Corporate Flexibility Act of 2011: Social Purpose Corporations Act.

The Corporate Flexibility Act of 2011 authorizes and regulates the formation and operation of flexible purpose corporations. This bill would rename the act as the Social Purpose Corporations Act and rename the type of corporation authorized and regulated under that act as a social purpose corporation. Under the act, an existing business association organized as a trust under the laws of this state or of a foreign jurisdiction may incorporate under the act upon approval by its board of trustees or similar governing body and approval by the affirmative vote of a majority of the outstanding voting shares of beneficial interest, and the filing of articles with a certificate. This bill would revise the approval by the affirmative vote of a majority of the outstanding voting shares of beneficial interest requirement to approval by the affirmative vote of 23 of those shares. Under the act, the articles of incorporation are required to set forth specified statements, including the name of the corporation. This bill would revise the statements that are required to be contained in the articles of incorporation. This bill would authorize a corporation formed pursuant to the act before January 1, 2015, to elect to change its status from a flexible purpose corporation to a social purpose corporation by amending its articles of incorporation, as provided. The bill would require that any reference in the act to social purpose corporation be deemed a reference to flexible purpose corporation, for any flexible purpose corporation formed prior to January 1, 2015, that has not amended its articles of incorporation to change its status to a social purpose corporation. This bill would require, for corporations organized on and after January 1, 2015, a statement that the corporation is organized as a social purpose corporation under the Social Purpose Corporations Act. Under the act, the director, in discharging his or her duties, may consider those factors, and give weight to those factors, as the director deems relevant, including the short-term and long-term prospects of the corporation, the best interests of the corporation and its shareholders, and the purposes of the corporation as set forth in its articles. This bill would revise one of the factors and would require the director to consider those factors. This bill would authorize shareholders to maintain a derivative lawsuit to enforce this requirement. Under the act, certificates representing the shares of a corporation formed under the act are required to contain specified statements. This bill would revise the statements required to be on those certificates. This bill would provide that the certificates representing shares of a corporation formed pursuant to this act as a "flexible purpose corporation" before January 1, 2015, continue to be valid, and that any reference to a "flexible purpose corporation" or any abbreviation of that term in those certificates is also a reference to "social purpose corporation." Under the act, a corporation formed under the act may, by amendment of its articles as specified in the act, convert to a domestic corporation. This bill would instead provide that a corporation formed under the act may change its status to that of a business corporation. This bill would provide that if the status change is approved, shareholders with dissenting shares may exercise dissenters' rights set forth in the General Corporation Law. Under the act, certain mergers require approval by an affirmative vote of at least 23 of the outstanding shares of each class, or a greater vote if required in the articles, regardless of whether that class is entitled to vote thereon by the provisions of the articles, of the disappearing corporation. This bill would provide that if the merger is approved, shareholders with dissenting shares may exercise dissenters' rights set forth in the General Corporation Law. Under the act, a corporation formed under the act may be converted into a domestic other business entity if specified conditions are met. The act requires the approval of a plan of conversion. This bill would provide that if the plan is approved, shareholders with dissenting shares may exercise dissenters' rights set forth in the General Corporation Law. Under the act, the principal terms of a reorganization are required to be approved by the outstanding shares of any class of a corporation formed under that act that is a party to a merger or sale-of-assets reorganization if holders of shares of that class receive shares of the surviving or acquiring corporation formed under that act or parent party having different rights, preferences, privileges, or restrictions than those surrendered. This bill would instead require the principal terms of a reorganization to be approved by the affirmative vote of at least 23 of each class, or a greater vote if required in the articles, of the outstanding shares of any class of a corporation formed under that act that is a party to a merger or sale-of-assets reorganization if holders of shares of that class receive shares of the surviving or acquiring corporation formed under that act or parent party having different rights, preferences, privileges, or restrictions than those surrendered. Under the act, the board of a corporation formed under the act is required to cause an annual report to be sent to the shareholders, provided with a management discussion and analysis (special purpose MD&A) that contains specified information concerning the corporation's stated purposes. Existing law exempts the annual report and special purpose MD&A requirement for corporations formed under the act with fewer than 100 holders of record of its shares if specified conditions exist. This bill would revise the information required to be contained in the special purpose MD&A. This bill would repeal the exemption. Existing law sets forth procedures for how a corporation formed pursuant to the Corporate Flexibility Act of 2011 may convert or change its status into other types of entities and how other entities may convert or change their status to a corporation formed pursuant to the Corporate Flexibility Act of 2011. This bill would revise those procedures. This bill would make other changes to correct erroneous cross-references. This bill would incorporate additional changes to Sections 1155 and 3304 of the Corporations Code proposed by SB 1041 that would become operative only if this bill and SB 1041 are both chaptered and this bill is chaptered last.