Exceptions To Section 2115

Yesterday's post concerned the application Section 2115 of the California Corporations Code to parent and subsidiary corporations. A foreign corporation that satisfies the business and shareholder tests of the statute will be subject to numerous provisions of California's General Corporation Law unless an exception applies. Below are some of the exceptions to Section 2115:

  • A corporation or association chartered under the laws of the United States. Cal. Corp. Code § 171 (last sentence).
  • A foreign association. Cal. Corp. Code § 2115(a).
  • A foreign nonprofit corporation. Cal. Corp. Code § 2115(a).
  • Any corporation with outstanding securities listed on the New York Stock Exchange, the NYSE Amex, the NASDAQ Global Market, or the NASDAQ capital market. Cal. Corp. Code § 2115(c).
  • Any corporation if all of its voting shares (other than directors' qualifying shares) are owned directly or indirectly by a corporation or corporations not subject to Section 2115. Cal. Corp. Code § 2115(c).

As enacted, the last two exceptions are nonsensical. The GCL defines "corporation" to mean a corporation organized under the GCL. Cal. Corp. Code § 162. Section 2115 applies to "foreign corporations", not "corporations". Therefore, it makes no sense to except "corporations". The legislature obviously intended to except any "foreign corporation" rather than any "corporation" in Section 2115(c). Further, the ownership requirement in the last exception should be understood to apply to foreign corporations as well as corporations.