Bill Text: CA SB838 | 2017-2018 | Regular Session | Amended

NOTE: There are more recent revisions of this legislation. Read Latest Draft
Bill Title: Corporate records: articles of incorporation: blockchain technology.

Spectrum: Partisan Bill (Democrat 1-0)

Status: (Passed) 2018-09-28 - Chaptered by Secretary of State. Chapter 889, Statutes of 2018. [SB838 Detail]

Download: California-2017-SB838-Amended.html

Amended  IN  Senate  March 22, 2018

CALIFORNIA LEGISLATURE— 2017–2018 REGULAR SESSION

Senate Bill No. 838


Introduced by Senator Hertzberg

January 09, 2018


An act to amend Sections 204, 5132, 7132, and 9132 of the Corporations Code, and to amend Section 27326 Sections 12168.5 and 12168.7 of the Government Code, relating to local government. corporations.


LEGISLATIVE COUNSEL'S DIGEST


SB 838, as amended, Hertzberg. County recorder: judgments or decrees. Corporate records: articles of incorporation: filing.
Existing law authorizes and regulates the formation and operation of a corporation, nonprofit public benefit corporation, nonprofit mutual benefit corporation, or nonprofit religious corporation, including, but not limited to, the adoption and contents of corporate articles of incorporation.
This bill would also authorize a corporation, nonprofit public benefit corporation, nonprofit mutual benefit corporation, or nonprofit religious corporation to adopt provisions within its articles of incorporation authorizing records administered by or on behalf of the corporation in which the names of all of the corporation’s stockholders of record, the address and number of shares registered in the name of each of those stockholders, and all issuances and transfers of stock of the corporation to be recorded and kept on or by means of blockchain technology or one or more distributed electronic networks, as specified.
Existing law authorizes the Secretary of State to adopt rules and regulations to authorize the electronic filing of any documents required to be filed with the Secretary of State under any law administered by the Secretary of State. Existing law also authorizes the filing officer to employ a system of microphotography, optical disk, or reproduction by other techniques, which do not permit additions, deletions, or changes to the original documents.
This bill would also authorize the filing officer to use blockchain technology or one or more distributed electronic networks for the filing of the records of corporations that are authorized to be recorded and kept in that manner pursuant to the bill’s provisions.
Existing law requires the Secretary of State to approve and adopt uniform statewide standards for the purpose of storing and recording permanent and nonpermanent documents in electronic media, as specified, and requires those standards to include a requirement that a trusted system, as defined, be utilized. A trusted system, for these purposes, includes “cloud computing,” as defined, that meets specified requirements.
This bill would specify that a trusted system, for these purposes, includes “blockchain technology or a distributed electronic network,” as defined.

Existing law requires a county recorder to file and record certified copies of final judgments or decrees partitioning or affecting the title or possession of real property, any part of which is situated in the county.

This bill would make a nonsubstantive change to this provision.

Vote: MAJORITY   Appropriation: NO   Fiscal Committee: NOYES   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 Section 204 of the Corporations Code is amended to read:

204.
 The articles of incorporation may set forth:
(a) Any or all of the following provisions, which shall not be effective unless expressly provided in the articles:
(1) Granting, with or without limitations, the power to levy assessments upon the shares or any class of shares.
(2) Granting to shareholders preemptive rights to subscribe to any or all issues of shares or securities.
(3) Special qualifications of persons who may be shareholders.
(4) A provision limiting the duration of the corporation’s existence to a specified date.
(5) A provision requiring, for any or all corporate actions (except as provided in Section 303, subdivision (b) of Section 402.5, subdivision (c) of Section 708 and Section 1900) the vote of a larger proportion or of all of the shares of any class or series, or the vote or quorum for taking action of a larger proportion or of all of the directors, than is otherwise required by this division.
(6) A provision limiting or restricting the business in which the corporation may engage or the powers which the corporation may exercise or both.
(7) A provision conferring upon the holders of any evidences of indebtedness, issued or to be issued by the corporation, the right to vote in the election of directors and on any other matters on which shareholders may vote.
(8) A provision conferring upon shareholders the right to determine the consideration for which shares shall be issued.
(9) A provision requiring the approval of the shareholders (Section 153) or the approval of the outstanding shares (Section 152) for any corporate action, even though not otherwise required by this division.
(10) Provisions eliminating or limiting the personal liability of a director for monetary damages in an action brought by or in the right of the corporation for breach of a director’s duties to the corporation and its shareholders, as set forth in Section 309, provided, however, that (A) such a provision may not eliminate or limit the liability of directors (i) for acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (ii) for acts or omissions that a director believes to be contrary to the best interests of the corporation or its shareholders or that involve the absence of good faith on the part of the director, (iii) for any transaction from which a director derived an improper personal benefit, (iv) for acts or omissions that show a reckless disregard for the director’s duty to the corporation or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director’s duties, of a risk of serious injury to the corporation or its shareholders, (v) for acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director’s duty to the corporation or its shareholders, (vi) under Section 310, or (vii) under Section 316, (B) no such provision shall eliminate or limit the liability of a director for any act or omission occurring prior to the date when the provision becomes effective, and (C) no such provision shall eliminate or limit the liability of an officer for any act or omission as an officer, notwithstanding that the officer is also a director or that his or her actions, if negligent or improper, have been ratified by the directors.
(11) A provision authorizing, whether by bylaw, agreement, or otherwise, the indemnification of agents (as defined in Section 317) in excess of that expressly permitted by Section 317 for those agents of the corporation for breach of duty to the corporation and its stockholders, provided, however, that the provision may not provide for indemnification of any agent for any acts or omissions or transactions from which a director may not be relieved of liability as set forth in the exception to paragraph (10) or as to circumstances in which indemnity is expressly prohibited by Section 317.
Notwithstanding this subdivision, in the case of a close corporation any of the provisions referred to above may be validly included in a shareholders’ agreement. Notwithstanding this subdivision, bylaws may require for all or any actions by the board the affirmative vote of a majority of the authorized number of directors. Nothing contained in this subdivision shall affect the enforceability, as between the parties thereto, of any lawful agreement not otherwise contrary to public policy.
(12) (A) A provision authorizing records administered by or on behalf of the corporation in which the names of all of the corporation’s stockholders of record, the address and number of shares registered in the name of each of those stockholders, and all issuances and transfers of stock of the corporation to be recorded and kept on or by means of blockchain technology or one or more distributed electronic networks, provided that all of the following requirements are met:
(i) The records can be converted into clearly legible paper within a reasonable period of time.
(ii) The records can be used to prepare the list of shareholders.
(iii) The records can be used to record information required to be included on stock certificates pursuant to this code.
(iv) The records can be used to record transfers of stock required pursuant to this code.
(B) For purposes of this paragraph, “blockchain technology or a distributed electronic network” means a distributed ledger technology that uses a distributed, decentralized, shared, and reciprocal ledger that may be public or private, permissioned or permissionless, or driven by tokenized crypto economics or tokenless. The data on the ledger is protected with cryptography, is immutable, is auditable, and provides an uncensored truth.
(b) Reasonable restrictions upon the right to transfer or hypothecate shares of any class or classes or series, but no restriction shall be binding with respect to shares issued prior to the adoption of the restriction unless the holders of such shares voted in favor of the restriction.
(c) The names and addresses of the persons appointed to act as initial directors.
(d) Any other provision, not in conflict with law, for the management of the business and for the conduct of the affairs of the corporation, including any provision which is required or permitted by this division to be stated in the bylaws.

SEC. 2.

 Section 5132 of the Corporations Code is amended to read:

5132.
 (a) The articles of incorporation may set forth any or all of the following provisions, which shall not be effective unless expressly provided in the articles:
(1) A provision limiting the duration of the corporation’s existence to a specified date.
(2) In the case of a subordinate corporation instituted or created under the authority of a head organization, a provision setting forth either or both of the following:
(A) That the subordinate corporation shall dissolve whenever its charter is surrendered to, taken away by, or revoked by the head organization granting it.
(B) That in the event of its dissolution pursuant to an article provision allowed by subparagraph (A) or in the event of its dissolution for any reason, any assets of the corporation after compliance with the applicable provisions of Chapters 15 (commencing with Section 6510), 16 (commencing with Section 6610) and 17 (commencing with Section 6710) shall be distributed to the head organization.
(b) Nothing contained in subdivision (a) shall affect the enforceability, as between the parties thereto, of any lawful agreement not otherwise contrary to public policy.
(c) The articles of incorporation may set forth any or all of the following provisions:
(1) The names and addresses of the persons appointed to act as initial directors.
(2) The classes of members, if any, and if there are two or more classes, the rights, privileges, preferences, restrictions and conditions attaching to each class.
(3) A provision that would allow any member to have more or less than one vote in any election or other matter presented to the members for a vote.
(4) A provision that requires an amendment to the articles, as provided in subdivision (a) of Section 5812, or to the bylaws, and any amendment or repeal of that amendment, to be approved in writing by a specified person or persons other than the board or the members. However, this approval requirement, unless the articles specify otherwise, shall not apply if any of the following circumstances exist:
(A) The specified person or persons have died or ceased to exist.
(B) If the right of the specified person or persons to approve is in the capacity of an officer, trustee, or other status and the office, trust, or status has ceased to exist.
(C) If the corporation has a specific proposal for amendment or repeal, and the corporation has provided written notice of that proposal, including a copy of the proposal, to the specified person or persons at the most recent address for each of them, based on the corporation’s records, and the corporation has not received written approval or nonapproval within the period specified in the notice, which shall not be less than 10 nor more than 30 days commencing at least 20 days after the notice has been provided.
(5) (A) A provision authorizing records administered by or on behalf of the corporation in which the names of all of the corporation’s stockholders of record, the address and number of shares registered in the name of each of those stockholders, and all issuances and transfers of stock of the corporation to be recorded and kept on or by means of blockchain technology or one or more distributed electronic networks, provided that all of the following requirements are met:
(i) The records can be converted into clearly legible paper within a reasonable period of time.
(ii) The records can be used to prepare the list of shareholders.
(iii) The records can be used to record information required to be included on stock certificates pursuant to this code.
(iv) The records can be used to record transfers of stock required pursuant to this code.
(B) For purposes of this paragraph, “blockchain technology or a distributed electronic network” means a distributed ledger technology that uses a distributed, decentralized, shared, and reciprocal ledger, that may be public or private, permissioned or permissionless, or driven by tokenized crypto economics or tokenless. The data on the ledger is protected with cryptography, is immutable, is auditable, and provides an uncensored truth.

(5)

(6) Any other provision, not in conflict with law, for the management of the activities and for the conduct of the affairs of the corporation, including any provision that is required or permitted by this part to be stated in the bylaws.

SEC. 3.

 Section 7132 of the Corporations Code is amended to read:

7132.
 (a) The articles of incorporation may set forth any or all of the following provisions, which shall not be effective unless expressly provided in the articles:
(1) A provision limiting the duration of the corporation’s existence to a specified date.
(2) A provision conferring upon the holders of any evidences of indebtedness, issued or to be issued by a corporation the right to vote in the election of directors and on any other matters on which members may vote under this part even if the corporation does not have members.
(3) A provision conferring upon members the right to determine the consideration for which memberships shall be issued.
(4) In the case of a subordinate corporation instituted or created under the authority of a head organization, a provision setting forth either or both of the following:
(A) That the subordinate corporation shall dissolve whenever its charter is surrendered to, taken away by, or revoked by the head organization granting it.
(B) That in the event of its dissolution pursuant to an article provision allowed by subparagraph (A) or in the event of its dissolution for any reason, any assets of the corporation after compliance with the applicable provisions of Chapters 15 (commencing with Section 8510), 16 (commencing with Section 8610), and 17 (commencing with Section 8710) shall be distributed to the head organization.
(b) Nothing contained in subdivision (a) shall affect the enforceability, as between the parties thereto, of any lawful agreement not otherwise contrary to public policy.
(c) The articles of incorporation may set forth any or all of the following provisions:
(1) The names and addresses of the persons appointed to act as initial directors.
(2) Provisions concerning the transfer of memberships, in accordance with Section 7320.
(3) The classes of members, if any, and if there are two or more classes, the rights, privileges, preferences, restrictions and conditions attaching to each class.
(4) A provision which would allow any member to have more or less than one vote in any election or other matter presented to the members for a vote.
(5) A provision that requires an amendment to the articles, as provided in subdivision (a) of Section 7812, or to the bylaws, and any amendment or repeal of that amendment, to be approved in writing by a specified person or persons other than the board or the members. However, this approval requirement, unless the articles specify otherwise, shall not apply if any of the following circumstances exist:
(A) The specified person or persons have died or ceased to exist.
(B) If the right of the specified person or persons to approve is in the capacity of an officer, trustee, or other status and the office, trust, or status has ceased to exist.
(C) If the corporation has a specific proposal for amendment or repeal, and the corporation has provided written notice of that proposal, including a copy of the proposal, to the specified person or persons at the most recent address for each of them, based on the corporation’s records, and the corporation has not received written approval or nonapproval within the period specified in the notice, which shall not be less than 10 nor more than 30 days commencing at least 20 days after the notice has been provided.
(6) (A) A provision authorizing records administered by or on behalf of the corporation in which the names of all of the corporation’s stockholders of record, the address and number of shares registered in the name of each of those stockholders, and all issuances and transfers of stock of the corporation to be recorded and kept on or by means of blockchain technology or one or more distributed electronic networks, provided that all of the following requirements are met:
(i) The records can be converted into clearly legible paper within a reasonable period of time.
(ii) The records can be used to prepare the list of shareholders.
(iii) The records can be used to record information required to be included on stock certificates pursuant to this code.
(iv) The records can be used to record transfers of stock required pursuant to this code.
(B) For purposes of this paragraph, “blockchain technology or a distributed electronic network” means a distributed ledger technology that uses a distributed, decentralized, shared, and reciprocal ledger that may be public or private, permissioned or permissionless, or driven by tokenized crypto economics or tokenless. The data on the ledger is protected with cryptography, is immutable, is auditable, and provides an uncensored truth.

(6)

(7) Any other provision, not in conflict with law, for the management of the activities and for the conduct of the affairs of the corporation, including any provision which is required or permitted by this part to be stated in the bylaws.

SEC. 4.

 Section 9132 of the Corporations Code is amended to read:

9132.
 (a) The articles of incorporation may set forth any or all of the following provisions, which shall not be effective unless expressly provided in the articles:
(1) A provision limiting the duration of the corporation’s existence to a specified date.
(2) In the case of a subordinate corporation instituted or created under the authority of a head organization, a provision setting forth either or both of the following:
(A) That the subordinate corporation shall dissolve whenever its charter is surrendered to, taken away by, or revoked by the head organization granting it.
(B) That in the event of its dissolution pursuant to an article provision allowed by subparagraph (A) or in the event of its dissolution for any reason, any assets of the corporation after compliance with the applicable provisions of Chapters 16 (commencing with Section 6610) and 17 (commencing with Section 6710) (made applicable pursuant to Section 9680) shall be distributed to the head organization.
(b) Nothing contained in subdivision (a) shall affect the enforceability, as between the parties thereto, of any lawful agreement not otherwise contrary to public policy.
(c) The articles of incorporation may set forth any or all of the following provisions:
(1) The names and addresses of the persons appointed to act as initial directors.
(2) The classes of members, if any, and if there are two or more classes, the rights, privileges, preferences, restrictions and conditions attaching to each class.
(3) A provision which would allow any member to have more or less than one vote in any election or other matter presented to the members for a vote.
(4) A provision that requires an amendment to the articles or to the bylaws, and any amendment or repeal of that amendment, to be approved in writing by a specified person or persons other than the board or the members. However, this approval requirement, unless the articles or the bylaws specify otherwise, shall not apply if any of the following circumstances exist:
(A) The specified person or persons have died or ceased to exist.
(B) If the right of the specified person or persons to approve is in the capacity of an officer, trustee, or other status and the office, trust, or status has ceased to exist.
(C) If the corporation has a specific proposal for amendment or repeal, and the corporation has provided written notice of that proposal, including a copy of the proposal, to the specified person or persons at the most recent address for each of them, based on the corporation’s records, and the corporation has not received written approval or nonapproval within the period specified in the notice, which shall not be less than 10 nor more than 30 days commencing at least 20 days after the notice has been provided.
(5) (A) A provision authorizing records administered by or on behalf of the corporation in which the names of all of the corporation’s stockholders of record, the address and number of shares registered in the name of each of those stockholders, and all issuances and transfers of stock of the corporation to be recorded and kept on or by means of blockchain technology or one or more distributed electronic networks, provided that all of the following requirements are met:
(i) The records can be converted into clearly legible paper within a reasonable period of time.
(ii) The records can be used to prepare the list of shareholders.
(iii) The records can be used to record information required to be included on stock certificates pursuant to this code.
(iv) The records can be used to record transfers of stock required pursuant to this code.
(B) For purposes of this paragraph, “blockchain technology or a distributed electronic network” means a distributed ledger technology that uses a distributed, decentralized, shared, and reciprocal ledger that may be public or private, permissioned or permissionless, or driven by tokenized crypto economics or tokenless. The data on the ledger is protected with cryptography, is immutable, is auditable, and provides an uncensored truth.

(5)

(6) Any other provision, not in conflict with law, for the management of the activities and for the conduct of the affairs of the corporation, including any provision which is required or permitted by this part to be stated in the bylaws.

SEC. 5.

 Section 12168.5 of the Government Code is amended to read:

12168.5.
 (a) When not inconsistent with other provisions of law, in lieu of filing or recording documents presented in paper format, the Secretary of State may adopt rules and regulations to authorize the electronic filing, including filing by facsimile, of any document required to be filed with the Secretary of State under any act administered by the Secretary of State. The rules and regulations may set forth standards for the acceptance of a signature in a form other than the proper handwriting of the person filing a document that requires his or her signature. A signature on a document electronically filed or filed by facsimile in accordance with those rules and regulations is prima facie evidence for all purposes that the document actually was signed by the person whose signature appears on the electronically filed document or facsimile.
The filing or recording shall constitute a unique computerized informational record. The record need not be retained in the form in which it is received, if the technology used to retain the record results in a permanent record that does not permit additions, deletions, or changes in the original document and from which an accurate image may be created during the period for which the record is required to be retained.
The filing officer may employ a system of microphotography, optical disk, or reproduction by other techniques that do not permit additions, deletions, or changes to the original document. The filing officer may also use blockchain technology or one or more distributed electronic networks for the filing of the records of a corporation that are authorized to be recorded and kept in that manner by the corporation’s articles of incorporation as described in Sections 204, 5132, 7132, and 9132 of the Corporations Code.
(b) Notwithstanding Section 7550.5, the Secretary of State shall prepare and submit to the Legislature at the commencement of the public comment period required under Article 5 (commencing with Section 11346) of Chapter 3.5 of Part 1 a report of, and a copy of, any rules and regulations proposed pursuant to subdivision (a) to authorize the electronic filing, including filing by facsimile, of documents required to be filed with the Secretary of State.
(c) All film used in the microphotography process shall comply with minimum standards of quality approved by the United States Bureau of Standards and the American National Standards Institute. A true copy of the microfilm, optical disk, or other storage medium shall be kept in a safe and separate place for security purposes. A reproduction of any document filed, recorded, stored, or retained on microfilm, optical disk, or by other technology pursuant to this section shall be as admissible in any court as the original itself.
The Secretary of State shall obtain the approval of the Fair Political Practices Commission before applying this section to a filing or recording under the Political Reform Act of 1974 (Title 9 (commencing with Section 81000)).
(d) For purposes of this section “blockchain technology” and “distributed electronic network” have the same meanings as those terms are defined in Section 12168.7.

SEC. 6.

 Section 12168.7 of the Government Code is amended to read:

12168.7.
 (a) The California Legislature hereby recognizes the need to adopt uniform statewide standards for the purpose of storing and recording permanent documents in electronic media.
(b) In order to ensure that uniform statewide standards remain current and relevant, the Secretary of State shall approve and adopt appropriate standards established by the American National Standards Institute.
(c) The standards specified in subdivision (b) shall include a requirement that a trusted system be utilized. For this purpose and for purposes of Sections 25105, 26205, 26205.1, 26205.5, 26907, 27001, 27322.2, 34090.5, and 60203, Section 102235 of the Health and Safety Code, and Section 10851 of the Welfare and Institutions Code, “trusted system” means a combination of technologies, policies, and procedures for which there is no plausible scenario in which a document retrieved from or reproduced by the system could differ substantially from the document that is originally stored.
(d) (1) A cloud computing storage service that complies with International Organization for Standardization ISO/IEC 27001:2013, or other applicable industry-recognized standard relating to security techniques and information security management, and provides administrative users with controls to prevent stored records from being overwritten, deleted, or altered shall be considered a trusted system.
(2) Blockchain technology or a distributed electronic network shall be considered a trusted system.
(e) A trusted system shall comply with applicable standards articulated in the State Administrative Manual and the Statewide Information Management Manual. This requirement applies to state agencies and does not apply to local government entities.
(f) (1) For purposes of this section “cloud computing” is defined by the National Institute of Standards and Technology Special Publication 800-145 or a successor publication, and includes the service and deployment models referenced therein.
(2) For purposes of this section “blockchain technology or a distributed electronic network” means a distributed ledger technology that uses a distributed, decentralized, shared, and reciprocal ledger that may be public or private, permissioned or permissionless, or driven by tokenized crypto economics or tokenless. The data on the ledger is protected with cryptography, is immutable, is auditable, and provides an uncensored truth.
(g) State officials shall ensure that microfilming, electronic data imaging, and photographic reproduction are done in compliance with the minimum standards or guidelines, or both, as recommended by the American National Standards Institute for recording of permanent records.
(h) Nothing in this section shall prohibit a local government entity from adopting applicable standards articulated in the State Administrative Manual and the Statewide Information Management Manual for purposes of utilizing a trusted system as defined in subdivision (c).

SECTION 1.Section 27326 of the Government Code is amended to read:
27326.

The recorder shall file and record in the record of deeds, grants, and transfers, certified copies of final judgments or decrees partitioning or affecting the title or possession of real property, any part of which is situated in the recorder’s county. From the time of filing with the recorder for record, the certified copy of the judgment or decree imparts notice to all persons of its contents, and any subsequent purchaser, mortgagee, and lien-holder purchases and takes with the same notice and effect as if the copy of the decree were a duly recorded deed, grant, or transfer.

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