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Why California Law Applies To Dividends Made By A Delaware Corporation (And Not To Some California Corporations)

Corporations incorporated under California's General Corporation Law are subject to the limitations on distributions set forth in Chapter 5 of that law.   A foreign corporation may also be subject to Chapter 5 by virtue of Section 2115 of the Corporations Code.  Many foreign corporations, however, either fail to meet the jurisdictional tests in Section 2115 or are exempted by Section 2115.   California law may nonetheless apply to distributions to shareholders made by these corporations.

The California law in question is not Chapter 5 but the Uniform Voidable Transactions Act, Cal. Civ. Code §§ 3439 et seq.   Claims under the UVTA are not governed by the internal affairs doctrine.  Rather, they are "governed by the local law of the jurisdiction in which the debtor is located when the transfer is made or the obligation is incurred".  Cal. Civ. Code § 3439.10(b).   If a corporation has one place of business it is located there for purposes of the UVTA.  If the corporation has more than one place of business, it is located at its chief executive office for purposes of the UVTA.  

As a result of these provisions, a Delaware corporation may be subject to the UVTA regardless of whether it is subject to Chapter 5 of the Corporations Code.  However, a California corporation that is subject to Chapter 5 may not be subject to the UVTA (if, for example, it has a single place of business in another state).  

© 2010-2021 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume XI, Number 188
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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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