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SB-838 Corporate records: articles of incorporation: blockchain technology.(2017-2018)



Current Version: 09/28/18 - Chaptered        


SB838:v91#DOCUMENT

Senate Bill No. 838
CHAPTER 889

An act to amend, repeal, and add Sections 204 and 2603 of the Corporations Code, relating to corporations.

[ Approved by Governor  September 28, 2018. Filed with Secretary of State  September 28, 2018. ]

LEGISLATIVE COUNSEL'S DIGEST


SB 838, Hertzberg. Corporate records: articles of incorporation: blockchain technology.
Existing law authorizes and regulates the formation and operation of a corporation, social purpose corporation, nonprofit public benefit corporation, nonprofit mutual benefit corporation, or nonprofit religious corporation, including, but not limited to, the adoption and contents of corporate articles of incorporation.
This bill would also authorize, until January 1, 2022, a corporation or a social purpose corporation that does not have outstanding securities listed on specified securities exchanges to adopt provisions within its articles of incorporation authorizing records administered by or on behalf of the corporation in which the names of all of the corporation’s stockholders of record, the address and number of shares registered in the name of each of those stockholders, and all issuances and transfers of stock of the corporation to be recorded and kept on or by means of blockchain technology, as specified.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: NO   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 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 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.
(12) (A) In the case of a corporation that does not have outstanding securities listed on the New York Stock Exchange, the NYSE Amex, the NASDAQ Global Market, or the NASDAQ Capital Market, a provision authorizing records administered by or on behalf of the corporation in which the names of all of the corporation’s stockholders of record, the address and number of shares registered in the name of each of those stockholders, and all issuances and transfers of stock of the corporation to be recorded and kept on or by means of blockchain technology, provided that all of the following requirements are met:
(i) The encrypted information in the records can be decrypted and converted into a clearly readable format within a reasonable period of time.
(ii) The records can be used to prepare the list of shareholders.
(iii) The records can be used to record information required to be included on stock certificates.
(iv) The records can be used to record required transfers of stock.
(B) For purposes of this paragraph, “blockchain technology” means a mathematically secured, chronological, and decentralized consensus ledger or database.
(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.
(e) This section shall remain in effect only until January 1, 2022, and as of that date is repealed.

SEC. 2.

 Section 204 is added to the Corporations Code, 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 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.
(e) This section shall become operative on January 1, 2022.

SEC. 3.

 Section 2603 of the Corporations Code is amended to read:

2603.
 The articles of incorporation may set forth:
(a) Any or all of the following provisions, which shall not be effective unless expressly provided in the articles:
(1) Granting, with or without limitations, the power to levy assessments upon the shares or any class of shares.
(2) Granting to shareholders preemptive rights to subscribe to any or all issues of shares or securities.
(3) Special qualifications of persons who may be shareholders.
(4) A provision limiting the duration of the social purpose corporation’s existence to a specified date.
(5) A provision requiring, for any or all corporate actions, except as provided in Section 303, subdivision (b) of Section 402.5, subdivision (c) of Section 708, and Section 1900, the vote of a larger proportion or of all of the shares of any class or series, or the vote or quorum for taking action of a larger proportion or of all of the directors, than is otherwise required by Division 1 (commencing with Section 100) or this division.
(6) So long as consistent with the purpose of the social purpose corporation as set forth in the articles in accordance with subdivision (b) of Section 2602, a provision limiting or restricting the business in which the social purpose corporation may engage or the powers which the social purpose corporation may exercise, or both.
(7) A provision conferring upon the holders of any evidences of indebtedness, issued or to be issued by the social purpose corporation, the right to vote in the election of the directors and on any other matters on which shareholders may vote.
(8) A provision conferring upon shareholders the right to determine the consideration for which shares shall be issued.
(9) A provision requiring the approval of the shareholders (Section 153) or the approval of the outstanding shares (Section 152) for any corporate action, even though not otherwise required by Division 1 (commencing with Section 100) or this division.
(10) Provisions eliminating or limiting the personal liability of a director for monetary damages in an action brought by or in the right of the social purpose corporation for breach of a director’s duties to the social purpose corporation and its shareholders, as set forth in Section 2700, subject to the following:
(A) The provision may not eliminate or limit the liability of directors (i) for acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (ii) for acts or omissions that a director believes to be contrary to the best interests of the social purpose corporation or its shareholders and its corporate purposes as expressed in its articles, or that involve the absence of good faith on the part of the director, (iii) for any transaction from which a director derived an improper personal benefit, (iv) for acts or omissions that show a reckless disregard for the director’s duty to the social purpose corporation or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director’s duties, of a risk of serious injury to the social purpose corporation, its shareholders, or its corporate purposes as expressed in its articles, (v) for acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director’s duty to the social purpose corporation, its shareholders, or its corporate purposes as expressed in its articles pursuant to Section 2602, or (vi) under Section 310 or 2701.
(B) The provision shall not eliminate or limit the liability of a director for any act or omission occurring prior to the date on which the provision becomes effective.
(C) The provision shall not eliminate or limit the liability of an officer for any act or omission as an officer, notwithstanding that the officer is also a director or that his or her actions, if negligent or improper, have been ratified by the directors.
(11) A provision authorizing, whether by bylaw, agreement, or otherwise, the indemnification of agents of the social purpose corporation for breach of duty to the social purpose corporation and its shareholders, provided, however, that the provision may not provide for indemnification of any agent for any acts or omissions or transactions from which a director may not be relieved of liability as described in subparagraphs (A), (B), and (C) of paragraph (10).
Notwithstanding this subdivision, bylaws may require, for all or any actions by the board, the affirmative vote of a majority of the authorized number of directors. Nothing contained in this subdivision shall affect the enforceability, as between the parties thereto, of any lawful agreement not otherwise contrary to public policy.
(12) (A) In the case of a social purpose corporation that does not have outstanding securities listed on the New York Stock Exchange, the NYSE Amex, the NASDAQ Global Market, or the NASDAQ Capital Market, a provision authorizing records administered by or on behalf of the corporation in which the names of all of the corporation’s stockholders of record, the address and number of shares registered in the name of each of those stockholders, and all issuances and transfers of stock of the corporation to be recorded and kept on or by means of blockchain technology, provided that all of the following requirements are met:
(i) The encrypted information in the records can be decrypted and converted into a clearly readable format within a reasonable period of time.
(ii) The records can be used to prepare the list of shareholders.
(iii) The records can be used to record information required to be included on stock certificates.
(iv) The records can be used to record required transfers of stock.
(B) For purposes of this paragraph, “blockchain technology” means a mathematically secured, chronological, and decentralized consensus ledger or database.
(b) Reasonable restrictions upon the right to transfer or hypothecate shares of any class or classes or series, except that no restriction shall be binding with respect to shares issued prior to the adoption of the restriction unless the holders of those shares voted in favor of the restriction.
(c) The names and addresses of the persons appointed to act as initial directors.
(d) Any other provision, not in conflict with law, for the management of the business and for the conduct of the affairs of the social purpose corporation, including any provision that is required or permitted by this division to be stated in the bylaws.
(e) This section shall remain in effect only until January 1, 2022, and as of that date is repealed.

SEC. 4.

 Section 2603 is added to the Corporations Code, to read:

2603.
 The articles of incorporation may set forth:
(a) Any or all of the following provisions, which shall not be effective unless expressly provided in the articles:
(1) Granting, with or without limitations, the power to levy assessments upon the shares or any class of shares.
(2) Granting to shareholders preemptive rights to subscribe to any or all issues of shares or securities.
(3) Special qualifications of persons who may be shareholders.
(4) A provision limiting the duration of the social purpose corporation’s existence to a specified date.
(5) A provision requiring, for any or all corporate actions, except as provided in Section 303, subdivision (b) of Section 402.5, subdivision (c) of Section 708, and Section 1900, the vote of a larger proportion or of all of the shares of any class or series, or the vote or quorum for taking action of a larger proportion or of all of the directors, than is otherwise required by Division 1 (commencing with Section 100) or this division.
(6) So long as consistent with the purpose of the social purpose corporation as set forth in the articles in accordance with subdivision (b) of Section 2602, a provision limiting or restricting the business in which the social purpose corporation may engage or the powers which the social purpose corporation may exercise, or both.
(7) A provision conferring upon the holders of any evidences of indebtedness, issued or to be issued by the social purpose corporation, the right to vote in the election of the directors and on any other matters on which shareholders may vote.
(8) A provision conferring upon shareholders the right to determine the consideration for which shares shall be issued.
(9) A provision requiring the approval of the shareholders (Section 153) or the approval of the outstanding shares (Section 152) for any corporate action, even though not otherwise required by Division 1 (commencing with Section 100) or this division.
(10) Provisions eliminating or limiting the personal liability of a director for monetary damages in an action brought by or in the right of the social purpose corporation for breach of a director’s duties to the social purpose corporation and its shareholders, as set forth in Section 2700, subject to the following:
(A) The provision may not eliminate or limit the liability of directors (i) for acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (ii) for acts or omissions that a director believes to be contrary to the best interests of the social purpose corporation or its shareholders and its corporate purposes as expressed in its articles, or that involve the absence of good faith on the part of the director, (iii) for any transaction from which a director derived an improper personal benefit, (iv) for acts or omissions that show a reckless disregard for the director’s duty to the social purpose corporation or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director’s duties, of a risk of serious injury to the social purpose corporation, its shareholders, or its corporate purposes as expressed in its articles, (v) for acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director’s duty to the social purpose corporation, its shareholders, or its corporate purposes as expressed in its articles pursuant to Section 2602, or (vi) under Section 310 or 2701.
(B) The provision shall not eliminate or limit the liability of a director for any act or omission occurring prior to the date on which the provision becomes effective.
(C) The provision shall not eliminate or limit the liability of an officer for any act or omission as an officer, notwithstanding that the officer is also a director or that his or her actions, if negligent or improper, have been ratified by the directors.
(11) A provision authorizing, whether by bylaw, agreement, or otherwise, the indemnification of agents of the social purpose corporation for breach of duty to the social purpose corporation and its shareholders, provided, however, that the provision may not provide for indemnification of any agent for any acts or omissions or transactions from which a director may not be relieved of liability as described in subparagraphs (A), (B), and (C) of paragraph (10).
Notwithstanding this subdivision, bylaws may require, for all or any actions by the board, the affirmative vote of a majority of the authorized number of directors. Nothing contained in this subdivision shall affect the enforceability, as between the parties thereto, of any lawful agreement not otherwise contrary to public policy.
(b) Reasonable restrictions upon the right to transfer or hypothecate shares of any class or classes or series, except that no restriction shall be binding with respect to shares issued prior to the adoption of the restriction unless the holders of those shares voted in favor of the restriction.
(c) The names and addresses of the persons appointed to act as initial directors.
(d) Any other provision, not in conflict with law, for the management of the business and for the conduct of the affairs of the social purpose corporation, including any provision that is required or permitted by this division to be stated in the bylaws.
(e) This section shall become operative on January 1, 2022.