Author: Cameron Collins
Until recently, the California Corporations Code Section 1601 provided that a corporation’s shareholders had the right to inspect the “accounting books, records, and minutes of proceedings of the shareholders and the board and committees of the board of any domestic corporation, and of any foreign corporation keeping any such records in this state…”
In Innes v. Diablo Controls, 248 Cal.App.4th 139 (2016), the court opined that Section 1601 did not require that the records of corporations be brought into California for inspection if the corporation did not maintain the records in the state. In Innes, a shareholder demanded that a California corporation, which maintained its records in Illinois, bring the records to California for inspection. The corporation complied with the demand and shipped its records to its California office, but the shareholder contended that the corporation did not ship all of the records that he requested. The court dismissed the shareholder’s demand to inspect the unshipped documents because he did not have the right to inspect any of the corporation’s Illinois-maintained documents under Section 1601.
This conclusion did not sit well with the Conference of California Bar Associations, which sponsored Assembly Bill 2237 to amend Section 1601 and reverse the Innes holding. The California legislature enacted this bill in June 2018 without a single “no” vote, and it took effect in January of this year. Foreign corporations should take note because AB 2237 made a subtle, but significant change to the application of Section 1601.
This bill deleted the word “such” in front of the word “records” from the prior version of the law, so that Section 1601 now reads “… any foreign corporation keeping any records in this state.” This change potentially subjects a foreign corporation and a California corporation with out-of-state executive offices to inspection of all of its accounting books, records, and minutes in California simply because it maintains any records in California. The new act also extends inspection rights under Section 1601 to the records of each subsidiary of a corporation subject to the statute.
This is another example of California’s long history of expanding and extending shareholder rights, and extending the state’s claim of jurisdiction over entities having even a slight nexus with the State.
If you have any questions on corporate documents in Arizona or other states, please contact Pat Nolan, who specializes in in business organizations and commercial transactions, commercial lending, and real estate law.