To their chagrin, some out-of-state corporations doing business in California may be obligated to comply with a number of corporate governance requirements normally applicable to California corporations only. These requirements are imposed by California’s controversial “long-arm statute”—Section 2115 of the California Corporations Code—which, although recently critiqued and challenged, remains on the books and should be carefully considered by legal practitioners advising companies with operations in the state.
With the exception of publicly traded companies, Section 2115 applies to any out-of-state corporation in which (i) more than one-half of the voting securities are held by California residents, and (ii) more than one-half of the business activity is conducted in California (as determined by weighing property, payroll and sales factors for the most recent full income year). Section 2115 can even apply to a parent corporation that conducts no business of its own in the state, if it has a subsidiary that meets these minimum contacts factors.
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