The California Taxpayer and Shareholder Protection Act of 2003

Ten years ago, there was concern about so-called “expatriate corporations”. These were corporations that incorporated in foreign jurisdictions to minimize their tax liability. In reaction to this phenomenon, the legislature added The California Taxpayer and Shareholder Protection Act of 2003 to the Public Contract Code. 2003 Cal. Stats. ch. 657. In general, this act prohibits a state agency from contracting with a publicly held expatriate corporation, as defined, or its subsidiary, unless the corporation provides specified shareholder rights and other legal and financial arrangements or the contract serves a compelling public interest. Cal. Pub. Cont. Code § 10286.1.

The act specifies an eclectic mixture of rights. For example, the corporation must agree to hold no more than one of every four annual shareholder meetings in a location outside the United States and, in the event that the entity holds an annual meeting outside the United States, the entity agrees to provide access to that meeting through a Web cast or other technology that allows the entity’s shareholders to do both of the following: (i) Listen to the meeting, watch the meeting, or both; and (ii) Send questions that will be addressed at the meeting.

I also find it interesting that several of these rights are defined by reference to the Model Business Corporation Act. For example, transactions interested director transactions must be approved in accordance with the applicable law, as amended from time to time and as interpreted by the courts, of the United States jurisdiction in which the entity was previously incorporated, or, if the entity was not previously incorporated, in accordance with the terms set forth in the Model Business Corporations Act, as may be amended from time to time and as interpreted by the courts.