Legislature And Governor Provide Another Reason For Foreign Corporations To Avoid California

Two years ago, I wrote about Justice Mark B. Simons' opinion in Innes v. Diablo Controls, 248 Cal. App. 4th 139 (2016) that California's shareholder inspection statute does not require that the records be brought to this state for inspection.  This conclusion did not sit well with the Conference of California Bar Associations which sponsored a bill to reverse that holding.  In June, the legislature enacted the bill, AB 2237 (Maienschein), without a single "no" vote.  Governor Brown signed the bill into law on Monday of this week.

When the amendments to Section 1601 take effect next year, a corporation will be required to open its accounting books, records and minutes for inspection at its principal office in California, or if none, at the physical location of its registered agent for service of process.  Copies of these documents must be open for inspection if the originals have been lost, destroyed, or are not normally physically located within California.  AB 2237 will allow the alternative of supplying the records by mail or electronically, if the shareholder or holder of a voting trust certificate pays for the reasonable costs for copying or converting the requested documents to electronic format.

Foreign corporations should take note.  AB 2237 will make a subtle, but significant change to the application of Section 1601 to foreign corporations.  Before amendment, Section 1601 had applied to "any foreign corporation keeping any such records".  AB 2237 deleted the word "such"; thereby potentially subjecting a foreign corporation keeping "any records" in California to inspection of its accounting books, records and minutes in California.  In addition, inspection rights under Section 1601 extends to the records of each subsidiary of a corporation subject to the statute.