Common Reasons the California Secretary of State Rejects Corporate Filings - Part Two

Common Reasons the California Secretary of State Rejects Corporate Filings (Part Two – Amendments) - up date from the California Bar Association

Every year, numerous corporate filings are rejected by the California Secretary of State.

In order to amend its articles of incorporation, a corporation must file a certificate of amendment with the California Secretary of State. The four most common reasons that the California Secretary of State rejects certificates of amendment are as follows:

1. Failing to identify class votes on the certificate of amendment: If the corporation has issued shares, the certificate of amendment must include a statement that the amendment has been approved by the issued and outstanding shares of the corporation, including any required class votes, in accordance with California Corporations Code (“CCC”) §§ 902 and 903. The statement of shareholder approval must (i) indicate the total number of issued and outstanding shares of each class entitled to vote with respect to the amendment, (ii) set forth the percentage vote required of each class entitled to vote, and (iii) state that the number of shares of each class voting in favor of the amendment equaled or exceeded the vote required. (CCC § 905(c)).

2. Failing to obtain or identify the statutory vote required to effect a corporate change of status: A corporation may, by amendment of its articles of incorporation, change its status to that of a social purpose corporation, a nonprofit public benefit corporation, a nonprofit mutual benefit corporation, a nonprofit religious corporation, or a cooperative corporation. (CCC § 911). In order to do so, however, a corporation that has already issued shares must obtain the following vote(s), as applicable, and specifically state on the certificate of amendment that such vote(s) were obtained:

Vote Required for a Proposed New Status as follows:

Nonprofit Corporation - All outstanding shares, regardless of limitations or restrictions on the voting rights thereof (note that mutual water companies may be subject to a class-by-class vote).

Cooperative Corporation - The outstanding shares of each class, regardless of limitations or restrictions on the voting rights thereof.

Social Purpose Corporation - At least two-thirds of the outstanding shares of each class, or a greater vote if required by the Articles of Incorporation.

3. Amending the agent for service of process: A corporation may not change its agent for service of process by filing an amendment to the articles of incorporation. (CCC § 900(b)). The proper method of changing the name and/or address of the corporation’s agent for service of process is to file a statement of information (Form SI-200) with the California Secretary of State. (CCC § 1502). However, after a Statement of Information has been filed, the corporation may file an amendment to delete the name and address of the initial agent for service of process from the articles of incorporation. (CCC §§ 900(b) and 902(d)).

4. Blending pre-1977 statutory requirements with post-1977 statutory requirements: Effective as of January 1, 1977, the California legislature amended the CCC to, among other things, set forth a new list of items that a corporation’s articles of incorporation must and, in some cases, may, include (the “amended law”). Certain provisions of the amended law do not apply to any corporation existing on January 1, 1977 unless and until the corporation files an amendment to its articles affirmatively stating that the corporation elects to be governed by the provisions of the amended law. (CCC § 2302). Regardless of whether or not a corporation makes such an election, the articles must contain the provisions required by the applicable law. If a corporation elects to be governed by the amended law, the corporation must (i) delete any pre-1977 requirements in its articles of incorporation that are inconsistent with the amended law (e.g., the names and addresses of directors) and (ii) fully comply with the new requirements of the amended law (e.g., including one of the purposes set forth in Section 202(b) of the CCC). Similarly, if the corporation does not elect to be governed by the amended law, the corporation’s articles of incorporation must continue to include the applicable provisions required under the pre-1977 law by the transition provisions set forth in Chapter 23 of the CCC. (CCC § 2302).

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