Effective January 1, 2023, California Corporations Code Section 119 allows for corporate ratification and judicial validation of noncompliant corporate actions similar to Delaware General Corporation Law Sections 204 and 205, and Nevada’s Revised Statutes Section 78.0296. Noncompliant corporate actions are those actions taken by the board, the shareholders, or those other actions taken by or on behalf of the corporation which does not comply with the corporation’s articles, bylaws, or any plan/agreement to which the corporation was a party at the time of the corporate action.
Corporations should decide whether the corporate action requires ratification (i.e. “self-help”) or validation by the superior courts. The self-help ratification method generally requires that the board, and where applicable, the shareholders, approve the action by adopting resolutions containing the date the action was taken and date it was deemed to become effective, the nature of the noncompliance, and a statement that the ratification of each corporate action is approved. Certain other statements must be made where the corporate action relates to the issuance of shares or the election of the initial directors.
Where validation by a court is needed, an authorized person must file a petition with the court of the proper county, which will have jurisdiction to validate and declare effective any corporate action or security, and to declare the date of such action or security.
There are several carve-outs where ratification and validation of corporate actions are not available, including dissolved and foreign corporations, or when the noncompliance relates to certain fiduciary duties, interested transactions, distributions, repurchases, redemptions, and loans.
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