SB 838: Corporate records: articles of incorporation: blockchain technology.
- Session Year: 2017-2018
- House: Senate
- Latest Version Date: 2018-09-28
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 corporations 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.
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 corporations 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.
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 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 corporations 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.
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 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 corporations 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.
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 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 corporations 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 or one or more distributed electronic networks, technology, as specified.
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 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 corporations 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 or one or more distributed electronic networks, as specified.
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 a corporation, nonprofit public benefit corporation, nonprofit mutual benefit corporation, or nonprofit religious corporation or a social purpose corporation 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 corporations 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 or one or more distributed electronic networks, as specified.
Existing law authorizes the Secretary of State to adopt rules and regulations to authorize the electronic filing of any documents required to be filed with the Secretary of State under any law administered by the Secretary of State. Existing law also authorizes the filing officer to employ a system of microphotography, optical disk, or reproduction by other techniques, which do not permit additions, deletions, or changes to the original documents.This bill would also authorize the filing officer to use blockchain technology or one or more distributed electronic networks for the filing of the records of corporations that are authorized to be recorded and kept in that manner pursuant to the bills provisions.Existing law requires the Secretary of State to approve and adopt uniform statewide standards for the purpose of storing and recording permanent and nonpermanent documents in electronic media, as specified, and requires those standards to include a requirement that a trusted system, as defined, be utilized. A trusted system, for these purposes, includes cloud computing, as defined, that meets specified requirements.This bill would specify that a trusted system, for these purposes, includes blockchain technology or a distributed electronic network, as defined.Existing law authorizes and regulates the formation and operation of a 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 a corporation, nonprofit public benefit corporation, nonprofit mutual benefit corporation, or nonprofit religious corporation 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 corporations 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 or one or more distributed electronic networks, as specified.
Existing law authorizes the Secretary of State to adopt rules and regulations to authorize the electronic filing of any documents required to be filed with the Secretary of State under any law administered by the Secretary of State. Existing law also authorizes the filing officer to employ a system of microphotography, optical disk, or reproduction by other techniques, which do not permit additions, deletions, or changes to the original documents.
This bill would also authorize the filing officer to use blockchain technology or one or more distributed electronic networks for the filing of the records of corporations that are authorized to be recorded and kept in that manner pursuant to the bills provisions.
Existing law requires the Secretary of State to approve and adopt uniform statewide standards for the purpose of storing and recording permanent and nonpermanent documents in electronic media, as specified, and requires those standards to include a requirement that a trusted system, as defined, be utilized. A trusted system, for these purposes, includes cloud computing, as defined, that meets specified requirements.
This bill would specify that a trusted system, for these purposes, includes blockchain technology or a distributed electronic network, as defined.
Existing law requires a county recorder to file and record certified copies of final judgments or decrees partitioning or affecting the title or possession of real property, any part of which is situated in the county.This bill would make a nonsubstantive change to this provision.Existing law requires a county recorder to file and record certified copies of final judgments or decrees partitioning or affecting the title or possession of real property, any part of which is situated in the county.
This bill would make a nonsubstantive change to this provision.
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 corporations 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 directors 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 directors 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 directors 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 directors 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 corporations 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 corporations 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 directors 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 directors 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 directors 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 directors 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 corporations 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 directors 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 directors 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 directors 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 directors 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 corporations 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 corporations 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 directors 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 directors 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 directors 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 directors 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.
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 corporations 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 directors 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 directors 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 directors 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 directors 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 corporations 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 corporations 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 directors 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 directors 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 directors 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 directors 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 corporations 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 directors 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 directors 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 directors 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 directors 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 corporations 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 corporations 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 directors 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 directors 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 directors 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 directors 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.
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 corporations 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 directors 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 directors 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 directors 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 directors 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 corporations 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 corporations 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 directors 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 directors 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 directors 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 directors 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. 2.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 corporations 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 directors 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 directors 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 directors 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 directors 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 corporations 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 corporations 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 directors 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 directors 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 directors 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 directors 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.
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 corporations 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 directors 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 directors 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 directors 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 directors 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 corporations 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 distributed ledger technology that uses a distributed, decentralized, shared, and reciprocal ledger that may be public or private, permissioned or permissionless, or driven by tokenized crypto economics or tokenless. The data on the ledger is protected with cryptography, is immutable, is auditable, and provides an uncensored truth. 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.
SEC. 2.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 corporations 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 directors 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 directors 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 directors 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 directors 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 corporations 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 distributed ledger technology that uses a distributed, decentralized, shared, and reciprocal ledger that may be public or private, permissioned or permissionless, or driven by tokenized crypto economics or tokenless. The data on the ledger is protected with cryptography, is immutable, is auditable, and provides an uncensored truth. 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.
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 corporations 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 directors 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 directors 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 directors 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 directors 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 corporations 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 or one or more distributed electronic networks, 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 legible paper 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 pursuant to this code. certificates.
(iv)The records can be used to record required transfers of stock required pursuant to this code. stock.
(B)For purposes of this paragraph, blockchain technology or a distributed electronic network technology means a distributed ledger technology that uses a distributed, decentralized, shared, and reciprocal ledger that may be public or private, permissioned or permissionless, or driven by tokenized crypto economics or tokenless. The data on the ledger is protected with cryptography, is immutable, is auditable, and provides an uncensored truth.
(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. 2.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 corporations 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 directors 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 directors 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 directors 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 directors 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 corporations 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 or one or more distributed electronic networks, 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 legible paper 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 pursuant to this code. certificates.
(iv)The records can be used to record required transfers of stock required pursuant to this code. stock.
(B)For purposes of this paragraph, blockchain technology or a distributed electronic network technology means a distributed ledger technology that uses a distributed, decentralized, shared, and reciprocal ledger that may be public or private, permissioned or permissionless, or driven by tokenized crypto economics or tokenless. The data on the ledger is protected with cryptography, is immutable, is auditable, and provides an uncensored truth.
(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.
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 corporations 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 directors 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 directors 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 directors 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 directors 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)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 corporations 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 or one or more distributed electronic networks, provided that all of the following requirements are met:
(i)The records can be converted into clearly legible paper 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 pursuant to this code.
(iv)The records can be used to record transfers of stock required pursuant to this code.
(B)For purposes of this paragraph, blockchain technology or a distributed electronic network means a distributed ledger technology that uses a distributed, decentralized, shared, and reciprocal ledger that may be public or private, permissioned or permissionless, or driven by tokenized crypto economics or tokenless. The data on the ledger is protected with cryptography, is immutable, is auditable, and provides an uncensored truth.
(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. 2.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 corporations 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 directors 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 directors 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 directors 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 directors 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)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 corporations 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 or one or more distributed electronic networks, provided that all of the following requirements are met:
(i)The records can be converted into clearly legible paper 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 pursuant to this code.
(iv)The records can be used to record transfers of stock required pursuant to this code.
(B)For purposes of this paragraph, blockchain technology or a distributed electronic network means a distributed ledger technology that uses a distributed, decentralized, shared, and reciprocal ledger that may be public or private, permissioned or permissionless, or driven by tokenized crypto economics or tokenless. The data on the ledger is protected with cryptography, is immutable, is auditable, and provides an uncensored truth.
(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.
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 corporations 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 directors 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 directors 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 directors 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 directors 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)A provision authorizing records administered by or on behalf of the corporation in which the names of all of the corporations 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 or one or more distributed electronic networks, provided that all of the following requirements are met:
(i)The records can be converted into clearly legible paper 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 pursuant to this code.
(iv)The records can be used to record transfers of stock required pursuant to this code.
(B)For purposes of this paragraph, blockchain technology or a distributed electronic network means a distributed ledger technology that uses a distributed, decentralized, shared, and reciprocal ledger that may be public or private, permissioned or permissionless, or driven by tokenized crypto economics or tokenless. The data on the ledger is protected with cryptography, is immutable, is auditable, and provides an uncensored truth.
(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. 2.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 corporations 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 directors 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 directors 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 directors 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 directors 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)A provision authorizing records administered by or on behalf of the corporation in which the names of all of the corporations 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 or one or more distributed electronic networks, provided that all of the following requirements are met:
(i)The records can be converted into clearly legible paper 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 pursuant to this code.
(iv)The records can be used to record transfers of stock required pursuant to this code.
(B)For purposes of this paragraph, blockchain technology or a distributed electronic network means a distributed ledger technology that uses a distributed, decentralized, shared, and reciprocal ledger that may be public or private, permissioned or permissionless, or driven by tokenized crypto economics or tokenless. The data on the ledger is protected with cryptography, is immutable, is auditable, and provides an uncensored truth.
(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.
All matter omitted in this version of the bill appears in the bill as amended in the Senate, March 22, 2018. (JR11)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 corporations 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 directors 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 directors 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 directors 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 directors 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)A provision authorizing records administered by or on behalf of the corporation in which the names of all of the corporations 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 or one or more distributed electronic networks, provided that all of the following requirements are met:
(i)The records can be converted into clearly legible paper 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 pursuant to this code.
(iv)The records can be used to record transfers of stock required pursuant to this code.
(B)For purposes of this paragraph, blockchain technology or a distributed electronic network means a distributed ledger technology that uses a distributed, decentralized, shared, and reciprocal ledger that may be public or private, permissioned or permissionless, or driven by tokenized crypto economics or tokenless. The data on the ledger is protected with cryptography, is immutable, is auditable, and provides an uncensored truth.
(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. 2.Section 5132 of the Corporations Code is amended to read:5132.(a)The articles of incorporation may set forth any or all of the following provisions, which shall not be effective unless expressly provided in the articles:
(1)A provision limiting the duration of the corporations existence to a specified date.
(2)In the case of a subordinate corporation instituted or created under the authority of a head organization, a provision setting forth either or both of the following:
(A)That the subordinate corporation shall dissolve whenever its charter is surrendered to, taken away by, or revoked by the head organization granting it.
(B)That in the event of its dissolution pursuant to an article provision allowed by subparagraph (A) or in the event of its dissolution for any reason, any assets of the corporation after compliance with the applicable provisions of Chapters 15 (commencing with Section 6510), 16 (commencing with Section 6610) and 17 (commencing with Section 6710) shall be distributed to the head organization.
(b)Nothing contained in subdivision (a) shall affect the enforceability, as between the parties thereto, of any lawful agreement not otherwise contrary to public policy.
(c)The articles of incorporation may set forth any or all of the following provisions:
(1)The names and addresses of the persons appointed to act as initial directors.
(2)The classes of members, if any, and if there are two or more classes, the rights, privileges, preferences, restrictions and conditions attaching to each class.
(3)A provision that would allow any member to have more or less than one vote in any election or other matter presented to the members for a vote.
(4)A provision that requires an amendment to the articles, as provided in subdivision (a) of Section 5812, or to the bylaws, and any amendment or repeal of that amendment, to be approved in writing by a specified person or persons other than the board or the members. However, this approval requirement, unless the articles specify otherwise, shall not apply if any of the following circumstances exist:
(A)The specified person or persons have died or ceased to exist.
(B)If the right of the specified person or persons to approve is in the capacity of an officer, trustee, or other status and the office, trust, or status has ceased to exist.
(C)If the corporation has a specific proposal for amendment or repeal, and the corporation has provided written notice of that proposal, including a copy of the proposal, to the specified person or persons at the most recent address for each of them, based on the corporations records, and the corporation has not received written approval or nonapproval within the period specified in the notice, which shall not be less than 10 nor more than 30 days commencing at least 20 days after the notice has been provided.
(5)(A)A provision authorizing records administered by or on behalf of the corporation in which the names of all of the corporations 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 or one or more distributed electronic networks, provided that all of the following requirements are met:
(i)The records can be converted into clearly legible paper 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 pursuant to this code.
(iv)The records can be used to record transfers of stock required pursuant to this code.
(B)For purposes of this paragraph, blockchain technology or a distributed electronic network means a distributed ledger technology that uses a distributed, decentralized, shared, and reciprocal ledger, that may be public or private, permissioned or permissionless, or driven by tokenized crypto economics or tokenless. The data on the ledger is protected with cryptography, is immutable, is auditable, and provides an uncensored truth.
(5)(6)Any other provision, not in conflict with law, for the management of the activities and for the conduct of the affairs of the corporation, including any provision that is required or permitted by this part to be stated in the bylaws.
SEC. 3.Section 7132 of the Corporations Code is amended to read:7132.(a)The articles of incorporation may set forth any or all of the following provisions, which shall not be effective unless expressly provided in the articles:
(1)A provision limiting the duration of the corporations existence to a specified date.
(2)A provision conferring upon the holders of any evidences of indebtedness, issued or to be issued by a corporation the right to vote in the election of directors and on any other matters on which members may vote under this part even if the corporation does not have members.
(3)A provision conferring upon members the right to determine the consideration for which memberships shall be issued.
(4)In the case of a subordinate corporation instituted or created under the authority of a head organization, a provision setting forth either or both of the following:
(A)That the subordinate corporation shall dissolve whenever its charter is surrendered to, taken away by, or revoked by the head organization granting it.
(B)That in the event of its dissolution pursuant to an article provision allowed by subparagraph (A) or in the event of its dissolution for any reason, any assets of the corporation after compliance with the applicable provisions of Chapters 15 (commencing with Section 8510), 16 (commencing with Section 8610), and 17 (commencing with Section 8710) shall be distributed to the head organization.
(b)Nothing contained in subdivision (a) shall affect the enforceability, as between the parties thereto, of any lawful agreement not otherwise contrary to public policy.
(c)The articles of incorporation may set forth any or all of the following provisions:
(1)The names and addresses of the persons appointed to act as initial directors.
(2)Provisions concerning the transfer of memberships, in accordance with Section 7320.
(3)The classes of members, if any, and if there are two or more classes, the rights, privileges, preferences, restrictions and conditions attaching to each class.
(4)A provision which would allow any member to have more or less than one vote in any election or other matter presented to the members for a vote.
(5)A provision that requires an amendment to the articles, as provided in subdivision (a) of Section 7812, or to the bylaws, and any amendment or repeal of that amendment, to be approved in writing by a specified person or persons other than the board or the members. However, this approval requirement, unless the articles specify otherwise, shall not apply if any of the following circumstances exist:
(A)The specified person or persons have died or ceased to exist.
(B)If the right of the specified person or persons to approve is in the capacity of an officer, trustee, or other status and the office, trust, or status has ceased to exist.
(C)If the corporation has a specific proposal for amendment or repeal, and the corporation has provided written notice of that proposal, including a copy of the proposal, to the specified person or persons at the most recent address for each of them, based on the corporations records, and the corporation has not received written approval or nonapproval within the period specified in the notice, which shall not be less than 10 nor more than 30 days commencing at least 20 days after the notice has been provided.
(6)(A)A provision authorizing records administered by or on behalf of the corporation in which the names of all of the corporations 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 or one or more distributed electronic networks, provided that all of the following requirements are met:
(i)The records can be converted into clearly legible paper 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 pursuant to this code.
(iv)The records can be used to record transfers of stock required pursuant to this code.
(B)For purposes of this paragraph, blockchain technology or a distributed electronic network means a distributed ledger technology that uses a distributed, decentralized, shared, and reciprocal ledger that may be public or private, permissioned or permissionless, or driven by tokenized crypto economics or tokenless. The data on the ledger is protected with cryptography, is immutable, is auditable, and provides an uncensored truth.
(6)(7)Any other provision, not in conflict with law, for the management of the activities and for the conduct of the affairs of the corporation, including any provision which is required or permitted by this part to be stated in the bylaws.
SEC. 4.Section 9132 of the Corporations Code is amended to read:9132.(a)The articles of incorporation may set forth any or all of the following provisions, which shall not be effective unless expressly provided in the articles:
(1)A provision limiting the duration of the corporations existence to a specified date.
(2)In the case of a subordinate corporation instituted or created under the authority of a head organization, a provision setting forth either or both of the following:
(A)That the subordinate corporation shall dissolve whenever its charter is surrendered to, taken away by, or revoked by the head organization granting it.
(B)That in the event of its dissolution pursuant to an article provision allowed by subparagraph (A) or in the event of its dissolution for any reason, any assets of the corporation after compliance with the applicable provisions of Chapters 16 (commencing with Section 6610) and 17 (commencing with Section 6710) (made applicable pursuant to Section 9680) shall be distributed to the head organization.
(b)Nothing contained in subdivision (a) shall affect the enforceability, as between the parties thereto, of any lawful agreement not otherwise contrary to public policy.
(c)The articles of incorporation may set forth any or all of the following provisions:
(1)The names and addresses of the persons appointed to act as initial directors.
(2)The classes of members, if any, and if there are two or more classes, the rights, privileges, preferences, restrictions and conditions attaching to each class.
(3)A provision which would allow any member to have more or less than one vote in any election or other matter presented to the members for a vote.
(4)A provision that requires an amendment to the articles or to the bylaws, and any amendment or repeal of that amendment, to be approved in writing by a specified person or persons other than the board or the members. However, this approval requirement, unless the articles or the bylaws specify otherwise, shall not apply if any of the following circumstances exist:
(A)The specified person or persons have died or ceased to exist.
(B)If the right of the specified person or persons to approve is in the capacity of an officer, trustee, or other status and the office, trust, or status has ceased to exist.
(C)If the corporation has a specific proposal for amendment or repeal, and the corporation has provided written notice of that proposal, including a copy of the proposal, to the specified person or persons at the most recent address for each of them, based on the corporations records, and the corporation has not received written approval or nonapproval within the period specified in the notice, which shall not be less than 10 nor more than 30 days commencing at least 20 days after the notice has been provided.
(5)(A)A provision authorizing records administered by or on behalf of the corporation in which the names of all of the corporations 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 or one or more distributed electronic networks, provided that all of the following requirements are met:
(i)The records can be converted into clearly legible paper 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 pursuant to this code.
(iv)The records can be used to record transfers of stock required pursuant to this code.
(B)For purposes of this paragraph, blockchain technology or a distributed electronic network means a distributed ledger technology that uses a distributed, decentralized, shared, and reciprocal ledger that may be public or private, permissioned or permissionless, or driven by tokenized crypto economics or tokenless. The data on the ledger is protected with cryptography, is immutable, is auditable, and provides an uncensored truth.
(5)(6)Any other provision, not in conflict with law, for the management of the activities and for the conduct of the affairs of the corporation, including any provision which is required or permitted by this part to be stated in the bylaws.
SEC. 5.Section 12168.5 of the Government Code is amended to read:12168.5.(a)When not inconsistent with other provisions of law, in lieu of filing or recording documents presented in paper format, the Secretary of State may adopt rules and regulations to authorize the electronic filing, including filing by facsimile, of any document required to be filed with the Secretary of State under any act administered by the Secretary of State. The rules and regulations may set forth standards for the acceptance of a signature in a form other than the proper handwriting of the person filing a document that requires his or her signature. A signature on a document electronically filed or filed by facsimile in accordance with those rules and regulations is prima facie evidence for all purposes that the document actually was signed by the person whose signature appears on the electronically filed document or facsimile.
The filing or recording shall constitute a unique computerized informational record. The record need not be retained in the form in which it is received, if the technology used to retain the record results in a permanent record that does not permit additions, deletions, or changes in the original document and from which an accurate image may be created during the period for which the record is required to be retained.
The filing officer may employ a system of microphotography, optical disk, or reproduction by other techniques that do not permit additions, deletions, or changes to the original document. The filing officer may also use blockchain technology or one or more distributed electronic networks for the filing of the records of a corporation that are authorized to be recorded and kept in that manner by the corporations articles of incorporation as described in Sections 204, 5132, 7132, and 9132 of the Corporations Code.
(b)Notwithstanding Section 7550.5, the Secretary of State shall prepare and submit to the Legislature at the commencement of the public comment period required under Article 5 (commencing with Section 11346) of Chapter 3.5 of Part 1 a report of, and a copy of, any rules and regulations proposed pursuant to subdivision (a) to authorize the electronic filing, including filing by facsimile, of documents required to be filed with the Secretary of State.
(c)All film used in the microphotography process shall comply with minimum standards of quality approved by the United States Bureau of Standards and the American National Standards Institute. A true copy of the microfilm, optical disk, or other storage medium shall be kept in a safe and separate place for security purposes. A reproduction of any document filed, recorded, stored, or retained on microfilm, optical disk, or by other technology pursuant to this section shall be as admissible in any court as the original itself.
The Secretary of State shall obtain the approval of the Fair Political Practices Commission before applying this section to a filing or recording under the Political Reform Act of 1974 (Title 9 (commencing with Section 81000)).
(d)For purposes of this section blockchain technology and distributed electronic network have the same meanings as those terms are defined in Section 12168.7.
SEC. 6.Section 12168.7 of the Government Code is amended to read:12168.7.(a)The California Legislature hereby recognizes the need to adopt uniform statewide standards for the purpose of storing and recording permanent documents in electronic media.
(b)In order to ensure that uniform statewide standards remain current and relevant, the Secretary of State shall approve and adopt appropriate standards established by the American National Standards Institute.
(c)The standards specified in subdivision (b) shall include a requirement that a trusted system be utilized. For this purpose and for purposes of Sections 25105, 26205, 26205.1, 26205.5, 26907, 27001, 27322.2, 34090.5, and 60203, Section 102235 of the Health and Safety Code, and Section 10851 of the Welfare and Institutions Code, trusted system means a combination of technologies, policies, and procedures for which there is no plausible scenario in which a document retrieved from or reproduced by the system could differ substantially from the document that is originally stored.
(d)(1)A cloud computing storage service that complies with International Organization for Standardization ISO/IEC 27001:2013, or other applicable industry-recognized standard relating to security techniques and information security management, and provides administrative users with controls to prevent stored records from being overwritten, deleted, or altered shall be considered a trusted system.
(2)Blockchain technology or a distributed electronic network shall be considered a trusted system.
(e)A trusted system shall comply with applicable standards articulated in the State Administrative Manual and the Statewide Information Management Manual. This requirement applies to state agencies and does not apply to local government entities.
(f)(1)For purposes of this section cloud computing is defined by the National Institute of Standards and Technology Special Publication 800-145 or a successor publication, and includes the service and deployment models referenced therein.
(2)For purposes of this section blockchain technology or a distributed electronic network means a distributed ledger technology that uses a distributed, decentralized, shared, and reciprocal ledger that may be public or private, permissioned or permissionless, or driven by tokenized crypto economics or tokenless. The data on the ledger is protected with cryptography, is immutable, is auditable, and provides an uncensored truth.
(g)State officials shall ensure that microfilming, electronic data imaging, and photographic reproduction are done in compliance with the minimum standards or guidelines, or both, as recommended by the American National Standards Institute for recording of permanent records.
(h)Nothing in this section shall prohibit a local government entity from adopting applicable standards articulated in the State Administrative Manual and the Statewide Information Management Manual for purposes of utilizing a trusted system as defined in subdivision (c).
SECTION 1.Section 27326 of the Government Code is amended to read:27326.The recorder shall file and record in the record of deeds, grants, and transfers, certified copies of final judgments or decrees partitioning or affecting the title or possession of real property, any part of which is situated in the recorders county. From the time of filing with the recorder for record, the certified copy of the judgment or decree imparts notice to all persons of its contents, and any subsequent purchaser, mortgagee, and lien-holder purchases and takes with the same notice and effect as if the copy of the decree were a duly recorded deed, grant, or transfer.The recorder shall file and record in the record of deeds, grants, and transfers, certified copies of final judgments or decrees partitioning or affecting the title or possession of real property, any part of which is situated in his the recorders county. From the time of filing with the recorder for record, the certified copy of the judgment or decree imparts notice to all persons of its contents, and any subsequent purchaser, mortgagee, and lien-holder purchases and takes with the same notice and effect as if the copy of the decree were a duly recorded deed, grant, or transfer.
|
Date
|
Status
|
|---|---|
| Sep 28, 2018 | Chaptered by Secretary of State. Chapter 889, Statutes of 2018. |
| Sep 28, 2018 | Approved by the Governor. |
| Sep 11, 2018 | Enrolled and presented to the Governor at 4 p.m. |
| Aug 31, 2018 | Assembly amendments concurred in. (Ayes 39. Noes 0.) Ordered to engrossing and enrolling. |
| Aug 31, 2018 | Ordered to special consent calendar. |
| Aug 30, 2018 | In Senate. Concurrence in Assembly amendments pending. |
| Aug 30, 2018 | Read third time. Passed. Ordered to the Senate. |
| Aug 7, 2018 | Read second time. Ordered to third reading. |
| Aug 6, 2018 | Read second time and amended. Ordered to second reading. |
| Jul 5, 2018 | From committee: Do pass as amended. (Ayes 10. Noes 0.) (July 3). |
| Jun 19, 2018 | From committee: Do pass and re-refer to Com. on P. & C.P. (Ayes 11. Noes 0.) (June 18). Re-referred to Com. on P. & C.P. |
| Jun 14, 2018 | From committee with author's amendments. Read second time and amended. Re-referred to Com. on B. & F. |
| May 31, 2018 | Referred to Coms. on B. & F. and P. & C.P. |
| May 17, 2018 | In Assembly. Read first time. Held at Desk. |
| May 17, 2018 | Read third time. Passed. (Ayes 38. Noes 0.) Ordered to the Assembly. |
| May 10, 2018 | Read second time and amended. Ordered to third reading. |
| May 9, 2018 | From committee: Do pass as amended. (Ayes 7. Noes 0.) (May 8). |
| Apr 27, 2018 | Set for hearing May 8. |
| Apr 25, 2018 | From committee with author's amendments. Read second time and amended. Re-referred to Com. on JUD. |
| Apr 19, 2018 | From committee: Do pass and re-refer to Com. on JUD. (Ayes 6. Noes 0.) (April 18). Re-referred to Com. on JUD. |
| Apr 10, 2018 | From committee with author's amendments. Read second time and amended. Re-referred to Com. on B. & F.I. |
| Apr 6, 2018 | Set for hearing April 18. |
| Apr 4, 2018 | Re-referred to Coms. on B. & F.I. and JUD. |
| Mar 22, 2018 | From committee with author's amendments. Read second time and amended. Re-referred to Com. on RLS. |
| Jan 16, 2018 | Referred to Com. on RLS. |
| Jan 10, 2018 | From printer. May be acted upon on or after February 9. |
| Jan 9, 2018 | Introduced. To Com. on RLS. for assignment. To print. |
|
Date
|
Description
|
Location
|
Votes
|
|
|---|---|---|---|---|
| Aug 31, 2018 | Unfinished Business SB838 Hertzberg Concurrence | Senate Floor |
Passed |
|
| Aug 30, 2018 | SB 838 Hertzberg Senate Third Reading By CALDERON | Assembly Floor |
Passed |
|
| Jul 3, 2018 | Do pass as amended. | Assembly Standing Committee on Privacy and Consumer Protection |
Passed |
|
| Jun 18, 2018 | Do pass and be re-referred to the Committee on [Privacy and Consumer Protection] | Assembly Standing Committee on Banking and Finance |
Passed |
|
| May 17, 2018 | Senate 3rd Reading SB838 Hertzberg | Senate Floor |
Passed |
|
| May 8, 2018 | Do pass as amended | Senate Standing Committee on Judiciary |
Passed |
|
| Apr 18, 2018 | Do pass, but first be re-referred to the Committee on [Judiciary] | Senate Standing Committee on Banking and Financial Institutions |
Passed |
This list shows positions taken on this bill by organizations on the date displayed, which is linked to the original source.
Positions by individuals are not included.
|
Organization
|
Position
|
Date
|
|---|---|---|
| Blockchain Advocacy Coalition | * Support | Jun 18, 2018 |
| Blockchain Advocacy Coalition | * Support | Jun 18, 2018 |
| Blockchain Group Of Codex | ** Support | Jun 15, 2018 |
| Circle Internet Financial | * Support | Apr 18, 2018 |
| City of Emeryville | * Support | May 8, 2018 |
| City of San Francisco | * Support | May 8, 2018 |
| Industrial Hemp Manufacturing LLC | * Indeterminate | May 8, 2018 |
| ZS Blockchain | * Indeterminate | May 8, 2018 |
Office of Senate Floor Analyses (916) 651-1520 Fax: (916) 327-4478 | SB |
UNFINISHED BUSINESS
Bill No: SB 838
:
SENATE BANKING & F.I. COMMITTEE: 6-0, 4/18/18
AYES: Bradford, Vidak, Gaines, Hueso, Lara, Portantino
NO VOTE RECORDED: Galgiani
SENATE JUDICIARY COMMITTEE: 7-0, 5/8/18
AYES: Jackson, Moorlach, Anderson, Hertzberg, Monning, Stern, Wieckowski
SENATE FLOOR: 38-0, 5/17/18
AYES: Allen, Anderson, Atkins, Bates, Beall, Bradford, Cannella, De León, Dodd, Fuller, Gaines, Galgiani, Glazer, Hernandez, Hertzberg, Hill, Hueso, Jackson, Lara, Leyva, McGuire, Mitchell, Monning, Moorlach, Morrell, Newman, Nguyen, Nielsen, Pan, Portantino, Roth, Skinner, Stern, Stone, Vidak, Wieckowski, Wiener, Wilk
NO VOTE RECORDED: Berryhill
ASSEMBLY FLOOR: 80-0, 8/30/18 - See last page for vote
DIGEST:
This bill authorizes corporations to include a provision in their articles of incorporation authorizing the use of blockchain technology to record and track the issuance and transfer of stock certificates.
Assembly Amendments
revise the definition of blockchain technology and add a January 1, 2022 sunset date.
- Provides for the General Corporation Law (Corporations Code Section 100 et seq.) and the Social Purpose Corporation Act (Corporations Code Section 2500 et seq.).
- Requires California corporations wishing to issue securities to comply with the Corporate Securities Law of 1968 (Corporations Code Section 25000 et seq.), administered by the Department of Business Oversight (DBO).
- Does not expressly authorize the use of blockchain technology to record or track the issuance and transfer of securities by California corporations.
This bill:
- Amends the General Corporation Law and the Social Purpose Corporation Act to authorize corporations formed under these laws, which do not have outstanding securities traded on one of the major United States stock exchanges, to include a provision in their articles of incorporation authorizing specified records to be recorded and kept on or by means of blockchain technology, as long as the following conditions are met:
- The encrypted information in the records can be decrypted and converted into a clearly readable format within a reasonable period of time.
- The records can be used to prepare the list of shareholders, record information required to be included on stock certificates, and record required transfers of stock.
- The encrypted information in the records can be decrypted and converted into a clearly readable format within a reasonable period of time.
- Applies the authorization above to records administered by or on behalf of a corporation, in which the names of all the corporation’s stockholders of record, the address and number of shares registered in the name of each of these stockholders, and all issuances and transfers of corporate stock are recorded.
- Defines blockchain technology as a mathematically secured, chronological, and decentralized consensus ledger or database.
- Sunsets this bill on January 1, 2022.
Background
This bill is sponsored by the author to provide privately-held corporations with a more secure means to protect their shareholders from fraud involving the issuance and transfer of stock certificates. According to the author, “SB 838 is intended to authorize privately-held corporations to issue and transfer share certificates through blockchain technology or distributed electronic network. In order for corporations to record and keep these private exchanges on a blockchain or distributed electronic network, they would be required to place the intent to do so in their articles of incorporation. By authorizing this technology to be used in this way, California is engaging a new technology that will protect consumers and corporations from cases of fraud and theft.”
Comments
Blockchain technology allows individuals to conduct financial transactions between and among themselves, with few or no traditional intermediaries, such as banks, payment networks, or clearinghouses. In place of those traditional intermediaries, a blockchain relies on a software code run by different computers. Blockchain technology uses cryptographic techniques to encode transactions as they are added to the digital ledger and to verify the veracity of those transactions upon their addition.
A single blockchain is a distributed ledger (i.e., a list of transactions that is shared among a number of computers, rather than being stored on a central server). The ledger of transactions is owned by multiple parties rather than a single intermediary, and transactions on the ledger are verified by multiple parties. A blockchain’s strength and security are achieved via a consensus mechanism through which various computers in the system must agree to update the blockchain after any legitimate data entry. Blockchain technology brings together scattered (or distributed) parties who may not know or trust one another, but who do trust the mechanism through which their mutual consensus is achieved. Once information is added to an electronic blockchain ledger, it may never be erased.
According to a recent article that appeared in the Stanford Law Review (SLR), “Blockchain’s primary value lies in its potential to record and secure an immense volume of trades and financial transactions on a perpetual basis. While ‘costly middle men’ have policed such transactions in the past, blockchain empowers the network of traders to perform this function itself.” (https://www.stanford lawreview.org/online/blockchains-big-hurdle/)
If this bill is enacted, California will be the first state in the country to authorize the use of blockchain technology to record and track the issuance and transfer of stock certificates. Despite the theoretical value blockchain technology holds for securely and accurately documenting stock transfers, no other state has approved the technology for this purpose. Delaware considered such a change during 2017, but rejected it over concerns it would make the state less attractive to corporations wishing to incorporate there (https://www.delawareonline.com/story/news/2018/02/02/delaware-eases-off-early-blockchain-zeal-after-concerns-over-disruption-business/1082536001/).
Prior and Related Legislation
AB 2658 (Calderon) requires the Secretary of the Government Operations Agency to appoint a blockchain working group and require the working group to report to the Legislature on the potential uses, risks, and benefits of the use of blockchain technology by state government and California-based businesses, as specified.
FISCAL EFFECT: Appropriation: Fiscal Com.: Local:
Blockchain Group of CodeX: The Stanford Center for Legal Informatics
OPPOSITION: (Verified 8/13/18)
None received
ASSEMBLY FLOOR: 80-0, 8/30/18
AYES: Acosta, Aguiar-Curry, Travis Allen, Arambula, Baker, Berman, Bigelow, Bloom, Bonta, Brough, Burke, Caballero, Calderon, Carrillo, Cervantes, Chau, Chávez, Chen, Chiu, Choi, Chu, Cooley, Cooper, Cunningham, Dahle, Daly, Eggman, Flora, Fong, Frazier, Friedman, Gabriel, Gallagher, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez Fletcher, Gray, Grayson, Harper, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Quirk, Quirk-Silva, Reyes, Rivas, Rodriguez, Rubio, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Voepel, Waldron, Weber, Wood, Rendon
8/30/18 20:21:25
SENATE THIRD READING
STR Bill Id:SB 838
Author:(Hertzberg)
As Amended Ver:
Majority vote
SENATE VOTE: 38-0
Committee | Votes | Ayes | Noes |
Banking | 11-0 | Limón, Chen, Acosta, Burke, Cervantes, Choi, Gabriel, Gonzalez Fletcher, Grayson, Mark Stone, Weber | |
Privacy | 10-0 | Chau, Kiley, Baker, Berman, Calderon, Gabriel, Irwin, Mullin, Obernolte, Reyes |
SUMMARY: This bill would authorize corporations and social purpose corporations, which do not otherwise have outstanding securities traded on one of the major United States (U.S.) stock exchanges, to adopt provisions within their articles of incorporation authorizing certain records administered by or on behalf of the corporation to be recorded and kept on or by means of blockchain technology, as specified. Specifically, this bill would:
- Grant corporations formed under the General Corporation Law and the Social Purpose Corporation Act and that do not have outstanding securities listed on the New York Stock Exchange (NYSE), the NYSE Amex, the National Association of Securities Dealers Automated Quotations (NASDAQ) Global Market, or the NASDAQ Capital Market, the authority to include in their articles of incorporation a provision that would permit 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 long as all of the following requirements are met:
- The encrypted information in the records can be decrypted and converted into a clearly readable format within a reasonable period of time.
- The records can be used to:
- prepare the list of shareholders;
- record information required to be included on stock certificates; and
- record required transfers of stock.
- Define, for these purposes, "blockchain technology" to mean a mathematically secured, chronological, and decentralized consensus ledger or database.
EXISTING LAW:
- Provides for the General Corporation Law and the Social Purpose Corporation Act. (Corporations Code Sections (CORP) 100 et seq. and 2500 et seq., respectively.)
- Requires California corporations wishing to issue securities to comply with the Corporate Securities Law of 1968, administered by the Department of Business Oversight (DBO). (CORP 25000 et seq.)
FISCAL EFFECT: None. This bill has been keyed non-fiscal by the Legislative Counsel.
COMMENTS: This bill seeks to authorize certain corporations, which do not otherwise have outstanding securities traded on one of the major U.S. stock exchanges, to include a provision in their articles of incorporation which would allow for the use of blockchain technology to record and track the issuance and transfer of stock certificates, as long as minimal requirements are met. This is an author-sponsored bill.
According to the author, "SB 838 is intended to authorize privately-held corporations to issue and transfer share certificates through blockchain technology or distributed electronic network. In order for corporations to record and keep these private exchanges on a blockchain or distributed electronic network, they would be required to place the intent to do so in their articles of incorporation. By authorizing this technology to be used in this way, California is engaging a new technology that will protect consumers and corporations from cases of fraud and theft."
As society has evolved, so too has trade and society's reliance on institutions to facilitate trade between individuals who may not know one another or even be located near one another. When consumers use "eBay," "Amazon," etc., they are effectively using digital marketplaces and platforms that help facilitate an exchange of value.
Blockchain is a new network that allows individuals to conduct transactions, "peer-to-peer," with fewer (or no) intermediaries (i.e., middle men, such as banks, clearing houses, payment networks). In place of those traditional intermediaries or institutions, blockchain relies on a software code run by different computers that are guaranteeing these transactions as they happen. It uses cryptography techniques to encode its transactions as they are added to the digital ledger, and the ledger of transactions is owned by a larger number of parties and verified against one another, instead of by one company (the intermediary). Notably, the ledger of transactions can be added to, but never erased from. In other words, the data that has been added to the ledger, can never be changed. It does all this though a mechanism for creating census between scattered or distributed parties that do not need to otherwise trust each other, but need to trust the mechanism by which their consensus is arrived at. It is, in so many words, a decentralized, transparent, immutable, append-only, cryptography-transmitted, digital, distributed public ledger.
Analysis Prepared by: William Herms / B. & F. / (916) 319-3081 FN: 0003809
Date of Hearing: July 3, 2018
ASSEMBLY COMMITTEE ON PRIVACY AND CONSUMER PROTECTION
Ed Chau, Chair
SBPCA Bill Id:SB 838
Author:(Hertzberg) – As Amended Ver:June 14, 2018
SENATE VOTE: 38-0
SUBJECT: Corporate records: articles of incorporation: blockchain technology
SUMMARY: This bill would authorize corporations and social purpose corporations, which do not otherwise have outstanding securities traded on one of the major U.S. stock exchanges, to adopt provisions within their articles of incorporation authorizing certain records administered by or on behalf of the corporation to be recorded and kept on or by means of blockchain technology, as specified. Specifically, this bill would:
- Grant corporations formed under the General Corporation Law and the Social Purpose Corporation Act and that do not have outstanding securities listed on the New York Stock Exchange, the NYSE Amex, the NASDAQ Global Market, or the NASDAQ Capital Market, the authority to include in their articles of incorporation a provision that would permit 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 long as all of the following requirements are met:
- The encrypted information in the records can be decrypted and converted into a clearly readable format within a reasonable period of time.
- The records can be used to:
- prepare the list of shareholders;
- record information required to be included on stock certificates; and
- record required transfers of stock.
- Define, for these purposes, “blockchain technology” to mean a mathematically secured, chronological, and decentralized consensus ledger or database.
EXISTING LAW:
- Provides for the General Corporation Law and the Social Purpose Corporation Act. (Corp. Code Sec. 100 et seq. and 2500 et seq., respectively.)
- Requires California corporations wishing to issue securities to comply with the Corporate Securities Law of 1968, administered by the Department of Business Oversight (DBO). (Corp. Code Sec. 25000 et seq.)
FISCAL EFFECT: None. This bill has been keyed nonfiscal by the Legislative Counsel.
COMMENTS:
- Purpose of this bill: This bill seeks to authorize certain corporations, which do not otherwise have outstanding securities traded on one of the major U.S. stock exchanges, to include a provision in their articles of incorporation which would allow for the use of blockchain technology to record and track the issuance and transfer of stock certificates, as long as minimal requirements are met. This is an author-sponsored bill.
- Author’s statement: According to the author, “SB 838 is intended to authorize privately-held corporations to issue and transfer share certificates through blockchain technology or distributed electronic network. In order for corporations to record and keep these private exchanges on a blockchain or distributed electronic network, they would be required to place the intent to do so in their articles of incorporation. By authorizing this technology to be used in this way, California is engaging a new technology that will protect consumers and corporations from cases of fraud and theft.”
- Blockchain, generally: As society has evolved, so too has trade and society’s reliance on institutions to facilitate trade between individuals who may not know one another or even be located near one another. When consumers use “eBay,” “Amazon,” etc., they are effectively using digital marketplaces and platforms that help facilitate an exchange of value.
Blockchain is a new network that allows individuals to conduct transactions, “peer-to-peer,” with fewer (or no) intermediaries (i.e., middle men, such as banks, clearing houses, payment networks). In place of those traditional intermediaries or institutions, blockchain relies on a software code run by different computers that are guaranteeing these transactions as they happen. It uses cryptography techniques to encode its transactions as they are added to the digital ledger, and the ledger of transactions is owned by a larger number of parties and verified against one another, instead of by one company (the intermediary). Notably, the ledger of transactions can be added to, but never erased from. In other words, the data that has been added to the ledger, can never be changed. It does all this though a mechanism for creating census between scattered or distributed parties that do not need to otherwise trust each other, but need to trust the mechanism by which their consensus is arrived at. It is, in so many words, a decentralized, transparent, immutable, append-only, cryptography-transmitted, digital, distributed public ledger.
In simple terms, a blockchain is a distributed ledger–that is, “a list of transactions that is shared among a number of computers, rather than being stored on a central server.” Blockchain technology was originally developed in conjunction with the virtual currency Bitcoin. In the Bitcoin context, blockchain “replaces [the] trusted third party” that would otherwise be needed to ensure that a transferor’s title to virtual Bitcoin is valid–that is, to ensure that the Bitcoin has not been illegally replicated or stolen. In Bitcoin transactions, blockchain functions as “[a] database that contains the payment history of every bitcoin in circulation” and “provides proof of who owns what at any given juncture. The strength and security of the blockchain database is guaranteed by an elaborate ‘consensus mechanism” by which various computers in the system must agree to update the blockchain after any legitimate Bitcoin transfer. Through blockchain’s “mixture of mathematical subtlety and computational brute force,” computers on a peer-to-peer network alert one another to shoddy transactions and respond to legitimate transactions by updating the blockchain permanently. Because legitimate transactions are irreversibly recorded, illegitimate transactions can be spotted and rooted out. (Svikhart, Blockchain’s Biggest Hurdle (Nov. 2017) <https://www.stanfordlawreview.org/online/blockchains-big-hurdle/> [as of Mar. 21, 2018] (internal citations omitted) (hereinafter “Svikhart”).)
- Blockchain uses: While bitcoin is commonly associated with blockchain, bitcoin is in fact just one of blockchain’s many applications. Blockchain technology “can maintain accurate chains of title to securities and other legal instruments in a reliable electronic form” and has been identified as having incredible value in its potential to record and secure an immense volume of trades and financial transactions on a perpetual basis. (Svikhart.) Blockchain’s most disruptive aspect is its ability to eliminate the need for third-party intermediaries in some transactions – in other words, removing the costly “middle men” who have policed such financial transactions or trades in the past, or been needed as guarantors, authenticators, or trusted third parties to aid in a transaction between two other willing parties. (See id.; see also Vermont Study, p. 4.)
As highlighted by a recent Forbes article, aside from its use in bitcoin, “[b]lockchain can ensure that the terms of programmable autonomous contracts, known as smart contracts, are met. It can be used for online voting to address voter fraud. It can be used to secure identity and many other situations where transparency and security is lacking.” (Moy, Forbes, Forget Bitcoin, It’s All About the Blockchain (Feb. 22, 2018).)
What makes blockchain so attractive, at this point, is its security. “Blockchains, like Bitcoin and Ethereum, have not yet been hacked. They are considered to be very secure. It is very challenging, almost impossible, to change any transaction information once it is validated and becomes part of a block.” (Id.) This security appears to be built into blockchain’s very structure, “where each block is linked to another block [. . .] in a time-stamped chronological order. [Thus, to] access data of the first ever created block, you have to traverse from the last created block, then the block before that, so on and so forth till you reach the first block. Each block contains elements like the version # [hash], reference of the address of the previous block, timestamp, transactional data, block size etc.” (Vaidya, Medium, Decoding the Enigma of Blockchain (Nov. 28, 2016).) As a result, corruption or hacking of blockchain transactions are made incredibly unlikely, if not impossible given that the hacker would have to manipulate each block starting from the latest block added to the network in order to corrupt or hack any single transaction of a certain block.
As described by a blockchain report by the State of Vermont: “Because of the distributed, consensus driven nature of the blockchain it is nearly impossible for an attack to compromise the entire system. The number of nodes [i.e., computers](and attendant computing power) required to confirm an error or malicious attack would be impractical in a large blockchain like Bitcoin. Trying to forge a previously verified block would be akin to changing the shape of a brick in an ever growing stack – each subsequent brick would also need to be modified to fit with the previous one. The blockchain is resistant to compromise due to the nature of the linked blocks. However [ …] there are ways the use of this technology is vulnerable to compromise, but they are not fundamental vulnerabilities with the blockchain itself.” (State of Vermont, Blockchain Technology: Opportunities and Risks (Jan. 2016) p. 10.)
As stated in a 2017 Harvard Business Review article, however, “[b]lockchain, the distributed ledger technology underlying bitcoin, may prove to be far more valuable than the currency it supports. But it’s only as valuable as it is secure. As we begin to put distributed ledger technology into practice, it’s important to make sure that the initial conditions we’re setting up aren’t setting us up for security issues later on.” (Berke, Harvard Business Review, How Safe are Blockchains? It Depends (Mar. 7, 2017).)
- Bill’s definition of blockchain technology: This bill was recently amended to re-define “blockchain technology” to mean “a mathematically secured, chronological, and decentralized consensus ledger or database.”
This definition, unlike the prior definition used in the bill, tracks a recent Vermont statute defined the term for purposes of its Rules of Evidence after Vermont completed its study on the topic of blockchain. (12 V.S.A. Sec. 1913(a).)
Earlier this year, this Committee heard another bill, AB 2658 (Calderon, 2018) which used a definition of blockchain technology that was identical to the prior version of this bill. Concerns were raised in Committee by various stakeholders as to that definition, which the author committed to continue to clarifying. As noted in the analysis of that bill, it is important, as a matter of public policy, that any such definition strive to be as clear, straightforward, unambiguous, accurate, and intelligible as possible for statutory interpretation purposes. As a result of stakeholder discussions, AB 2658 and this bill, SB 838, have been amended to include the Vermont definition, recognizing that it has likely been the most studied definition.
Staff notes that, ultimately, AB 2658 seeks to now study the uses of blockchain in California, and includes in the study a request for recommendations as to the definition of blockchain. Assuming that AB 2658 is passed and signed into law, once those recommendations are provided for an updated definition, SB 838’s definition that is proposed to be added to these specific areas of the Corporations Code should likely also be updated. That being said, the current definition of the bill arguably relies on the best information available at this time.
In support, the Blockchain Group of CodeX: The Stanford Center for Legal Informatics writes that:
Blockchain technology is already being deployed in a range of cases around the country and across the globe including in bringing corporate operations into the 21st Century, as is the case in Delaware, where blockchain is utilized to record stock transactions. The blockchain support infrastr[u]cture is growing rapidly and companies wanting to utilize blockchain can either develop their own instances in house or adopt one of a growing number of offerings from vendors.
Education remains a crucial component of effective deployment of blockchain technologies. Providers and consumers must understand the differences, for example, between public and private blockchains and the implications for consumer protection, privacy, business functions, data storage and security.
To properly lay the foundations of the State’s regulatory framework we believe it is imperative to correctly define blockchain. We note a number of effective definitions are already in use and we would encourage the Legislature to carefully deliberate the crafting of the definition of blockchain.
- Applying benefits of blockchain technology to corporate records and stock certificates: This bill would permit, but not require, certain corporations which do not otherwise have outstanding securities traded on one of the major U.S. stock exchanges, to include a provision in their articles of incorporation allowing for the use of blockchain technology to keep various records, including to record and track the issuance and transfer of stock certificates, as long as minimal requirements are met. To the extent that the authenticity of in stock certificates or transfers of stock, or even in the list of corporations’ shareholders, can be better relied upon, or other benefits of blockchain technology would apply to these corporate records by way of this authorization, those benefits would potentially extend to consumers.
That being said, records maintained by blockchain technology are not infallible. While blockchain records may provide assurance as to the authenticity of the record, they do not necessarily do so with respect to the accuracy of the information. If the records contained bad data, that bad data will be reproduced repeatedly. As stated in the State of Vermont’s study of blockchain technology:
Blockchain technology offers no assistance in terms of the reliability or accuracy of the records contained in the blockchain; if bad data is used as an input, as long as the correct protocols are utilized, it will be accepted by the network and added to the blockchain. If a document containing false information is hashed as part of a properly formatted transaction, the network will validate it. […] Where blockchain technology does provide an advantage is in its ability to evaluate the authenticity of records. As explained above, a transaction that has been verified and added to a valid blockchain is mathematically secure. The hash of a document existing outside the blockchain and the hash registered within the blockchain will be identical if the documents are identical. If the documents are different (due to forgery, corruption, error, or other problems) the hashes will not match. Thus, the blockchain can potentially provide an immutable registration of a record, to which future records can be compared for authenticity. (Vermont Study pp. 10-11.)
Ultimately, this bill permits only certain corporations to apply blockchain technology in their articles of incorporation on a voluntary basis for limited purposes, as long as they do not have outstanding securities traded on one of the major U.S. stock exchanges. The author may wish to consider adding a three year sunset to this bill to allow the Legislature to review the impact of this technology, and to ensure that the blockchain technology definition would be updated in line with recommendations developed as a result of the AB 2658 study, should that bill also be signed into law. That sunset would be the same January 1, 2022, sunset that is currently in AB 2658.
Suggested amendment:
Add a January 1, 2022 sunset to the bill.
- Related legislation: AB 2658 (Calderon), See Comment 5. AB 2658 is currently in the Senate Appropriations Committee.
- Double-referral: This bill was double-referred to the Assembly Banking and Finance Committee where it was heard on June 18, 2018, and passed out on a vote of 11-0.
REGISTERED SUPPORT / OPPOSITION:
Support
Blockchain Group of CodeX: The Stanford Center for Legal Informatics
Opposition
None on file
Analysis Prepared by: Ronak Daylami / P. & C.P. / (916) 319-2200
Date of Hearing: June 18, 2018
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Monique Limón, Chair
SBPCA Bill Id:SB 838
Author:(Hertzberg) – As Amended Ver:May 10, 2018
SENATE VOTE: 38-0
SUBJECT: Corporate records: articles of incorporation: blockchain technology
SUMMARY: Authorizes corporations to include a provision in their articles of corporation, allowing the use of blockchain technology to record and track the issuance and transfer of stock certificates. Specifically, this bill:
- Authorizes corporations formed under the General Corportation Law and the Social Purpose Corporation Act to include a provision in their articles of incorporation authorizing records administered by or on behalf of the corporation, in which the names of all the corporation’s stockholders of record, the address and number of shares registered in the name of each of these stockholders, and all issuances and transfers of corporate stock are recorded, to be kept on or by means of blockchain technology or one or more distributed electronic networks, as long as the following conditions are met:.
- The records can be converted into clearly legible paper within a reasonable period of time.
- The records can be used to prepare the list of shareholders, record information required to be included on stock certificates, and record transfers of stock, as specified.
- The records can be converted into clearly legible paper within a reasonable period of time.
- Defines blockchain technology or a distributed electronic network as a distributed ledger technology that uses a distributed, decentralized, shared, and reciprocal ledger that may be public or private, permissioned or permissionless, or driven by tokenized crypto economics or tokenless, where the data on the ledger is protected with cryptography, is immutable, auditable, and provides an uncensored truth.
EXISTING LAW: Provides for the General Corporation Law (Corporations Code Section 100) and the Social Purpose Corporation Act (Corporations Code Section 2500). Requires California corporations wishing to issue securities to comply with the Corporate Securities Law of 1968 (Corporations Code Section 25000), administered by the Department of Business Oversight (DBO).
FISCAL EFFECT: none
COMMENTS: This bill is sponsored by the author to provide privately-held corporations with a more secure means to protect their shareholders from fraud involving the issuance and transfer of stock certificates. According to the author:
SB 838 is intended to authorize privately-held corporations to issue and transfer share certificates through blockchain technology or distributed electronic network. In order for corporations to record and keep these private exchanges on a blockchain or distributed electronic network, they would be required to place the intent to do so in their articles of incorporation. By authorizing this technology to be used in this way, California is engaging a new technology that will protect consumers and corporations from cases of fraud and theft.
Blockchain technology allows individuals to conduct financial transactions between and among themselves, with few or no traditional intermediaries, such as banks, payment networks, or clearinghouses. In place of those traditional intermediaries, a blockchain relies on a software code run by different computers, which guarantee the transactions that are added to a ledger as they occur. Blockchain technology uses cryptographic techniques to encode transactions as they are added to the digital ledger.
DBO and the Secretary of State’s Office are tasked with overseeing and tracking the issuance and transfer of stock certificates by privately-held corporations. Neither agency has identified any impacts on the way they will perform their statutory duties as a result of SB 838. Once a privately held corporation is approved to issue securities by DBO (or if covered by a securities law exemption), corporations appear to be free to issue and transfer stock certificates in any manner they choose, as long as that manner is acceptable to their shareholders.
Because SB 838 is permissive, it will not require any existing or newly formed corporation to do anything; the bill is merely designed to authorize corporations to add a blockchain-specific provision to their articles of incorporation if they wish.
Recent amendments agreed to by the author in the Senate are clarifying and technical in nature.
REGISTERED SUPPORT / OPPOSITION:
Support
Blockchain Group of CodeX
Opposition
None on file
Analysis Prepared by: William Herms / B. & F. / (916) 319-3081
Office of Senate Floor Analyses (916) 651-1520 Fax: (916) 327-4478 | SB 838 |
THIRD READING
Bill No: SB 838
Amended: 5/10/18
SENATE BANKING & F.I. COMMITTEE: 6-0, 4/18/18
AYES: Bradford, Vidak, Gaines, Hueso, Lara, Portantino
NO VOTE RECORDED: Galgiani
SENATE JUDICIARY COMMITTEE: 7-0, 5/8/18
AYES: Jackson, Moorlach, Anderson, Hertzberg, Monning, Stern, Wieckowski
SUBJECT: Corporate records: articles of incorporation: blockchain technology or distributed electronic networks
DIGEST:
This bill authorizes corporations to include a provision in their articles of incorporation authorizing the use of blockchain technology to record and track the issuance and transfer of stock certificates.
Existing law:
- Provides for the General Corporation Law (Corporations Code Section 100 et seq.) and the Social Purpose Corporation Act (Corporations Code Section 2500 et seq.).
- Requires California corporations wishing to issue securities to comply with the Corporate Securities Law of 1968 (Corporations Code Section 25000 et seq.), administered by the Department of Business Oversight (DBO).
- Does not expressly authorize the use of blockchain technology to record or track the issuance and transfer of securities by California corporations.
This bill:
- Amends the General Corporation Law and the Social Purpose Corporation Act to authorize corporations formed under these laws, which do not have outstanding securities traded on one of the major United States stock exchanges, to include a provision in their articles of incorporation authorizing specified records to be recorded and kept on or by means of blockchain technology, as long as the following conditions are met:
- The encrypted information in the records can be decrypted and converted into a clearly readable format within a reasonable period of time.
- The records can be used to prepare the list of shareholders, record information required to be included on stock certificates, and record required transfers of stock.
- The encrypted information in the records can be decrypted and converted into a clearly readable format within a reasonable period of time.
- Applies the authorization above to records administered by or on behalf of a corporation, in which the names of all the corporation’s stockholders of record, the address and number of shares registered in the name of each of these stockholders, and all issuances and transfers of corporate stock are recorded.
- Defines blockchain technology as a distributed ledger technology that uses a distributed, decentralized, shared, and reciprocal ledger that may be public or private, permissioned or permissionless, or driven by tokenized crypto economics or tokenless, where the data on the ledger is protected with cryptography, is immutable, auditable, and provides an uncensored truth.
Background
This bill is sponsored by the author to provide privately-held corporations with a more secure means to protect their shareholders from fraud involving the issuance and transfer of stock certificates. According to the author, “SB 838 is intended to authorize privately-held corporations to issue and transfer share certificates through blockchain technology or distributed electronic network. In order for corporations to record and keep these private exchanges on a blockchain or distributed electronic network, they would be required to place the intent to do so in their articles of incorporation. By authorizing this technology to be used in this way, California is engaging a new technology that will protect consumers and corporations from cases of fraud and theft.”
Comments
Blockchain technology allows individuals to conduct financial transactions between and among themselves, with few or no traditional intermediaries, such as banks, payment networks, or clearinghouses. In place of those traditional intermediaries, a blockchain relies on a software code run by different computers. Blockchain technology uses cryptographic techniques to encode transactions as they are added to the digital ledger and to verify the veracity of those transactions upon their addition.
A single blockchain is a distributed ledger (i.e., a list of transactions that is shared among a number of computers, rather than being stored on a central server). The ledger of transactions is owned by multiple parties rather than a single intermediary, and transactions on the ledger are verified by multiple parties. A blockchain’s strength and security are achieved via a consensus mechanism through which various computers in the system must agree to update the blockchain after any legitimate data entry. Blockchain technology brings together scattered (or distributed) parties who may not know or trust one another, but who do trust the mechanism through which their mutual consensus is achieved. Once information is added to an electronic blockchain ledger, it may never be erased.
According to a recent article that appeared in the Stanford Law Review (SLR), “Blockchain’s primary value lies in its potential to record and secure an immense volume of trades and financial transactions on a perpetual basis. While ‘costly middle men’ have policed such transactions in the past, blockchain empowers the network of traders to perform this function itself.” (https://www.stanfordlawreview.org/online/blockchains-big-hurdle/)
If this bill is enacted, California will be the first state in the country to authorize the use of blockchain technology to record and track the issuance and transfer of stock certificates. Despite the theoretical value blockchain technology holds for securely and accurately documenting stock transfers, no other state has approved the technology for this purpose. Delaware considered such a change during 2017, but rejected it over concerns it would make the state less attractive to corporations wishing to incorporate there (https://www.delawareonline.com/story/news/2018/02/02/delaware-eases-off-early-blockchain-zeal-after-concerns-over-disruption-business/1082536001/).
FISCAL EFFECT: Appropriation: Fiscal Com.: Local:
Blockchain Group of CodeX: The Stanford Center for Legal Informatics
None received
Prepared by: Eileen Newhall / B. & F.I. /
5/11/18 9:34:37
**** END ****
Senator Hannah-Beth Jackson, Chair
2017-2018 Regular Session
Bill No: SB 838 (Author:Hertzberg)
Version: April 25, 2018
Hearing Date: May 8, 2018
Fiscal: No
Urgency: No
Consultant: JDT
SUBJECT
Corporate records: articles of incorporation: blockchain technology or distributed electronic networks
DESCRIPTION
This bill would specify that certain privately-owned corporations may amend their articles of incorporation to include a provision for the use of blockchain technology to record information related to stock transactions.
BACKGROUND
The enigmatic progenitor of the cryptocurrency Bitcoin, Satoshi Nakamoto, developed a database technology known as blockchain to facilitate direct peer-to-peer Bitcoin transactions without recourse to a trusted third-party intermediary, such as PayPal or a credit card company. Rather than maintaining a record of transactions on a centralized database controlled by a single party, Bitcoin’s version of blockchain relies on a global, open network of computers to track and verify bitcoin transactions and cryptographically link them with existing blocks of verified transactions. The distributed, redundant nature of the blockchain makes it resistant to corruption, thus preventing the double spending of Bitcoins without a central monetary authority.
Whether cryptocurrencies such as Bitcoin end up revolutionizing the global monetary system or collapsing like a modern version of tulipmania, it is increasingly recognized that the more consequential innovation may well prove to be blockchain itself. Possible applications of blockchain technology include “online voting, medical records, insurance policies, property and real estate records, copyrights and licenses, and supply chain tracking. They can also include smart contracts, where payouts between the contracted parties are embedded in the block-chain and automatically execute when contractual conditions have been met.” (National Conference of State Legislatures, LegisBrief, How Blockchain Works (Nov. 2017) p. 2 http://www.ncsl.org/documents/
legisbriefs/2017/lb_2544.pdf> [as of Apr. 28, 2018].)
This bill constitutes a modest initial foray into legislation on blockchain technology by specifying that privately-owned corporations and social purpose corporations may include in their articles of incorporation a provision for the use of recording information associated with the issuance and exchange of stock. The bill would require records kept on blockchain technology to be capable of being converted into clearly legible paper within a reasonable period of time and used to prepare the list of shareholders, record information required to be included on stock certificates, and record transfers of stock, as specified.
The bill was previously heard in the Senate Banking and Financial Institutions and passed out on a 6-0 vote.
CHANGES TO EXISTING LAW
Existing law establishes the General Corporation Law (Corp. Code Sec. 100 et seq.) and the Social Purpose Corporation Act. (Corp. Code Sec. 2500 et seq.), which respectively provide that a corporation or a social purpose corporation may be formed by executing and filing articles of incorporation (Corp. Code Secs. 200(a) & 2600(a)).
Existing law requires California corporations wishing to issue securities to comply with the Corporate Securities Law of 1968 (Corp. Code Sec. 25000 et seq.), which is administered by the Department of Business Oversight.
Existing law specifies various provisions that may be contained in a corporation’s or a social purpose corporation’s articles of incorporation, including provisions applicable to the issuance and transfer of shares. (Corp. Code Secs. 204 & 2603.)
Existing law provides that a corporation may adopt a system of issuance, recordation, and transfer of its shares by electronic or other means, as specified. (Corp. Code, Sec. 416(b).)
This bill would amend the General Corporation Law and the Social Purpose Corporation Act to authorize privately owned corporations formed under these laws to provide in their articles of incorporation for the use of blockchain technology to record specified personal information of stockholders and all issuances and transfers of the corporation’s stock.
This bill would require records kept on blockchain technology to be capable of being converted into clearly legible paper within a reasonable period of time and used to prepare the list of shareholders, record information required to be included on stock certificates, and record transfers of stock, as specified.
This bill defines “blockchain technology or a distributed electronic network” as a distributed ledger technology that uses a distributed, decentralized, shared, and reciprocal ledger that may be public or private, permissioned or permissionless, or driven by tokenized crypto economics or tokenless, where the data on the ledger is protected with cryptography, is immutable, auditable, and provides an uncensored truth.
COMMENT
- Stated need for the bill
According to the author:
SB 838 is intended to authorize privately-held corporations to issue and transfer share certificates through blockchain technology or distributed electronic network. In order for corporations to record and keep these private exchanges on a blockchain or distributed electronic network, they would be required to place the intent to do so in their articles of incorporation. By authorizing this technology to be used in this way, California is engaging a new technology that will protect consumers and corporations from cases of fraud and theft.
Writing in support, the Blockchain Group of CodeX: The Stanford Center for Legal Informatics states as follows:
The members of the applaud [Senator Hertzberg] for the introduction of SB 838 with its goal of having the State of California offer national and global leadership through thoughtful regulation of blockchain technology - one of this era’s most profound innovations.
Blockchain technology is already being deployed in a range of cases around the country and across the globe including in bringing corporate operations into the 21st Century, as is the case in Delaware, where blockchain is utilized to record stock transactions. The blockchain support infrastructure is growing rapidly and companies wanting to utilize blockchain can either develop their own instances in house or adopt one of a growing number of offerings from vendors.
Education remains a crucial component of effective deployment of blockchain technologies. Providers and consumers must understand the differences, for example, between public and private blockchains and the implications for consumer protection, privacy, business functions, data storage and security.
[…]
California has an outsized impact on the nation and world economically, culturally and, of course, technologically and there are many examples of California creating public policy that have shaped national and even global regulatory frameworks. Mindful of California’s trailblazing track record as well as the broad implications of making sure policy is done right, we encourage the Legislature to engage deeply with the expertise already available in the State’s world class public and private universities and leading global innovation firms.
- What is blockchain?
There is no universal definition of blockchain technology. Nakamoto described it as an electronic “system for participants to agree on a single history of order in which [publicly announced transactions] were received.” (Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System (2008), p. 2 <https://bitcoin.org/bitcoin.pdf> [as of Apr. 28, 2018].) A study commissioned by the Vermont Legislature describes blockchain as follows:
A blockchain is an electronic ledger of digital records, events, or transactions that are cryptographically hashed, authenticated, and maintained through a “distributed” or “shared” network of participants using a group consensus protocol. Much like a checkbook is a ledger of one’s personal financial transactions, with each entry indicating the details of a particular transaction (withdrawal or deposit, recipient and sender, amount, date, etc.), the blockchain is a complete listing of all transactions, whether financial or otherwise. However, unlike a checkbook, the blockchain is distributed among thousands of computers or “nodes” with a process for validating transactions that utilizes a group-consensus protocol. Making an addition to a blockchain ledger requires the approval of the network at large making retrospective changes essentially impossible.
(Blockchain Technology: Opportunities and Risks (2016), State of Vermont (“Vermont Study”) p. 3 <https://legislature.vermont.gov/assets/Legislative-Reports/blockchain-technology-report-final.pdf> [as of Apr. 28, 2018].)
Vitalik Buterin, the founder of Ethereum (a second generation public blockchain-based network) defines blockchain as follows:
[A] blockchain is a shared digital ledger or database that maintains a continuously growing list of transactions among participating parties regarding digital assets—together described as “blocks.” The linear and chronological order of transactions in a chain will be extended with another transaction link that is added to the block once an additional transaction is validated, verified, and completed. The chain of transactions is distributed to a limitless number of participants—so-called “nodes”—around the world in a public or private peer-to-peer network.”
Bitcoin is illustrative. On the Bitcoin network, when a user wishes to make a transaction, data associated with the transaction are timestamped, encrypted, and broadcast across the network, and computers on the network validate the transaction and its provenance. Verified transactions are bundled into “blocks” of data that are cryptographically linked to the existing sequence of validated blocks, forming a “chain” that is reinforced with each subsequent block. Because block creation is computationally intensive, computers that create valid blocks are rewarded with Bitcoins—a process that becomes more computationally demanding as the chain grows and that yields fewer Bitcoin as the finite supply of Bitcoin is exhausted. A block is appended to the chain only when a majority of participant computers recognize its validity. Corruption of the chain is practically infeasible, as retroactively tampering with a block in the chain requires alteration of all subsequent blocks, a task that requires a cost-prohibitive amount of computing power or collusion of the majority of participant computers.
However, the cost of Bitcoin’s security is inefficiency. The computing power required to replicate and verify the same information across a vast network of computers is enormous. (See Bitcoin Mining Now Consuming More Electricity Than 159 Countries, Including Ireland & Most Countries In Africa Power Compare <https://powercompare.co.uk/bitcoin> [as of Apr. 29, 2018].) Blockchain is “an extraordinary solution, and it comes at an extraordinary price. A large proportion of the entire world’s computing resource has been put to work contributing to the consensus algorithm that continuously watches the state of the ledger. And it has to be so, in order to ward off brute force criminal attack.” (Wilson, Blockchain: Almost Everything You Read is Wrong (May 3, 2016) Constellation Research <https://www.constellationr.com/blog-news/blockchain-almost-everything-you-read-wrong> [as of Apr. 29, 2018].)
A more efficient alternative to the system used by Bitcoin is private, or “permissioned,” systems that use a similar underlying protocol without the revolutionary, decentralized governance mechanism of a public blockchain. A recent article in Slate describes why permissioned systems are more attractive to businesses:
In a typical permissioned system, all the participants will agree in advance about how the network should be run and sign a legal agreement setting out the rules. For example, imagine a consortium of banks using blockchain to clear and settle transactions (an idea recently piloted by the Bank of Canada). In this system, blockchain algorithms are used to store and exchange data in a secure, decentralized manner, but the banks remain in control and manage the whole network according to their contract. New members would have to sign the contract in order to join. (Oliver, There is No Such Thing as ‘The’ Blockchain, Slate <www.slate.com/articles/technology/future_tense/2018/01/there_is_no_such_thing_as_the_blockchain.html>[as of Apr. 29, 2018].)
Permissioned systems can be more easily controlled and more efficiently maintained, but may lack the security of a truly decentralized system and thus may be more susceptible to manipulation. (Id.)
- The definition of “blockchain” may require further clarification
SB 838’s definition of “blockchain technology” may require further clarification. Of particular concern are the definition’s use of the terms “uncensored” and “immutable.” Blockchain is a means of recording and securing data, not a means of ensuring that the underlying content is accurate. Corrupted or censored data may be entered into a blockchain just as in any other database. Likewise, blockchains, even the most ostensibly secure ones that use the broadest networks, are not immutable. Nakamoto recognized that if 51 percent of the computers maintaining Bitcoin are controlled, the chain could be retroactively altered.
Criticizing an identical definition in an Arizona statute, Professor Angela Walch of St. Mary’s University School of Law states as follows:
The problems with the Arizona statute suggest that the lawmakers involved were legislating without an understanding of blockchain technology, and that they failed to critically analyze the subject they were dealing with. Embedding confusion and misunderstandings in law is a serious problem, and demonstrates just how vital it is that regulators fight through the terminology issues and hype around blockchain technology as they evaluate how to treat it. Moreover, as regulators are evaluating the technology for use in the burgeoning “regtech” space and in government record-keeping of all kinds, it is critical that regulators understand the actual capabilities of the technology. The problematic usage of the term “immutable” makes it difficult to determine and evaluate the capabilities of blockchain technology, and is just one example of how terminology problems can prevent regulators from making the best decisions. (The Path of Blockchain Lexicon (and the Law) (Spring 2017) Review of Banking & Financial Law, p. 745; internal citations omitted.)
Writing in support of the bill, Blockchain Group of CodeX: The Stanford Center for Legal Informatics offers an alternative definition:
To properly lay the foundations of the State’s regulatory framework we believe it is imperative to correctly define blockchain. We note a number of effective definitions are already in use and we would encourage the Legislature to carefully deliberate the crafting of the definition of blockchain.
[…]
We would offer an excellent definition of blockchain, proposed by Professor Oliver Goodenough of Vermont Law School to the Vermont legislature, which reads,
“[B]lockchain technology” shall mean a mathematically secured, chronological, and decentralized consensus ledger or database, whether maintained via internet interaction, peer to peer networks, or otherwise.
A possible alternative is contained in a Nevada law (NRS 719) that recognizes blockchains as valid electronic records. The definition is as follows:
“Blockchain” means an electronic record of transactions or other data which is:
1. Uniformly ordered;
2. Redundantly maintained or processed by one or more computers or machines to guarantee the consistency or nonrepudiation of the recorded transactions or other data; and
3. Validated by the use of cryptography.
At this time, the author commits to continuing discussions with stakeholders as the bill moves through the legislative process to work on possible amendments to this definition
- Will private corporations use blockchain to record stock transactions?
An article in Harvard Business Review offers some insight on how blockchain could help facilitate recording data associated with stock transactions. The article states as follows:
Consider how business works now. Keeping ongoing records of transactions is a core function of any business. Those records track past actions and performance and guide planning for the future. They provide a view not only of how the organization works internally but also of the organization’s outside relationships. Every organization keeps its own records, and they’re private. Many organizations have no master ledger of all their activities; instead records are distributed across internal units and functions. The problem is, reconciling transactions across individual and private ledgers takes a lot of time and is prone to error.
For example, a typical stock transaction can be executed within microseconds, often without human intervention. However, the settlement—the ownership transfer of the stock—can take as long as a week. That’s because the parties have no access to each other’s ledgers and can’t automatically verify that the assets are in fact owned and can be transferred. Instead a series of intermediaries act as guarantors of assets as the record of the transaction traverses organizations and the ledgers are individually updated.
In a blockchain system, the ledger is replicated in a large number of identical databases, each hosted and maintained by an interested party. When changes are entered in one copy, all the other copies are simultaneously updated. So as transactions occur, records of the value and assets exchanged are permanently entered in all ledgers. There is no need for third-party intermediaries to verify or transfer ownership. If a stock transaction took place on a blockchain-based system, it would be settled within seconds, securely and verifiably. (Iansti & Lakhani, The Truth About Blockchain (Jan-Feb. 2017) Harvard Business Review <https://hbr.org/2017/01/the-truth-about-blockchain> [as of Apr. 29, 2018].)
- Author’s amendments
The author may wish to clarify a technical point: the bill would require that records stored on blockchain “can be converted into clearly legible paper within a reasonable period of time.” Rather than “clearly legible paper,” it may be more precise to refer to the information that would be printed on the paper. If the author wishes to clarify this point, the amendments could be made as follows:
The encrypted information in the records can be decrypted and converted into clearly legible paper format within a reasonable period of time.
Support: Blockchain Group of CodeX: The Stanford Center for Legal Informatics
Opposition: None known
HISTORY
Source: Author
Related Pending Legislation: AB 2658 (Calderon), currently pending in the Assembly Judiciary Committee, would amend the definitions of “electronic record” and “electronic signature” for purposes of the Uniform Electronic Transactions Act to include a record or signature secured through blockchain technology. This bill is current being considered in the Assembly Judiciary Committee.
Prior Legislation: None known
Prior Vote: Senate Banking and Financial Institutions Committee (Ayes 6, Noes 0)
**************
SENATE COMMITTEE ON
BANKING AND FINANCIAL INSTITUTIONS
Senator Steven Bradford, Chair
2017 - 2018 Regular
Bill No: Hearing Date: April 18, 2018
Author: | |||
Version: | Amended | ||
Urgency: | Fiscal: | ||
Consultant: | |||
Subject:
SUMMARY
This bill authorizes corporations to include a provision in their articles of corporation, authorizing the use of blockchain technology to record and track the issuance and transfer of stock certificates.
EXISTING LAW
- Provides for the General Corporation Law (Corporations Code Section 100 et seq.) and the Social Purpose Corporation Act (Corporations Code Section 2500 et seq.).
- Requires California corporations wishing to issue securities to comply with the Corporate Securities Law of 1968 (Corporations Code Section 25000 et seq.), administered by the Department of Business Oversight (DBO).
- Does not expressly authorize the use of blockchain technology or distributed electronic ledgers or networks to record or track the issuance and transfer of securities by California corporations.
THIS BILL
- Amends the General Corporation Law and the Social Purpose Corporation Act to authorize corporations formed under these laws to include a provision in their articles of incorporation authorizing records administered by or on behalf of the corporation, in which the names of all the corporation’s stockholders of record, the address and number of shares registered in the name of each of these stockholders, and all issuances and transfers of corporate stock are recorded, to be kept on or by means of blockchain technology or one or more distributed electronic networks, as long as the following conditions are met:.
- The records can be converted into clearly legible paper within a reasonable period of time.
- The records can be used to prepare the list of shareholders, record information required to be included on stock certificates, and record transfers of stock, as specified.
- The records can be converted into clearly legible paper within a reasonable period of time.
- Defines blockchain technology or a distributed electronic network as a distributed ledger technology that uses a distributed, decentralized, shared, and reciprocal ledger that may be public or private, permissioned or permissionless, or driven by tokenized crypto economics or tokenless, where the data on the ledger is protected with cryptography, is immutable, auditable, and provides an uncensored truth.
COMMENTS
- Purpose: This bill is sponsored by the author to provide privately-held corporations with a more secure means to protect their shareholders from fraud involving the issuance and transfer of stock certificates.
- Author’s Statement: According to the author, “SB 838 is intended to authorize privately-held corporations to issue and transfer share certificates through blockchain technology or distributed electronic network. In order for corporations to record and keep these private exchanges on a blockchain or distributed electronic network, they would be required to place the intent to do so in their articles of incorporation. By authorizing this technology to be used in this way, California is engaging a new technology that will protect consumers and corporations from cases of fraud and theft.”
- Discussion: Blockchain technology allows individuals to conduct financial transactions between and among themselves, with few or no traditional intermediaries, such as banks, payment networks, or clearinghouses. In place of those traditional intermediaries, a blockchain relies on a software code run by different computers, which guarantee the transactions that are added to a ledger as they occur. Blockchain technology uses cryptographic techniques to encode transactions as they are added to the digital ledger.
A single blockchain is a distributed ledger (i.e., a list of transactions that is shared among a number of computers, rather than being stored on a central server). The ledger of transactions is owned by multiple parties rather than a single intermediary, and transactions on the ledger are verified by multiple parties. A blockchain’s strength and security are achieved via a consensus mechanism through which various computers in the system must agree to update the blockchain after any legitimate data entry. Blockchain technology brings together scattered (or distributed) parties who may not know or trust one another, but who do trust the mechanism through which their mutual consensus is achieved. Once information is added to an electronic ledger, it may never be erased.
According to a recent article that appeared in the Stanford Law Review (SLR), “Blockchain’s primary value lies in its potential to record and secure an immense volume of trades and financial transactions on a perpetual basis. While ‘costly middle men’ have policed such transactions in the past, blockchain empowers the network of traders to perform this function itself.” (https://www.stanfordlawreview.org/online/blockchains-big-hurdle/) Quoting a research paper produced by Goldman Sachs, the SLR article went on to note, “Despite the relatively low transaction costs for securities such as equities, up to 10% of trades are subject to various errors, leading to manual intervention and extending the time required to settle trades. By applying blockchain to the clearing and settlement of cash securities – specifically, equities, repo, and leveraged loans – we estimate the industry could save $11-$12 billion in fees, OpEx, and capital charges globally by moving to a shorter, and potentially customized, settlement window.”
The SLR article goes on to state, “The potential lies principally in blockchain’s ability to record changes to a security’s true owner in a very short period of time. Under the present system, nearly all publicly traded securities equities and a majority of bonds are owned by the Depository Trust Company, a depository that holds securities for some 600 broker-dealers and banks. When buyers and sellers make a trade, they essentially swap IOUs against the true owner of the security, which does not change. Discrepancies are therefore unavoidable, as such attenuation of property rights makes it impossible to keep perfect track of who owns what. The risk and inefficiency produced by this system is magnified by the present mode of settlement, which forces securities to travel through the balance sheets of multiple intermediaries during the three-day period required for securities transactions to settle. This time period can create disasters, and these problems are directly responsible for many of the costs and fees that accompany financial transactions.” - California Would Be the First: Despite the theoretical value blockchain technology holds for securely and accurately documenting stock transfers, no state has approved the technology for this purpose. Delaware considered such a change during 2017, but rejected it over concerns it would make the state less attractive to corporations wishing to incorporate there (https://www.delawareonline.com/story/news/2018/02/02/delaware-eases-off-early-blockchain-zeal-after-concerns-over-disruption-business/1082536001/).
- No Apparent Impact on State Departments of Agencies: On the basis of preliminary conversations with staff of the Secretary of State’s Office and DBO, it does not appear that either organization plays a role in overseeing or tracking the issuance and transfer of stock certificates by privately-held corporations. Once approved to issue securities by DBO (or if covered by a securities law exemption), corporations appear to be free to issue and transfer stock certificates in any manner they choose, as long as that manner is acceptable to their shareholders.
- Will Any Corporations Use the Authority Granted by this Bill? Because SB 838 is permissive, it will not require any existing or newly formed corporation to do anything; the bill is merely designed to authorize corporations to add a blockchain-specific provision to their articles of incorporation if they wish. However, it is unclear that any corporations are requesting this authority and additionally unclear whether any will use it, if this bill is enacted. Further, because this bill’s author has not identified any corporation that wishes to use blockchain technology in the manner envisioned by this bill, it is impossible to know whether the language of this bill will work as intended. Until we know exactly how a corporation wishes to use blockchain technology to record and track the issuance and transfer of stock certificates, it is difficult to craft language to further that intent. The existing language of the bill may be sufficiently generic to work, or it may be too lacking in specificity to be helpful.
- Support: None received.
- Opposition: None received.
- Amendments:
- This bill is intended to apply only to privately-held corporations but contains no language clarifying this scope. If this Committee wishes to pass the bill, staff suggests an amendment to exclude publicly traded corporations.
Page 4, line 22, after (A) and Page 7, line 17, after (A), insert: 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,
- This bill is intended to apply only to privately-held corporations but contains no language clarifying this scope. If this Committee wishes to pass the bill, staff suggests an amendment to exclude publicly traded corporations.
- Prior and Related Legislation:
- AB 2658 (Calderon), currently pending in the Assembly Judiciary Committee, would amend the definitions of “electronic record” and “electronic signature” for purposes of the Uniform Electronic Transactions Act to include a record or signature secured through blockchain technology.
- AB 2658 (Calderon), currently pending in the Assembly Judiciary Committee, would amend the definitions of “electronic record” and “electronic signature” for purposes of the Uniform Electronic Transactions Act to include a record or signature secured through blockchain technology.
LIST OF REGISTERED SUPPORT/OPPOSITION
Support
None received
Opposition
None received
-- END --
Discussed in Hearing
2MIN
Assembly Floor
13MIN
Assembly Standing Committee on Privacy and Consumer Protection
15MIN
Assembly Standing Committee on Banking and Finance
4MIN
Senate Floor
16MIN
Senate Standing Committee on Judiciary
9MIN
Senate Standing Committee on Banking and Financial Institutions
Bill Author
Bill Co-Author(s):