HB Ad Slot
HB Mobile Ad Slot
Why Delaware Corporations Should Worry About California Law When Making Dividends
Monday, May 2, 2016

When paying a dividend to shareholders, California corporations are subject to Chapter 5 of the California Corporations Code. Corporations incorporated in Delaware and other states may also be subject to Chapter 5 if they meet the conditions of Corporations Code Section 2115, California’s pseudo-foreign corporation statute Section 2115 excepts companies with outstanding companies listed on the NYSE or Nasdaq Global or Capital Markets. It may therefore come as a surprise to these corporations to learn that their payments of dividends may nevertheless be subject to California law.

Last year, the legislature enacted the Uniform Voidable Transactions Act, 2015 Cal. Stat. ch. 44 (SB 161 (Vidak)). Although the new act may be viewed as a renaming and spiffing up of the Uniform Fraudulent Transfer Act, the legislation included some key changes.  In particular, the new act includes for the first time a choice of law provision, California Civil Code Section 3439.10, that provides: “A claim in the nature of a claim under this chapter is governed by the local law of the jurisdiction in which the debtor is located when the transfer is made or the obligation is incurred”.  A corporate debtor having one place of business is considered located at its chief executive office.  A corporate debtor having more than one place of business is located at its chief executive office.  Although this rule is at odds with the internal affairs doctrine familiar to corporate lawyers, it is consonant with the approach of Division 9 of the California Uniform Commercial Code.  See, e.g., Cal. Com. Code § 9307.

The result is that Delaware and other foreign corporations paying dividends may find themselves subject to both the law of the state of incorporation and California’s new Uniform Voidable Transactions Act.

HB Ad Slot
HB Ad Slot
HB Mobile Ad Slot
HB Ad Slot
HB Mobile Ad Slot
HB Ad Slot
HB Mobile Ad Slot
 

NLR Logo

We collaborate with the world's leading lawyers to deliver news tailored for you. Sign Up to receive our free e-Newsbulletins

 

Sign Up for e-NewsBulletins