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Removing California Securities Legends

When I first started practicing law, the predominant exemption from qualification under the California Corporate Securities Law of 1968 was found in Corporations Code Section 25102(h).  Although that exemption remains on the books, its popularity has been eclipsed by Section 25102(f), which was added in 1981.

One of the conditions to Section 25102(h) was the imposition of a legend restricting transfer.  In 1996, the legend condition was eliminated.  SB 261 (Beverly), 1996 Cal. Stats. ch. 41.  Nonetheless, counsel will sometimes encounter stock certificates still bearing the legend formerly required by Section 25102(h).  There is no need to either request permission from the Commissioner to transfer the securities or to remove the legend because SB 261 removed the legend by operation of law.

In some cases, however, it will be necessary to request permission to transfer or remove a legend condition.  Section 25141 of the Corporations Code authorizes the Commissioner to impose a legend condition restricting transferability as a condition to qualification.  See also 10 CCR §§ 260.141.1 & 26.141.10.  The Commissioner may also order that a legend be imposed on securities offered and sold in violation of the qualification requirements of Sections 25110, 25120 or 25130.  Cal. Corp. Code § 25534.  In either case, removal of the legend may be requested by filing an application and paying the specified fee.

As a historical footnote, I was serving as Commissioner of Corporations in 1996 when SB 261 was enacted.  The bill, which was supported by the Department of Corporations, made numerous other significant changes, including the creation of an exemption for employee stock option and stock purchase plans (Section 25102(o)).  At the time, the present Commissioner, Jan Owen, was serving as a consultant to the Senate Committee on Finance, Investment & International Trade.  In that capacity, Jan wrote this analysis of the bill for the Committee.  The Committee was chaired by Senator Lucy Killea, who also chaired the California Senate Commission on Corporate Governance, Shareholder Rights and Securities Transactions.  I served on that Commission prior to entering into state service and as a member of the Commission worked on the drafting of the former and semi-eponymous Beverly-Killea Limited Liability Company Act.  The "Beverly" in that act's title is Senator Robert G. Beverly who authored SB 261.

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30172DBAB0084D3A8F39D7AF0A8E79BC.ashx Keith Paul Bishop
Partner at Allen Matkins
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