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What Is The Point Of Defined Terms, If The Legislature Fails To Recognize Them?

Chapter 1 of the General Corporation Law includes numerous defined terms, including "corporation", "domestic corporation", and "foreign corporation".  Having taken care to define these terms, however, the legislature ocasionally seems to have forgotten that they exist.  An example of this legislative amnesia can be found in Section 408.

As originally enacted, Section 408 authorized a "corporation" to adopt and carry out stock purchase and stock option plans.  Because "corporation" is defined in Section 162 as a corporation organized under the GCL, or subject to the GCL pursuant to Section 102(a), the statute did not purport to authorize foreign corporations (defined in Section 171) to adopt such plans.  This made sense because a foreign corporation's authority to adopt and carry out such plans is properly the subject of the law of the jurisdiction in which the foreign corporation was incorporated.

There was a problem with Section 408, however, and that was that two provisions of the Labor Code (§ 406 & § 407) arguably made these plans illegal for all employers in California, domestic or foreign.  Eventually, the legislature amended Section 408 by adding a new subdivision (c) that declaring Labor Code Sections 406 and 407 inapplicable to shares issued by any foreign or domestic corporation when issued to:

"(1) Any employee of the corporation or of any parent or subsidiary thereof, pursuant to a stock purchase plan or agreement or stock option plan or agreement provided for in subdivision (a).

(2) In any transaction in connection with securing employment, to a person who is or is about to become an officer of the corporation or of any parent or subsidiary thereof."

Cal. Stats. 1982, ch. 266 § 1.  The legislature obviously forgot that "corporation" does not include "foreign corporations".  If read literally, Section 408(c) benefits only corporations, as defined, even though the legislature obviously intended the statute to apply to foreign corporations.

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