There’s Something About Section 800 And ISS Adds Panelist

California Corporations Code Section 800 governs derivative lawsuits. Yesterday, I wrote about the fact that the California legislature has made Section 800 expressly applicable to foreign corporations (as defined in Section 171). Is this an academic point or can it matter?

One key difference may be that Section 800(c) allows the corporation or any defendant who is or was a director or officer to ask that the court order the plaintiff to furnish a bond of up to $50,000. After a motion for security has been filed, then the suit is stayed until 10 days after the motion has been decided.

Another key, yet subtle, difference can be found in Section 800(b)(2) which requires that a plaintiff allege with particularity its efforts to secure action from the board of directors or the reasons why it did not make the effort. For those familiar with Delaware Court of Chancery Rule 23.1 or Federal Rule of Civil Procedure Rule 23.1, this is known as the requirement to plead either that a demand was made or demand futility. California adds something more, however. I’ve copied Section 800(b)(2) and highlighted the additional California requirement below...

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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.

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