Code Section Group

Corporations Code - CORP

TITLE 1. CORPORATIONS [100 - 14631]

  ( Title 1 enacted by Stats. 1947, Ch. 1038. )

DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500 - 3503]

  ( Heading of Division 1.5 amended by Stats. 2014, Ch. 694, Sec. 12. )

CHAPTER 3. Directors and Management [2700 - 2702]
  ( Chapter 3 added by Stats. 2011, Ch. 740, Sec. 12. )

2700.
  

(a) A director shall perform the duties of a director, including duties as a member of any committee of the board upon which the director may serve, in good faith, in a manner the director believes to be in the best interests of the social purpose corporation and its shareholders, and with that care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.

(b) In performing the duties of a director, a director shall be entitled to rely upon information, opinions, reports, or statements, including financial statements and other financial data, in each case prepared or presented by any of the following:

(1) An officer or employee of the social purpose corporation whom the director believes to be reliable and competent in the matters presented.

(2) Counsel, independent accountants, or other persons as to matters which the director believes to be within that person’s professional or expert competence.

(3) A committee of the board upon which the director does not serve, as to matters within its designated authority, which committee the director believes to merit confidence, so long as the director acts in good faith, after reasonable inquiry when the need therefor is indicated by the circumstances and without knowledge that would cause that reliance to be unwarranted.

(c) In discharging his or her duties, a director shall consider those factors, and give weight to those factors, as the director deems relevant, including the overall prospects of the social purpose corporation, the best interests of the social purpose corporation and its shareholders, and the purposes of the social purpose corporation as set forth in its articles.

(d) A person who performs the duties of a director in accordance with subdivisions (a), (b), and (c) shall have no liability based upon any alleged failure to discharge the person’s obligations as a director. The liability of a director for monetary damages may be eliminated or limited by a social purpose corporation’s articles to the extent provided in paragraph (10) of subdivision (a) of Section 2603.

(e) Notwithstanding any of the purposes set forth in its articles, a social purpose corporation shall not be deemed to hold any of its assets for the benefit of any party other than its shareholders. However, nothing in this division shall be construed as negating existing charitable trust principles or the Attorney General’s authority to enforce any charitable trust created.

(f) Nothing in this section, express or implied, is intended to create or grant or shall create or grant any right in or for any person or any cause of action by or for any person, and a director shall not be responsible to any party other than the social purpose corporation and its shareholders.

(Amended by Stats. 2014, Ch. 694, Sec. 42. Effective January 1, 2015.)

2701.
  

(a) Subject to Section 2700, directors of a social purpose corporation who approve any of the following corporate actions shall be jointly and severally liable to the social purpose corporation for the benefit of all of the creditors or shareholders entitled to institute an action under subdivision (c):

(1) The making of any distribution to its shareholders to the extent that it is contrary to the provisions of Sections 500 to 503, inclusive.

(2) The distribution of assets to shareholders after institution of dissolution proceedings of the social purpose corporation, without paying or adequately providing for all known liabilities of the social purpose corporation, excluding any claims not filed by creditors within the time limit set by the court in a notice given to creditors under Chapter 18 (commencing with Section 1800) of Division 1, Chapter 20 (commencing with Section 1900) of Division 1, and Chapter 20 (commencing with Section 2000).

(3) The making of any loan or guaranty contrary to Section 2715.

(b) A director who is present at a meeting of the board, or any committee of the board, at which an action specified in subdivision (a) is taken and who abstains from voting, shall be deemed to have approved the action.

(c) Suit may be brought in the name of the social purpose corporation to enforce the liability as follows:

(1) Under paragraph (1) of subdivision (a) against any or all directors liable, by the persons entitled to sue under subdivision (b) of Section 506.

(2) Under paragraph (2) or (3) of subdivision (a) against any or all directors liable, by any one or more creditors of the social purpose corporation whose debts or claims arose prior to the time of any of the corporate actions specified in paragraph (2) or (3) of subdivision (a) and who have not consented to the corporate action, regardless of whether they have reduced their claims to judgment.

(3) Under paragraph (3) of subdivision (a) against any or all directors liable, by any one or more holders of shares outstanding at the time of any corporate action specified in paragraph (3) of subdivision (a) who have not consented to the corporate action, without regard to the provisions of Section 2900.

(d) The damages recoverable from a director under this section shall be the amount of the illegal distribution, or if the illegal distribution consists of property, the fair market value of that property at the time of the illegal distribution, plus interest thereon from the date of the distribution at the legal rate on judgments until paid, together with all reasonably incurred costs of appraisal or other valuation, if any, of that property or loss suffered by the social purpose corporation as a result of the illegal loan or guaranty, respectively, but not exceeding the liabilities of the social purpose corporation owed to nonconsenting creditors at the time of the violation and the injury suffered by nonconsenting shareholders.

(e) Any director sued under this section may implead all other directors liable and may compel contribution, either in that action or in an independent action against directors not joined in that action.

(f) Directors liable under this section shall also be entitled to be subrogated to the rights of the social purpose corporation:

(1) With respect to paragraph (1) of subdivision (a), against shareholders who received the distribution.

(2) With respect to paragraph (2) of subdivision (a), against shareholders who received the distribution of assets.

(3) With respect to paragraph (3) of subdivision (a), against the person who received the loan or guaranty.

Any director sued under this section may file a cross-complaint against the person or persons who are liable to the director as a result of the subrogation provided for in this subdivision or may proceed against them in an independent action.

(Amended by Stats. 2014, Ch. 694, Sec. 43. Effective January 1, 2015.)

2702.
  

(a) For the purposes of this section:

(1) “Agent” means any person who is or was a director, officer, employee, or other agent of the social purpose corporation, or is or was serving at the request of the social purpose corporation as a director, officer, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, or other enterprise, or was a director, officer, employee, or agent of a foreign or domestic corporation which was a predecessor corporation of the social purpose corporation or of another enterprise at the request of the predecessor corporation.

(2) “Proceeding” means any threatened, pending, or completed action or proceeding, whether civil, criminal, administrative, or investigative.

(3) “Expenses” includes without limitation attorneys’ fees and any expenses of establishing a right to indemnification under subdivision (b).

(b) Subject to the standards and restrictions, if any, set forth in its articles or bylaws, and subject to the limitations required by paragraph (11) of subdivision (a) of Section 2603, a social purpose corporation may indemnify and hold harmless any agent or any other person from and against any and all claims and demands whatsoever.

(c) Expenses incurred in defending any proceeding may be advanced by the social purpose corporation prior to the final disposition of the proceeding. The provisions of subdivision (a) of Section 315 do not apply to advances made pursuant to this subdivision.

(d) A social purpose corporation may purchase and maintain insurance on behalf of any of its agents against any liability asserted against or incurred by the agent in that capacity or arising out of the agent’s status as an agent regardless of whether the social purpose corporation would have the power to indemnify the agent against that liability under this section. The fact that a social purpose corporation owns all or a portion of the shares of the company issuing a policy of insurance shall not render this subdivision inapplicable if either of the following conditions are satisfied:

(1) The insurance provided by this subdivision is limited as indemnification is required to be limited by paragraph (11) of subdivision (a) of Section 2603.

(2) (A) The company issuing the insurance policy is organized, licensed, and operated in a manner that complies with the insurance laws and regulations applicable to its jurisdiction of organization.

(B) The company issuing the policy provides procedures for processing claims that do not permit that company to be subject to the direct control of the social purpose corporation that purchased that policy.

(C) The policy issued provides for some manner of risk sharing between the issuer and purchaser of the policy, on one hand, and some unaffiliated person or persons, on the other, such as by providing for more than one unaffiliated owner of the company issuing the policy or by providing that a portion of the coverage furnished will be obtained from some unaffiliated insurer or reinsurer.

(e) This section does not apply to any proceeding against any trustee, investment manager, or other fiduciary of an employee benefit plan in that person’s capacity as such, even though the person may also be an agent as defined in subdivision (a) of the employer social purpose corporation. A social purpose corporation shall have power to indemnify a trustee, investment manager, or other fiduciary to the extent permitted by subdivision (f) of Section 2605.

(Amended by Stats. 2014, Ch. 694, Sec. 44. Effective January 1, 2015.)

CORPCorporations Code - CORP