Legislature Repeals Subversive Organization Registration Law And Loosens Advance Notice Requirement For Reorganizations

Just over a year ago, I posted this piece on California’s World War II era Subversive Organization Registration Law. A few months later, the Assembly Committee on Judiciary suddenly introduced a bill, AB 1405, to repeal the law.  This may have been pure coincidence, but the Committee analysis provides much the same information as my blog post. Whatever the bill’s provenance, it sailed through the legislature without attracting even one “no” vote.  Governor Jerry Brown signed it into law last week.

Governor Brown also signed into law AB 457 (Torres) which creates an exception from the advance notice requirement in Corporations Code Section 603.  Currently, that statute provides that unless the consent of all shareholders entitled to vote have been solicited, notice of approval must be given at least 10 days before the consummation of specified actions.  The actions specified in the statute are approvals pursuant to Section 310, 317, 1152, 1201, or 2007.  The bill, which was sponsored by the Corporations Committee of the Business Law Section of the California State Bar, adds an exception in the case of reorganizations (Section 1201) if shareholders have the right, pursuant to Chapter 13 (commencing with Section 1300) to demand payment of cash for their shares).  The Corporations Committee justified the need for the bill as follows:

The 10-day waiting period “places the consummation of the corporate action at unnecessary risk.”  For example, to a merger involving a corporation with one shareholder who holds 95% of the outstanding shares, who has approved the transaction, and with a large number of employee shareholders who hold the remaining 5% by operation of an employee stock incentive plan.  If this corporation wishes to close the transaction quickly and have its shareholders approve the merger by written consent, it will be required to either absorb the costs of soliciting the consent of all shareholders or subject the closing of the transaction to a 10-day waiting period.  The 10-day waiting period creates significant consummation risk for the parties even though approval of the transaction is certain.  The additional period of time provides an opportunity for new laws or regulations to be enacted, for facts or circumstances to develop or exist that may cause a material adverse effect to one of the parties or for the conditions of the financial or credit markets to worsen, any of which may change the landscape of the transaction and affect the ability or obligation of a party to close.

Committee Analysis, Assembly Committee on Banking & Finance (April 8, 2013).  Governor Brown also signed this bill into law last week.

On a practical note, California corporations may want to take a look at their Bylaws and consider whether it will be necessary or desirable to conform them to this amendment when it takes effect.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Allen Matkins Leck Gamble Mallory & Natsis LLP | Attorney Advertising

Written by:


Allen Matkins Leck Gamble Mallory & Natsis LLP on:

Popular Topics
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:

Sign up to create your digest using LinkedIn*

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.

Already signed up? Log in here

*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.