When A 20% Interest May Be A 40% Interest

The possible application of California's Corporate Securities Law of 1968 may not be the first thing that comes to mind when amending charter documents. However, Section 25120 of the California Corporations Code makes it unlawful for any person to offer or sell a security in California in an issuer transaction in connection with any change in the rights, preferences, privileges, or restrictions of or on outstanding securities unless qualified or exempt (or not subject to) qualification.

Fortunately, there are numerous exemptions from this qualification requirement. One such exemption is Section 25103(b) which exempts any change in the rights, preferences, privileges or restrictions of or on outstanding securities unless the holders of at least 25% of the outstanding shares or units of any class of securities that will be directly or indirectly affected substantially and adversely by that change have addresses in California according to the records of the issuer.