Recently, I came across a list of unicorns. These are private companies with valuations of $1 billion or more. I can’t vouch for the accuracy of the list, but I did recognize many of the names. Many of the companies on the list shared two characteristics – they are incorporated in Delaware and headquartered in California. Undoubtedly, the founders of these companies elected to incorporate in Delaware because they were advised that the Delaware General Corporation Law is superior to the California General Corporation Law. These founders may not have realized, or even been told, that they still needed to be concerned about the California Corporations Code. Here are a few examples:
- California’s annual report requirement (Section 1501(g)) applies to foreign corporations having their principal executive offices or customarily holding their meetings of the board in California;
- California’s requirement that a corporation provide on request vote results following a shareholder meeting (Section 1509) applies to foreign corporations qualified to transact intrastate business (See Section 1510);
- California’s shareholder inspection requirement (Section 1601) applies to foreign corporations keeping their accounting books and records or board or shareholder meeting minutes in California or having their principal executive offices in California;
- Shareholders can file an action to determine the validity of an election or appointment of a director in California Superior Court when foreign corporations hold elections or make appointments of directors in California (Section 709); and
- California’s pleading and bond requirements for derivative suits (Section 800) apply to foreign corporations.
All of these apply regardless of whether the foreign corporation is a “pseudo-foreign corporation” pursuant to Section 2115. Unicorns that are pseudo-foreign corporations are subject to numerous additional provisions of General Corporation Law.