Last week, I reported that Governor Newsom had signed SB 54 (Skinner) even while acknowledging in his signing message that it contained "problematic provisions". SB 54 requires "venture capital companies", as defined, to disclose specific information such as race, sexual orientation and ethnicity, about the "founding team members" of companies in which they invest
I do agree that the bill is poorly drafted. One example is the bill's definition of "founding team member" as either of the following:
(A) A person who satisfies all of the following conditions:
(i) The person owned initial shares or similar ownership interests of the business.
(ii) The person contributed to the concept of, research for, development of, or work performed by the business before initial shares were issued.
(iii) The person was not a passive investor in the business.
(B) A person who has been designated as the chief executive officer, president, chief financial officer, or manager of a business, or who has been designated with a role with a similar level of authority as any of those positions.
While the second category (designated officers or managers) is relatively straightforward, the first category is at the same time both constrained and vague. Only the very first owners qualify and they must have made a specified contribution (whatever that means) "before initial shares were issued". It is also unclear what makes a person "not a passive investor". The corporate form is premised on the concept of separation of capital and management. That is why Corporations Code Section 300 provides that the business and affairs of the corporation shall be managed and corporate powers exercised by and under the direction of the board. When we speak of "activist investors", we are usually referring to shareholders who submit proposals at annual meetings or threaten proxy battles. What the legislature intended is anybody's guess.
[View source.]
