Ten years ago, there was concern about so-called “expatriate corporations”. These were corporations that incorporated in foreign jurisdictions to minimize their tax liability. In reaction to this phenomenon, the legislature added The California Taxpayer and Shareholder Protection Act of 2003 to the Public Contract Code. 2003 Cal. Stats. ch. 657. In general, this act prohibits a state agency from contracting with a publicly held expatriate corporation, as defined, or its subsidiary, unless the corporation provides specified shareholder rights and other legal and financial arrangements or the contract serves a compelling public interest. Cal. Pub. Cont. Code § 10286.1.
The act specifies an eclectic mixture of rights. For example, the corporation must agree to hold no more than one of every four annual shareholder meetings in a location outside the United States and, in the event that the entity holds an annual meeting outside the United States, the entity agrees to provide access to that meeting through a Web cast or other technology that allows the entity’s shareholders to do both of the following: (i) Listen to the meeting, watch the meeting, or both; and (ii) Send questions that will be addressed at the meeting.
I also find it interesting that several of these rights are defined by reference to the Model Business Corporation Act. For example, transactions interested director transactions must be approved in accordance with the applicable law, as amended from time to time and as interpreted by the courts, of the United States jurisdiction in which the entity was previously incorporated, or, if the entity was not previously incorporated, in accordance with the terms set forth in the Model Business Corporations Act, as may be amended from time to time and as interpreted by the courts.
Major Change in CSL Fraud Looming
Recently, I noted how SB 538 (Hill) was gutted and amended two days before its only policy committee hearing in the Senate. See California Bill Would Expand Liability For Securities Fraud, Impose New Fees, Expand Commissioner’s Powers and If You Did This, It Would Be Fraud! The bill has now moved to the Assembly with only a handful of “no” votes.
Practitioners should take notice because this bill would dramatically rewrite California’s securities antifraud statute, Corporations Code Section 25401. In effect, SB 538 will codify Rule 10b-5, a rule that carries a heavy load of jurisprudential baggage. A quick check of Shepards® reveals that there are nearly 13,000 citing decisions. If SB 538 is enacted, will the thousands of 10b-5 cases become part of California law and why is that a good idea?