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CALIFORNIA CORPORATE & SECURITIES LAW

Does The Foolish Director Abide Whilst The Wise Director Flees?

Never fear? Smith Is No Longer Here Yesterday’s post highlighted Section 316 of the California Corporations Code, a statute that imposes joint and several liability on directors who approve specified transactions such as a loan to an officer contrary to Section 315.  Now consider the following scenario: Dr. Zachary Smith, a director, attends a meeting of the…

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In California, Directors Who Abstain May Still Face Liability

Section 316(a) of the California Corporations Code imposes joint and several liability on directors who approve any of the following actions: The making of any distribution to shareholders to the extent contrary Sections 500 – 503; The distribution of assets to shareholders after institution of dissolution proceedings of the corporation, without paying or adequately providing…

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Why You Should Have Read Last Week’s Posts On California’s D&O Loan Ban

I spent the better part of last week writing about California Corporations Code Section 315.  The statute general prohibits a corporation (Section 162) from making a loan of money or property to, or guaranteeing the obligation of, an officer or director without specified shareholder approval.  What happens if a prohibited loan is made? The good…

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These Loans Can Be Problematical Even When The Borrower Isn’t An Officer or Director

I spent most of last week discussing California Corporations Code Section 315.  As a reminder, that statute prohibits a corporation (Section 162) from making a loan of money or property to, or guaranteeing the obligation of, an officer or director without specified shareholder approval. Section 315, however, isn’t concerned only with loans to officers and…

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D&O Loans: California Section 315 Versus Sarbanes-Oxley Section 402

Although both Section 315 of the California Corporations Code and Section 402 of the Sarbanes-Oxley Act purport to ban loans to directors and officers, there are significant differences between these statutes.  Below is a precis of some of the key differences. Companies covered.  Section 315 applies to corporations.  The California General Corporation Law (GCL) defines “corporation” as only a…

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California’s D&O Loan Ban And Advancement Of Expenses

Yesterday’s post outlined the general scope of the ban on loans to directors and officers found in Section 315 of the California Corporations Code.  Because Section 315 doesn’t define “loan”, it may not always be clear whether an arrangement is a verboten loan.  Fortunately, no time need be wasted on the question of routine travel and…

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California’s Ban On Loans To Directors And Officers

California banned loans to directors and officers decades before Congress thought of doing so as part of the Sarbanes-Oxley Act of 2002.  Current Corporations Code Section 315 prohibits corporations (defined in Section 162) from making loans of money or property to, or guaranteeing the obligations of, any director or officer of the corporation or its parent.  However, the…

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