But Wait, California May Require Even More In Annual Reports To Shareholders
Yesterday’s blog discussed California’s requirement that many domestic and foreign corporations send financial statements to their shareholders. If a corporation has 100 or more holders of record (determined in accordance with Section 605), then the annual report must also provide a brief description of the following:
Any transaction during the previous fiscal year involving an amount in excess of $40,000 to which the corporation or its parent or subsidiary was a party and in which any director or officer of the corporation or of a subsidiary or (if known to the corporation or its parent or subsidiary) any holder of more than 10% of the outstanding voting shares of the corporation had a direct or indirect material interest. The report need not describe (i) compensation of officers and directors; or (ii) any transaction approved by the shareholders.
The amount and circumstances of any indemnification or advances aggregating more than $10,000 paid during the fiscal year to any officer or director of the corporation pursuant to Section 317. No report is required if the indemnification is approved by the shareholders under Section 317(e)(2).
Cal. Corp. Code § 1501(b).
As noted yesterday, Section 1501 applies to any foreign corporation that has its principal executive offices in California or that customarily holds its board meetings in California. Cal. Corp. Code § 1501(g). The application of the statute to foreign corporations makes the references to Section 317 appear to be misplaced. However, Section 2115 provides that Section 317 is applicable to a foreign corporation “to the exclusion of the law of the jurisdiction in which it is incorporated”. Thus, in many (but not all) cases, Section 317 will apply to a foreign corporation, at least as far as California is concerned. This does leave a bit of a lacuna with respect to foreign corporations that are not subject to Section 2115.
What about reporting companies? These additional requirements apply only if the corporation is either (i) not subject to Section 13 of the Securities Exchange Act of 1934; or (ii) exempted from those requirements by Section 12(g)(2).
A Latter Day A la Recherche du Temps Perdu?
The proposed release is over 1,000 pages, contains over 2,000 footnotes, and requests comments on more than 630 questions with many subparts. Although the questions posed are many, they are intended to be balanced and fair to solicit views from all sides. This is a welcome approach, because it contributes to a healthy debate and dialogue that is vital to the Commission’s processes.