for injury resulting from an act or omission in the scope of employment. (3) Insure any board member, officer, or volunteer of the corporation against any liability that may arise from any act or omission in the scope of participation with the corporation. (4) Insure itself against any loss arising from physical damage to motor vehicles owned or operated by the corporation. (5) Insure itself against the loss or damage to property of every kind, including, but not limited to, losses and expenses related to the loss of property. (b) (1) The arrangement authorized pursuant to this section shall only be available to an authorized corporation where that corporation has joined with two or more other authorized corporations to provide for the pooling of self-insured claims or losses. The pooling arrangement shall be organized as a nonprofit public benefit corporation pursuant to Part 2 (commencing with Section 5110) and shall not be considered insurance nor be subject to regulation under the Insurance Code. (2) A pooling arrangement shall include in every application form for membership and every risk pooling contract issued or renewed on or after January 1, 2016, and in boldface 10-point type on the front page, the following notice: “Notice: This risk pooling contract is issued by a pooling arrangement authorized by California Corporations Code Section 5005.1. The pooling arrangement is not subject to all of the insurance laws of the State of California and is not subject to regulation by the Insurance Commissioner. Insurance guaranty funds are not available to pay claims in the event the risk pool becomes insolvent.” (c) This section does not authorize a corporation organized pursuant to this division to pay for, or to insure, contract, or provide for payment for, any part of a claim or judgment against an employee of the corporation for punitive or exemplary damages. (d) (1) Any insurance pool established pursuant to this section shall have initial pooled resources of not less than two hundred fifty thousand dollars ($250,000). (2) Any insurance pool providing the coverage described in paragraph (5) of subdivision (a) shall do all of the following: (A) Be organized for the purpose of providing the coverage described in paragraph (1) of subdivision (a) for a period of no less than five years. (B) Have accumulated net assets of not less than five million dollars ($5,000,000). (e) All participating corporations in any pool established pursuant to this section are required to agree to pay premiums or make other mandatory financial contributions or commitments necessary to ensure a financially sound risk pool. (f) For the purpose of this section, an authorized “corporation” means any corporation that meets all of the following criteria: (1) Is organized chiefly to provide or fund health or human services, but does not include a hospital. (2) Is exempt from federal income taxation as an organization described in Section 501(c)(3) of the United States Internal Revenue Code. (Amended by Stats. 2014, Ch. 556, Sec. 1. (SB 1011) Effective January 1, 2015.)
  199. 5006.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 2. NONPROFIT CORPORATION LAW [5000 - 10841] ( Heading of Division 2 amended by Stats. 1978, Ch. 567. ) ## PART 1. GENERAL PROVISIONS AND DEFINITIONS GOVERNING PARTS 1 THROUGH 5 [5002 - 5080] ( Part 1 added by Stats. 1978, Ch. 567. )

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    This section says the Secretary of State’s filing fees for instruments filed by or for corporations are set out in another part of the Government Code.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 2. NONPROFIT CORPORATION LAW [5000 - 10841] ( Heading of Division 2 amended by Stats. 1978, Ch. 567. ) ## PART 1. GENERAL PROVISIONS AND DEFINITIONS GOVERNING PARTS 1 THROUGH 5 [5002 - 5080] ( Part 1 added by Stats. 1978, Ch. 567. ) ## 5006. The fees of the Secretary of State for filing instruments by or on behalf of corporations are prescribed in Article 3 (commencing with Section 12180) of Chapter 3 of Part 2 of Division 3 of Title 2 of the Government Code. (Added by Stats. 1978, Ch. 567.)
  200. 5007.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 2. NONPROFIT CORPORATION LAW [5000 - 10841] ( Heading of Division 2 amended by Stats. 1978, Ch. 567. ) ## PART 1. GENERAL PROVISIONS AND DEFINITIONS GOVERNING PARTS 1 THROUGH 5 [5002 - 5080] ( Part 1 added by Stats. 1978, Ch. 567. )

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    A filing may be corrected by submitting a certificate of correction, but the correction cannot change certain approved wording or create a corrected amendment that would not have met the filing requirements at the time.

    ## Corporations Code - CORP ## TITLE 1. CORPORATIONS [100 - 14707] ( Title 1 enacted by Stats. 1947, Ch. 1038. ) ## DIVISION 2. NONPROFIT CORPORATION LAW [5000 - 10841] ( Heading of Division 2 amended by Stats. 1978, Ch. 567. ) ## PART 1. GENERAL PROVISIONS AND DEFINITIONS GOVERNING PARTS 1 THROUGH 5 [5002 - 5080] ( Part 1 added by Stats. 1978, Ch. 567. ) ## 5007. Any agreement, certificate or other instrument relating to a domestic corporation, a foreign corporation, or a foreign business corporation filed pursuant to the provisions of this part, Part 2, Part 3, Part 4 or Part 5 may be corrected with respect to any misstatement of fact contained therein, any defect in the execution thereof or any other error or defect contained therein, by filing a certificate of correction entitled “Certificate of Correction of _____ (insert here the title of the agreement, certificate or other instrument to be corrected and name(s) of the corporation or corporations)”; provided, however, that no such certificate of correction shall alter the wording of any resolution which was in fact adopted by the board or the members or delegates or effect a corrected amendment of articles which amendment as so corrected would not in all respects have complied with the requirements of this part, Part 2, Part 3, Part 4 or Part 5 at the time of filing of the agreement, certificate or other instrument being corrected. Such certificate of correction shall be signed and verified or acknowledged as provided in this part with respect to the agreement, certificate or other instrument being corrected. It shall set forth the following: (a) The name or names of the corporation or corporations. (b) The date the agreement, certificate or other instrument being corrected was filed. (c) The provision in the agreement, certificate or other instrument as corrected and, if the execution was defective, wherein it was defective. The filing of the certificate of correction shall not alter the effective time of the agreement, certificate or instrument being corrected, which shall remain as its original effective time, and such filing shall not affect any right or liability accrued or incurred before such filing, except that any right or liability accrued or incurred by reason of the error or defect being corrected shall be extinguished by such filing if the person having such right has not detrimentally relied on the original instrument. (Amended by Stats. 1979, Ch. 724.)

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