Departing Is Such Sweet Sorrow: Some Things To Consider When You Leave California

California's recent enactment of a gender quota for boards of publicly held corporations may cause some of foreign corporations to consider moving the location of their principal executive offices.  The new law, Corporations Code Section 301.3, will apply to publicly held foreign corporations having their principal executive offices in California "according to the corporation’s SEC 10-K form".  Before doing so, a foreign corporation might wish to consider the following:

  • The term "principal executive office" is not found in the Exchange Act and is not defined in the SEC's general rules under the Exchange Act.  The term does make a few appearances in Regulation S-K (e.g., Item 503(b)), but is not defined.   Schedule A to the Securities Act, which establishes the requirements for registration of securities, uses the term "principal business office".  It is unclear whether a corporation's principal business office is intended to refer to something other than its principal executive office.  Presumably, the Form 10-K requires disclosure of the principal executive office so that the SEC and the public know where to get in contact with the corporation.  Certainly, the requirement was not adopted to provide California with a nexus for regulation.  
  • Section 301.3 does not specify which Form 10-K triggers the requirement.  Is it the Form 10-K filed in the year in which the quota must be met or the most recently completed fiscal year?  For example, Section 301.3 will require a publicly held foreign corporation to have at least one female director no later than the close of the 2019 calendar year.  If the corporation's fiscal year is the calendar year, does the Form 10-K filed in 2019 govern or the Form 10-K filed in 2020?
  • Some corporate bylaws specify the location of the corporation's principal executive offices.  It may even be the case that the location is specified in the certificate of incorporation.  Thus, it may be necessary to amend the certificate of incorporation or bylaws to change the location.  
  • The corporation's loan agreements might include covenants restricting relocation of the corporation's principal executive offices. 
  • Some employment agreements might allow an executive to resign with "good reason" if the location of the corporation's principal executive offices is changed.
  • The corporation may be required to qualify to transact intrastate business and to make tax and other filings in the new location.
  • The location of the corporation's former address must be included on the cover pages of the next Form 8-K and Form 10-Q.
  • If the corporation holds licenses that are location specific (e.g., California Financing Law license), appropriate filings must be made with the licensing authority.