Last month, California State Senator Monique Limón introduced a bill, SB 1168, that would endow the California Secretary of State with the power to cancel the articles of a domestic corporation or the filing of a statement and designation by a foreign corporation upon the reasonable belief that the corporation was created:

• for an unlawful, false, or fraudulent purpose;
• to promote or conduct an illegitimate object or purpose;
• in bad faith; or
• the purpose of harassing or defrauding a person or entity.

SB 1168 would also grant the same authority to numerous other nonprofit and business entities, include limited partnerships and limited liability companies.

While I understand the desire to cancel the charters and registrations of bad actors, the above categories are too broad and leave too much to the discretion of the Secretary of State. For example, a Secretary of State who disagrees with the policy position of a nonprofit corporation might invoke the statute to cancel that corporation as having been created to promote an "illegitimate object or purpose". If this statute is enacted, I foresee activists of all persuasions calling upon the Secretary of State to cancel their ideological opponents.

The statute also provides minimal due process rights to the corporation - basically notice and an opportunity for the corporation to mail back a form requesting that it not be cancelled.