In addition to the embarrassment factor for counsel and the extra time and expense involved, a rejected corporate filing can throw a wrench into what would otherwise be an orderly sequence of events in a transaction. To avoid all of these problems, be mindful of the following reasons why common types of filings get rejected by the California Secretary of State.
Amendments to articles of incorporation. To amend its articles of incorporation, a corporation must file a certificate of amendment with the California Secretary of State. Here are some common problems with the certificate of amendment:
- Failing to identify class votes. The certificate of amendment must include a statement that the amendment has been approved by the issued and outstanding shares of the corporation, including any required class votes. Check Corp C §§902, 903, and 905(c) for details.
- Changing status requires voting information, too. A corporation may, by amending its articles, change its status to that of a social purpose corporation, a nonprofit, or a cooperative corporation. But in addition to changing its name and purpose, it must also meet certain shareholder voting requirements and state so on the certificate of amendment. See Corp C §911.
- Amending the agent for service of process. A corporation may not change its agent for service of process by filing an amendment to the articles of incorporation. Corp C §900(b). The proper method is to file a statement of information with the Secretary of State. Corp C §1502.
- Blending pre-1977 statutory requirements with post-1977 statutory requirements. See Corp C §2302.
Entity conversion. Issues frequently arise when converting an LLC into a corporation, particularly when filers ignore the new requirements of the Revised Uniform Limited Liability Company Act (RULLCA). The three most common mistakes are:
- Citing to the former LLC Act in the conversion statement. An LLC converting into a corporation must include a statement of conversion within the articles of incorporation of the converted entity. Many filers continue to mistakenly reference the Beverly-Killea Limited Liability Company Act in the conversion statement rather than RULLCA.
- Managers mistakenly signing the statement or certificate of conversion. A statement or certificate of conversion must be signed or acknowledged by the members—not managers—of the LLC. Corp C §17710.06(b).
- Failing to include the initial street address of the converted corporation. A certificate of conversion must be filed to convert a California LLC into a foreign LLC. The certificate of conversion must include several items of information, including the street address of the converted entity’s chief executive office. See Corp C §17710.06(c) for further details.
Dissolution. Dissolving a California domestic stock corporation starts with an election to dissolve. The corporation must then file certain documents with the Secretary of State, including a certificate of dissolution. Common reasons why the certificate of dissolution is rejected are:
- Failing to describe, in an attachment, the provision made for the corporation’s known debts and liabilities.
- Making contradictory statements regarding corporate assets. For example, filers who select that “debts and liabilities have been paid as far as assets permitted” in section 3 cannot also state that the corporation has never acquired assets in section 4.
- Making contradictory statements between the certificate of dissolution and the certificate of election. If fewer than all of the outstanding shares vote to dissolve a corporation, a certificate of election to wind up and dissolve is also required. Be sure the information in each certificate is consistent!
For more details on these common filing mistakes, check out the featured article Common Reasons the California Secretary of State Rejects Corporate Filings in the July 2015 issue of CEB’s California Business Law Reporter. For more about LLC conversions, turn to CEB’s Forming and Operating California Limited Liability Companies, chap 11. On corporate dissolutions, see CEB’s Counseling California Corporations, chap 11.
Corporate merger filings have their own set of mistakes; in our next blog post learn what not to do on merger filings.
Other CEBblog™ posts you may find interesting:
- First Case Under RULLCA Highlights Important New Remedy
- Post-Dispute Adoption of Arbitration Bylaw Fails
- The Perils of an Attorney Joining a Corporate Board
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