At some point in their careers, many California corporate attorneys, and not a few lawyers outside the state, have had to confront California’s explicit regulation of foreign corporations. Although many provisions of the General Corporation Law apply explicitly to foreign corporations, Corporations Code Section 2115 is the most comprehensive in scope.
For those who have struggled with Section 2115, good news may be at hand. Assembly Member Curt Hagman has introduced a bill, AB 2260, to replace the current text of Section 2115 with the following:
Except as otherwise provided in Section 2116, this chapter shall not be construed to authorize the state to regulate the organization or internal affairs of a foreign corporation to do business in this state.
Now, here is where I will surprise some of my readers. While I too have had to confront the complexities of Section 2115, I don’t agree that California should cede authority over out-of-state corporations whose shareholders and business activities are predominantly in this state.
In this debate, at least history takes my side. For nearly a century, the basic principle that foreign corporations should be treated on par with California was enshrined in the California Constitution:
No corporation organized outside the limits of this State shall be allowed to transact business within this State on more favorable conditions than are prescribed by law to similar corporations organized under the laws of this State.
Cal. Const. Art. XII, Sec. 15 (repealed). Also, Judge Benjamin Cardozo wrote in 1915:
In these days, when countless corporations, organized on paper in neighboring states, live and move and have their being in New York, a sound public policy demands that our Legislature be invested with this measure of control.
German-American Coffee Co. v. Diehl, 216 NY 57, 64 (1915).
The term “tramp corporation” has long been used to refer to corporations organized under the laws of a state that is not its corporate home.