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Secretary Of State Seeks To Rework Entity Name Requirements While Retaining Ineluctable Incertitude

Ten years ago today, I penned an opinion piece decrying the inconsistencies of California's statutory requirements for entity names.  

"A Large part of California's business naming problem is due to the fact that the Legislature has enacted different standards for determining whether a business name is acceptable for filing with the Secretary of State."

Naming a Business is Never Easy in California, Daily Journal (Jan. 13, 2010).  As of last week, I ceased to be a voice crying in the wilderness, when Senator Hertzberg gutted and amended SB 522 to address the problem.  

In its current state, the bill suffers from several defects.  For example, it retains the "likely to mislead" standard in addition to the "distinguishable in the records" standard.  This makes California inconsistent with the Model Business Corporation Act, the Delaware General Corporation Law and Nevada law.  Moreover, as I pointed out a decade ago the "likely to mislead" standard suffers from an ineluctable incertitude:

"The ‘likely to mislead’ standard suffers from a significant problem.  Domestic corporations aren’t required to say exactly what they plan to do in their articles of incorporation.  Similarly, foreign corporations aren’t required to disclose the nature of their business when they qualify to transact business here.  As a result, the Secretary of State in most cases has no way of assessing whether a name is likely to mislead the public.  Further the statutory standard itself is fraught with problems.  Does the standard require that there is simply a possibility of misleading the public or that some threshold of probability must be satisfied?  If it is the later, is the threshold more likely than not or a greater or lesser threshold?  Finally, how is the Secretary of State to determine the likelihood of deception?"

Because SB 522 was introduced in 2019, it must pass out of the Senate by the end of this month.  Joint Rule No. 61(b)(3) & Cal. Const., Art. IV, Sec. 10(c).  It will be heard by the Senate Judiciary Committee tomorrow and (pending receipt) the Senate Banking and Financial Institutions Committee on Wednesday.

“Who will go drive with Fergus now?”

Today, marks the 79th anniversary of the death of James Augustine Aloysius Joyce in Zurich, Switzerland.  Upon learning of her father's passing, his mentally ill daughter, Lucia, reportedly said: "What is he doing under the ground, that idiot?  When will he decide to come out?  He’s watching us all the time.”  According to Irish author Dermot McEvoy, that "was such an Irish and Joycean reaction to death that I think her father, the old reprobate still cold under that Zurich soil, would have been delighted". 

© 2010-2020 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume X, Number 13

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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities 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...

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