Two Important Bills for Businesses to Become Law on January 1st

Two important bills passed recently by the California state legislature will become law on January 1, 2015. The first of these new business laws will affect what up to now has been called the Corporate Flexibility Act of 2011. The second bill standardizes the business entity filing process. If you may be affected by either of these new laws, it is important that you discuss them with an experienced California business law attorney.

Changes to What Was the Corporate Flexibility Act

Governor Brown signed the first of these bills into law on September 27, 2014. The bill is Senate Bill 1301. The first thing the new law does is change the name of the law. It will now be called the “Social Purpose Corporations Act.” It also changes the name of the type of corporation the Act authorizes to “social purpose corporation.” This type of corporation used to be called a “flexible purpose corporation.” A social purpose corporation is a corporation that has a designated purpose in its articles of incorporation.

The new law also changes some of the regulations effecting social purpose corporations. On one hand, it will become easier for corporations to convert into social purpose corporations. This will be the case regardless of whether the corporations are domestic or foreign. On the other hand, however, the boards of directors of these corporations will find themselves more restricted in their decision making. While previously the boards were encouraged to take the special purposes of their corporations into account when making decisions, now they will be required to do so. They will still, however, be required to also consider the other factors they were already required by law to consider.

Standardization of the Business Entity Filing Process

The other relevant law for business owners that is going into effect on January 1, 2015 was signed by Governor Brown on September 29, 2014. Senate Bill 1041 amends portions of the Corporations Code and is an attempt to standardize the business entity filing processes and content across all business entity types. This means that the processes for things like conversions and terminations will be simplified. The types of entities affected by this legislation include but are not limited to corporations, limited partnerships, foreign corporations, foreign limited partnerships, limited liability partnerships, foreign limited liability partnerships, flexible purpose corporations (to be called social purpose corporations after the first of the year), limited liability companies, and unincorporated associations.

The new forms required under this new law should be available on the State Secretary of State’s website on January 1, 2015. Detailed information about these new forms is available here. While ultimately these new processes should make it easier for everyone to do the paperwork associated with business entity filings, at first it will be important to consult with a business attorney, especially if you are used to using the old process.

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