On January 1, 2004, a new state law took effect permitting corporate documents bearing facsimile signatures to be presented for filing with the Secretary of State.   Previously, the Secretary of State would accept only original signatures on corporate filings.   The result of the new law is greater efficiency for corporate lawyers and savings of time and costs for corporate clients.

For companies conducting mergers or corporate finance transactions that required the creation of a class of preferred stock, the old law often resulted in delays in closing.   If terms were renegotiated at the last minute and new signatures were needed, or if the parties were in Los Angeles or San Francisco, the need to get new original signatures from parties who were not in Sacramento meant waiting for the FedEx delivery before the company could file appropriate documents with the Secretary of State to conclude the transaction.

WARNING: The new law does NOT permit companies to fax documents directly to the Secretary of State for filing.   Documents must still be presented in person or sent by mail to the Secretary of State in order to be filed.

The convenience of being able to deliver documents for filing quickly, however, vastly outweighs the relative inconvenience of not being able to fax the documents in to the Secretary of State directly.   The new law, which appears as Section 17.1 of the California Corporations Code (the “Code”), was proposed by the Corporations Committee of the State Bar's Business Section.

Working with the Secretary of State's office, I drafted the new law as a member of Corporations Committee.   Between discussions with the Secretary of State, the drafting process, and the legislative approval process, the law took about three years to enact – although one long-time member of the Corporations Committee told me that fax filings had been a topic for about 10 years.   The length of time was a testament to the balancing act that is required for even a law that on its face is innocuous, such as filing documents with facsimile signatures.   For example, the Secretary of State wanted to ensure that any facsimile filings were limited to the corporations code, and not to other filings for which the Secretary of State is also responsible, such as filings by political candidates.

The Code includes Title 1, the California General Corporations Law (“GCL”), Title 4, the Corporate Securities Law (“CSL”), and titles relating to partnerships, limited liability companies, unincorporated associations, and registration of subversive organizations.   The titles in the Code are prefaced by a section of General Provisions which relate to the construction and application of terms used within the Code, under which the new Section 17.1 appears.   Examples of documents that must be filed with the Secretary of State under the GCL are articles of incorporation, certificate of amendment to articles of incorporation, certificate of designation (setting forth the terms of a class or series of shares created in the articles without terms), certificate of restated articles of incorporation, officers' certificate relating to a merger, certificate of ownership of a 90 percent owned subsidiary in a short-form merger, certificate relating to the results of an action to reorganize under the federal Bankruptcy Code, biennial officers certificate, certificate of election to dissolve the corporation voluntarily, certificate of dissolution, and certificate of qualification for foreign corporation.

Similar filings are required with the Secretary of State with respect to the creation and ongoing existence and operation of non-profit corporations, limited partnerships and other organizations governed by the GCL and the Code.   Examples of such documents include articles of incorporation of a non-profit corporation, amendments to such articles, certificate of dissolution of a non-profit corporation, amendments to such articles, certificate of dissolution of a non-profit corporation, certificate of limited partnership, certificate of amendment to limited partnership, certificate of dissolution of limited partnership, certificate of limited liability company, certificate of amendment to limited liability company, and certificate of dissolution of limited liability company.

Under Section 17.1, the Secretary of State may, in its discretion, adopt procedures under which filings required under the Code could be transmitted to it directly by electronic or facsimile means.   However, the Secretary of State is not required to accept direct facsimile or electronic filings if it does not specifically adopt procedures permitting such filings.   Section 17.1 also includes a requirement that, when a facsimile signature is filed, the manually signed document must be retained for five years by a party on whose behalf such document was submitted for filing.   The five-year manual signature retention policy tracks, and is intended to mirror, the signature retention policy with respect to electronic filings made with the Securities and Exchange Commission under its Electronic Data Gathering and Retrieval (EDGAR) program.

 

Bruce Dravis is a partner at Downey Brand LLP, operating primarily in the firm's Sacramento and Roseville offices, specializing in corporate, securities and business law.   His column appears in The Daily Journal on the third Monday of each month.