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CALIFORNIA CORPORATE & SECURITIES LAW

California And Nevada Corporations Can Do This But Not Delaware Corporations

Sometimes it’s nice to tidy up the corporate stock book.  For example, a corporation may effect a stock split and want to collect the outstanding certificates and exchange them for new certificates reflecting the change.  California and Nevada provide a mechanism for this Delaware does not.

California Corporations Code Section 422(a) provides:

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.

It is all well and good that the Code explicitly empowers the board of directors to order the surrender of certificates, but what if the stockholders choose to ignore the order?  Section 422(b) provides both a stick and an enforcement mechanism:

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.

Nevada has enacted a similar statute, NRS 78.250.  To my knowledge, Delaware provides no similar tools.

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