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

Court Rules Share Repurchase Is Not Subject To CGCL Limitations

Chapter 5 of the California General Corporation Law imposes certain limitations on a corporation's distributions to its shareholders.  Section 166 of the Corporations Code defines "distribution to its shareholders" to include the purchase or redemption of shares.  In a recent decision, U.S. District Court Judge Troy L. Nunley considered whether the limitations of Chapter 5 applied to a corporation's repurchase of shares pursuant to Corporations Code Section 2000.

The case arose when Ms. Clark, a 50% shareholder, filed a certificate of election to wind up and dissolve.  Section 2000 allows the corporation or, if it does not elect to purchase, the holders of 50% or more of the voting power of the corporation to avoid the dissolution of the corporation by purchasing for cash the shares owned by the plaintiffs or by the shareholders so initiating the proceeding at their fair value.  Ms. Clark argued that Chapter 5 applied to the corporation's purchase of her shares.

Judge Nunley ruled that Chapter 5 did not apply to the repurchase.  Why?  Section 508 provides: "This chapter [5] does not apply in connection with any proceeding for winding up and dissolution under Chapter 18 [involuntary dissolution] or 19 [voluntary dissolution]".  This doesn't resolve the question completely because Section 2000 is located in Chapter 20 and not Chapter 18 or 19.  Judge Nunley reasoned, however, that because Ms. Clark's petition to dissolve was filed under Section 1900, the statutory exception applied.  The case is Clark v. S&J Adver., Inc., 2019 U.S. Dist. LEXIS 198725.

Share on:

dissolution

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

ABOUT OUR AUTHOR

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

RECOGNITION

NationalLawReview

badge-author-large

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

YOUTUBE

FACEBOOK