SB 201 Bill (Flexible Purpose Corporations)

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AMENDED IN ASSEMBLY AUGUST 25, 2011

AMENDED IN ASSEMBLY AUGUST 22, 2011

AMENDED IN SENATE MARCH 14, 2011

SENATE BILL No. 201

Introduced by Senator DeSaulnier(Coauthor: Senator Wolk)

February 8, 2011

An act to amend Sections 102, 107, 158, 201, 1100, 1113, 1152,1155, 1201, 5122, 7122, and 9122 of, to add Sections 171.08 and 1112.5to, and to add Division 1.5 (commencing with Section 2500) to Title 1of, the Corporations Code, relating to corporations.

legislative counsels digest

SB 201, as amended, DeSaulnier. Flexible purpose corporations.Existing law authorizes and regulates the formation and operation of

corporations and nonproft corporations and specifes the respectivepurposes for which they may lawfully be formed. Existing law specifesthe duties of corporate directors and the rights of shareholders.

This bill would enact the Corporate Flexibility Act of 2011 and wouldauthorize and regulate the formation and operation of a new form ofcorporate entity known as a exible purpose corporation. The bill wouldauthorize existing corporations and other forms of business entities tomerge into or convert into a exible purpose corporation uponcompletion of specifed requirements, including approval of thetransaction by a supermajority 23 vote of shareholders, or a greater voteif required in the articles, as specifed. The bill would also authorize aexible purpose corporation to convert into a nonproft corporation, acorporation, or a domestic other business entity, upon satisfaction of

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equivalent conditions. The bill would also provide dissenters rights ofappraisal for shareholders voting against certain transactions, asspecifed. The bill would specify the required and permitted contentsof articles of incorporation that a exible purpose corporation wouldbe required to fle with the Secretary of State, including the specialpurposes, in addition to any other lawful purpose, that the corporation

shall engage in, which may include, but are not limited to, charitableand public purpose activities that could be carried out by a nonproftpublic beneft corporation. The bill would also require managementand directors to specify objectives for measuring the impact of theexible purpose corporations efforts relating to its special purpose,and to include an analysis of those efforts in annual reports, togetherwith specifed fnancial statements, to shareholders and would requirespecifed information to be made publicly available, as specifed. Thebill would also specify that a exible purpose corporation is subject tomany existing provisions of the Corporations Code. The bill would alsomake conforming changes.

This bill would incorporate additional changes to Section 1113 of the

Corporations Code proposed by AB 1211, to be operative only if AB1211 and this bill are both chaptered and become effective on or beforeJanuary 1, 2012, and this bill is chaptered last.

Vote: majority. Appropriation: no. Fiscal committee: yes.State-mandated local program: no.

The people of the State of California do enact as follows:

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SECTION 1. Section 102 of the Corporations Code is amendedto read:

102. (a) Subject to Chapter 23 (commencing with Section2300) (transition provisions), this division applies to corporationsorganized under this division and to domestic corporations thatare not subject to Division 1.5 (commencing with Section 2500),and to domestic corporations that are not subject to Division 2(commencing with Section 5000) or Part 1 (commencing withSection 12000), 2 (commencing with Section 12200), 3(commencing with Section 13200), or 5 (commencing with Section14000) of Division 3 on December 31, 1976, and that are notorganized or existing under any statute of this state other than thiscode; this division applies to any other corporation only to theextent expressly included in a particular provision of this division.

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(b) The existence of corporations formed or existing on the dateof enactment or reenactment of this division shall not be affectedby the enactment or reenactment of this division nor by any changein the requirements for the formation of corporations nor by theamendment or repeal of the laws under which they were formedor created.

(c) Neither the repeals effected by the enactment or reenactmentof this division nor the enactment of this title nor the amendmentthereof shall impair or take away any existing liability or cause ofaction against any corporation, its shareholders, directors, oroffcers incurred prior to the time of the enactment, reenactment,or amendment.

SEC. 2. Section 107 of the Corporations Code is amended toread:

107. No corporation, exible purpose corporation, associationor individual shall issue or put in circulation, as money, anythingbut the lawful money of the United States.

SEC. 3. Section 158 of the Corporations Code is amended to

read:158. (a) Close corporation means a corporation, including

a close exible purpose corporation, whose articles contain, inaddition to the provisions required by Section 202, a provision thatall of the corporations issued shares of all classes shall be held ofrecord by not more than a specifed number of persons, notexceeding 35, and a statement This corporation is a closecorporation.

(b) The special provisions referred to in subdivision (a) may beincluded in the articles by amendment, but if such amendment isadopted after the issuance of shares only by the affrmative voteof all of the issued and outstanding shares of all classes.

(c) The special provisions referred to in subdivision (a) may bedeleted from the articles by amendment, or the number ofshareholders specifed may be changed by amendment, but if suchamendment is adopted after the issuance of shares only by theaffrmative vote of at least two-thirds of each class of theoutstanding shares; provided, however, that the articles mayprovide for a lesser vote, but not less than a majority of theoutstanding shares, or may deny a vote to any class, or both.

(d) In determining the number of shareholders for the purposesof the provision in the articles authorized by this section, a husband

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and wife and the personal representative of either shall be countedas one regardless of how shares may be held by either or both ofthem, a trust or personal representative of a decedent holding sharesshall be counted as one regardless of the number of trustees orbenefciaries and a partnership or corporation or businessassociation holding shares shall be counted as one (except that any

such trust or entity the primary purpose of which was theacquisition or voting of the shares shall be counted according tothe number of benefcial interests therein).

(e) A corporation shall cease to be a close corporation upon thefling of an amendment to its articles pursuant to subdivision (c)or if it shall have more than the maximum number of holders ofrecord of its shares specifed in its articles as a result of an intervivos transfer of shares which is not void under subdivision (d) ofSection 418, the transfer of shares on distribution by will orpursuant to the laws of descent and distribution, the dissolution ofa partnership or corporation or business association or thetermination of a trust which holds shares, by court decree upon

dissolution of a marriage or otherwise by operation of law.Promptly upon acquiring more than the specifed number of holdersof record of its shares, a close corporation shall execute and flean amendment to its articles deleting the special provisions referredto in subdivision (a) and deleting any other provisions notpermissible for a corporation which is not a close corporation,which amendment shall be promptly approved and fled by theboard and need not be approved by the outstanding shares.

(f) Nothing contained in this section shall invalidate anyagreement among the shareholders to vote for the deletion fromthe articles of the special provisions referred to in subdivision (a)upon the lapse of a specifed period of time or upon the occurrenceof a certain event or condition or otherwise.

(g) The following sections contain specifc references to closecorporations: Sections 186, 202, 204, 300, 418, 421, 1111, 1201,1800 and 1904.

SEC. 4. Section 171.08 is added to the Corporations Code, toread:

171.08. Flexible purpose corporation means any exiblepurpose corporation formed under Division 1.5 (commencing withSection 2500).

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201. (a) The Secretary of State shall not fle articles settingforth a name in which bank, trust,trustee or related wordsappear, unless the certifcate of approval of the Commissioner ofFinancial Institutions is attached thereto. This subdivision does

not apply to the articles of any corporation subject to the BankingLaw on which is endorsed the approval of the Commissioner ofFinancial Institutions.

(b) The Secretary of State shall not fle articles which set fortha name which is likely to mislead the public or which is the sameas, or resembles so closely as to tend to deceive, the name of adomestic corporation, the name of a foreign corporation which isauthorized to transact intrastate business or has registered its namepursuant to Section 2101, a name which a foreign corporation hasassumed under subdivision (b) of Section 2106, a name which willbecome the record name of a domestic or foreign corporation uponthe effective date of a fled corporate instrument where there is a

delayed effective date pursuant to subdivision (c) of Section 110or subdivision (c) of Section 5008, or a name which is underreservation for another corporation pursuant to this title, exceptthat a corporation may adopt a name that is substantially the sameas an existing domestic corporation or foreign corporation whichis authorized to transact intrastate business or has registered itsname pursuant to Section 2101, upon proof of consent by suchdomestic or foreign corporation and a fnding by the Secretary ofState that under the circumstances the public is not likely to bemisled.

The use by a corporation of a name in violation of this sectionmay be enjoined notwithstanding the fling of its articles by theSecretary of State.

(c) Any applicant may, upon payment of the fee prescribedtherefor in the Government Code, obtain from the Secretary ofState a certifcate of reservation of any name not prohibited bysubdivision (b), and upon the issuance of the certifcate the namestated therein shall be reserved for a period of 60 days. TheSecretary of State shall not, however, issue certifcates reservingthe same name for two or more consecutive 60-day periods to thesame applicant or for the use or beneft of the same person,partnership,frm or corporation; nor shall consecutive reservations

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be made by or for the use or beneft of the same person, partnership,frm or corporation of names so similar as to fall within theprohibitions of subdivision (b).


1100. Any two or more corporations may be merged into one

of those corporations. A corporation may merge with one or moredomestic corporations (Section 167), exible purpose corporations(Section 171.08), foreign corporations (Section 171), or otherbusiness entities (Section 174.5) pursuant to this chapter. Mergersin which a foreign corporation but no other business entity is aconstituent party are governed by Section 1108, mergers in whicha exible purpose corporation but no other business entity is aconstituent party are governed by Section 1112.5, and mergers inwhich an other business entity is a constituent party are governedby Section 1113.

SEC. 7. Section 1112.5 is added to the Corporations Code, toread:

1112.5. If a disappearing corporation in a merger is acorporation governed by this division and the surviving corporationis aexible purpose corporation, both of the following shall apply:

(a) The merger shall be approved by the affrmative vote of atleast two-thirds of each class, or a greater vote if required in thearticles, of the outstanding shares (Section 152) of the disappearingcorporation, notwithstanding any provision of Chapter 12(commencing with Section 1200).

(b) The shareholders of the disappearing corporation shall haveall of the rights under Chapter 13 (commencing with Section 1300)of the shareholders of a corporation involved in a reorganizationrequiring the approval of its outstanding shares (Section 152), andthe disappearing corporation shall have all of the obligations underChapter 13 (commencing with Section 1300) of a corporationinvolved in the reorganization.


1113. (a) Any one or more corporations may merge with oneor more other business entities (Section 174.5). One or moredomestic corporations (Section 167) not organized under thisdivision and one or more foreign corporations (Section 171) maybe parties to the merger. Notwithstanding the provisions of this

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section, the merger of any number of corporations with any numberof other business entities may be effected only if:

(1) In a merger in which a domestic corporation not organizedunder this division or a domestic other business entity is a party,it is authorized by the laws under which it is organized to effectthe merger.

(2) In a merger in which a foreign corporation is a party, it isauthorized by the laws under which it is organized to effect themerger.

(3) In a merger in which a foreign other business entity is aparty, it is authorized by the laws under which it is organized toeffect the merger.

(b) Each corporation and each other party that desires to mergeshall approve, and shall be a party to, an agreement of merger.Other persons, including a parent party (Section 1200), may beparties to the agreement of merger. The board of each corporationthat desires to merge and, if required, the shareholders shallapprove the agreement of merger. The agreement of merger shall

be approved on behalf of each party by those persons required toapprove the merger by the laws under which it is organized. Theagreement of merger shall state:

(1) The terms and conditions of the merger.(2) The name and place of incorporation or organization of each

party to the merger and the identity of the surviving party.(3) The amendments, if any, subject to Sections 900 and 907,

to the articles of the surviving corporation, if applicable, to beeffected by the merger. If any amendment changes the name ofthe surviving corporation, if applicable, the new name may be,subject to subdivision (b) of Section 201, the same as or similarto the name of a disappearing party to the merger.

(4) The manner of converting the shares of each constituentcorporation into shares, interests, or other securities of the survivingparty. If any shares of any constituent corporation are not to beconverted solely into shares, interests or other securities of thesurviving party, the agreement of merger shall state (i) the cash,rights, securities, or other property which the holders of thoseshares are to receive in exchange for the shares, which cash, rights,securities, or other property may be in addition to or in lieu ofshares, interests or other securities of the surviving party, or (ii)that the shares are canceled without consideration.

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(5) Any other details or provisions required by the laws underwhich any party to the merger is organized, including, if a publicbeneft corporation or a religious corporation is a party to themerger, Section 6019.1, or, if a mutual beneft corporation is aparty to the merger, Section 8019.1, or, if a consumer cooperativecorporation is a party to the merger, Section 12540.1, or, if a

domestic limited partnership is a party to the merger, Section15911.12, or, if a domestic partnership is a party to the merger,Section 16911, or, if a domestic limited liability company is a partyto the merger, Section 17551.

(6) Any other details or provisions as are desired, including,without limitation, a provision for the payment of cash in lieu offractional shares or for any other arrangement with respect theretoconsistent with the provisions of Section 407.

(c) Each share of the same class or series of any constituentcorporation (other than the cancellation of shares held by a partyto the merger or its parent, or a wholly owned subsidiary of either,in another constituent corporation) shall, unless all shareholders

of the class or series consent and except as provided in Section407, be treated equally with respect to any distribution of cash,rights, securities, or other property. Notwithstanding paragraph(4) of subdivision (b), the unredeemable common shares of aconstituent corporation may be converted only into unredeemablecommon shares of a surviving corporation or a parent party(Section 1200) or unredeemable equity securities of a survivingparty other than a corporation if another party to the merger or itsparent owns, directly or indirectly, prior to the merger shares ofthat corporation representing more than 50 percent of the votingpower of that corporation, unless all of the shareholders of theclass consent and except as provided in Section 407.

(d) Notwithstanding its prior approval, an agreement of mergermay be amended prior to the fling of the agreement of merger orthe certifcate of merger, as is applicable, if the amendment isapproved by the board of each constituent corporation and, if theamendment changes any of the principal terms of the agreement,by the outstanding shares (Section 152), if required by Chapter 12(commencing with Section 1200), in the same manner as theoriginal agreement of merger. If the agreement of merger as soamended and approved is also approved by each of the other parties

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to the agreement of merger, the agreement of merger as so amendedshall then constitute the agreement of merger.

(e) The board of a constituent corporation may, in its discretion,abandon a merger, subject to the contractual rights, if any, of thirdparties, including other parties to the agreement of merger, withoutfurther approval by the outstanding shares (Section 152), at any

time before the merger is effective.(f) Each constituent corporation shall sign the agreement of

merger by its chairperson of the board, president or a vice presidentand also by its secretary or an assistant secretary acting on behalfof their respective corporations.

(g) (1) If the surviving party is a corporation or a foreigncorporation, or if a exible purpose corporation (Section 171.08),a public beneft corporation (Section 5060), a mutual beneftcorporation (Section 5059), a religious corporation (Section 5061),or a corporation organized under the Consumer CooperativeCorporation Law (Section 12200) is a party to the merger, afterrequired approvals of the merger by each constituent corporation

through approval of the board (Section 151) and any approval ofthe outstanding shares (Section 152) required by Chapter 12(commencing with Section 1200) and by the other parties to themerger, the surviving party shall fle a copy of the agreement ofmerger with an offcers certifcate of each constituent domesticand foreign corporation attached stating the total number ofoutstanding shares or membership interests of each class entitledto vote on the merger (and identifying any other person or personswhose approval is required), that the agreement of merger in theform attached or its principal terms, as required, were approvedby that corporation by a vote of a number of shares or membershipinterests of each class that equaled or exceeded the vote required,specifying each class entitled to vote and the percentage voterequired of each class and, if applicable, by that other person orpersons whose approval is required, or that the merger agreementwas entitled to be and was approved by the board alone (asprovided in Section 1201, in the case of corporations subject tothat section). If equity securities of a parent party (Section 1200)are to be issued in the merger, the offcers certifcate of thatcontrolled party shall state either that no vote of the shareholdersof the parent party was required or that the required vote wasobtained. In lieu of an offcers certifcate, a certifcate of merger,

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on a form prescribed by the Secretary of State, shall be fled foreach constituent other business entity. The certifcate of mergershall be executed and acknowledged by each domestic constituentlimited liability company by all managers of the limited liabilitycompany (unless a lesser number is specifed in its articles oforganization or operating agreement) and by each domestic

constituent limited partnership by all general partners (unless alesser number is provided in its certifcate of limited partnershipor partnership agreement) and by each domestic constituent generalpartnership by two partners (unless a lesser number is provided inits partnership agreement) and by each foreign constituent limitedliability company by one or more managers and by each foreignconstituent general partnership or foreign constituent limitedpartnership by one or more general partners, and by eachconstituent reciprocal insurer by the chairperson of the board,president, or vice president, and by the secretary or assistantsecretary, or, if a constituent reciprocal insurer has not appointedthose offcers, by the chairperson of the board, president, or vice

president, and by the secretary or assistant secretary of theconstituent reciprocal insurers attorney-in-fact, and by each otherparty to the merger by those persons required or authorized toexecute the certifcate of merger by the laws under which that partyis organized, specifying for that party the provision of law or otherbasis for the authority of the signing persons. The certifcate ofmerger shall set forth, if a vote of the shareholders, members,partners, or other holders of interests of the constituent otherbusiness entity was required, a statement setting forth the totalnumber of outstanding interests of each class entitled to vote onthe merger and that the agreement of merger in the form attachedor its principal terms, as required, were approved by a vote of thenumber of interests of each class that equaled or exceeded the voterequired, specifying each class entitled to vote and the percentagevote required of each class, and any other information required tobe set forth under the laws under which the constituent otherbusiness entity is organized, including, if a domestic limitedpartnership is a party to the merger, subdivision (a) of Section15911.14, if a domestic partnership is a party to the merger,subdivision (b) of Section 16915, and, if a domestic limited liabilitycompany is a party to the merger, subdivision (a) of Section 17552.The certifcate of merger for each constituent foreign other business

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entity, if any, shall also set forth the statutory or other basis underwhich that foreign other business entity is authorized by the lawsunder which it is organized to effect the merger. The merger andany amendment of the articles of the surviving corporation, ifapplicable, contained in the agreement of merger shall be effectiveupon fling of the agreement of merger with an offcers certifcate

of each constituent domestic and foreign corporation and acertifcate of merger for each constituent other business entity,subject to subdivision (c) of Section 110 and subject to theprovisions of subdivision (j), and the several parties thereto shallbe one entity. If a domestic reciprocal insurer organized after 1974to provide medical malpractice insurance is a party to the merger,the agreement of merger or certifcate of merger shall not be fleduntil there has been fled the certifcate issued by the InsuranceCommissioner approving the merger pursuant to Section 1555 ofthe Insurance Code. The Secretary of State may certify a copy ofthe agreement of merger separate from the offcers certifcatesand certifcates of merger attached thereto.

(2) If the surviving entity is an other business entity, and nopublic beneft corporation (Section 5060), mutual beneftcorporation (Section 5059), religious corporation (Section 5061),or corporation organized under the Consumer CooperativeCorporation Law (Section 12200) is a party to the merger, afterrequired approvals of the merger by each constituent corporationthrough approval of the board (Section 151) and any approval ofthe outstanding shares (Section 152) required by Chapter 12(commencing with Section 1200) and by the other parties to themerger, the parties to the merger shall fle a certifcate of mergerin the offce of, and on a form prescribed by, the Secretary of State.The certifcate of merger shall be executed and acknowledged byeach constituent domestic and foreign corporation by itschairperson of the board, president or a vice president and also byits secretary or an assistant secretary and by each domesticconstituent limited liability company by all managers of the limitedliability company (unless a lesser number is specifed in its articlesof organization or operating agreement) and by each domesticconstituent limited partnership by all general partners (unless alesser number is provided in its certifcate of limited partnershipor partnership agreement) and by each domestic constituent generalpartnership by two partners (unless a lesser number is provided in

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its partnership agreement) and by each foreign constituent limitedliability company by one or more managers and by each foreignconstituent general partnership or foreign constituent limitedpartnership by one or more general partners, and by eachconstituent reciprocal insurer by the chairperson of the board,president, or vice president, and by the secretary or assistant

secretary, or, if a constituent reciprocal insurer has not appointedthose offcers, by the chairperson of the board, president, or vicepresident, and by the secretary or assistant secretary of theconstituent reciprocal insurers attorney-in-fact. The certifcate ofmerger shall be signed by each other party to the merger by thosepersons required or authorized to execute the certifcate of mergerby the laws under which that party is organized, specifying forthat party the provision of law or other basis for the authority ofthe signing persons. The certifcate of merger shall set forth all ofthe following:

(A) The name, place of incorporation or organization, and theSecretary of States fle number, if any, of each party to the merger,

separately identifying the disappearing parties and the survivingparty.

(B) If the approval of the outstanding shares of a constituentcorporation was required by Chapter 12 (commencing with Section1200), a statement setting forth the total number of outstandingshares of each class entitled to vote on the merger and that theprincipal terms of the agreement of merger were approved by avote of the number of shares of each class entitled to vote and thepercentage vote required of each class.

(C) The future effective date or time, not more than 90 dayssubsequent to the date offling of the merger, if the merger is notto be effective upon the fling of the certifcate of merger with theoffce of the Secretary of State.

(D) A statement, by each party to the merger which is a domesticcorporation not organized under this division, a foreign corporation,or an other business entity, of the statutory or other basis underwhich that party is authorized by the laws under which it isorganized to effect the merger.

(E) Any other information required to be stated in the certifcateof merger by the laws under which each party to the merger isorganized, including, if a domestic limited liability company is aparty to the merger, subdivision (a) of Section 17552, if a domestic

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partnership is a party to the merger, subdivision (b) of Section16915, and, if a domestic limited partnership is a party to themerger, subdivision (a) of Section 15911.14.

(F) Any other details or provisions that may be desired.Unless a future effective date or time is provided in a certifcate

of merger, in which event the merger shall be effective at that

future effective date or time, a merger shall be effective upon thefling of the certifcate of merger in the offce of the Secretary ofState and the several parties thereto shall be one entity. Thesurviving other business entity shall keep a copy of the agreementof merger at its principal place of business which, for purposes ofthis subdivision, shall be the offce referred to in Section 17057 ifa domestic limited liability company, at the business addressspecifed in paragraph (5) of subdivision (a) of Section 17552 ifa foreign limited liability company, at the offce referred to insubdivision (a) of Section 16403 if a domestic general partnership,at the business address specifed in subdivision (f) of Section 16911if a foreign partnership, at the offce referred to in subdivision (a)

of Section 15901.14 if a domestic limited partnership, or at thebusiness address specifed in paragraph (3) of subdivision (a) ofSection 15909.02 if a foreign limited partnership. Upon the requestof a holder of equity securities of a party to the merger, a personwith authority to do so on behalf of the surviving other businessentity shall promptly deliver to that holder, a copy of the agreementof merger. A waiver by that holder of the rights provided in theforegoing sentence shall be unenforceable. If a domestic reciprocalinsurer organized after 1974 to provide medical malpracticeinsurance is a party to the merger the agreement of merger orcertifcate of merger shall not be fled until there has been fledthe certifcate issued by the Insurance Commissioner approvingthe merger in accordance with Section 1555 of the Insurance Code.

(h) (1) A copy of an agreement of merger certifed on or afterthe effective date by an offcial having custody thereof has thesame force in evidence as the original and, except as against thestate, is conclusive evidence of the performance of all conditionsprecedent to the merger, the existence on the effective date of thesurviving party to the merger and the performance of the conditionsnecessary to the adoption of any amendment to the articles, ifapplicable, contained in the agreement of merger.

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(2) For all purposes for a merger in which the surviving entityis a domestic other business entity and the fling of a certifcate ofmerger is required by paragraph (2) of subdivision (g), a copy ofthe certifcate of merger duly certifed by the Secretary of State isconclusive evidence of the merger of the constituent corporations,either by themselves or together with the other parties to the

merger, into the surviving other business entity.(i) (1) Upon a merger pursuant to this section, the separate

existences of the disappearing parties to the merger cease and thesurviving party to the merger shall succeed, without other transfer,to all the rights and property of each of the disappearing parties tothe merger and shall be subject to all the debts and liabilities ofeach in the same manner as if the surviving party to the mergerhad itself incurred them.

(2) All rights of creditors and all liens upon the property of eachof the constituent corporations and other parties to the merger shallbe preserved unimpaired, provided that those liens upon propertyof a disappearing party shall be limited to the property affected

thereby immediately prior to the time the merger is effective.(3) Any action or proceeding pending by or against any

disappearing corporation or disappearing party to the merger maybe prosecuted to judgment, which shall bind the surviving party,or the surviving party may be proceeded against or substituted inits place.

(4) If a limited partnership or a general partnership is a party tothe merger, nothing in this section is intended to affect the liabilitya general partner of a disappearing limited partnership or generalpartnership may have in connection with the debts and liabilitiesof the disappearing limited partnership or general partnershipexisting prior to the time the merger is effective.

(j) (1) The merger of domestic corporations with foreigncorporations or foreign other business entities in a merger in whichone or more other business entities is a party shall comply withsubdivision (a) and this subdivision.

(2) If the surviving party is a domestic corporation or domesticother business entity, the merger proceedings with respect to thatparty and any domestic disappearing corporation shall conform tothe provisions of this section. If the surviving party is a foreigncorporation or foreign other business entity, then, subject to therequirements of subdivision (c), and of Section 407 and Chapter

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12 (commencing with Section 1200) and Chapter 13 (commencingwith Section 1300), and, if applicable, corresponding provisionsof the Nonproft Corporation Law or the Consumer CooperativeCorporation Law, with respect to any domestic constituentcorporations, Chapter 13 (commencing with Section 17600) ofTitle 2.5 with respect to any domestic constituent limited liability

companies, Article 6 (commencing with Section 16601) of Chapter5 of Title 2 with respect to any domestic constituent generalpartnerships, and Article 11.5 (commencing with Section 15911.20)of Chapter 5.5 of Title 2 with respect to any domestic constituentlimited partnerships, the merger proceedings may be in accordancewith the laws of the state or place of incorporation or organizationof the surviving party.

(3) If the surviving party is a domestic corporation or domesticother business entity, the certifcate of merger or the agreement ofmerger with attachments shall be fled as provided in subdivision(g) and thereupon, subject to subdivision (c) of Section 110 orparagraph (2) of subdivision (g), as is applicable, the merger shall

be effective as to each domestic constituent corporation anddomestic constituent other business entity.

(4) If the surviving party is a foreign corporation or foreignother business entity, the merger shall become effective inaccordance with the law of the jurisdiction in which the survivingparty is organized, but, except as provided in paragraph (5), themerger shall be effective as to any domestic disappearingcorporation as of the time of effectiveness in the foreign jurisdictionupon the fling in this state of a copy of the agreement of mergerwith an offcers certifcate of each constituent foreign anddomestic corporation and a certifcate of merger of each constituentother business entity attached, which offcers certifcates andcertifcates of merger shall conform to the requirements ofparagraph (1) of subdivision (g). If one or more domestic otherbusiness entities is a disappearing party in a merger pursuant tothis subdivision in which a foreign other business entity is thesurviving entity, a certifcate of merger required by the laws underwhich that domestic other business entity is organized, includingsubdivision (a) of Section 15911.14, subdivision (b) of Section16915, or subdivision (a) of Section 17552, as is applicable, shallalso be fled at the same time as the fling of the agreement ofmerger.

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(5) If the date of the fling in this state pursuant to thissubdivision is more than six months after the time of theeffectiveness in the foreign jurisdiction, or if the powers of adomestic disappearing corporation are suspended at the time ofeffectiveness in the foreign jurisdiction, the merger shall beeffective as to the domestic disappearing corporation as of the date

offling in this state.(6) In a merger described in paragraph (3) or (4), each foreign

disappearing corporation that is qualifed for the transaction ofintrastate business shall by virtue of the fling pursuant to thissubdivision, subject to subdivision (c) of Section 110, automaticallysurrender its right to transact intrastate business in this state. Thefling of the agreement of merger or certifcate of merger, as isapplicable, pursuant to this subdivision, by a disappearing foreignother business entity registered for the transaction of intrastatebusiness in this state shall, by virtue of that fling, subject tosubdivision (c) of Section 110, automatically cancels theregistration for that foreign other business entity, without the

necessity of the fling of a certifcate of cancellation.SEC. 7.5.SEC. 8.5. Section 1113 of the Corporations Code is amended

to read:1113. (a) Any one or more corporations may merge with one

or more other business entities (Section 174.5). One or moredomestic corporations (Section 167) not organized under thisdivision and one or more foreign corporations (Section 171) maybe parties to the merger. Notwithstanding the provisions of thissection, the merger of any number of corporations with any numberof other business entities may be effected only if:

(1) In a merger in which a domestic corporation not organizedunder this division or a domestic other business entity is a party,it is authorized by the laws under which it is organized to effectthe merger.

(2) In a merger in which a foreign corporation is a party, it isauthorized by the laws under which it is organized to effect themerger.

(3) In a merger in which a foreign other business entity is aparty, it is authorized by the laws under which it is organized toeffect the merger.

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(b) Each corporation and each other party that desires to mergeshall approve, and shall be a party to, an agreement of merger.Other persons, including a parent party (Section 1200), may beparties to the agreement of merger. The board of each corporationthat desires to merge and, if required, the shareholders shallapprove the agreement of merger. The agreement of merger shall

be approved on behalf of each party by those persons required toapprove the merger by the laws under which it is organized. Theagreement of merger shall state:

(1) The terms and conditions of the merger.(2) The name and place of incorporation or organization of each

party to the merger and the identity of the surviving party.(3) The amendments, if any, subject to Sections 900 and 907,

to the articles of the surviving corporation, if applicable, to beeffected by the merger. If any amendment changes the name ofthe surviving corporation, if applicable, the new name may be,subject to subdivision (b) of Section 201, the same as or similarto the name of a disappearing party to the merger.

(4) The manner of converting the shares of each constituentcorporation into shares, interests, or other securities of the survivingparty. If any shares of any constituent corporation are not to beconverted solely into shares, interests or other securities of thesurviving party, the agreement of merger shall state (i) the cash,rights, securities, or other property which the holders of thoseshares are to receive in exchange for the shares, which cash, rights,securities, or other property may be in addition to or in lieu ofshares, interests or other securities of the surviving party, or (ii)that the shares are canceled without consideration.

(5) Any other details or provisions required by the laws underwhich any party to the merger is organized, including, if a publicbeneft corporation or a religious corporation is a party to themerger, Section 6019.1, or, if a mutual beneft corporation is aparty to the merger, Section 8019.1, or, if a consumer cooperativecorporation is a party to the merger, Section 12540.1, or if anunincorporated association is a party to the merger, Section 18370,or, if a domestic limited partnership is a party to the merger,Section 15678.2 15911.12, or, if a domestic partnership is a partyto the merger, Section 16911, or, if a domestic limited liabilitycompany is a party to the merger, Section 17551.

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(6) Any other details or provisions as are desired, including,without limitation, a provision for the payment of cash in lieu offractional shares or for any other arrangement with respect theretoconsistent with the provisions of Section 407.

(c) Each share of the same class or series of any constituentcorporation (other than the cancellation of shares held by a party

to the merger or its parent, or a wholly owned subsidiary of either,in another constituent corporation) shall, unless all shareholdersof the class or series consent and except as provided in Section407, be treated equally with respect to any distribution of cash,rights, securities, or other property. Notwithstanding paragraph(4) of subdivision (b), the unredeemable common shares of aconstituent corporation may be converted only into unredeemablecommon shares of a surviving corporation or a parent party(Section 1200) or unredeemable equity securities of a survivingparty other than a corporation if another party to the merger or itsparent owns, directly or indirectly, prior to the merger shares ofthat corporation representing more than 50 percent of the voting

power of that corporation, unless all of the shareholders of theclass consent and except as provided in Section 407.

(d) Notwithstanding its prior approval, an agreement of mergermay be amended prior to the fling of the agreement of merger orthe certifcate of merger, as is applicable, if the amendment isapproved by the board of each constituent corporation and, if theamendment changes any of the principal terms of the agreement,by the outstanding shares (Section 152), if required by Chapter 12(commencing with Section 1200), in the same manner as theoriginal agreement of merger. If the agreement of merger as soamended and approved is also approved by each of the other partiesto the agreement of merger, the agreement of merger as so amendedshall then constitute the agreement of merger.

(e) The board of a constituent corporation may, in its discretion,abandon a merger, subject to the contractual rights, if any, of thirdparties, including other parties to the agreement of merger, withoutfurther approval by the outstanding shares (Section 152), at anytime before the merger is effective.

(f) Each constituent corporation shall sign the agreement ofmerger by its chairperson of the board, president or a vice presidentand also by its secretary or an assistant secretary acting on behalfof their respective corporations.

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(g) (1) If the surviving party is a corporation or a foreigncorporation, or if a exible purpose corporation (Section 171.08),a public beneft corporation (Section 5060), a mutual beneftcorporation (Section 5059), a religious corporation (Section 5061),or a corporation organized under the Consumer CooperativeCorporation Law (Section 12200) is a party to the merger, after

required approvals of the merger by each constituent corporationthrough approval of the board (Section 151) and any approval ofthe outstanding shares (Section 152) required by Chapter 12(commencing with Section 1200) and by the other parties to themerger, the surviving party shall fle a copy of the agreement ofmerger with an offcers certifcate of each constituent domesticand foreign corporation attached stating the total number ofoutstanding shares or membership interests of each class entitledto vote on the merger (and identifying any other person or personswhose approval is required), that the agreement of merger in theform attached or its principal terms, as required, were approvedby that corporation by a vote of a number of shares or membership

interests of each class that equaled or exceeded the vote required,specifying each class entitled to vote and the percentage voterequired of each class and, if applicable, by that other person orpersons whose approval is required, or that the merger agreementwas entitled to be and was approved by the board alone (asprovided in Section 1201, in the case of corporations subject tothat section). If equity securities of a parent party (Section 1200)are to be issued in the merger, the offcers certifcate of thatcontrolled party shall state either that no vote of the shareholdersof the parent party was required or that the required vote wasobtained. In lieu of an offcers certifcate, a certifcate of merger,on a form prescribed by the Secretary of State, shall be fled foreach constituent other business entity. The certifcate of mergershall be executed and acknowledged by each domestic constituentlimited liability company by all managers of the limited liabilitycompany (unless a lesser number is specifed in its articles oforganization or operating agreement) and by each domesticconstituent limited partnership by all general partners (unless alesser number is provided in its certifcate of limited partnershipor partnership agreement) and by each domestic constituent generalpartnership by two partners (unless a lesser number is provided inits partnership agreement) and by each foreign constituent limited

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liability company by one or more managers and by each foreignconstituent general partnership or foreign constituent limitedpartnership by one or more general partners, and by eachconstituent reciprocal insurer by the chairperson of the board,president, or vice president, and by the secretary or assistantsecretary, or, if a constituent reciprocal insurer has not appointed

those offcers, by the chairperson of the board, president, or vicepresident, and by the secretary or assistant secretary of theconstituent reciprocal insurers attorney-in-fact, and by each otherparty to the merger by those persons required or authorized toexecute the certifcate of merger by the laws under which that partyis organized, specifying for that party the provision of law or otherbasis for the authority of the signing persons. The certifcate ofmerger shall set forth, if a vote of the shareholders, members,partners, or other holders of interests of the constituent otherbusiness entity was required, a statement setting forth the totalnumber of outstanding interests of each class entitled to vote onthe merger and that the agreement of merger in the form attached

or its principal terms, as required, were approved by a vote of thenumber of interests of each class that equaled or exceeded the voterequired, specifying each class entitled to vote and the percentagevote required of each class, and any other information required tobe set forth under the laws under which the constituent otherbusiness entity is organized, including, if a domestic limitedpartnership is a party to the merger, subdivision (a) of Section15678.4 15911.14, if a domestic partnership is a party to themerger, subdivision (b) of Section 16915, and, if a domestic limitedliability company is a party to the merger, subdivision (a) ofSection 17552. The certifcate of merger for each constituentforeign other business entity, if any, shall also set forth the statutoryor other basis under which that foreign other business entity isauthorized by the laws under which it is organized to effect themerger. The merger and any amendment of the articles of thesurviving corporation, if applicable, contained in the agreementof merger shall be effective upon fling of the agreement of mergerwith an offcers certifcate of each constituent domestic andforeign corporation and a certifcate of merger for each constituentother business entity, subject to subdivision (c) of Section 110 andsubject to the provisions of subdivision (j), and the several partiesthereto shall be one entity. If a domestic reciprocal insurer

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persons required or authorized to execute the certifcate of mergerby the laws under which that party is organized, specifying forthat party the provision of law or other basis for the authority ofthe signing persons. The certifcate of merger shall set forth all ofthe following:

(A) The name, place of incorporation or organization, and the

Secretary of States fle number, if any, of each party to the merger,separately identifying the disappearing parties and the survivingparty.

(B) If the approval of the outstanding shares of a constituentcorporation was required by Chapter 12 (commencing with Section1200), a statement setting forth the total number of outstandingshares of each class entitled to vote on the merger and that theprincipal terms of the agreement of merger were approved by avote of the number of shares of each class entitled to vote and thepercentage vote required of each class.

(C) The future effective date or time, not more than 90 dayssubsequent to the date offling of the merger, if the merger is not

to be effective upon the fling of the certifcate of merger with theoffce of the Secretary of State.

(D) A statement, by each party to the merger which is a domesticcorporation not organized under this division, a foreign corporation,or an other business entity, of the statutory or other basis underwhich that party is authorized by the laws under which it isorganized to effect the merger.

(E) Any other information required to be stated in the certifcateof merger by the laws under which each party to the merger isorganized, including, if a domestic limited liability company is aparty to the merger, subdivision (a) of Section 17552, if a domesticpartnership is a party to the merger, subdivision (b) of Section16915, and, if a domestic limited partnership is a party to themerger, subdivision (a) of Section 15678.4 15911.14.

(F) Any other details or provisions that may be desired.Unless a future effective date or time is provided in a certifcate

of merger, in which event the merger shall be effective at thatfuture effective date or time, a merger shall be effective upon thefling of the certifcate of merger in the offce of the Secretary ofState and the several parties thereto shall be one entity. Thesurviving other business entity shall keep a copy of the agreementof merger at its principal place of business which, for purposes of

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this subdivision, shall be the offce referred to in Section 17057 ifa domestic limited liability company, at the business addressspecifed in paragraph (5) of subdivision (a) of Section 17552 ifa foreign limited liability company, at the offce referred to insubdivision (a) of Section 16403 if a domestic general partnership,at the business address specifed in subdivision (f) of Section 16911

if a foreign partnership, at the offce referred to in subdivision (a)of Section 15614 15901.14 if a domestic limited partnership, orat the business address specifed in paragraph (5) (3) of subdivision(a) of Section 15678.4 15909.02 if a foreign limited partnership.Upon the request of a holder of equity securities of a party to themerger, a person with authority to do so on behalf of the survivingother business entity shall promptly deliver to that holder, a copyof the agreement of merger. A waiver by that holder of the rightsprovided in the foregoing sentence shall be unenforceable. If adomestic reciprocal insurer organized after 1974 to provide medicalmalpractice insurance is a party to the merger the agreement ofmerger or certifcate of merger shall not be fled until there has

been fled the certifcate issued by the Insurance Commissionerapproving the merger in accordance with Section 1555 of theInsurance Code.

(h) (1) A copy of an agreement of merger certifed on or afterthe effective date by an offcial having custody thereof has thesame force in evidence as the original and, except as against thestate, is conclusive evidence of the performance of all conditionsprecedent to the merger, the existence on the effective date of thesurviving party to the merger and the performance of the conditionsnecessary to the adoption of any amendment to the articles, ifapplicable, contained in the agreement of merger.

(2) For all purposes for a merger in which the surviving entityis a domestic other business entity and the fling of a certifcate ofmerger is required by paragraph (2) of subdivision (g), a copy ofthe certifcate of merger duly certifed by the Secretary of State isconclusive evidence of the merger of the constituent corporations,either by themselves or together with the other parties to themerger, into the surviving other business entity.

(i) (1) Upon a merger pursuant to this section, the separateexistences of the disappearing parties to the merger cease and thesurviving party to the merger shall succeed, without other transfer,to all the rights and property of each of the disappearing parties to

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the merger and shall be subject to all the debts and liabilities ofeach in the same manner as if the surviving party to the mergerhad itself incurred them.

(2) All rights of creditors and all liens upon the property of eachof the constituent corporations and other parties to the merger shallbe preserved unimpaired, provided that those liens upon property

of a disappearing party shall be limited to the property affectedthereby immediately prior to the time the merger is effective.

(3) Any action or proceeding pending by or against anydisappearing corporation or disappearing party to the merger maybe prosecuted to judgment, which shall bind the surviving party,or the surviving party may be proceeded against or substituted inits place.

(4) If a limited partnership or a general partnership is a party tothe merger, nothing in this section is intended to affect the liabilitya general partner of a disappearing limited partnership or generalpartnership may have in connection with the debts and liabilitiesof the disappearing limited partnership or general partnership

existing prior to the time the merger is effective.(j) (1) The merger of domestic corporations with foreign

corporations or foreign other business entities in a merger in whichone or more other business entities is a party shall comply withsubdivision (a) and this subdivision.

(2) If the surviving party is a domestic corporation or domesticother business entity, the merger proceedings with respect to thatparty and any domestic disappearing corporation shall conform tothe provisions of this section. If the surviving party is a foreigncorporation or foreign other business entity, then, subject to therequirements of subdivision (c), and of Section 407 and Chapter12 (commencing with Section 1200) and Chapter 13 (commencingwith Section 1300), and, if applicable, corresponding provisionsof the Nonproft Corporation Law or the Consumer CooperativeCorporation Law, with respect to any domestic constituentcorporations, Chapter 13 (commencing with Section 17600) ofTitle 2.5 with respect to any domestic constituent limited liabilitycompanies, Article 6 (commencing with Section 16601) of Chapter5 of Title 2 with respect to any domestic constituent generalpartnerships, and Article 7.6 (commencing with Section 15679.1)of Chapter 3 11.5 (commencing with Section 15911.20) of Chapter5.5 of Title 2 with respect to any domestic constituent limited

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partnerships, the merger proceedings may be in accordance withthe laws of the state or place of incorporation or organization ofthe surviving party.

(3) If the surviving party is a domestic corporation or domesticother business entity, the certifcate of merger or the agreement ofmerger with attachments shall be fled as provided in subdivision

(g) and thereupon, subject to subdivision (c) of Section 110 orparagraph (2) of subdivision (g), as is applicable, the merger shallbe effective as to each domestic constituent corporation anddomestic constituent other business entity.

(4) If the surviving party is a foreign corporation or foreignother business entity, the merger shall become effective inaccordance with the law of the jurisdiction in which the survivingparty is organized, but, except as provided in paragraph (5), themerger shall be effective as to any domestic disappearingcorporation as of the time of effectiveness in the foreign jurisdictionupon the fling in this state of a copy of the agreement of mergerwith an offcers certifcate of each constituent foreign and

domestic corporation and a certifcate of merger of each constituentother business entity attached, which offcers certifcates andcertifcates of merger shall conform to the requirements ofparagraph (1) of subdivision (g). If one or more domestic otherbusiness entities is a disappearing party in a merger pursuant tothis subdivision in which a foreign other business entity is thesurviving entity, a certifcate of merger required by the laws underwhich that domestic other business entity is organized, includingsubdivision (a) of Section 15678.4 15911.14, subdivision (b) ofSection 16915, or subdivision (a) of Section 17552, as is applicable,shall also be fled at the same time as the fling of the agreementof merger.

(5) If the date of the fling in this state pursuant to thissubdivision is more than six months after the time of theeffectiveness in the foreign jurisdiction, or if the powers of adomestic disappearing corporation are suspended at the time ofeffectiveness in the foreign jurisdiction, the merger shall beeffective as to the domestic disappearing corporation as of the dateoffling in this state.

(6) In a merger described in paragraph (3) or (4), each foreigndisappearing corporation that is qualifed for the transaction ofintrastate business shall by virtue of the fling pursuant to this

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subdivision, subject to subdivision (c) of Section 110, automaticallysurrender its right to transact intrastate business in this state. Thefling of the agreement of merger or certifcate of merger, as isapplicable, pursuant to this subdivision, by a disappearing foreignother business entity registered for the transaction of intrastatebusiness in this state shall, by virtue of that fling, subject to

subdivision (c) of Section 110, automatically cancels theregistration for that foreign other business entity, without thenecessity of the fling of a certifcate of cancellation.


1152. (a) A corporation that desires to convert to a domesticother business entity shall approve a plan of conversion. The planof conversion shall state all of the following:

(1) The terms and conditions of the conversion.(2) The jurisdiction of the organization of the converted entity

and of the converting corporation and the name of the convertedentity after conversion.

(3) The manner of converting the shares of each of theshareholders of the converting corporation into securities of, orinterests in, the converted entity.

(4) The provisions of the governing documents for the convertedentity, including the partnership agreement or limited liabilitycompany articles of organization and operating agreement, towhich the holders of interests in the converted entity are to bebound.

(5) Any other details or provisions that are required by the lawsunder which the converted entity is organized, or that are desiredby the converting corporation.

(b) The plan of conversion shall be approved by the board ofthe converting corporation (Section 151), and the principal termsof the plan of the conversion shall be approved by the outstandingshares (Section 152) of each class of the converting corporation.The approval of the outstanding shares may be given before orafter approval by the board. Notwithstanding the foregoing, if aconverting corporation is a close corporation, the conversion shallbe approved by the affrmative vote of at least two-thirds of eachclass, or a greater vote if required in the articles, of outstandingshares (Section 152) of that converting corporation; provided,

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however, that the articles may provide for a lesser vote, but notless than a majority of the outstanding shares of each class.

(c) If the corporation is converting into a general or limitedpartnership or into a limited liability company, then in addition tothe approval of the shareholders set forth in subdivision (b), theplan of conversion shall be approved by each shareholder who will

become a general partner or manager, as applicable, of theconverted entity pursuant to the plan of conversion unless theshareholders have dissenters rights pursuant to Section 1159 andChapter 13 (commencing with Section 1300).

(d) If the corporation is converting into a exible purposecorporation, both of the following shall apply:

(1) Notwithstanding subdivision (b), the plan of conversionshall be approved by the affrmative vote of at least two-thirds ofeach class, or a greater vote if required in the articles, ofoutstanding shares (Section 152) of that converting corporation.

(2) The shareholders of the converting corporation shall haveall of the rights under Chapter 13 (commencing with Section 1300)

of the shareholders of a corporation involved in a reorganizationrequiring the approval of its outstanding shares (Section 152), andthe converting corporation shall have all of the obligations underChapter 13 (commencing with Section 1300) of a corporationinvolved in a reorganization, without regard to whether theconversion constitutes a reorganization requiring a shareholdervote under Chapter 12 (commencing with Section 1200).

(e) Upon the effectiveness of the conversion, all shareholdersof the converting corporation, except those that exercise dissentersrights as provided in Section 1159 and Chapter 13 (commencingwith Section 1300), shall be deemed parties to any agreement oragreements constituting the governing documents for the convertedentity adopted as part of the plan of conversion, irrespective ofwhether or not a shareholder has executed the plan of conversionor those governing documents for the converted entity. Anyadoption of governing documents made pursuant thereto shall beeffective at the effective time or date of the conversion.

(f) Notwithstanding its prior approval by the board and theoutstanding shares or either of them, a plan of conversion may beamended before the conversion takes effect if the amendment isapproved by the board and, if it changes any of the principal termsof the plan of conversion, by the shareholders of the converting

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corporation in the same manner and to the same extent as wasrequired for approval of the original plan of conversion.

(g) A plan of conversion may be abandoned by the board of aconverting corporation, or by the shareholders of a convertingcorporation if the abandonment is approved by the outstandingshares, in each case in the same manner as required for approval

of the plan of conversion, subject to the contractual rights of thirdparties, at any time before the conversion is effective.

(h) The converted entity shall keep the plan of conversion at(1) the principal place of business of the converted entity if theconverted entity is a domestic partnership or (2) at the offce atwhich records are to be kept under Section 15614 or 15901.11 ifthe converted entity is a domestic limited partnership or at theoffce at which records are to be kept under Section 17057 if theconverted entity is a domestic limited liability company. Upon therequest of a shareholder of a converting corporation, the authorizedperson on behalf of the converted entity shall promptly deliver tothe shareholder, at the expense of the converted entity, a copy of

the plan of conversion. A waiver by a shareholder of the rightsprovided in this subdivision shall be unenforceable.

SEC. 10. Section 1155 of the Corporations Code is amendedto read:

1155. (a) To convert a corporation:(1) If the corporation is converting into a domestic limited

partnership, a statement of conversion shall be completed on thecertifcate of limited partnership for the converted entity.

(2) If the corporation is converting into a domestic partnership,a statement of conversion shall be completed on the statement ofpartnership authority for the converted entity, or if no statementof partnership authority is fled then a certifcate of conversionshall be fled separately.

(3) If the corporation is converting into a domestic limitedliability company, a statement of conversion shall be completedon the articles of organization for the converted entity.

(4) If the corporation is converting into a exible purposecorporation, a statement of conversion shall be completed on thearticles for the converted entity.

(b) Any statement or certifcate of conversion of a convertingcorporation shall be executed and acknowledged by those offcersof the converting corporation as would be required to sign an

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offcers certifcate (Section 173), and shall set forth all of thefollowing:

(1) The name and the Secretary of States fle number of theconverting corporation.

(2) A statement of the total number of outstanding shares ofeach class entitled to vote on the conversion, that the principal

terms of the plan of conversion were approved by a vote of thenumber of shares of each class which equaled or exceeded the voterequired under Section 1152, specifying each class entitled to voteand the percentage vote required of each class.

(3) The name, form, and jurisdiction of organization of theconverted entity.

(c) For the purposes of this chapter, the certifcate of conversionshall be on a form prescribed by the Secretary of State.

(d) The fling with the Secretary of State of a statement ofconversion on an organizational document or a certifcate ofconversion as set forth in subdivision (a) shall have the effect ofthe fling of a certifcate of dissolution by the converting

corporation and no converting corporation that has made the flingis required to fle a certifcate of election under Section 1901 or acertifcate of dissolution under Section 1905 as a result of thatconversion.

(e) Upon the effectiveness of a conversion pursuant to thischapter, a converted entity that is a exible purpose corporation,domestic partnership, domestic limited partnership or domesticlimited liability company shall be deemed to have assumed theliability of the converting corporation (1) to prepare and fle orcause to be prepared and fled all tax and information returnsotherwise required of the converting corporation under theCorporation Tax Law (Part 11 (commencing with Section 23001)of Division 2 of the Revenue and Taxation Code) and (2) to payany tax liability determined to be due pursuant to that law.

SEC. 11. Section 1201 of the Corporations Code is amendedto read:

1201. (a) The principal terms of a reorganization shall beapproved by the outstanding shares (Section 152) of each class ofeach corporation the approval of whose board is required underSection 1200, except as provided in subdivision (b) and exceptthat (unless otherwise provided in the articles) no approval of anyclass of outstanding preferred shares of the surviving or acquiring

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corporation or parent party shall be required if the rights,preferences, privileges and restrictions granted to or imposed uponthat class of shares remain unchanged (subject to the provisionsof subdivision (c)). For the purpose of this subdivision, two classesof common shares differing only as to voting rights shall beconsidered as a single class of shares.

(b) No approval of the outstanding shares (Section 152) isrequired by subdivision (a) in the case of any corporation if thatcorporation, or its shareholders immediately before thereorganization, or both, shall own (immediately after thereorganization) equity securities, other than any warrant or rightto subscribe to or purchase those equity securities, of the survivingor acquiring corporation or a parent party (subdivision (d) ofSection 1200) possessing more than fve-sixths of the voting powerof the surviving or acquiring corporation or parent party. In makingthe determination of ownership by the shareholders of acorporation, immediately after the reorganization, of equitysecurities pursuant to the preceding sentence, equity securities

which they owned immediately before the reorganization asshareholders of another party to the transaction shall bedisregarded. For the purpose of this section only, the voting powerof a corporation shall be calculated by assuming the conversionof all equity securities convertible (immediately or at some futuretime) into shares entitled to vote but not assuming the exercise ofany warrant or right to subscribe to or purchase those shares.

(c) Notwithstanding subdivision (b), the principal terms of areorganization shall be approved by the outstanding shares (Section152) of the surviving corporation in a merger reorganization if anyamendment is made to its articles that would otherwise requirethat approval.

(d) Notwithstanding subdivision (b), the principal terms of areorganization shall be approved by the outstanding shares (Section152) of any class of a corporation that is a party to a merger orsale-of-assets reorganization if holders of shares of that classreceive shares of the surviving or acquiring corporation or parentparty having different rights, preferences, privileges or restrictionsthan those surrendered. Shares in a foreign corporation receivedin exchange for shares in a domestic corporation have differentrights, preferences, privileges and restrictions within the meaningof the preceding sentence.

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(e) Notwithstanding subdivisions (a) and (b), the principal termsof a reorganization shall be approved by the affrmative vote of atleast two-thirds of each class, or a greater vote if required in thearticles, of the outstanding shares (Section 152) of any closecorporation if the reorganization would result in their receivingshares of a corporation that is not a close corporation. However,

the articles may provide for a lesser vote, but not less than amajority of the outstanding shares of each class.

(f) Notwithstanding subdivisions (a) and (b), the principal termsof a reorganization shall be approved by at least two-thirds of eachclass, or a greater vote if required in the articles, of the outstandingshares (Section 152) of a corporation that is a party to a mergerreorganization if holders of shares receive shares of a survivingexible purpose corporation in the merger.

(g) Notwithstanding subdivisions (a) and (b), the principal termsof a reorganization shall be approved by the outstanding shares(Section 152) of any class of a corporation that is a party to amerger reorganization if holders of shares of that class receive

interests of a surviving other business entity in the merger.(h) Notwithstanding subdivisions (a) and (b), the principal terms

of a reorganization shall be approved by all shareholders of anyclass or series if, as a result of the reorganization, the holders ofthat class or series become personally liable for any obligationsof a party to the reorganization, unless all holders of that class orseries have the dissenters rights provided in Chapter 13(commencing with Section 1300).

(i) Any approval required by this section may be given beforeor after the approval by the board. Notwithstanding approvalrequired by this section, the board may abandon the proposedreorganization without further action by the shareholders, subjectto the contractual rights, if any, of third parties.

SEC. 12. Division 1.5 (commencing with Section 2500) isadded to Title 1 of the Corporations Code, to read:

DIVISION 1.5. CORPORATE FLEXIBILITY ACT OF 2011

Chapter 1. General Provisions and Definitions

2500. This division shall be known and may be cited as theCorporate Flexibility Act of 2011.

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2501. Except as otherwise expressly stated, the provisions ofDivision 1 (commencing with Section 100) shall apply tocorporations organized under this division, and references in thatdivision to the terms close corporation,constituent corporation,corporation,disappearing corporation,domestic corporation,foreign corporation,surviving corporation, and similar terms

shall be read to apply, in the same manner, to include the similarexible purpose corporation organized under this division.

2502. This division applies only to exible purposecorporations organized expressly under this division whetherorganized or existing under this division or merged or convertedinto a exible purpose corporation in accordance with Chapter 11(commencing with Section 1100) of Division 1 or Chapter 11.5(commencing with Section 1150) of Division 1.

2502.01. Every exible purpose corporation organized underthe laws of this state or similar foreign exible purpose corporation,all of the capital stock of which is benefcially owned by the UnitedStates, an agency or instrumentality of the United States or any

exible purpose corporation or similar foreign exible purposecorporation the whole of the capital stock of which is owned bythe United States or by an agency or instrumentality of the UnitedStates, is conclusively presumed to be an agency andinstrumentality of the United States and is entitled to all privilegesand immunities to which the holders of all of its stock are entitledas agencies of the United States.

2502.02. Unless otherwise expressly provided, wheneverreference is made in this division to any other state or federalstatute, that reference is to that statute as it may be amended fromtime to time, whether before or after the enactment of this division.

2502.03. A exible purpose corporation may be sued in thesame manner as a corporation as provided in the Code of CivilProcedure.

2502.04. A exible purpose corporation formed under thisdivision shall, in respect of its property, as a condition of itsexistence as a exible purpose corporation, be subject, in the samemanner as a corporation, to the provisions of the Code of CivilProcedure authorizing the attachment of corporate property.

2502.05. The fees of the Secretary of State for flinginstruments by or on behalf ofexible purpose corporations shallbe the same fees prescribed for corporations in Article 3

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(commencing with Section 12180) of Chapter 3 of Part 2 ofDivision 3 of Title 2 of the Government Code.

2502.06. (a) Provisions of the articles described in paragraph(3) of subdivision (e) of Section 2602 and subdivisions (a) and (b)of Section 2603 may be made dependent upon facts ascertainableoutside of the articles, if the manner in which those facts shall

operate upon those provisions is clearly and expressly set forth inthe articles. Similarly, any of the terms of an agreement of mergerpursuant to Section 1101 may be made dependent upon factsascertainable outside of that agreement, if the manner in whichthose facts shall operate upon the terms of the agreement is clearlyand expressly set forth in the agreement of merger.

(b) Notwithstanding subdivision (a), when any provisions orterms of articles or an agreement of merger are made dependentupon facts ascertainable outside of the fled instrument through areference to an agreement or similar document, the exible purposecorporation fling that instrument shall maintain at its principalexecutive offce a copy of that referenced agreement or document

and all amendments, and shall provide to its shareholders, in thecase of articles, or to shareholders of any constituent corporationor other business entity, in the case of an agreement of merger, acopy of them upon written request and without charge.

(c) For the purposes of this section, referenced agreementmeans an agreement or contract to which the exible purposecorporation is a party. An amendment or revision of a referencedagreement shall require shareholder approval, in addition to anyother required approvals, upon any of the following circumstances:

(1) If the amendment or revision of the referenced agreementwould result in a material change in the rights, preferences,privileges, or restrictions of a class or series of shares, theamendment or revision shall be approved by the outstanding shares,as defned in Section 152, of that class or series.

(2) If the amendment or revision of the referenced agreementwould result in a material change in the rights or liabilities of anyclass or series of shares with respect to the subject matter ofparagraph (1), (2), (3), (5), or (9) of subdivision (a) of Section2603, the amendment or revision shall be approved by theoutstanding shares, as defned in Section 152, of that class or series.

(3) If the amendment or revision of the referenced agreementwould result in a material change in the restrictions on transfer or

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hypothecation of any class or series of shares, the amendment orrevision shall be approved by the outstanding shares, as defnedin Section 152, of that class or series.

(4) If the amendment or revision of the referenced agreementwould result in a change of any of the principal terms of anagreement of merger, the amendment or revision shall be approved

in the same manner as required by Section 3504 for a change inthe principal terms of an agreement of merger.

2502.07. Nothing contained in this division shall be construedto modify the provisions of subdivision (h) of Section 25102, orthe conditions provided therein to the availability of an exemptionunder that subdivision.

2503. Annual report means the report required by subdivision(a) of Section 3500, including the information specifed insubdivision (b) of Section 3500.

2503.1. Close exible purpose corporation means a exiblepurpose corporation that is also a close corporation.

2504. Constituent exible purpose corporation means a

exible purpose corporation that is merged with or into one ormore corporations or one or more other business entities andincludes a surviving exible purpose corporation.

2505. Conversion means a conversion pursuant to Chapter11.5 (commencing with Section 1150) of Division 1 and Chapter9 (commencing with Section 3300) of this division.

2506. Disappearing exible purpose corporation means aconstituent exible purpose corporation that is not the survivingentity.

2507. Domestic exible purpose corporation means acorporation organized under this division.

2509. Flexible purpose corporation, unless otherwiseexpressly provided, refers only to a corporation organized underthis division.

2510. Flexible purpose corporation subject to the BankingLaw means any of the following:

(a) A exible purpose corporation that, with the approval of theCommissioner of Financial Institutions, is incorporated for thepurpose of engaging in, or that is authorized by the Commissionerof Financial Institutions to engage in, the commercial bankingbusiness under the Banking Law (Division 1 (commencing withSection 99) of the Financial Code).

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(b) Any exible purpose corporation that, with the approval ofthe Commissioner of Financial Institutions, is incorporated for thepurpose of engaging in, or that is authorized by the Commissionerof Financial Institutions to engage in, the industrial bankingbusiness under the Banking Law (Division 1 (commencing withSection 99) of the Financial Code).

(c) Any exible purpose corporation, other than a exiblepurpose corporation described in subdivision (d), that, with theapproval of the Commissioner of Financial Institutions, isincorporated for the purpose of engaging in, or that is authorizedby the Commissioner of Financial Institutions to engage in, thetrust business under the Banking Law (Division 1 (commencingwith Section 99) of the Financial Code).

(d) Any exible purpose corporation that is authorized by theCommissioner of Financial Institutions and the Commissioner ofInsurance to maintain a title insurance department to engage intitle insurance business and a trust department to engage in trustbusiness.

(e) Any exible purpose corporation that, with the approval ofthe Commissioner of Financial Institutions, is incorporated for thepurpose of engaging in, or that is authorized by the Commissionerof Financial Institutions to engage in, business under Article 1(commencing with Section 3500) of Chapter 19 of Division 1 ofthe Financial Code.

2510.1. Flexible purpose corporation subject to the InsuranceCode as an insurer means a exible purpose corporation that hasmet the requirements of Sections 201.5, 201.6, and 201.7.

2511. Reorganization means a merger reorganization, anexchange reorganization, or a sale of assets reorganization.

(a) Merger reorganization means a merger pursuant to Chapter11 (commencing with Section 1100) of Division 1 and Chapter 8(commencing with Section 3200), of this division, other than ashort-form merger.

(b) Exchange reorganization means the acquisition by onedomestic exible purpose corporation, foreign exible purposecorporation, or other business entity in exchange, in whole or inpart, for its equity securities, or the equity securities of a domesticexible purpose corporation, a foreign exible purpose corporation,or an other business entity that is in control of the acquiring entity,of equity securities of another domestic exible purpose

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corporation, foreign exible purpose corporation, or other businessentity if, immediately after the acquisition, the acquiring entityhas control of the other entity.

(c) Sale-of-assets reorganization means the acquisition byone domestic exible purpose corporation, foreign exible purposecorporation, or other business entity in exchange in whole or in

part for its equity securities, or the equity securities of a domesticexible purpose corporation, a foreign exible purpose corporation,or an other business entity that is in control of the acquiring entity,or for its debt securities, or debt securities of a domestic exiblepurpose corporation, foreign exible purpose corporation, or otherbusiness entity that is in control of the acquiring entity, that arenot adequately secured and that have a maturity date in excess offve years after the consummation of the reorganization, or both,of all or substantially all of the assets of another domestic exiblepurpose corporation, foreign exible purpose corporation, or otherbusiness entity.

2512. Share exchange tender offer means any acquisition by

one exible purpose corporation in exchange in whole or in partfor its equity securities, or the equity securities of a corporationor a exible purpose corporation that is in control of the acquiringexible purpose corporation,

SB 201 Bill (Flexible Purpose Corporations)

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