Contact us with your California corporate & securities law questions (949) 353-6347 or Contact us here

Just What Is An Initial Transaction Statement?

When shares of a California corporation are subject to a restriction on transfer or other specified conditions, Section 418 of the California Corporations Code requires that this fact "appear on the certificate, the initial transaction statement, and written statements".  This, of course, raises the question of what the Code is talking about when it refers to the "initial transaction statement" and the "written statements". 

These terms are defined in Section 171.1, which I've reproduced below:

"Initial transaction statement" means a statement signed by or on behalf of the issuer sent to the new registered owner or registered pledgee, and "written statements," when used in connection with uncertificated securities, means the written statements that are periodically, or at the request of the registered owner or registered pledgee, sent by the issuer to the registered owner or registered pledgee describing the issue of which the uncertificated security is a part.

This definition is not exactly a model of clarity.  In particular, it is not easy to conclude from the above definition that an initial transaction statement is a term that applies only when dealing with an uncertificated security.

Thus, a little history may help make sense of what the legislature was trying to say.  Former Division 8 of the California Uniform Commercial Code (as the students in my Sales class know, we refer to UCC "divisions" rather than "articles") required that an issuer of uncertificated securities send transaction statements and periodic statements.  Formerly, Section 171.1 defined the terms  "initial transaction statement" and "written statements" by reference to those provisions in former Division 8.  In 1996, Division 8 was repealed and replaced with a new Division 8 effective January 1, 1997.  The new Division 8 eliminated references to these statements (although it did retain the concept of uncertificated securities).  This made it necessary to redefine these terms in the Corporations Code.  Thus, I think these terms should be properly understood to refer to statements sent in connection with uncertificated securities, a term defined in Corporations Code § 191.1.

So why spill all of this ink over the meaning of these terms?  Issuers simply need to know where to put the statements required by Corporations Code § 418.  In other words, in the case of a certificated security, the statements required by § 418 need only appear on the certificate.

Share on:

ANY QUESTIONS REGARDING CALIFORNIA CORPORATE AND SECURITIES LAW? CONTACT US DIRECTLY

We offer expert advice with the intricacies of California law.

Our years of experience and expertise allow us to help clients navigate the business laws in California.

CONTACT US

Get the latest news and analysis about California Corporate & Securities law. Subscribe to our newsletter today!

We respect your email privacy

ABOUT OUR AUTHOR

30172DBAB0084D3A8F39D7AF0A8E79BC.ashx Keith Paul Bishop
Partner at Allen Matkins
(949) 353-6328
 Contact me
Learn More About Keith

nominee-badge

Get the latest news and analysis about California Corporate & Securities law. Subscribe to our newsletter today!

We respect your email privacy

CATEGORIES

see all

RECOGNITION

YOUTUBE

FACEBOOK