Submitted by UCS on February 13, 2023
Effective January 1, 2023, SB 218 created a new filing with the California Secretary of State (“Secretary of State”) called a “Ratification of a Noncompliant Corporate Act” or a “Validation of a Noncompliant Corporate Act.” This new filing will need to be drafted and submitted by a corporation or their attorney. This bill will allow lawful actions taken by the corporation, that were not taken in compliance with the California General Corporation law, or the governing articles of incorporation and bylaws or governing contract, to be validated (ratified) by the corporation or by a Superior Court, if necessary.
There are some rules applicable to the filing:
• This filing cannot have a future effective date or a future file date.
• This filing cannot be used by a dissolved corporation or by a foreign corporation.
• This filing cannot be used for director liability issues or for certain duties related to shareholder distributions.
For more specifics, see SB 218.
A California Certificate of Validation generally requires the board of directors to duly adopt resolutions approving the corporate action to be ratified and outline the basis of the noncompliance. If shareholder approval would have been required at such time, shareholders would also have to approve such ratification.
For purposes of Secretary of State filings, if the corporation went through this process of ratifying or validating something that wasn’t strictly in compliance with the law, the corporation will have to file with the Secretary of State if that action affects a previous filing with the Secretary of State, in a way that makes the previous filing unclear, or changes information in a previous filing, or the corporation should have filed something previously and didn’t. If that’s the case, the corporation would file a Ratification of a Noncompliant Corporate Act, on an officers’ certificate, and it would have certain information that is required to be in the filing, pursuant to this new law.
If the corporation submits a Ratification of a Noncompliant Corporate Act and, the Secretary of State finds the filing is confusing, and cannot be corrected, the corporation has the option of going to seek a court order ratifying or validating the corporate act in Superior Court and resubmit for filing with Secretary of State.
When resubmitted for filing with Secretary of State, it will be called a “Validation of a Noncompliant Corporate Act” and is essentially the same information in the previous submission on an officers’ certificate and has certain requirements that must be listed in the document, but it would also include that court order. This will allow the Secretary of State and any shareholders or others looking at the record more information on how to interpret that change. These will be considered amendment filings.
Again, this will be a free form document and will be reviewed by the California Secretary of State legal team for compliance. Questions regarding drafting the contents of the validation application should be directed to the California Secretary of State legal team.
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