October 17, 2021

Volume XI, Number 290

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How To Determine Whether A Foreign Corporation Is A "Pseudo-Foreign" Corporation

California famously purports to impose numerous provisions of its General Corporation Law on corporations formed in other states when two tests are met.  Cal. Corp. Code § 2115.  The first of these tests is determined by averaging the corporation's property factor, payroll factor and sales factor (as defined in the Revenue & Taxation Code). The second is determined by the addresses of the corporation's shareholders. Shareholders do not have ready access to the information necessary to determine whether either test is met.   The Corporations Code formerly established reporting procedures to meet this need.  Former Cal. Corp. Code § 2108, but that statute was repealed in in 1997.  Cal. Stats. 1997, ch. 187.

In 2000, the legislature amended Section 2115 to add a new Subdivision (f) which requires a foreign corporation to advise any shareholder, officer, director, employee, or other agent and any creditor whether it meets the two tests.  Cal Stats. 2000, ch. 206.  The corporation must respond within 30 days of receipt of a written request.  Failure to provide this required advice could result in the imposition of a penalty and/or other remedies by injunction, action for damages, or writ of mandate.  Cal. Corp. Code §§ 2200 & 2202.  

The statutory language, however, is a bit quirky as it applies to any foreign corporation that is subject to the two tests.  If applied literally, this means that only corporations that meet both tests must respond within 30 days.   However, I suspect that corporations that do not meet the test would find it in their best interests to provide a response.

The Corporations Code does not actually use the term "pseudo-foreign corporation".  "Psuedo" is a Romanization of the Greek word, ψευδής, meaning false or untrue.  In this regard, I am always reminded of the original Latin name of the Douglas fir tree, pseudotsuga taxifolia, which in translation means false hemlock with leaves like a Yew tree.   It is now known as pseudotsuga menziesii, with the latter half honoring the Scottish botanist (and surgeon), Archibald Menzies.  This is somewhat ironic as the common name, Douglas fir, honors a rival Scottish botanist, David Douglas.

© 2010-2021 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume XI, Number 242
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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
Partner

Keith Bishop works with privately held and publicly traded companies on federal and state corporate and securities transactions, compliance, and governance matters. He is highly-regarded for his in-depth knowledge of the distinctive corporate and regulatory requirements faced by corporations in the state of California.

While many law firms have a great deal of expertise in federal or Delaware corporate law, Keith’s specific focus on California corporate and securities law is uncommon. A former California state regulator of securities and financial institutions, Keith has decades of...

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