California Corporations Code Section 1001 requires approval by the outstanding shares (Corp. Code § 152) of the principal terms of a sale of all or substantially all of a corporation’s assets (unless the transaction is in the usual and regular course of business). Presumably, corporate sellers are in a good position to determine whether Section 1001 applies, but what about buyers who may know very little or nothing about a seller’s business?
Section 1002 offers one answer. It provides that a secretary’s certificate may be annexed to any deed or instrument conveying or otherwise transferring any assets of as corporation stating that (1) the transaction has been validly approved by the board; and (2) either (a) the property described in the deed or instrument is less than substantially all of the corporation’s assets or that the transfer is in the corporation’s usual and regular course of business, or if the property constitutes all or substantially all of the corporation’s assets and the transfer is not in the corporation’s usual and regular course of business, (b) the transaction has been approved by the outstanding shares either pursuant to Chapter 10 or Chapter 12 of the Corporations Code or that such approval is not required by Chapter 12. Why go to the trouble of annexing such a certificate? Section 1002 provides that it is “prima facie evidence of the existence of the facts authorizing such conveyance or transfer of the assets and conclusive evidence in favor of any innocent purchaser or encumbrancer for value”.
For those readers wondering about the difference between approval under Chapter 10 and Chapter 12 of the Corporations Code, see this blog post from November, 2010: When a Sale of Assets is not a “Sale-of-Assets Reorganization”.