Organization And Bylaws - - CA Corporations

Section § 2600

This section explains how to create a social purpose corporation in California. Individuals or groups like partnerships and corporations can form one by filing the necessary documents called articles of incorporation. If directors are listed in these documents, they need to sign them. If not, then the incorporators, who must be individuals, partnerships, or corporations, do the signing. The corporation officially starts to exist once these documents are filed, and can last indefinitely unless stated otherwise.

(a) One or more natural persons, partnerships, associations, social purpose corporations, or corporations, domestic or foreign, may form a social purpose corporation under this division by executing and filing articles of incorporation.

(b) If initial directors are named in the articles, each director named in the articles shall sign and acknowledge the articles. If initial directors are not named in the articles, the articles shall be signed by one or more incorporators who shall be persons described in subdivision (a).

(c) The corporate existence begins upon the filing of the articles and continues perpetually, unless otherwise expressly provided by law or in the articles.

social purpose corporation articles of incorporation natural persons partnerships associations domestic corporations foreign corporations initial directors incorporators corporate existence filing articles sign and acknowledge perpetual existence formation process California corporations

(Amended by Stats. 2014, Ch. 694, Sec. 35. (SB 1301) Effective January 1, 2015.)

Section § 2600.5

This law outlines the process for a trust-based business association to become a corporation. To do this, the conversion must be approved by its governing body and a two-thirds majority of voting shareholders, or more if stipulated. The association must file articles of incorporation that declare the intent to incorporate and are signed by key officers. Once filed, the new corporation inherits all rights, property, and obligations of the original trust. The current trustees become the initial directors of the corporation. Any legal proceedings involving the trust continue as if the corporation had initially been involved. Additionally, recording these articles in the relevant county officially transfers property ownership to the new corporation.

(a) An existing business association organized as a trust under the laws of this state or of a foreign jurisdiction may incorporate under this division upon approval by its board of trustees or similar governing body and approval by the affirmative vote of two-thirds of the outstanding voting shares of beneficial interest, or a greater proportion of the outstanding shares of beneficial interest or the vote of those other classes of shares of beneficial interest as may be specifically required by its declaration of trust or bylaws, and the filing of articles with a certificate attached pursuant to this chapter.

(b) In addition to the matters required to be set forth in the articles pursuant to Section 2602, the articles filed pursuant to this section shall state that an existing unincorporated association, stating its name, is being incorporated by the filing of the articles.

(c) The articles filed pursuant to this section shall be signed by the president, or any vice president, and the secretary, or any assistant secretary, of the existing association and shall be accompanied by a certificate signed and verified by those officers signing the articles and stating that the incorporation of the association has been approved by the trustees and by the required vote of holders of shares of beneficial interest in accordance with subdivision (a).

(d) Upon the filing of articles pursuant to this section, the social purpose corporation shall succeed automatically to all of the rights and property of the association being incorporated and shall be subject to all of its debts and liabilities in the same manner as if the social purpose corporation had itself incurred them. The incumbent trustees of the association shall constitute the initial directors of the social purpose corporation and shall continue in office until the next annual meeting of the shareholders or their earlier death, resignation, or removal. All rights of creditors and all liens upon the property of the association shall be preserved unimpaired. Any action or proceeding pending by or against the association may be prosecuted to judgment, which shall bind the social purpose corporation, or the social purpose corporation may be proceeded against or substituted in its place.

(e) The filing for record in the office of the county recorder of any county in this state in which any of the real property of the association is located of a copy of the articles filed pursuant to this section, certified by the Secretary of State, shall evidence record ownership in the social purpose corporation of all interests of the association in and to the real property located in that county.

trust organization conversion corporate incorporation trustees approval voting shares articles of incorporation beneficial interest initial directors property ownership legal proceedings shareholder meeting trust liabilities social purpose corporation record of ownership county recorder real property interests

(Amended by Stats. 2014, Ch. 694, Sec. 36. (SB 1301) Effective January 1, 2015.)

Section § 2601

This law explains the rules for naming corporations in California, especially those with "bank," "trust," or similar words in their name, which require special approval to avoid misleading the public. It outlines that a social purpose corporation's name must be distinguishable from any existing corporation names in the state and shouldn't mislead people. Older flexible purpose corporations can change their designation to social purpose corporations by updating their articles of incorporation. Additionally, the law describes the process for reserving a corporate name with the Secretary of State for 60 days, with restrictions on consecutive reservations to prevent misleading name similarities.

(a) The Secretary of State shall not file articles setting forth a name in which “bank,” “trust,” “trustee,” or related words appear, unless the certificate of approval of the Commissioner of Financial Protection and Innovation is attached to the articles. This subdivision does not apply to the articles of any social purpose corporation subject to the Banking Law on which is endorsed the approval of the Commissioner of Financial Protection and Innovation.

(b)

(1) The name of a social purpose corporation shall not be a name that the Secretary of State determines is likely to mislead the public and shall be distinguishable in the records of the Secretary of State from all of the following:

(A) The name of any corporation.

(B) The name of any foreign corporation authorized to transact intrastate business in this state.

(C) Each name that is under reservation pursuant to this title.

(D) The name of a foreign corporation that has registered its name pursuant to Section 2101.

(E) An alternate name of a foreign corporation under subdivision (b) of Section 2106.

(F) A name that will become the record name of a domestic or foreign corporation upon a corporate instrument when there is a delayed effective or file date.

(2) The use by a social purpose corporation of a name in violation of this section may be enjoined notwithstanding the filing of its articles by the Secretary of State.

(3) A corporation formed pursuant to this division before January 1, 2015, may elect to change its status from a flexible purpose corporation to a social purpose corporation by amending its articles of incorporation to change its name to replace “flexible purpose corporation” with “social purpose corporation” and to replace the term “flexible purpose corporation” with “social purpose corporation” as applicable in any statements contained in the articles. For any flexible purpose corporation formed before January 1, 2015, that has not amended its articles of incorporation to change its status to a social purpose corporation, any reference in this division to social purpose corporation shall be deemed a reference to “flexible purpose corporation.”

(c) Any applicant may, upon payment of the fee prescribed in Article 3 (commencing with Section 12180) of Chapter 3 of Part 2 of Division 3 of Title 2 of the Government Code, obtain from the Secretary of State a certificate of reservation of any name not prohibited by subdivision (b), and upon the issuance of the certificate the name stated in the certificate shall be reserved for a period of 60 days. The Secretary of State shall not, however, issue certificates reserving the same name for two or more consecutive 60-day periods to the same applicant or for the use or benefit of the same person. No consecutive reservations shall be made by or for the use or benefit of the same person of names so similar as to fall within the prohibitions of subdivision (b).

social purpose corporation name reservation flexible purpose corporation corporate naming restrictions misleading names Commissioner of Financial Protection and Innovation approval Secretary of State corporate articles filing public misleading prevention corporation name distinction intrastate business foreign corporation name reservation certificate of approval corporate name change business name regulations

(Amended by Stats. 2022, Ch. 617, Sec. 41. (SB 1202) Effective January 1, 2023.)

Section § 2602

This section outlines what must be included in the articles of incorporation for a social purpose corporation. The corporation's name must include 'social purpose corporation.' The articles must state the corporation's purpose, which can be either general lawful activities, excluding banking and trust company businesses, or specific professional activities allowed by law. It should also mention additional purposes like charitable work or minimizing negative impacts on employees, society, or the environment. The articles need to include the initial agent's address, corporation's initial street and mailing addresses, and details about shares, such as the number of shares authorized, their types, and any rights or restrictions. Special requirements apply if the corporation is involved in banking, insurance, or is a professional corporation. Lastly, if the corporation is a close social purpose corporation, it must include specific statements required by law.

The articles of incorporation shall set forth:

(a) The name of the social purpose corporation that shall contain the words “social purpose corporation” or an abbreviation of those words.

(b)

(1) Either of the following statements, as applicable:

(A) “The purpose of this social purpose corporation is to engage in any lawful act or activity for which a social purpose corporation may be organized under Division 1.5 of the California Corporations Code, other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code, for the benefit of the overall interests of the social purpose corporation and its shareholders and in furtherance of the following enumerated purposes ____.”

(B) “The purpose of this social purpose corporation is to engage in the profession of ____ (with the insertion of a profession permitted to be incorporated by the California Corporations Code) and any other lawful activities, other than the banking or trust company business, not prohibited to a social purpose corporation engaging in that profession by applicable laws and regulations, for the benefit of the overall interests of the social purpose corporation and its shareholders and in furtherance of the following enumerated purposes ____.”

(2) A statement that a purpose of the social purpose corporation, in addition to the purpose stated pursuant to paragraph (1), is to engage in one or more of the following enumerated purposes, as also specified in the statement set forth pursuant to paragraph (1):

(A) One or more charitable or public purpose activities that a nonprofit public benefit corporation is authorized to carry out.

(B) The purpose of promoting positive effects of, or minimizing adverse effects of, the social purpose corporation’s activities upon any of the following, provided that the corporation consider the purpose in addition to or together with the financial interests of the shareholders and compliance with legal obligations, and take action consistent with that purpose:

(i) The social purpose corporation’s employees, suppliers, customers, and creditors.

(ii) The community and society.

(iii) The environment.

(3)

(A) For any corporation organized under this division before January 1, 2015, that has not elected to change its status to a social purpose corporation, a statement that the corporation is organized as a flexible purpose corporation under the Corporate Flexibility Act of 2011. Such a corporation is not required to revise the statements required in paragraphs (1) and (2) to conform to the changes made by the act adding this subparagraph.

(B) For any corporation organized under this division on and after January 1, 2015, or that has elected to change its status to a social purpose corporation pursuant to paragraph (2) of subdivision (b) of Section 2601, a statement that the corporation is organized as a social purpose corporation under the Social Purpose Corporations Act.

(4) If the social purpose corporation is a social purpose corporation subject to the Banking Law (Division 1.1 (commencing with Section 1000) of the Financial Code), the articles shall set forth a statement of purpose that is prescribed by the applicable provision of the Banking Law (Division 1.1 (commencing with Section 1000) of the Financial Code).

(5) If the social purpose corporation is a social purpose corporation subject to the Insurance Code as an insurer, the articles shall additionally state that the business of the social purpose corporation is to be an insurer.

(6) If the social purpose corporation is intended to be a professional corporation within the meaning of the Moscone-Knox Professional Corporation Act (Part 4 (commencing with Section 13400) of Division 3), the articles shall additionally contain the statement required by Section 13404. The articles shall not set forth any further or additional statement with respect to the purposes or powers of the social purpose corporation, except by way of limitation or except as expressly required by any law of this state, other than this division, or any federal or other statute or regulation, including the Internal Revenue Code and regulations thereunder as a condition of acquiring or maintaining a particular status for tax purposes.

(7) If the social purpose corporation is a close social purpose corporation, a statement as required by subdivision (a) of Section 158.

(c) The name and street address in this state of the social purpose corporation’s initial agent for service of process in accordance with subdivision (b) of Section 1502.

(d) The initial street address of the corporation.

(e) The initial mailing address of the corporation, if different from the initial street address.

(f) If the social purpose corporation is authorized to issue only one class of shares, the total number of shares that the social purpose corporation is authorized to issue.

(g) If the social purpose corporation is authorized to issue more than one class of shares, or if any class of shares is to have two or more series, the articles shall state:

(1) The total number of shares of each class that the social purpose corporation is authorized to issue and the total number of shares of each series that the social purpose corporation is authorized to issue or that the board is authorized to fix the number of shares of any such series.

(2) The designation of each class and the designation of each series or that the board may determine the designation of any such series.

(3) The rights, preferences, privileges, and restrictions granted to or imposed upon the respective classes or series of shares or the holders thereof, or that the board, within any limits and restrictions stated, may determine or alter the rights, preferences, privileges, and restrictions granted to or imposed upon any wholly unissued class of shares or any wholly unissued series of any class of shares. As to any series the number of shares of which is authorized to be fixed by the board, the articles may also authorize the board, within the limits and restrictions stated in the article or in any resolution or resolutions of the board originally fixing the number of shares constituting any series, to increase or decrease, but not below the number of shares of such series then outstanding, the number of shares of any series subsequent to the issue of shares of that series. If the number of shares of any series shall be so decreased, the shares constituting that decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of that series.

social purpose corporation articles of incorporation corporation purpose charitable activities environmental impact initial agent address corporate addresses share classes banking law insurance corporation professional corporation close social purpose corporation Moscone-Knox Act initial street address mailing address

(Amended by Stats. 2014, Ch. 694, Sec. 38. (SB 1301) Effective January 1, 2015.)

Section § 2603

This section outlines optional provisions that can be included in the articles of incorporation for a social purpose corporation. These provisions can grant powers like allowing assessments on shares, offering preemptive rights to shareholders, imposing special qualifications for shareholders, specifying a corporation's lifespan, or requiring higher vote thresholds for certain actions. Directors' liabilities can be limited, but there are strict exceptions where liability cannot be waived. Other features include restrictions on share transfers, listing initial directors, or any other management-related provisions permitted by law. The section is operational from January 1, 2022.

The articles of incorporation may set forth:

(a) Any or all of the following provisions, which shall not be effective unless expressly provided in the articles:

(1) Granting, with or without limitations, the power to levy assessments upon the shares or any class of shares.

(2) Granting to shareholders preemptive rights to subscribe to any or all issues of shares or securities.

(3) Special qualifications of persons who may be shareholders.

(4) A provision limiting the duration of the social purpose corporation’s existence to a specified date.

(5) A provision requiring, for any or all corporate actions, except as provided in Section 303, subdivision (b) of Section 402.5, subdivision (c) of Section 708, and Section 1900, the vote of a larger proportion or of all of the shares of any class or series, or the vote or quorum for taking action of a larger proportion or of all of the directors, than is otherwise required by Division 1 (commencing with Section 100) or this division.

(6) So long as consistent with the purpose of the social purpose corporation as set forth in the articles in accordance with subdivision (b) of Section 2602, a provision limiting or restricting the business in which the social purpose corporation may engage or the powers which the social purpose corporation may exercise, or both.

(7) A provision conferring upon the holders of any evidences of indebtedness, issued or to be issued by the social purpose corporation, the right to vote in the election of the directors and on any other matters on which shareholders may vote.

(8) A provision conferring upon shareholders the right to determine the consideration for which shares shall be issued.

(9) A provision requiring the approval of the shareholders (Section 153) or the approval of the outstanding shares (Section 152) for any corporate action, even though not otherwise required by Division 1 (commencing with Section 100) or this division.

(10) Provisions eliminating or limiting the personal liability of a director for monetary damages in an action brought by or in the right of the social purpose corporation for breach of a director’s duties to the social purpose corporation and its shareholders, as set forth in Section 2700, subject to the following:

(A) The provision may not eliminate or limit the liability of directors (i) for acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (ii) for acts or omissions that a director believes to be contrary to the best interests of the social purpose corporation or its shareholders and its corporate purposes as expressed in its articles, or that involve the absence of good faith on the part of the director, (iii) for any transaction from which a director derived an improper personal benefit, (iv) for acts or omissions that show a reckless disregard for the director’s duty to the social purpose corporation or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director’s duties, of a risk of serious injury to the social purpose corporation, its shareholders, or its corporate purposes as expressed in its articles, (v) for acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director’s duty to the social purpose corporation, its shareholders, or its corporate purposes as expressed in its articles pursuant to Section 2602, or (vi) under Section 310 or 2701.

(B) The provision shall not eliminate or limit the liability of a director for any act or omission occurring prior to the date on which the provision becomes effective.

(C) The provision shall not eliminate or limit the liability of an officer for any act or omission as an officer, notwithstanding that the officer is also a director or that his or her actions, if negligent or improper, have been ratified by the directors.

(11) A provision authorizing, whether by bylaw, agreement, or otherwise, the indemnification of agents of the social purpose corporation for breach of duty to the social purpose corporation and its shareholders, provided, however, that the provision may not provide for indemnification of any agent for any acts or omissions or transactions from which a director may not be relieved of liability as described in subparagraphs (A), (B), and (C) of paragraph (10).

Notwithstanding this subdivision, bylaws may require, for all or any actions by the board, the affirmative vote of a majority of the authorized number of directors. Nothing contained in this subdivision shall affect the enforceability, as between the parties thereto, of any lawful agreement not otherwise contrary to public policy.

(b) Reasonable restrictions upon the right to transfer or hypothecate shares of any class or classes or series, except that no restriction shall be binding with respect to shares issued prior to the adoption of the restriction unless the holders of those shares voted in favor of the restriction.

(c) The names and addresses of the persons appointed to act as initial directors.

(d) Any other provision, not in conflict with law, for the management of the business and for the conduct of the affairs of the social purpose corporation, including any provision that is required or permitted by this division to be stated in the bylaws.

(e) This section shall become operative on January 1, 2022.

social purpose corporation articles of incorporation share assessments preemptive rights shareholder qualifications corporate lifespan director liability voting rights corporate action approval indemnification of agents transfer restrictions initial directors management provisions bylaws January 1 2022

(Repealed and added by Stats. 2018, Ch. 889, Sec. 4. (SB 838) Effective January 1, 2019. Section operative January 1, 2022, by its own provisions.)

Section § 2604

This law allows social purpose corporations in California to engage in any kind of business activity, as long as it's not limited by their articles or other laws and fits their special purpose. However, if the corporation is involved in banking or is a professional organization, it can only engage in activities that are not restricted by their specific industry regulations.

Subject to any limitation contained in the articles, to compliance with any other applicable laws, and to consistency with the special purpose of the social purpose corporation, any social purpose corporation other than a social purpose corporation subject to the Banking Law or a professional social purpose corporation may engage in any business activity. A social purpose corporation subject to the Banking Law or a professional social purpose corporation may engage in any business activity not prohibited by the respective statutes and regulations to which it is subject.

social purpose corporation business activity limitations Banking Law professional corporations statutes regulations special purpose articles of incorporation compliance

(Amended by Stats. 2014, Ch. 694, Sec. 40. (SB 1301) Effective January 1, 2015.)

Section § 2605

A social purpose corporation in California can do many things to run its business, similar to what a person can do. These include adopting and changing a corporate seal, creating and altering bylaws, doing business in other places outside California, and managing its own stock and financial securities. It can also make charitable donations, set up retirement and incentive plans for employees, enter into contracts and assume debts or obligations. Additionally, it can join partnerships and joint ventures with other entities.

Subject to any limitations contained in the articles, to compliance with other provisions of this division and any other applicable laws, and to consistency with the special purpose of the social purpose corporation, a social purpose corporation shall have all the powers of a natural person in carrying out its business activities, including, without limitation, the power to:

(a) Adopt, use, and at will alter a corporate seal. Failure to affix a seal does not affect the validity of any instrument.

(b) Adopt, amend, and repeal bylaws.

(c) Qualify to do business in any other state, territory, dependency, or foreign country.

(d) Subject to the provisions of Section 510, issue, purchase, redeem, receive, take or otherwise acquire, own, hold, sell, lend, exchange, transfer or otherwise dispose of, pledge, use, and otherwise deal in and with its own shares, bonds, debentures, and other securities.

(e) Make donations, regardless of specific corporate benefit, for the public welfare or for a community fund, hospital, charitable, educational, scientific, civic, or similar purposes.

(f) Pay pensions, and establish and carry out pension, profit-sharing, share bonus, share purchase, share option, savings, thrift, and other retirement, incentive, and benefit plans, trusts, and provisions for any or all of the directors, officers, and employees of the social purpose corporation or any of its subsidiaries or affiliates, and to indemnify and purchase and maintain insurance on behalf of any fiduciary of these plans, trusts, or provisions.

(g) Subject to the provisions of Section 315, assume obligations, enter into contracts, including contracts of guaranty or suretyship, incur liabilities, borrow and lend money and otherwise use its credit, and secure any of its obligations, contracts, or liabilities by mortgage, pledge, or other encumbrance of all or any part of its property, franchises, and income.

(h) Participate with others in any partnership, joint venture, or other association, transaction, or arrangement of any kind, whether or not that participation involves sharing or delegation of control with or to others.

social purpose corporation corporate seal bylaws business in other states stock management charitable donations retirement plans contracts assume obligations joint ventures partnerships financial securities incentive plans employee benefits

(Amended by Stats. 2014, Ch. 694, Sec. 41. (SB 1301) Effective January 1, 2015.)

Social Purpose Corporations Act

Chapter 2Organization and Bylaws

Section § 2600

Section § 2600.5

Section § 2601

Section § 2602

Section § 2603

Section § 2604

Section § 2605

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