California Assembly Bill AB2158 Introduced / Bill

 BILL NUMBER: AB 2158INTRODUCED BILL TEXT INTRODUCED BY Assembly Member Hagman FEBRUARY 18, 2010 An act to amend Sections 154, 202, 203, 204, 300, 418, 602, 902, 1001, 1100, 1152, 1201, 1300, 1800, 1900, 1901, 1902, 1904, 2000, and 25103 of, to add Chapter 24 (commencing with Section 2400) to Division 1 of Title 1 of, and to repeal Sections 158, 186, 421, and 1111 of, the Corporations Code, relating to corporations. LEGISLATIVE COUNSEL'S DIGEST AB 2158, as introduced, Hagman. Statutory close corporations. Existing law, the General Corporation Law, regulates corporations, including close corporations. Under existing law, a close corporation is a corporation whose articles contain, among other things, a provision that all of the corporation's issued shares of all classes shall be held of record by not more than 35 persons, and a statement describing itself as a close corporation. Existing law authorizes these provisions to be deleted from the articles or for the number of shareholders to be changed by amendment pursuant to specified voting requirements. Existing law prescribes how to determine the number of shareholders for the purposes of these provisions. Under existing law, a corporation ceases to be a close corporation upon the filing of a specified amendment to its articles or under certain circumstances as a result of a specified transfer of shares. Under existing law, any attempted voluntary inter vivos transfer of the shares of a close corporation resulting in the number of holders of record of its shares exceeding the maximum specified in the articles is void if the certificate contains a specified legend. More generally, existing law governing corporations, including close corporations, requires that the business and affairs of the corporation be managed and all corporate powers be exercised by or under the direction of a board and authorizes offices to be held by the same person. Existing law also prohibits a shareholders' agreement relating to the affairs of a close corporation from being construed as invalid because it relates to corporate affairs or it is an attempt to treat the corporation as if it were a partnership. Existing law also requires shareholders to have an annual meeting. Existing law authorizes a corporation to voluntarily dissolve by the vote of shareholders representing 50% or more of the voting power. For involuntary dissolution, existing law authorizes a verified complaint to be filed by any shareholder of a close corporation. This bill would replace the term "close corporation" with "statutory close corporation" and would revise and recast those provisions governing these corporations by consolidating them into a chapter limited exclusively to statutory close corporations. Specifically, the bill would modify the statement required to be included in the articles and share certificates of a statutory close corporation and would set forth a more detailed scheme for determining the number of persons who are shareholders of record. The bill would authorize shareholders to agree in writing pursuant to a shareholders' agreement to dispense with the board, subject to specified requirements. The bill would also authorize the shareholders to dispense with the annual meeting requirement and permit individuals with more than one office to execute, acknowledge, or verify documents in more than one capacity. The bill would authorize a statutory close corporation to only be terminated by amending its articles in accordance with certain requirements and, if the corporation eliminated or dispensed with the board, would require the amendment to provide for a board, as specified. The bill would additionally authorize a statutory close corporation's articles to contain a provision authorizing one or more shareholders to elect to dissolve the corporation at will or upon the occurrence of a certain event. The bill would also authorize the articles to require a verified complaint for involuntary dissolution to be filed by more than one shareholder. The bill would specify that these provisions are applicable to close corporations meeting certain requirements, prior to January 1, 2011, as well as those corporations meeting the requirements for a statutory close corporation. The bill would make other conforming changes. Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 154 of the Corporations Code is amended to read: 154. "Articles" includes the articles of incorporation, amendments thereto, amended articles, restated articles, certificate of incorporation and certificates of determination.  All references in this division to a vote required by the "articles" include, in the case of a close corporation (Section 158), any vote required by a shareholders' agreement.  SEC. 2. Section 158 of the Corporations Code is repealed.  158. (a) "Close corporation" means a corporation whose articles contain, in addition to the provisions required by Section 202, a provision that all of the corporation's issued shares of all classes shall be held of record by not more than a specified number of persons, not exceeding 35, and a statement "This corporation is a close corporation." (b) The special provisions referred to in subdivision (a) may be included in the articles by amendment, but if such amendment is adopted after the issuance of shares only by the affirmative vote of all of the issued and outstanding shares of all classes. (c) The special provisions referred to in subdivision (a) may be deleted from the articles by amendment, or the number of shareholders specified may be changed by amendment, but if such amendment is adopted after the issuance of shares only by the affirmative vote of at least two-thirds of each class of the outstanding shares; provided, however, that the articles may provide for a lesser vote, but not less than a majority of the outstanding shares, or may deny a vote to any class, or both. (d) In determining the number of shareholders for the purposes of the provision in the articles authorized by this section, a husband and wife and the personal representative of either shall be counted as one regardless of how shares may be held by either or both of them, a trust or personal representative of a decedent holding shares shall be counted as one regardless of the number of trustees or beneficiaries and a partnership or corporation or business association holding shares shall be counted as one (except that any such trust or entity the primary purpose of which was the acquisition or voting of the shares shall be counted according to the number of beneficial interests therein). (e) A corporation shall cease to be a close corporation upon the filing of an amendment to its articles pursuant to subdivision (c) or if it shall have more than the maximum number of holders of record of its shares specified in its articles as a result of an inter vivos transfer of shares which is not void under subdivision (d) of Section 418, the transfer of shares on distribution by will or pursuant to the laws of descent and distribution, the dissolution of a partnership or corporation or business association or the termination of a trust which holds shares, by court decree upon dissolution of a marriage or otherwise by operation of law. Promptly upon acquiring more than the specified number of holders of record of its shares, a close corporation shall execute and file an amendment to its articles deleting the special provisions referred to in subdivision (a) and deleting any other provisions not permissible for a corporation which is not a close corporation, which amendment shall be promptly approved and filed by the board and need not be approved by the outstanding shares. (f) Nothing contained in this section shall invalidate any agreement among the shareholders to vote for the deletion from the articles of the special provisions referred to in subdivision (a) upon the lapse of a specified period of time or upon the occurrence of a certain event or condition or otherwise. (g) The following sections contain specific references to close corporations: 186, 202, 204, 300, 418, 421, 1111, 1201, 1800 and 1904.  SEC. 3. Section 186 of the Corporations Code is repealed.  186. "Shareholders' agreement" means a written agreement among all of the shareholders of a close corporation, or if a close corporation has only one shareholder between such shareholder and the corporation, as authorized by subdivision (b) of Section 300.  SEC. 4. Section 202 of the Corporations Code is amended to read: 202. The articles of incorporation shall set forth: (a) The name of the corporation; provided, however, that in order for the corporation to be  subject to the provisions of this division applicable to a close corporation (Section 158), the name of the corporation must contain the word "corporation", "incorporated" or "limited" or an abbreviation of one of such words.   a statutory close corporation pursuant to Chapter 24 (commencing with Section 2400), the name of the corporation shall comply with subdivision (b) of Section 2404.  (b) (1) The applicable one of the following statements: (i) The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code; or (ii) The purpose of the 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 corporation engaging in such profession by applicable laws and regulations. (2) In case the corporation is a corporation subject to the Banking Law, the articles shall set forth a statement of purpose which is prescribed in the applicable provision of the Banking Law. (3) In case the corporation is a corporation subject to the Insurance Code as an insurer, the articles shall additionally state that the business of the corporation is to be an insurer. (4) If the 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 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). (c) The name and address in this state of the corporation's initial agent for service of process in accordance with subdivision (b) of Section 1502. (d) If the corporation is authorized to issue only one class of shares, the total number of shares which the corporation is authorized to issue. (e) If the corporation is authorized to issue more than one class of shares, or if any class of shares is to have two or more series: (1) The total number of shares of each class the corporation is authorized to issue, and the total number of shares of each series which the 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; and (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 therein or stated 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 such series subsequent to the issue of shares of that series. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series. SEC. 5. Section 203 of the Corporations Code is amended to read: 203. Except as specified in the articles or in any shareholders' agreement  pursuant to Section 2408  , no distinction shall exist between classes or series of shares or the holders thereof. SEC. 6. Section 204 of the Corporations Code is amended to read: 204. 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 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 this division. (6) A provision limiting or restricting the business in which the corporation may engage or the powers  which   that  the corporation may exercise or both. (7) A provision conferring upon the holders of any evidences of indebtedness, issued or to be issued by the corporation, the right to vote in the election of 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 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 corporation for breach of a director's duties to the corporation and its shareholders, as set forth in Section 309, provided, however, that (A) such a 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 corporation or its shareholders 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 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 corporation or its shareholders, (v) for acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director's duty to the corporation or its shareholders, (vi) under Section 310, or (vii) under Section 316, (B) no such provision shall eliminate or limit the liability of a director for any act or omission occurring prior to the date when the provision becomes effective, and (C) no such provision shall 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 (as defined in Section 317) in excess of that expressly permitted by Section 317 for those agents of the corporation for breach of duty to the corporation and its stockholders, 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 set forth in the exception to paragraph (10) or as to circumstances in which indemnity is expressly prohibited by Section 317. Notwithstanding  this subdivision, in the case of a close corporation any of the provisions referred to above may be validly included in a shareholders' agreement. 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, but no restriction shall be binding with respect to shares issued prior to the adoption of the restriction unless the holders of such 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 corporation, including any provision which is required or permitted by this division to be stated in the bylaws. SEC. 7. Section 300 of the Corporations Code is amended to read: 300.  (a)    Subject to the provisions of this division and any limitations in the articles relating to action required to be approved by the shareholders (Section 153) or by the outstanding shares (Section 152), or by a less than majority vote of a class or series of preferred shares (Section 402.5), the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board. The board may delegate the management of the day-to-day operation of the business of the corporation to a management company or other person provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the board.  The business and affairs of a statutory close corporation, as described in Section 2404, may be managed as provided in Chapter 24 (commencing with Section 2400).   (b) Notwithstanding subdivision (a) or any other provision of this division, but subject to subdivision (c), no shareholders' agreement, which relates to any phase of the affairs of a close corporation, including but not limited to management of its business, division of its profits or distribution of its assets on liquidation, shall be invalid as between the parties thereto on the ground that it so relates to the conduct of the affairs of the corporation as to interfere with the discretion of the board or that it is an attempt to treat the corporation as if it were a partnership or to arrange their relationships in a manner that would be appropriate only between partners. A transferee of shares covered by such an agreement which is filed with the secretary of the corporation for inspection by any prospective purchaser of shares, who has actual knowledge thereof or notice thereof by a notation on the certificate pursuant to Section 418, is bound by its provisions and is a party thereto for the purposes of subdivision (d). Original issuance of shares by the corporation to a new shareholder who does not become a party to the agreement terminates the agreement, except that if the agreement so provides it shall continue to the extent it is enforceable apart from this subdivision. The agreement may not be modified, extended or revoked without the consent of such a transferee, subject to any provision of the agreement permitting modification, extension or revocation by less than unanimous agreement of the parties. A transferor of shares covered by such an agreement ceases to be a party thereto upon ceasing to be a shareholder of the corporation unless the transferor is a party thereto other than as a shareholder. An agreement made pursuant to this subdivision shall terminate when the corporation ceases to be a close corporation, except that if the agreement so provides it shall continue to the extent it is enforceable apart from this subdivision. This subdivision does not apply to an agreement authorized by subdivision (a) of Section 706.   (c) No agreement entered into pursuant to subdivision (b) may alter or waive any of the provisions of Sections 158, 417, 418, 500, 501, and 1111, subdivision (e) of Section 1201, Sections 2009, 2010, and 2011, or of Chapters 15 (commencing with Section 1500), 16 (commencing with Section 1600), 18 (commencing with Section 1800), and 22 (commencing with Section 2200). All other provisions of this division may be altered or waived as between the parties thereto in a shareholders' agreement, except the required filing of any document with the Secretary of State.   (d) An agreement of the type referred to in subdivision (b) shall, to the extent and so long as the discretion or powers of the board in its management of corporate affairs is controlled by such agreement, impose upon each shareholder who is a party thereto liability for managerial acts performed or omitted by such person pursuant thereto that is otherwise imposed by this division upon directors, and the directors shall be relieved to that extent from such liability.   (e) The failure of a close corporation to observe corporate formalities relating to meetings of directors or shareholders in connection with the management of its affairs, pursuant to an agreement authorized by subdivision (b), shall not be considered a factor tending to establish that the shareholders have personal liability for corporate obligations.  SEC. 8. Section 418 of the Corporations Code is amended to read: 418. (a) There shall also appear on the certificate, the initial transaction statement, and written statements (unless stated or summarized under subdivision (a) or (b) of Section 417) the statements required by all of the following clauses to the extent applicable: (1) The fact that the shares are subject to restrictions upon transfer. (2) If the shares are assessable or are not fully paid, a statement that they are assessable or the statements required by subdivision (d) of Section 409 if they are not fully paid. (3) The fact that the shares are subject to a voting agreement under subdivision (a) of Section 706 or an irrevocable proxy under subdivision (e) of Section 705 or restrictions upon voting rights contractually imposed by the corporation. (4) The fact that the shares are redeemable. (5) The fact that the shares are convertible and the period for conversion. Any such statement or reference thereto (Section 174) on the face of the certificate, the initial transaction statement, and written statements required by paragraph (1) or (2) shall be conspicuous. (b) Unless stated on the certificate, the initial transaction statement, and written statements as required by subdivision (a), no restriction upon transfer, no right of redemption and no voting agreement under subdivision (a) of Section 706, no irrevocable proxy under subdivision (e) of Section 705, and no voting restriction imposed by the corporation shall be enforceable against a transferee of the shares without actual knowledge of such restriction, right, agreement or proxy. With regard only to liability to assessment or for the unpaid portion of the subscription price, unless stated on the certificate as required by subdivision (a), that liability shall not be enforceable against a transferee of the shares. For the purpose of this subdivision, "transferee" includes a purchaser from the corporation. (c) All certificates representing shares of a  statutory  close corporation  shall contain in addition to any other statements required by this section, the following conspicuous legend on the face thereof: "This corporation is a close corporation. The number of holders of record of its shares of all classes cannot exceed ____ [a number not in excess of 35]. Any attempted voluntary inter vivos transfer which would violate this requirement is void. Refer to the articles, bylaws and any agreements on file with the secretary of the corporation for further restrictions."   shall comply with Section 2406.   (d) Any attempted voluntary inter vivos transfer of the shares of a close corporation which would result in the number of holders of record of its shares exceeding the maximum number specified in its articles is void if the certificate contains the legend required by subdivision (c).  SEC. 9. Section 421 of the Corporations Code is repealed.  421. Each holder of shares of a close corporation, whether original or subsequent, by accepting the certificates for the shares which contain the legend required by subdivision (c) of Section 418 agrees and consents that such holder cannot make any transfer of shares which would violate the provisions of subdivision (d) of Section 418 and waives any right which such holder might otherwise have under any other law to sell such shares to a greater number of purchasers or to demand any registration thereof under the Securities Act of 1933, as now or hereafter amended, or as provided in any statute adopted in substitution therefor, or otherwise, so long as the corporation is a close corporation.  SEC. 10. Section 602 of the Corporations Code is amended to read: 602. (a) Unless otherwise provided in the articles, a majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of the shareholders, but in no event shall a quorum consist of less than one-third (or, in the case of a mutual water company, 20 percent) of the shares entitled to vote at the meeting or, except in the case of a  statutory  close corporation, of more than a majority of the shares entitled to vote at the meeting. Except as provided in subdivision (b), the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute at least a majority of the required quorum) shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by this division or the articles. (b) The shareholders present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum or, if required by this division or the articles, the vote of a greater number or voting by classes. (c) In the absence of a quorum, any meeting of shareholders may be adjourned from time to time by the vote of a majority of the shares represented either in person or by proxy, but no other business may be transacted, except as provided in subdivision (b). SEC. 11. Section 902 of the Corporations Code is amended to read: 902. (a) After any shares have been issued, amendments may be adopted if approved by the board and approved by the outstanding shares (Section 152), either before or after the approval by the board. (b) Notwithstanding subdivision (a), an amendment extending the corporate existence or making the corporate existence perpetual may be adopted by a corporation organized prior to August 14, 1929, with approval by the board alone. (c) Notwithstanding subdivision (a), unless the corporation has more than one class of shares outstanding, an amendment effecting only a stock split (including an increase in the authorized number of shares in proportion thereto) may be adopted with approval by the board alone. (d) Notwithstanding subdivision (a), an amendment deleting the names and addresses of the first directors or the name and address of the initial agent may be adopted with approval by the board alone. (e) Whenever the articles require for corporate action the vote of a larger proportion or of all of the shares of any class or series, or of a larger proportion or of all of the directors, than is otherwise required by this division, the provision in the articles requiring such greater vote shall not be altered, amended or repealed except by such greater vote unless otherwise provided in the articles. (f) Notwithstanding subdivision (a), any amendment  reducing the vote required for an amendment pursuant to subdivision (c) of Section 158 may not be adopted unless approved by the affirmative vote of at least two-thirds of each class of outstanding shares or such other vote as may then be specified by the articles of the corporation.   to the articles of a statutory close corporation, as described in Section 2404, terminating its status as a statutory close corporation or reducing the vote required for such an amendment may not be adopted unless approved in accordance with Section 2420.  SEC. 12. Section 1001 of the Corporations Code is amended to read: 1001. (a) A corporation may sell, lease, convey, exchange, transfer, or otherwise dispose of all or substantially all of its assets when the principal terms are approved by the board, and, unless the transaction is in the usual and regular course of its business, approved by the outstanding shares (Section 152), either before or after approval by the board and before or after the transaction. A transaction constituting a reorganization (Section 181) is subject to the provisions of Chapter 12 (commencing with Section 1200) and not this section (other than subdivision (d)). A transaction constituting a conversion (Section 161.9) is subject to the provisions of Chapter 11.5 (commencing with Section 1150) and not this section.  Any sale, lease, conveyance, exchange, transfer, or other disposition of all or substantially all of the assets of a statutory close corporation, as described in Section 2404, unless the transaction is in the usual and regular course of business, shall be approved as provided in subdivision (b) of Section 2418.  (b) Notwithstanding approval of the outstanding shares (Section 152), the board may abandon the proposed transaction without further action by the shareholders, subject to the contractual rights, if any, of third parties. (c) The sale, lease, conveyance, exchange, transfer or other disposition may be made upon those terms and conditions and for that consideration as the board may deem in the best interests of the corporation. The consideration may be money, securities, or other property. (d) If the acquiring party in a transaction pursuant to subdivision (a) of this section or subdivision (g) of Section 2001 is in control of or under common control with the disposing corporation, the principal terms of the sale must be approved by at least 90 percent of the voting power of the disposing corporation unless the disposition is to a domestic or foreign corporation or other business entity in consideration of the nonredeemable common shares or nonredeemable equity securities of the acquiring party or its parent. (e) Subdivision (d) does not apply to any transaction if the Commissioner of Corporations, the Commissioner of Financial Institutions, the Insurance Commissioner or the Public Utilities Commission has approved the terms and conditions of the transaction and the fairness of those terms and conditions pursuant to Section 25142, Section 696.5 of the Financial Code, Section 838.5 of the Insurance Code, or Section 822 of the Public Utilities Code. SEC. 13. Section 1100 of the Corporations Code is amended to read: 1100. Any two or more corporations may be merged into one of those corporations. A corporation may merge with one or more domestic corporations (Section 167), foreign corporations (Section 171), or other business entities (Section 174.5) pursuant to this chapter. Mergers in which a foreign corporation but no other business entity is a constituent party are governed by Section 1108, and mergers in which an other business entity is a constituent party are governed by Section 1113.  If any disappearing corporation in a merger is a statutory close corporation, as described in Section 2404, and the surviving corporation is not a statutory close corporation, the merger shall be approved as provided in subdivision (a) of Section 2418.  SEC. 14. Section 1111 of the Corporations Code is repealed.  1111. If any disappearing corporation in a merger is a close corporation and the surviving corporation is not a close corporation, the merger shall be approved by the affirmative vote of at least two-thirds of each class of the outstanding shares of such disappearing corporation; provided, however, that the articles may provide for a lesser vote, but not less than a majority of the outstanding shares of each class.  SEC. 15. Section 1152 of the Corporations Code is amended to read: 1152. (a) A corporation that desires to convert to a domestic other business entity shall approve a plan of conversion. The plan of conversion shall state all of the following: (1) The terms and conditions of the conversion. (2) The jurisdiction of the organization of the converted entity and of the converting corporation and the name of the converted entity after conversion. (3) The manner of converting the shares of each of the shareholders of the converting corporation into securities of, or interests in, the converted entity. (4) The provisions of the governing documents for the converted entity, including the partnership agreement or limited liability company articles of organization and operating agreement, to which the holders of interests in the converted entity are to be bound. (5) Any other details or provisions that are required by the laws under which the converted entity is organized, or that are desired by the converting corporation. (b) The plan of conversion shall be approved by the board of the converting corporation (Section 151), and the principal terms of the plan of the conversion shall be approved by the outstanding shares (Section 152) of each class of the converting corporation. The approval of the outstanding shares may be given before or after approval by the board. Notwithstanding the foregoing, if a converting corporation is a  statutory    close corporation  , as described in Section 2404  , the conversion shall be approved  by the affirmative vote of at least two-thirds of each class of outstanding shares of that converting corporation; provided, however, that the articles may provide for a lesser vote, but not less than a majority of the outstanding shares of each class.   as provided in subdivision (d) of Section 2418.  (c) If the corporation is converting into a general or limited partnership or into a limited liability company, then in addition to the approval of the shareholders set forth in subdivision (b), the plan of conversion shall be approved by each shareholder who will become a general partner or manager, as applicable, of the converted entity pursuant to the plan of conversion unless the shareholders have dissenters' rights pursuant to Section 1159 and Chapter 13 (commencing with Section 1300). (d) Upon the effectiveness of the conversion, all shareholders of the converting corporation, except those that exercise dissenters' rights as provided in Section 1159 and Chapter 13 (commencing with Section 1300), shall be deemed parties to any agreement or agreements constituting the governing documents for the converted entity adopted as part of the plan of conversion, irrespective of whether or not a shareholder has executed the plan of conversion or those governing documents for the converted entity. Any adoption of governing documents made pursuant thereto shall be effective at the effective time or date of the conversion. (e) Notwithstanding its prior approval by the board and the outstanding shares or either of them, a plan of conversion may be amended before the conversion takes effect if the amendment is approved by the board and, if it changes any of the principal terms of the plan of conversion, by the shareholders of the converting corporation in the same manner and to the same extent as was required for approval of the original plan of conversion. (f) A plan of conversion may be abandoned by the board of a converting corporation, or by the shareholders of a converting corporation if the abandonment is approved by the outstanding shares, in each case in the same manner as required for approval of the plan of conversion, subject to the contractual rights of third parties, at any time before the conversion is effective. (g) The converted entity shall keep the plan of conversion at (1) the principal place of business of the converted entity if the converted entity is a domestic partnership or (2) at the office at which records are to be kept under Section 15614 or 15901.11 if the converted entity is a domestic limited partnership or at the office at which records are to be kept under Section 17057 if the converted entity is a domestic limited liability company. Upon the request of a shareholder of a converting corporation, the authorized person on behalf of the converted entity shall promptly deliver to the shareholder, at the expense of the converted entity, a copy of the plan of conversion. A waiver by a shareholder of the rights provided in this subdivision shall be unenforceable. SEC. 16. Section 1201 of the Corporations Code is amended to read: 1201. (a) The principal terms of a reorganization shall be approved by the outstanding shares (Section 152) of each class of each corporation the approval of whose board is required under Section 1200, except as provided in subdivision (b) and except that (unless otherwise provided in the articles) no approval of any class of outstanding preferred shares of the surviving or acquiring corporation or parent party shall be required if the rights, preferences, privileges and restrictions granted to or imposed upon that class of shares remain unchanged (subject to the provisions of subdivision (c)). For the purpose of this subdivision, two classes of common shares differing only as to voting rights shall be considered as a single class of shares. (b) No approval of the outstanding shares (Section 152) is required by subdivision (a) in the case of any corporation if that corporation, or its shareholders immediately before the reorganization, or both, shall own (immediately after the reorganization) equity securities, other than any warrant or right to subscribe to or purchase those equity securities, of the surviving or acquiring corporation or a parent party (subdivision (d) of Section 1200) possessing more than five-sixths of the voting power of the surviving or acquiring corporation or parent party. In making the determination of ownership by the shareholders of a corporation, immediately after the reorganization, of equity securities pursuant to the preceding sentence, equity securities which they owned immediately before the reorganization as shareholders of another party to the transaction shall be disregarded. For the purpose of this section only, the voting power of a corporation shall be calculated by assuming the conversion of all equity securities convertible (immediately or at some future time) into shares entitled to vote but not assuming the exercise of any warrant or right to subscribe to or purchase those shares. (c) Notwithstanding subdivision (b), the principal terms of a reorganization shall be approved by the outstanding shares (Section 152) of the surviving corporation in a merger reorganization if any amendment is made to its articles which would otherwise require that approval. (d) Notwithstanding subdivision (b), the principal terms of a reorganization shall be approved by the outstanding shares (Section 152) of any class of a corporation which is a party to a merger or sale-of-assets reorganization if holders of shares of that class receive shares of the surviving or acquiring corporation or parent party having different rights, preferences, privileges or restrictions than those surrendered. Shares in a foreign corporation received in exchange for shares in a domestic corporation have different rights, preferences, privileges and restrictions within the meaning of the preceding sentence. (e) Notwithstanding subdivisions (a) and (b), the principal terms of a reorganization shall be approved  by the affirmative vote of at least two-thirds of each class of the outstanding shares of any close corporation if the reorganization would result in their receiving shares of a corporation which is not a close corporation. However, the articles may provide for a lesser vote, but not less than a majority of the outstanding shares of each class.   as provided in subdivision (c) of Section 2418 if the reorganization would result in the holders of outstanding shares of a   statutory close corporation, as described in Section 2404, receiving shares of a corporation that is not a statutory close corporation.  (f) Notwithstanding subdivisions (a) and (b), the principal terms of a reorganization shall be approved by the outstanding shares (Section 152) of any class of a corporation which is a party to a merger reorganization if holders of shares of that class receive interests of a surviving other business entity in the merger. (g) Notwithstanding subdivisions (a) and (b), the principal terms of a reorganization shall be approved by all shareholders of any class or series if, as a result of the reorganization, the holders of that class or series become personally liable for any obligations of a party to the reorganization, unless all holders of that class or series have the dissenters' rights provided in Chapter 13 (commencing with Section 1300). (h) Any approval required by this section may be given before or after the approval by the board. Notwithstanding approval required by this section, the board may abandon the proposed reorganization without further action by the shareholders, subject to the contractual rights, if any, of third parties. SEC. 17. Section 1300 of the Corporations Code is amended to read: 1300. (a) If the approval of the outstanding shares (Section 152) of a corporation is required for a reorganization under subdivisions (a) and (b) or subdivision  (e) or  (f) of Section 1201, or if approval by shareholders of a statutory close corporation, as described in Section 2404, is required under subdivision (c) of Section 2418,  each shareholder of the corporation entitled to vote on the transaction and each shareholder of a subsidiary corporation in a short-form merger may, by complying with this chapter, require the corporation in which the shareholder holds shares to purchase for cash at their fair market value the shares owned by the shareholder which are dissenting shares as defined in subdivision (b). The fair market value shall be determined as of the day before the first announcement of the terms of the proposed reorganization or short-form merger, excluding any appreciation or depreciation in consequence of the proposed action, but adjusted for any stock split, reverse stock split, or share dividend which becomes effective thereafter. (b) As used in this chapter, "dissenting shares" means shares which come within all of the following descriptions: (1) Which were not immediately prior to the reorganization or short-form merger listed on any national securities exchange certified by the Commissioner of Corporations under subdivision (o) of Section 25100, and the notice of meeting of shareholders to act upon the reorganization summarizes this section and Sections 1301, 1302, 1303 and 1304; provided, however, that this provision does not apply to any shares with respect to which there exists any restriction on transfer imposed by the corporation or by any law or regulation; and provided, further, that this provision does not apply to any class of shares if demands for payment are filed with respect to 5 percent or more of the outstanding shares of that class. (2) Which were outstanding on the date for the determination of shareholders entitled to vote on the reorganization and (A) were not voted in favor of the reorganization or, (B) if described in paragraph (1) (without regard to the provisos in that paragraph), were voted against the reorganization, or were held of record on the effective date of a short-form merger; provided, however, that subparagraph (A) rather than subparagraph (B) of this paragraph applies in any case where the approval required by Section 1201 is sought by written consent rather than at a meeting. (3) Which the dissenting shareholder has demanded that the corporation purchase at their fair market value, in accordance with Section 1301. (4) Which the dissenting shareholder has submitted for endorsement, in accordance with Section 1302. (c) As used in this chapter, "dissenting shareholder" means the recordholder of dissenting shares and includes a transferee of record. SEC. 18. Section 1800 of the Corporations Code is amended to read: 1800. (a) A verified complaint for involuntary dissolution of a corporation on any one or more of the grounds specified in subdivision (b) may be filed in the superior court of the proper county by any of the following persons: (1) One-half or more of the directors in office. (2) A shareholder or shareholders who hold shares representing not less than 331/3 percent of (i) the total number of outstanding shares (assuming conversion of any preferred shares convertible into common shares) or (ii) the outstanding common shares or (iii) the equity of the corporation, exclusive in each case of shares owned by persons who have personally participated in any of the transactions enumerated in paragraph (4) of subdivision (b), or any shareholder or shareholders of a  statutory  close corporation  , as described in Section 2404, pursuant to Section 2426  . (3) Any shareholder if the ground for dissolution is that the period for which the corporation was formed has terminated without extension thereof. (4) Any other person expressly authorized to do so in the articles. (b) The grounds for involuntary dissolution are that: (1) The corporation has abandoned its business for more than one year. (2) The corporation has an even number of directors who are equally divided and cannot agree as to the management of its affairs, so that its business can no longer be conducted to advantage or so that there is danger that its property and business will be impaired or lost, and the holders of the voting shares of the corporation are so divided into factions that they cannot elect a board consisting of an uneven number. (3) There is internal dissension and two or more factions of shareholders in the corporation are so deadlocked that its business can no longer be conducted with advantage to its shareholders or  , unless the corporation is a statutory close corporation, as des   cribed in Section 2401, and is operating   without directors in accordance with subdivision (a) of Section 2410,  the shareholders have failed at two consecutive annual meetings at which all voting power was exercised, to elect successors to directors whose terms have expired or would have expired upon election of their successors. (4) Those in control of the corporation have been guilty of or have knowingly countenanced persistent and pervasive fraud, mismanagement or abuse of authority or persistent unfairness toward any shareholders or its property is being misapplied or wasted by its directors or officers. (5) In the case of any corporation with 35 or fewer shareholders (determined as provided in Section 605), liquidation is reasonably necessary for the protection of the rights or interests of the complaining shareholder or shareholders. (6) The period for which the corporation was formed has terminated without extension of such period. (c) At any time prior to the trial of the action any shareholder or creditor may intervene therein. (d) This section does not apply to any corporation subject to the Banking Law (Division 1 (commencing with Section 99) of the Financial Code), the Public Utilities Act (Part 1 (commencing with 201) of Division 1 of the Public Utilities Code), the Savings and Loan Association Law (Division 2 (commencing with Section 5000) of the Financial Code) or Article 14 (commencing with Section 1010) of Chapter 1 of Part 2 of Division 1 of the Insurance Code. (e) For the purposes of this section, "shareholder" includes a beneficial owner of shares who has entered into an agreement under Section  300 or  706  or 2408  . SEC. 19. Section 1900 of the Corporations Code is amended to read: 1900. (a) Any corporation may elect voluntarily to wind up and dissolve by the vote of shareholders holding shares representing 50 percent or more of the voting power  ; provided, however, that if the corporation is a statutory close corporation, as described in Section 2404, the vote of shareholders required may be as otherwise set forth in the articles pursuant to subdivision (a) of Section 2424  . (b) Any corporation  which   that  comes within one of the following descriptions may elect by approval by the board to wind up and dissolve: (1) A corporation as to which an order for relief has been entered under Chapter 7 of the federal bankruptcy law. (2) A corporation  which   that  has disposed of all of its assets and has not conducted any business for a period of five years immediately preceding the adoption of the resolution electing to dissolve the corporation. (3) A corporation  which   that  has issued no shares. SEC. 20. Section 1901 of the Corporations Code is amended to read: 1901. (a) Whenever a corporation has elected to wind up and dissolve a certificate evidencing such election shall forthwith be filed. (b) The certificate shall be an officers' certificate or shall be signed and verified by at least a majority of the directors then in office or by one or more shareholders authorized to do so by shareholders holding shares representing 50 percent or more of the voting power  and shall set forth:   or, in the case of a statutory close corporation, as described in Section 2402, such other percentage of the voting power or otherwise having the   power to dissolve the corporation as may be set forth in the articles pursuant to subdivision (a) of Section 2424. The certificate shall set forth all of the following:  (1) That the corporation has elected to wind up and dissolve. (2) If the election was made by the vote of shareholders, the number of shares voting for the election and that the election was made by shareholders representing at least 50 percent of the voting power  or, in the case of a statutory close corporation, such percentage of the voting power or otherwise having the power to dissolve the corporation as may be set forth in the articles  . (3) If the certificate is executed by a shareholder or shareholders, that the subscribing shareholder or shareholders were authorized to execute the certificate by shareholders holding shares representing at least 50 percent of the voting power  or, in the case of a statutory close corporation, such percentage of the voti   ng power as may be set forth in the articles . (4) If the election was made by the board pursuant to subdivision (b) of Section 1900, the certificate shall also set forth the circumstances showing the corporation to be within one of the categories described in said subdivision. (c) If an election to dissolve made pursuant to subdivision (a) of Section 1900  or subdivision (a) of Section 2414  is made by the vote of all the outstanding shares and a statement to that effect is added to the certificate of dissolution pursuant to Section 1905, the separate filing of the certificate of election pursuant to this section is not required. SEC. 21. Section 1902 of the Corporations Code is amended to read: 1902. (a) A voluntary election to wind up and dissolve may be revoked prior to distribution of any assets by the vote of shareholders holding shares representing a majority of the voting power,  or, in the case of a statutory close corporation, as described in Section 2404, such percentage of the voting power as may be set forth in the articles pursuant to subdivision (a) of Section 1900 and subdivision (a) of Section 2424,  or by approval by the board if the election was by the board pursuant to subdivision (b) of Section 1900. Thereupon a certificate evidencing the revocation shall be signed, verified and filed in the manner prescribed by Section 1901. (b) The certificate shall set forth  all of the following  : (1) That the corporation has revoked its election to wind up and dissolve. (2) That no assets have been distributed pursuant to the election. (3) If the revocation was made by the vote of shareholders, the number of shares voting for the revocation and the total number of outstanding shares the holders of which were entitled to vote on the revocation. (4) If the election and revocation was by the board, that shall be stated. SEC. 22. Section 1904 of the Corporations Code is amended to read: 1904. If a corporation is in the process of voluntary winding up, the superior court of the proper county, upon the petition of (a) the corporation, or (b) a shareholder or shareholders who hold shares representing 5 percent or more of the total number of any class of outstanding shares, or (c) any shareholder or shareholders of a  statutory  close corporation,  as described in Section 2404,  or (d) three or more creditors, and upon such notice to the corporation and to other persons interested in the corporation as shareholders and creditors as the court may order, may take jurisdiction over such voluntary winding up proceeding if that appears necessary for the protection of any parties in interest. The court, if it assumes jurisdiction, may make such orders as to any and all matters concerning the winding up of the affairs of the corporation and for the protection of its shareholders and creditors as justice and equity may require. The provisions of Chapter 18 (commencing with Section 1800) (except Sections 1800 and 1801) shall apply to such court proceedings. SEC. 23. Section 2000 of the Corporations Code is amended to read: 2000. (a) Subject to any contrary provision in the articles, in any suit for involuntary dissolution, or in any proceeding for voluntary dissolution initiated by the vote of shareholders representing only 50 percent of the voting power  , or less if permitted pursuant to subdivision (a) of Section 2424  , the corporation or, if it does not elect to purchase, the holders of 50 percent or more of the voting power of the corporation (the "purchasing parties") may avoid the dissolution of the corporation and the appointment of any receiver by purchasing for cash the shares owned by the plaintiffs or by the shareholders so initiating the proceeding (the "moving parties") at their fair value. The fair value shall be determined on the basis of the liquidation value as of the valuation date but taking into account the possibility, if any, of sale of the entire business as a going concern in a liquidation. In fixing the value, the amount of any damages resulting if the initiation of the dissolution is a breach by any moving party or parties of an agreement with the purchasing party or parties may be deducted from the amount payable to such moving party or parties, unless the ground for dissolution is that specified in paragraph (4) of subdivision (b) of Section 1800. The election of the corporation to purchase may be made by the approval of the outstanding shares (Section 152) excluding shares held by the moving parties. (b) If the purchasing parties (1) elect to purchase the shares owned by the moving parties, and (2) are unable to agree with the moving parties upon the fair value of such shares, and (3) give bond with sufficient security to pay the estimated reasonable expenses (including attorneys' fees) of the moving parties if such expenses are recoverable under subdivision (c), the court upon application of the purchasing parties, either in the pending action or in a proceeding initiated in the superior court of the proper county by the purchasing parties in the case of a voluntary election to wind up and dissolve, shall stay the winding up and dissolution proceeding and shall proceed to ascertain and fix the fair value of the shares owned by the moving parties. (c) The court shall appoint three disinterested appraisers to appraise the fair value of the shares owned by the moving parties, and shall make an order referring the matter to the appraisers so appointed for the purpose of ascertaining such value. The order shall prescribe the time and manner of producing evidence, if evidence is required. The award of the appraisers or of a majority of them, when confirmed by the court, shall be final and conclusive upon all parties. The court shall enter a decree which shall provide in the alternative for winding up and dissolution of the corporation unless payment is made for the shares within the time specified by the decree. If the purchasing parties do not make payment for the shares within the time specified, judgment shall be entered against them and the surety or sureties on the bond for the amount of the expenses (including attorneys' fees) of the moving parties. Any shareholder aggrieved by the action of the court may appeal therefrom. (d) If the purchasing parties desire to prevent the winding up and dissolution, they shall pay to the moving parties the value of their shares ascertained and decreed within the time specified pursuant to this section, or, in case of an appeal, as fixed on appeal. On receiving such payment or the tender thereof, the moving parties shall transfer their shares to the purchasing parties. (e) For the purposes of this section, "shareholder" includes a beneficial owner of shares who has entered into an agreement under Section  300 or  706  or 2408  . (f) For the purposes of this section, the valuation date shall be (1) in the case of a suit for involuntary dissolution under Section 1800, the date upon which that action was commenced, or (2) in the case of a proceeding for voluntary dissolution initiated by the vote of shareholders representing only 50 percent of the voting power  , or less if permitted pursuant to subdivision (a) of Section 2424  , the date upon which that proceeding was initiated. However, in either case the court may, upon the hearing of a motion by any party, and for good cause shown, designate some other date as the valuation date. SEC. 24. Chapter 24 (commencing with Section 2400) is added to Division 1 of Title 1 of the Corporations Code, to read: CHAPTER 24. STATUTORY CLOSE CORPORATIONS 2400. (a) Except to the extent otherwise governed by the provisions of this chapter, the other chapters of this division shall apply to statutory close corporations organized under this chapter. (b) This chapter shall apply to professional corporations organized under the Moscone-Knox Professional Corporation Act (Part 4 (commencing with Section 13400) of Division 3) whose articles conform to the requirements of subdivision (a) of Section 2404. 2404. (a) "Statutory close corporation" means a corporation whose articles contain, in addition to the statements required by Section 202, the following special statements: (1) That all of the corporation's issued shares of all classes shall be held of record by not more than a specified number of persons, not exceeding 35. (2) "This corporation is a statutory close corporation. The rights and obligations of shareholders of this statutory close corporation may differ materially from the rights and obligations of shareholders in other corporations, and transfer of shares in this statutory close corporation may be restricted. This statutory close corporation does not have the power to issue shares or to register a transfer of shares that would cause the number of persons who are shareholders of record to exceed the specified number set forth in these articles. Refer to Chapter 24 (commencing with Section 2400) of Division 1 of Title 1 of the Corporations Code, these articles, and any bylaws and shareholders' agreement for restrictions." (b) The name of the statutory close corporation, as set forth in its articles, shall contain either the word "corporation," "incorporated" or "limited," or an abbreviation of one of those words. (c) No statutory close corporation shall issue shares or register a transfer of shares, whether that transfer was made voluntarily or involuntarily, by operation of law or otherwise, that would cause the number of persons who are shareholders of record to exceed the specified number set forth in the articles pursuant to subdivision (a). (d) The shares issued by the statutory close corporation and outstanding shall be represented by certificates subject to the requirements of Section 2406. (e) The special statements referred to in subdivision (a) may be included in the articles by amendment, but if that amendment is adopted after the issuance of shares, it may be adopted only by the affirmative vote of all of the issued and outstanding shares of all classes. (f) In determining the number of persons who are shareholders of record for the purposes of subdivision (a), the following shall apply: (1) Spouses shall be counted as one person regardless of how many shares may be held by either or both of them, and registered domestic partners shall be counted as one person regardless of how many shares may be held by either or both of them. (2) All members of a family shall be counted as one person regardless of how many shares may be held by them. (3) A trust shall be counted as one person regardless of the number of trustees or beneficiaries, except that any trust whose beneficial interests were offered for sale or sold shall be counted according to the number of holders of beneficial interests therein. (4) A partnership, limited liability company, corporation, or other form of business entity or association holding shares shall be counted as one, except that any entity or association whose interests or shares were offered for sale or sold shall be counted according to the number of holders of beneficial interests therein. (g) For the purposes of this section, the term "members of a family" shall mean all common ancestors, any lineal descendant of each common ancestor, and any spouse, adopted child, or registered domestic partner, or former spouse, or former registered domestic partner, of each common ancestor or any such lineal descendant, and the estates of each of them. An individual shall not be considered to be a common ancestor if the individual is more than six generations removed from the youngest generation of shareholders who would otherwise be members of a family. A spouse or registered domestic partner, or former spouse or former registered domestic partner, shall each be treated as being of the same generation as the individual to whom the individual is or was married or registered as domestic partners. (h) Any of the provisions of subdivision (f) may be eliminated, and the definition in subdivision (g) may be restricted, but only if the elimination or restriction is set forth in the articles or, if the articles so permit, in the bylaws, or in a shareholders' agreement pursuant to Section 2408. 2406. (a) All certificates issued pursuant to subdivision (d) of Section 2404 shall contain, in addition to any other statements required by this section and Sections 409, 417, and 418, the following conspicuous legend on the certificate, as defined in Section 174: "This corporation is a statutory close corporation. The rights and obligations of shareholders of this corporation may differ materially from the rights and obligations of shareholders in other corporations, and transfer of shares in this corporation may be restricted. This corporation does not have the power to issue shares or to register a transfer of shares that would cause the number of persons who are shareholders of record to exceed the specified number set forth in its articles. Refer to Chapter 24 (commencing with Section 2400) of Division 1 of Title 1 of the Corporations Code, the articles, and any bylaws and shareholders' agreement for restrictions." (b) A transferee of shares covered by a shareholders' agreement authorized by Section 2408, who has actual knowledge or notice thereof, or notice thereof by a legend on the certificate representing those shares pursuant to subdivision (a), is bound by its provisions and may be subject to liability under subdivision (c) of Section 2408. (c) A statutory close corporation shall provide without charge to any shareholder, upon the shareholder's written request, copies of the articles, bylaws, and any shareholders' agreement on file with the secretary of the statutory close corporation. 2408. (a) All shareholders of a statutory close corporation may agree, in writing, to regulate any phase of the affairs of the corporation, including, but not limited to, the exercise of its corporate powers, the management of its business and affairs, the division of its profits or losses, the distribution of its assets on liquidation, and the relationship among the shareholders, pursuant to a shareholders' agreement made in accordance with and subject to this section. (1) If the corporation has only one shareholder, the shareholders' agreement authorized by this section may be entered into by the shareholder and the corporation. (2) A copy of the shareholders' agreement shall be filed with the secretary of the corporation. (3) Any of the optional provisions that may be included in the articles as described in Section 204 may be included in a shareholders' agreement authorized by this section rather than in the articles. (4) All references in this division to a vote required or permitted by the articles includes any vote required by a shareholders' agreement authorized by this section. (b) Notwithstanding Section 300 or any other provision of this division, in a shareholders' agreement authorized by this section, the shareholders may agree to any of the following: (1) To eliminate or dispense with the board, subject to subdivision (d). (2) To interfere with or restrict the discretion or powers of the board or to grant unequal voting rights to the board or shareholders. (3) To conduct the affairs of the corporation in an attempt to treat the corporation as if it were a partnership. (4) To create a relationship among the shareholders or between the shareholders and the corporation that would otherwise be appropriate only among partners. (c) To the extent and so long as the discretion or powers of the board in its management of corporate affairs is controlled by a shareholders' agreement, each shareholder shall have liability for managerial acts performed or omitted by the shareholder pursuant thereto that is otherwise imposed by this division upon directors, and the directors shall be relieved to that extent from that liability. (d) A provision in a shareholders' agreement authorized by this section agreeing to eliminate or dispense with the board is not effective unless the articles contain a statement to that effect as required by Section 2410. (e) Any amendment, extension, or other modification to a shareholders' agreement authorized by this section shall be approved in writing by all shareholders who are parties, unless the shareholders' agreement provides otherwise. (f) A shareholder who receives an original issuance of shares by a statutory close corporation, who has actual knowledge or notice of a shareholders' agreement authorized by this section, or notice by a legend on the certificate representing those shares pursuant to subdivision (a) of Section 2406, is bound by its provisions and may be subject to liability under subdivision (c). The statutory close corporation shall provide without charge to any prospective recipient of an original issuance of shares, upon request, copies of the articles, bylaws, and any shareholders' agreements on file with the secretary of the corporation. (g) A shareholders' agreement authorized by this section shall terminate when the corporation ceases to be a statutory close corporation, except that if the shareholders' agreement so provides it shall continue to the extent it is enforceable apart from this section. No provision of this section is applicable to an agreement authorized by subdivision (a) of Section 706. (h) No shareholders' agreement entered into pursuant to this section may alter or waive the provisions of this chapter, or Sections 417, 418, 500, 501, 506, 2009, 2010, and 2011, or Chapter 15 (commencing with Section 1500), Chapter 16 (commencing with Section 1600), Chapter 18 (commencing with Section 1800), or Chapter 22 (commencing with Section 2200). All other provisions of this division may be altered or waived as between the parties thereto in a shareholders' agreement authorized by this section, including, but not limited to, any other provision in this division for a vote required or permitted by the articles, except the required filing of any document with the Secretary of State. (i) Nothing in this section invalidates or otherwise affects any agreement that is not authorized by this section, by or among shareholders of any corporation, whether or not the corporation is a statutory close corporation. 2410. (a) A statutory close corporation may eliminate or dispense with the board as defined in Section 155 if its articles contain a statement to that effect. (b) An amendment to the articles to eliminate or dispense with the board shall be approved by all outstanding shares, whether or not otherwise entitled to vote or, before shares have been issued, by all the incorporators if directors were not named in the original articles and have not been elected, or, if directors were named in the original articles or have been elected, by all the directors. (c) While the statutory close corporation is operating without a board as authorized by subdivision (a), the following shall apply: (1) All corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation managed under the direction of, the shareholders. (2) Each shareholder shall have liability for managerial acts performed or omitted by the shareholder that is otherwise imposed by this division upon directors. (3) The corporation is not required to comply with subdivision (a) of Section 212. (4) Action requiring approval by the board or both the board and shareholders is authorized if approved by the shareholders, as defined in Section 153, or as otherwise required by a shareholders' agreement. (5) If a document delivered for filing is required to contain a statement that specified action has been taken by the board, that requirement shall be satisfied by a statement that the corporation is a statutory close corporation without a board and that the action was approved by the shareholders, as defined in Section 153, or as otherwise required by a shareholders' agreement pursuant to Section 2408. (6) When the board has been eliminated or dispensed with pursuant to this section, the shareholders, by resolution, may appoint one or more shareholders or other persons to sign documents as "signing agent" of the statutory close corporation or with a similar designation. (d) An amendment to the articles deleting the statement, described in subdivision (a), to eliminate or dispense with the board shall be approved by the affirmative vote of at least two-thirds of each class and series of outstanding shares, whether or not otherwise entitled to vote. 2412. Notwithstanding Section 600, pursuant to a provision in the articles, bylaws, or a shareholders' agreement authorized by Section 2408, the shareholders may dispense with an annual meeting. 2414. Subject to any contrary provision contained in the articles, bylaws, shareholders' agreement authorized by Section 2408, or a resolution adopted by the board or shareholders, an individual who holds more than one office in a statutory close corporation may execute, acknowledge, or verify in more than one capacity, and in the capacities held, any document required to be executed, acknowledged, or verified by the holders of two or more offices. 2416. The failure of a statutory close corporation to observe corporate formalities relating to meetings of the board or shareholders in connection with the management of its affairs, pursuant to a shareholders' agreement authorized by Section 2408, shall not be considered a factor tending to establish that the shareholders have personal liability for corporate obligations. 2418. (a) If any disappearing corporation in a merger is a statutory close corporation and the surviving corporation is not a statutory close corporation, the merger shall be approved by the affirmative vote of at least two-thirds of each class and series of the outstanding shares of the disappearing corporation; provided, however, that the articles or a shareholders' agreement authorized by Section 2408 may provide for a greater or lesser vote, but not less than a majority of the outstanding shares of each class and series. (b) Any sale, lease, conveyance, exchange, transfer, or other disposition of all or substantially all of the assets of a statutory close corporation, unless the transaction is in the usual and regular course of business, shall be approved by the affirmative vote of at least two-thirds of each class and series of the outstanding shares of the statutory close corporation; provided, however, that the articles or a shareholders' agreement authorized by Section 2408 may provide for a greater or lesser vote, but not less than a majority of the outstanding shares of each class and series, and provided that subdivision (d) of Section 1001 is not applicable. (c) The principal terms of a reorganization, as defined in Section 181, shall be approved by the affirmative vote of at least two-thirds of each class and series of the outstanding shares of a statutory close corporation if the reorganization would result in the holders receiving shares of a corporation that is not a statutory close corporation; provided, however, that the articles or a shareholders' agreement authorized by Section 2408 may provide for a greater or lesser vote, but not less than a majority of the outstanding shares of each class and series. (d) If a converting corporation, as defined in subdivision (c) of Section 1150, is a statutory close corporation, the conversion shall be approved by the affirmative vote of at least two-thirds of each class and series of the outstanding shares of that converting corporation; provided, however, that the articles or a shareholders' agreement authorized by Section 2408 may provide for a greater or lesser vote, but not less than a majority of the outstanding shares of each class and series. 2420. (a) The status of a corporation as a statutory close corporation may be terminated only by amending its articles in accordance with this section. (1) The amendment shall delete the statements required by subdivision (a) of Section 2404 and any other provision not permissible for a corporation that is not a statutory close corporation, including, but not limited to, any statement to eliminate or dispense with the board as authorized by Section 2410. (2) If, before the amendment, the corporation eliminated or dispensed with the board pursuant to Section 2410, the amendment shall fix the number of directors for the board of the corporation, or state that the number of directors shall be not less than a stated minimum nor more than a stated maximum, which in no case shall be greater than two times the stated minimum minus one, with the exact number of directors to be fixed within the limits specified by approval of the shareholders, as defined in Section 153, in a manner provided, or, if there is then in effect a bylaw setting forth such provision, state that there is a bylaw then in effect, and the corporation shall otherwise comply with Sections 212 and 300. (3) The corporation shall cease to be a statutory close corporation upon the filing of the amendment to its articles. (b) An amendment terminating the status of a corporation as a statutory close corporation shall be approved by the affirmative vote of at least two-thirds of each class and series of the outstanding shares, whether or not otherwise entitled to vote; provided, however, that the articles may provide for a greater or lesser vote, but not less than a majority of the outstanding shares of each class and series, whether or not otherwise entitled to vote. (c) Nothing contained in this section invalidates any agreement among shareholders to vote for amending the articles to delete the special statements referred to in subdivision (a) of Section 2404 at the time or upon the occurrence of an event specified or otherwise. 2422. Termination of the status of a corporation as a statutory close corporation does not affect any right of a shareholder or of the corporation under any agreement or the articles or bylaws unless otherwise prohibited by applicable law. 2424. (a) The articles of a statutory close corporation may contain a provision authorizing one or more shareholders, or the shareholders of a specified number or percentage of shares of any class or series, to elect to dissolve the corporation at will or upon the occurrence of a specified event or contingency, provided that this authorization shall not abridge the right of a shareholder or shareholders to elect voluntarily to wind up and dissolve pursuant to subdivision (a) of Section 1900. (1) The shareholder or shareholders electing to dissolve the corporation pursuant to this section shall give written notice of the election to dissolve to all the other shareholders. (2) Thirty-one days after the effective date of the written notice, the corporation shall begin to wind up and liquidate its business and affairs and dissolve pursuant to Chapter 19 (commencing with Section 1900) and Chapter 20 (commencing with Section 2000). (b) Unless the articles expressly authorize the amendment by a vote that is not less than two-thirds of all the outstanding shares, whether or not otherwise entitled to vote, an amendment to the articles to add, change, or delete a provision in the articles authorizing dissolution pursuant to subdivision (a) shall be approved by the affirmative vote of all the outstanding shares, whether or not otherwise entitled to vote, or, if no shares have been issued, by all the incorporators if directors were not named in the original articles and have not been elected, or, if directors were named in the original articles or have been elected, by all the directors. 2426. (a) A verified complaint for involuntary dissolution of a statutory close corporation on any one or more of the grounds specified in subdivision (b) of Section 1800 may be filed by any shareholder of the corporation, unless the articles of the corporation require more than one shareholder to do so pursuant to subdivision (b). (b) The articles of a statutory close corporation may contain a provision requiring more than one shareholder to file a verified complaint for involuntary dissolution, however, this provision shall state that it does not abridge the right of a shareholder or shareholders entitled under paragraph (2) or (3) of subdivision (a) of Section 1800 to do so. (c) Unless the articles expressly authorize the amendment by a vote that is not less than two-thirds of all the outstanding shares, whether or not otherwise entitled to vote, an amendment to the articles to add, change, or delete a provision in the articles requiring more than one shareholder to file a verified complaint for involuntary dissolution of a statutory close corporation shall be approved by the affirmative vote of all the outstanding shares, whether or not otherwise entitled to vote, or, if no shares have been issued, by all the incorporators if directors were not named in the original articles and have not been elected, or, if directors were named in the original articles or have been elected, by all the directors. (d) Any right of a shareholder to commence an involuntary dissolution proceeding under this section is in addition to any other right or remedy the shareholder may have under applicable law. 2428. (a) This chapter shall apply to (1) all close corporations whose articles, prior to January 1, 2011, contain a provision that all of the corporation's issued shares of all classes shall be held of record by not more than a specified number of persons, not exceeding 35, and the provision "This corporation is a close corporation," and (2) all corporations satisfying the requirements of a statutory close corporation pursuant to Section 2404. (b) Corporations described in paragraph (1) of subdivision (a) shall be deemed statutory close corporations subject to this chapter. However, these statutory close corporations shall be subject to the following: (1) Use of the word "statutory" in front of "close corporation" shall not be required in the articles. (2) Shares issued prior to January 1, 2011, need not be represented by certificates. (3) The legend on share certificates issued prior to January 1, 2011, need not comply with Section 2406, provided that the certificate contains the legend required by subdivision (c) of Section 418 as it read on December 31, 2010. SEC. 25. Section 25103 of the Corporations Code is amended to read: 25103. The following transactions are exempted from the provisions of Section 25110 and Section 25120: (a) Any negotiations or agreements prior to general solicitation of approval by the holders of equity securities, and subject to that approval, of (1) a change in the rights, preferences, privileges, or restrictions of or on outstanding securities, (2) a merger, consolidation, or sale of assets in consideration of the issuance of securities, or (3) an entity conversion transaction. (b) Any change in the rights, preferences, privileges, or restrictions of or on outstanding securities or any entity conversion transaction, unless the holders of at least 25 percent of the outstanding shares or units of any class of securities that will be directly or indirectly affected substantially and adversely by that change or transaction have addresses in this state according to the records of the issuer. (c) Any exchange incident to a merger, consolidation, or sale of assets in consideration of the issuance of securities of another issuer, unless at least 25 percent of the outstanding securities of any class, any holders of which are to receive securities in the exchange, are held by persons who have addresses in this state according to the records of the issuer of which they are holders. This exemption is not available for a rollup transaction as defined by Section 25014.6. The exemption is also not available for a transaction excluded from the definition of rollup transaction by virtue of paragraph (5) or (6) of subdivision (b) of Section 25014.6 if the transaction is one of a series of transactions that directly or indirectly through acquisition or otherwise involves the combination or reorganization of one or more rollup participants. (d) For the purposes of subdivision (b) and subdivision (c) of this section, (1) any securities held to the knowledge of the issuer in the names of broker-dealers or nominees of broker-dealers and (2) any securities controlled by any one person who controls directly or indirectly 50 percent or more of the outstanding securities of that class shall not be considered outstanding. The determination of whether 25 percent of the outstanding securities are held by persons having addresses in this state, for the purposes of subdivision (b) and subdivision (c) of this section, shall be made as of the record date for the determination of the security holders entitled to vote on or consent to the action, if approval of those holders is required, or, if not, as of the date of directors' approval of that action. (e) Any change, other than a stock split or reverse stock split, in the rights, preferences, privileges, or restrictions of or on outstanding equity securities, except the following if they materially and adversely affect any class of equity securities: (1) to add, change, or delete assessment provisions; (2) to change the rights to dividends thereon; (3) to change the redemption provisions; (4) to make them redeemable; (5) to change the amount payable on liquidation; (6) to change, add, or delete conversion rights; (7) to change, add, or delete voting rights; (8) to change, add, or delete preemptive rights; (9) to change, add, or delete sinking fund provisions; (10) to rearrange the relative priorities of outstanding equity securities; (11) to impose, change, or delete restrictions upon the transfer of equity securities in the organizational documents for the entity; (12) to change the right of holders of equity securities with respect to the calling of special meetings of holders of equity securities; and (13) to change, add, or delete any rights, preferences, privileges, or restrictions of, or on, the outstanding shares or memberships of a mutual water company or other corporation or entity organized primarily to provide services or facilities to its shareholders or members. Changes in the rights, preferences, privileges, or restrictions of or on outstanding equity securities do not materially and adversely affect any class of holders of equity securities within the meaning of this subdivision if they arise from  (i)   (A)  the addition to articles  of incorporation  of the provisions described or referred to in subdivision (a) of Section  158   2404  upon the conversion of an existing corporation to a  statutory  close corporation  as described in Section 2404,  pursuant to subdivision  (b)   (e)  of Section  158, (ii)   2404,   (B)  the deletion from the articles  of incorporation  of the provisions described or referred to in subdivision (a) of Section  158   2404  upon the voluntary termination of  statutory  close corporation status pursuant to  subdivisions (c) and (e)   subdivision (e)  of Section  158   2404 and Section 2420  ,  (iii) the involuntary cessation of close corporation status pursuant to subdivision (e) of Section 158, or (iv)   or (C)  the termination of a shareholders' agreement  , as described in Section 2408,  pursuant to subdivision  (b)   (g)  of  Section 300   that section  . (f) Any stock split or reverse stock split, except the following: (1) any stock split or reverse stock split if the corporation has more than one class of shares outstanding and the split would have a material effect on the proportionate interests of the respective classes as to voting, dividends, or distributions; (2) any stock split of a stock that is traded in the market and its market price as of the date of directors' approval of the stock split adjusted to give effect to the split was less than two dollars ($2) per share; and (3) any reverse stock split if the corporation has the option of paying cash for any fractional shares created by the reverse split and as a result of that action the proportionate interests of the shareholders would be substantially altered. Any shares issued upon a stock split or reverse stock split exempted by this subdivision shall be subject to any conditions previously imposed by the commissioner applicable to the shares with respect to which they are issued. (g) Any change in the rights of outstanding debt securities, except the following if they substantially and adversely affect any class of securities: (1) to change the rights to interest thereon; (2) to change their redemption provisions; (3) to make them redeemable; (4) to extend the maturity thereof or to change the amount payable thereon at maturity; (5) to change their voting rights; (6) to change their conversion rights; (7) to change sinking fund provisions; and (8) to make them subordinate to other indebtedness. (h) Any exchange incident to a merger, consolidation, or sale of assets, other than a rollup transaction (as defined in Section 25014.6), in consideration of the issuance of equity securities of another entity or any entity conversion transaction that meets the following conditions: (1) The exchange incident to a merger, consolidation, or sale of assets or the entity conversion transaction, had the exchange transaction involved the issuance of a security in a transaction subject to the provisions of Section 25110, would have been exempt from qualification by subdivision (f) of Section 25102, without giving effect to paragraph (3) thereof, and either of the following is applicable: (A) (i) Not less than 75 percent of the outstanding equity securities of each constituent or converting entity entitled to vote on the proposed transaction voted in favor of the transaction, (ii) not more than 10 percent of the outstanding equity securities of each constituent or converting entity entitled to vote on the proposed transaction voted against the transaction, and (iii) each constituent or converting entity whose security holders are entitled to vote on the proposed transaction is subject to a state statute that has provisions for dissenters' rights for holders of equity securities entitled to vote on the proposed transaction that do not vote in favor of or voted against the transaction. (B) (i) The transaction is solely for the purposes of changing the issuer's state of incorporation or organization, or form of organization, (ii) all the securities of the same class or series, unless all the security holders of the class or series consent, are treated equally, and (iii) the holders of nonredeemable voting equity securities receive nonredeemable voting equity securities. (2) The commissioner may, by rule, require the acquiring or surviving entity to file a notice of transaction under this section. However, the failure to file the notice or the failure to file the notice within the time specified by the rule of the commissioner shall not affect the availability of this exemption. An acquiring or surviving entity that fails to file the notice as provided by rule of the commissioner shall, within 15 business days after demand by the commissioner, file the notice and pay to the commissioner a fee equal to the fee payable had the transaction been qualified under Section 25110 or 25120. (i) Any exchange of securities in connection with any merger or consolidation or sale of corporate assets in consideration wholly or in part of the issuance of securities or any entity conversion transaction under, or pursuant to, a plan of reorganization that pursuant to the provisions of the United States Bankruptcy Code (Title 11 of the United States Code) has been confirmed or is subject to confirmation by the decree or order of a court of competent jurisdiction.