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CALIFORNIA CORPORATE & SECURITIES LAW

One More Thing That LLCs Can’t Do In California . . .

Recently, I wrote about what happens when an incorporator dies.  This will be an issue, of course, only when the incorporator is a natural person.   Thus, the problem of the dead incorporator can be avoided entirely by having a non-natural person, such as a corporation, fulfill the parental responsibilities.  The legislature, however, has decided that not just any type of entity may parent a corporation.

In the case of a corporation formed under the General Corporation Law, the list of suitable progenitors is short.  Only partnerships, associations or corporations (domestic or foreign) may serve as non-natural incorporators.  Notably missing from this list are limited liability companies.  One might guess that the term “association” includes a limited liability company.  However, the Corporations Code doesn’t actually define “association”, and the Secretary of State’s office has advised me that it won’t accept articles of incorporation executed by a limited liability company.

The legislature isn’t quite as punctilious when it comes to nonprofit corporations, whether they be public benefit, mutual benefit or religious.  In each case, the legislature authorizes one or more persons to do the begetting.  Yet, a “person” still doesn’t include limited liability companies.  As defined in Corporations Code Section 5065, a “person” includes: any association, business corporation, company, corporation, corporation sole, domestic corporation, estate, foreign corporation, foreign business corporation, individual, joint stock company, joint venture, mutual benefit corporation, public benefit corporation, religious corporation, partnership, government or political subdivision, agency or instrumentality of a government in addition to natural persons.

Limited liability companies are not completely sterile vis-a-vis corporations.  By virtue of Corporations Code Sections 12245 and 12300(a), a limited liability company may serve as an incorporator to a consumer cooperative corporation.

Immortality, or continuity of existence, is, of course, one of the characteristics of the corporate form.  This was perhaps most famously recognized by Sir Edward Coke in The Case of Sutton’s Hospital (1612):

[F]or a Corporation aggregate of many is invisible, immortal, & resteth only in intendment and consideration of the Law . . .  it is not subject to imbecilities, or death of the natural, body . . . .

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