A recent ruling by U.S. District Court Judge Anthony J. Battaglia addresses whether demand futility is an affirmative defense that must be asserted in an answer or raised in a motion to dismiss.   In re Franklin Wireless, 2024 WL 1163178 (March 18, 2024) involved a derivative suit against officers and directors of a Nevada corporation.   Because the suit was brought in federal court, Rule 23.1 of the Federal Rules of Civil Procedure required that the plaintiffs either demand action from the corporation's directors before filing suit or plead with particularity the reasons w ..read more

The California General Corporation Law is part of the California Corporations Code, but not every corporation incorporated in California is formed or governed by the General Corporation Law.   In fact, the Corporations Code includes separate law governing a wide variety of corporations that are formed pursuant to laws other than the GCL, including: Social purpose corporations; Nonprofit corporations (nonprofit public benefit, mutual benefit and religious); Corporations sole; Cooperative corporations; Fish marketing corporations; and Benefit corporations Just as many courts conflate ..read more

In a recently published article, Professors Samantha J. Prince & Joshua P. Fershée focus on the propensity to conflate corporations with limited liability companies: There are nearly nine thousand references to the phrase “limited liability corporation” in court cases. . . .  Most recently, Justice Samuel Alito scribed an op-ed that was published in The Wall Street Journal where he misused the term. . . . An LLC by Any Other Name Is Still Not a Corporation, 54 Seton Hall L. Rev. 1105 (2024).  The article points out that it is not just courts making this mistake.   For ..read more

I recently addressed the question of whether the exchange of emails might constitute a corporate board meeting.  Recently, Professor Stephen Bainbridge pointed out that he discussed this question more than two decades ago.    He writes (and wrote): "To conduct a meeting exclusively online, in a Delaware corporation at least, you must use Internet telephony".  This conclusion is based on Section 141(i) of the Delaware General Corporation Law which allows directors to conduct a meeting: "by means of conference telephone or other communications equipment by means of which all ..read more

Yesterday, the California Department of Financial Protection & Innovation warned investors that an "entity calling itself “Hartman Cain & Associates,” which represents itself as a law firm based in California, and operates the website https://www.hartmancainlaw.com/, is reaching out to investors about a class action “settlement” involving the California Department of Business Oversight, and claiming that investors can receive settlement money – if they pay fees first." The DFPI, of course, hasn't been known as the Department of Business Oversight for nearly four years.  While it m ..read more

California Corporations Code Section 25118(b) provides an exemption from the state's usury limitations for loans.  The exemption is subject to several conditions.  One condition is the existence of either a preexisting relationship or a level of financial sophistication: The lender and either the issuer of the indebtedness or the guarantor, as the case may be, or any of their respective officers, directors, or controlling persons, or, if any party is a limited liability company, the managers as appointed or elected by the members, have a preexisting personal or business relationship ..read more

NRS 78.585 provides that dissolution does not impair any remedy or cause of action against a dissolved Nevada corporation or its directors, officers, or stockholders if it is  commenced within: Two years after the date of the dissolution with respect to any cause of action in which the plaintiff learns, or in the exercise of reasonable diligence should have learned of, the underlying facts on or before the date dissolution, or Three years after the date of dissolution with respect to any other cause of action. Chief Judge Miranda M. Du  concluded that NRS 78.585 is a statute of rep ..read more

A California corporation is required to keep "minutes of the proceedings of its shareholders, board and committees of the board".  Cal. Corp. Code § 1500.  Minutes are required to be open to inspection upon the written demand of any shareholder (or holder of a voting trust certificate) at any reasonable time during usual business hours for a purpose reasonably related to the holder's interests as a shareholder or holder of a voting trust certificate.  Cal. Corp. Code § 1601(a)(1).   The General Corporation Law, however, fails to define the most fundamental term in thes ..read more

The California Revised Uniform Limited Liability Company Act deals separately with the dissolution and cancellation of a California limited liability company and the cancellation of registration of a foreign limited liability company.   Yet, the Secretary of State has adopted a form of Certificate of Cancellation (Form LLC-4/7) that is intended to cover both of these situations.  However, I believe that the form is conflates the two situations. Item 5 of Form LLC-4/7 includes the following statement: “Upon the effective date of this Certificate of Cancellation, except as provid ..read more

Last week, the U.S. Securities and Exchange Commission's Director of Enforcement  celebrated a jury verdict in its insider trading case against Matthew Panuwat: As we’ve said all along, there was nothing novel about this matter, and the jury agreed: this was insider trading, pure and simple. Defendant used highly confidential information about an impending announcement of the acquisition of biopharmaceutical company Medivation, Inc., the company where he worked, by Pfizer Inc. to trade ahead of the news for his own enrichment. Rather than buying the securities of Medivation, however ..read more