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July 24, 2014

An Exemption For Foreign Subsidiary Formation Under California Corporate Securities Law

The formation of a subsidiary under the laws of a foreign country may not seem to implicate the California Corporate Securities Law.  Yet, an offer and sale may occur “in this state” within the meaning of Corporations Code Section 25008. See California’s Blue Sky Law Problems for Foreign Issues and Foreign Issuers23 Insights 28 (July 2009) and Yes, There Is No “S” In California.

If the subsidiary is a corporation that is issuing common shares, Rule 260.105.22 may prove to be a handy exemption.  The rule exempts offer and sales of common shares issued by any corporation organized under the laws of a foreign country, provided the following conditions are met:

  • After completion of the offering, 100% of the outstanding capital stock of the issuer is owned by a corporation, directly or indirectly, in its own name or in the name of nominees or other persons holding for the sole benefit of that corporation;

  • The acquiring corporation represents that the securities are purchased for its own account for investment and not with a view to, or for sale in connection with, any distribution of the shares; and

  • All of the shares are evidenced by certificates that have stamped or printed prominently on their face a legend in the form prescribed by Rule 260.141.11.

The last condition may make this exemption less attractive than others because future transfers will be subject to the limitations on transfer set forth in Rule 260.141.11.

© 2010-2014 Allen Matkins Leck Gamble Mallory & Natsis LLP

About the Author

Keith Paul Bishop, Business Attorney, Allen Matkins Law Firm
Partner

Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients on compliance,...

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