Law:Title 4. Securities (California)

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Contents

Division 1. Corporate Securities Law Of 1968

Part 1. Definitions

Ca Codes (corp:25000-25023) Corporations Code Section 25000-25023



25000. This division may be known as the "Corporate Securities Law of 1968." References herein to "this law" refer to the applicable provisions of this division.


25001. Unless the context otherwise requires, the definitions in this part apply throughout this division.


25002. "Advertisement" means any written or printed communication or any communication by means of recorded telephone messages or spoken on radio, television, or similar communications media, published in connection with the offer or sale of a security.


25003. (a) "Agent" means any individual, other than a broker-dealer or a partner of a licensed broker-dealer, who represents a broker-dealer or who for compensation represents an issuer in effecting or attempting to effect purchases or sales of securities in this state. (b) "Agent" does not include an individual who only represents an issuer in effecting transactions in securities exempted by subdivision (a), (b), (e), (f), (g), (j), (k) or (l) of Section 25100 or in effecting transactions exempted by Section 25102, and does not include an individual who has no place of business in this state if he or she effects transactions in this state exclusively with broker-dealers. (c) "Agent" does not include an associated person of a broker or dealer effecting transactions described in Section 15(h)(3) of the Securities Exchange Act of 1934, subject to the provisions of Section 15(h)(2) of that act. (d) An officer or director of a broker-dealer or issuer, or an individual occupying a similar status or performing similar functions, is an agent only if he otherwise comes within this definition and receives compensation specifically related to purchases or sales of securities.

25003.5. "Business days" are all days other than every Saturday, every Sunday, and such other days as are specified or provided for as holidays in the Government Code of the State of California.


25004. (a) "Broker-dealer" means any person engaged in the business of effecting transactions in securities in this state for the account of others or for his own account. "Broker-dealer" also includes a person engaged in the regular business of issuing or guaranteeing options with regard to securities not of his own issue. "Broker-dealer" does not include any of the following: (1) Any other issuer. (2) An agent, when an employee of a broker-dealer or issuer. (3) A bank, trust company, or savings and loan association. (4) Any person insofar as he buys or sells securities for his own account, either individually or in some fiduciary capacity, but not as part of a regular business. (5) A person who has no place of business in this state if he effects transactions in this state exclusively with (A) the issuers of the securities involved in the transactions or (B) other broker-dealers. (6) A broker licensed by the Real Estate Commissioner of this state when engaged in transactions in securities exempted by subdivision (f) or (p) of Section 25100 or in securities the issuance of which is subject to authorization by the Real Estate Commissioner of this state or in transactions exempted by subdivision (e) of Section 25102. (7) An exchange certified by the Commissioner of Corporations pursuant to this section when it is issuing or guaranteeing options. The commissioner may by order certify an exchange under this section upon such conditions as he by rule or order deems appropriate, and upon notice and opportunity to be heard he may suspend or revoke such certification, if he finds such certification, suspension, or revocation to be in the public interest and necessary and appropriate for the protection of investors. (b) For purposes of this section, an agent is an employee of a broker-dealer under paragraph (2) of subdivision (a) when the agent is employed by or associated with the broker-dealer under all of the following conditions: (1) The agent is subject to the supervision and control of the broker-dealer. (2) The agent performs under the name, authority, and marketing policies of the broker-dealer. (3) The agent discloses to investors the identity of the broker-dealer. (4) The agent is reported pursuant to subdivision (c) of Section 25210 and the rules adopted thereunder.


25005. "Commissioner" means the Commissioner of Corporations.


25005.1. "Entity conversion transaction" means a conversion pursuant to Section 1151, 1157, 15677.2, 15677.8, 15911.02, 15911.08, 16902, 16908, 17540.2, 17540.8, or a conversion that occurs entirely out of state, unless the interests in the entity resulting from the conversion to be held by the equity holders of the entity being converted as a result of the conversion are not securities. For purposes of Sections 25103 and 25120 an entity conversion transaction is not a change in the rights, preferences, privileges, or restrictions of or on outstanding securities or an exchange of securities by the issuer with its existing security holders exclusively.


25006. "Fraud," "deceit," and "defraud" are not limited to common law fraud or deceit.


25007. "Guaranteed" means guaranteed as to payment of principal, interest, dividends, or call premium.


25008. (a) An offer or sale of a security is made in this state when an offer to sell is made in this state, or an offer to buy is accepted in this state, or (if both the seller and the purchaser are domiciled in this state) the security is delivered to the purchaser in this state. An offer to buy or a purchase of a security is made in this state when an offer to buy is made in this state, or an offer to sell is accepted in this state, or (if both the seller and the purchaser are domiciled in this state) the security is delivered to the purchaser in this state. (b) An offer to sell or to buy is made in this state when the offer either originates from this state or is directed by the offeror to this state and received at the place to which it is directed. An offer to buy or to sell is accepted in this state when acceptance is communicated to the offeror in this state; and acceptance is communicated to the offeror in this state when the offeree directs it to the offeror in this state reasonably believing the offeror to be in this state and it is received at the place to which it is directed. A security is delivered to the purchaser in this state when the certificate or other evidence of the security is directed to the purchaser in this state and received at the place to which it is directed. (c) An offer to sell or to buy is not made in this state merely because (1) the publisher circulates or there is circulated on his behalf in this state any bona fide newspaper or other publication of general, regular and paid circulation which has had more than two-thirds of its circulation outside this state during the past 12 months, or (2) a radio or television program originating outside this state is received in this state.

25009. (a) "Investment adviser" means any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing or selling securities, or who, for compensation and as a part of a regular business, publishes analyses or reports concerning securities. "Investment adviser" does not include (1) a bank, trust company or savings and loan association; (2) an attorney at law, accountant, engineer or teacher whose performance of these services is solely incidental to the practice of his or her profession; (3) an associated person of an investment adviser; (4) a broker-dealer or agent of a broker-dealer whose performance of these services is solely incidental to the conduct of the business of a broker-dealer and who receives no special compensation for them; or (5) a publisher of any bona fide newspaper, news magazine or business or financial publication of general, regular and paid circulation and the agents and servants thereof, but this paragraph (5) does not exclude any such person who engages in any other activity which would constitute that person an investment adviser within the meaning of this section. (b) "Investment adviser" also includes any person who uses the title "financial planner" and who, for compensation, engages in the business, whether principally or as part of another business, of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing or selling securities, or who, for compensation and as part of a regular business, publishes analyses or reports concerning securities. This subdivision does not apply to: (1) a bank, trust company, or savings and loan association; (2) an attorney at law, accountant, engineer, or teacher whose performance of these services is solely incidental to the practice of his or her profession, so long as these individuals do not use the title "financial planner;" (3) an associated person of an investment adviser where the investment adviser is licensed or exempt from licensure under this law; (4) an agent of a broker-dealer where the broker-dealer is licensed or exempt from licensure under this law, so long as (A) the performance of these services by the agent is solely incidental to the conduct of the business of the broker-dealer, and (B) the agent receives no special compensation for the performance of these services; or (5) a publisher set forth in paragraph (5) of subdivision (a), so long as the publisher or the agents and servants of the publisher are not engaged in any other activity which would constitute that person an investment adviser within the meaning of this section.


25009.1. "Investment adviser" does not include persons excepted from the definition of "investment adviser" by Section 202(a)(11) of the Investment Advisers Act of 1940 (15 U.S.C. 80a-1 et seq., as amended), except that with regard to those persons the commissioner may investigate and bring enforcement actions with respect to fraud and deceit, including and without limitation fraud and deceit under Section 25235, and any rules of the commissioner adopted thereunder.


25009.5. (a) "Investment adviser representative" or "associated person of an investment adviser" means any partner, officer, director of (or a person occupying a similar status or performing similar functions) or other individual, except clerical or ministerial personnel, who is employed by or associated with, or subject to the supervision and control of, an investment adviser that has obtained a certificate or that is required to obtain a certificate under this law, and who does any of the following: (1) Makes any recommendations or otherwise renders advice regarding securities. (2) Manages accounts or portfolios of clients. (3) Determines which recommendation or advice regarding securities should be given. (4) Solicits, offers, or negotiates for the sale or sells investment advisory services. (5) Supervises employees who perform any of the foregoing. (b) "Investment adviser representative" means, with respect to an investment adviser subject to Section 25230.1, a person defined as an investment adviser representative by Rule 203A-3 of the Securities and Exchange Commission (17 C.F.R. 275.203A-3) and who has a place of business in this state.

25010. "Issuer" means any person who issues or proposes to issue any security, except that: (a) With respect to certificates of deposit, voting trust certificates or collateral-trust certificates, or with respect to certificates of interest or shares in an unincorporated investment trust not having a board of directors or persons performing similar functions or of the fixed, restricted management or unit type, "issuer" means the person or persons performing the acts and assuming the duties of depositor or manager pursuant to the provisions of the trust or other agreement or instrument under which the security is issued. However, with respect to equipment-trust certificates or like securities, "issuer" means the person by whom the equipment or property is or is to be used. (b) With respect to certificates of interest or participation in oil, gas or mining titles or leases or in payments out of production under those titles or leases, "issuer" means the person or persons in active control of the exploration or development of the property who sell those interests or participations or payments or any person or persons who subdivide and sell those interests or participations or payments. The determination of the person or persons in active control of the exploration or development of the property shall be made on the basis of the actual relationship of the parties and not on the basis of the legal designation of a person's interest. (c) With respect to a fractional or pooled interest in a viatical or life settlement contract, "issuer" means the person who creates, for the purposes of sale, the fractional or pooled interest. In the case of a viatical or life settlement contract that is not fractionalized or pooled, "issuer" means the person effecting the transactions with the investors in those contracts. (d) In the case of an unincorporated association which provides by its articles for limited liability of any or all of its members, or in the case of a trust, committee, or other legal entity, the trustees or members thereof shall not be individually liable as issuers of any security issued by the association, trust, committee, or other legal entity.


25011. "Nonissuer transaction" means any transaction not directly or indirectly for the benefit of the issuer. A transaction is indirectly for the benefit of the issuer if any portion of the purchase price of any securities involved in the transaction will be received indirectly by the issuer. An offering which involves both an issuer transaction and a nonissuer transaction shall be treated for the purposes of Chapters 2 (commencing with Section 25110) and 4 (commencing with Section 25130) of Part 2 of this division as an issuer transaction, but for the purposes of Chapter 1 (commencing with Section 25100) of Part 2 of this division they shall be treated as separate transactions.


25012. "Owners' association" means a nonprofit corporation or association created to own or lease the commonly owned lots, parcels or areas referred to in clause (a) of Section 25015, or to provide management, maintenance, preservation or control of either such lots, parcels or areas or of the separately owned lots, parcels or areas, or both, or any portion of or interest in them, or interest subject to subdivision (g) of Section 11004.5 of the Business and Professions Code, if the shares or certificates of membership therein are transferable only by transfer of the interests in the lots, parcels or areas. Such shares of stock or memberships shall be considered interests in a real estate development or in subdivided lands or a subdivision.


25013. "Person" means an individual, a corporation, a partnership, a limited liability company, a joint venture, an association, a joint stock company, a trust, an unincorporated organization, a government, or a political subdivision of a government.


25014. "Publish" means publicly to issue or circulate by newspaper, mail, radio or television, or otherwise to disseminate to the public.

25014.5. "Rollup participant" means a finite-life limited partnership. (a) Except as provided in subdivision (b) of Section 25014.6, a limited partnership has "finite-life" if both of the following apply: (1) It operates as a conduit vehicle for investors to participate in the ownership of assets for a limited period of time. (2) It has a policy or purpose of distributing to investors substantially all proceeds from the sale, financing, or refinancing of assets, whether for the term of the partnership or after an initial period of time following commencement of operations, rather than reinvesting those proceeds in the business. (b) Rollup participant does not include any partnership registered under the Investment Company Act of 1940 or any business development company as defined in Section 80a-2(48) of Title 15 of the United States Code.

25014.6. "Rollup transaction" means any transaction or series of transactions that directly or indirectly through acquisition or otherwise involves the combination or reorganization of one or more rollup participants and is one of the following: (a) The offer or sale of securities by a successor entity, whether newly formed or previously existing, to one or more investors of the rollup participants to be combined or reorganized. (b) The acquisition of the successor entity's securities by the rollup participants being combined or reorganized; provided however, that a rollup transaction shall not include any transaction that: (1) The Securities and Exchange Commission exempts from the definition of a rollup transaction pursuant to subparagraph (c) (ii) of Item 901 of Regulation S-K adopted by the Securities and Exchange Commission. (2) Is determined to be exempt from this definition by the Commissioner of Corporations upon his or her determination that this action is in the public interest and consistent with the protection of investors. (3) Involves one or more limited partnerships all of the securities of which are, prior to the transaction, securities for which transactions are reported under a transaction reporting plan declared effective before January 1, 1991, by the Securities and Exchange Commission under Section 11A of the Securities Exchange Act of 1934. (4) Involves only those issuers not required to register or report under Section 12 of the Securities Exchange Act of 1934 where the resulting issuer is also not required to register or report under Section 12. (5) Involves the reorganization to corporate, trust, or association form or restructuring of a single limited partnership if, as a consequence of the proposed transaction there will be no significant, adverse change in any of the following: voting rights, the term of existence of the entity, management compensation, or investment objectives. (6) Involves the reorganization to corporate, trust, or association form or restructuring of a single limited partnership if each investor is provided an option to retain a security under substantially the same terms and conditions as the original issue. (7) Involves the reorganization to corporate, trust, or association form or restructuring of a single limited partnership if transactions in the security issued as a result of the reorganization or restructuring are not reported under a transaction reporting plan declared effective before January 1, 1991, by the Securities and Exchange Commission under Section 11A of the Securities Exchange Act of 1934.

25014.7. (a) "Eligible rollup transaction" means a rollup transaction in which the new securities issued are listed or approved for listing on a national securities exchange which has been certified by the commissioner under subdivision (o) of Section 25100, if the exchange requires as a condition to listing or designation that the rollup transaction be conducted in accordance with procedures to protect the rights of limited partners. (b) The rights of limited partners will be presumed to be protected if the rollup transaction provides for the right of dissenting limited partners: (1) To receive compensation for their limited partnership units based on an appraisal of the limited partnership assets performed by an independent appraiser unaffiliated with the sponsor or general partner of the limited partnership and which value the assets as if sold in an orderly manner in a reasonable period of time, plus or minus other balance sheet items, and less the cost of sale or refinancing. Compensation to dissenting limited partners of rollup transactions may be cash, secured debt instruments, unsecured debt instruments, or freely tradeable securities; provided, however, that: (A) Rollups which utilize debt instruments as compensation provide for a trustee and an indenture to protect the rights of the debt holders and provide a rate of interest based upon, but not less than, the then applicable federal rate as determined in accordance with Section 1274 of the Internal Revenue Code of 1986. (B) Rollups which utilize unsecured debt instruments as compensation, in addition to the requirements of subparagraph (A), limit total leverage to 70 percent of the appraised value of the assets. (C) All debt securities have a term no greater than seven years and provide for prepayment with 80 percent of the net proceeds of any sale or refinancing of the assets previously owned by the entity or any part thereof. (D) Freely tradeable securities utilized as compensation to dissenting limited partners must be issued by an issuer whose securities are listed on a national securities exchange that has been certified for at least one year prior to the transaction, and the number of securities to be received in return for limited partnership interests must be determined by an appraisal of limited partnership assets, conducted in a manner consistent with this paragraph, in relation to the average last sale price of the freely tradeable securities in the 20-day period following the transaction. If the issuer of the freely tradeable securities is affiliated with the sponsor or general partner, newly issued securities to be utilized as compensation to dissenting limited partners shall not represent more than 20 percent of the issued and outstanding shares of that class of securities after giving effect to the issuance. For the purposes of the preceding sentence, a sponsor or general partner is "affiliated" with the issuer of the freely tradeable securities if the sponsor or general partner receives any material compensation from the issuer or its affiliates in conjunction with the rollup transaction or the purchase of the general partner's interest; provided, however, that nothing herein shall restrict the ability of a sponsor or general partner to receive any payment for its equity interests and compensation as otherwise provided by this section. (2) To receive or retain a security with substantially the same terms and conditions as the security originally held, provided that the receipt or retention of that security is not a step in a series of subsequent transactions that directly or indirectly through acquisition or otherwise involves future combinations or reorganizations of one or more rollup participants. Securities received or retained will be considered to have the same terms and conditions as the security originally held if: (A) There is no material adverse change to dissenting limited partners' rights, including, but not limited to, rights with respect to voting, the business plan, or the investment, distribution, management compensation and liquidation policies of the limited partnership or resulting entity. (B) The dissenting limited partners receive the same preferences, privileges, and priorities as they had pursuant to the security originally held. The rights set forth in paragraphs (1) and (2) are the only rights of dissenting limited partners to which the presumption under this subdivision applies. A general partner or sponsor shall file an application for qualification pursuant to Section 25110 or Section 25120 with respect to any other rights proposed to be offered to dissenting limited partners. At the time a registration statement is filed with the Securities and Exchange Commission with respect to an eligible rollup transaction, a general partner or sponsor shall notify, to the maximum extent permitted by the federal securities laws, each limited partner who has an address in this state by certified mail of the following: That a registration statement has been filed with the Securities and Exchange Commission with respect to a rollup transaction; that the general partner or sponsor claims an exemption from the review process under the law by virtue of Section 25014.7, which defines "eligible rollup transaction"; that the general partner or sponsor has the burden of proof under the law that the transaction meets the definition of eligible rollup transaction; and that the commissioner does not recommend or endorse the transaction. (c) The rights of limited partners shall be presumed not to be protected if the general partner: (1) Converts an equity interest in the limited partnerships subject to a rollup for which consideration was not paid and which was not otherwise provided for in the limited partnership agreement and disclosed to limited partners, into a voting interest in the new entity, provided, however, an interest originally obtained in order to comply with the provisions of Internal Revenue Service Revenue Proclamation 89-12 may be converted. (2) Fails to follow the valuation provisions in the limited partnership agreements of the subject limited partners when valuing their limited partnership interests. (3) Utilizes a future value of their equity interest rather than the current value of their equity interest, as determined by an appraisal conducted in a manner consistent with paragraph (1) of subdivision (b), when determining their interest in the new entity. (d) The rights of limited partners shall be presumed not to be protected as to voting rights, if: (1) The voting rights in the entity resulting from a rollup do not generally follow the original voting rights of the limited partnerships participating in the rollup transaction. (2) A majority of the interest in an entity resulting from a rollup transaction may not, without concurrence by the sponsor, general partners, board of directors or trustee, depending on the form of entity, vote to: (A) Amend the limited partnership agreement, articles of incorporation or bylaws, or indenture. (B) Dissolve the entity. (C) Remove management and elect new management. (D) Approve or disapprove the sale of substantially all of the assets of the entity. (3) The general partner or sponsor proposing a rollup is not required to provide each person whose equity interest is subject to the rollup transaction with a document which instructs the person on the proper procedure for voting against or dissenting from the rollup transaction. (4) The general partner or sponsor does not utilize an independent third party to receive and tabulate all votes and dissents, and require that the third party make the tabulation available to the general partner and any limited partner upon request at any time during and after voting occurs. (e) The rights of limited partners shall be presumed not to be protected as to transaction costs if: (1) Limited partners bear an unfair portion of the transaction costs of a proposed rollup transaction that is rejected. For purposes of this provision, transaction costs are defined as the costs of printing and mailing the proxy, prospectus, or other documents; legal fees not related to the solicitation of votes or tenders; financial advisory fees; investment banking fees; appraisal fees; accounting fees; independent committee expenses; travel expenses; and all other fees related to the preparatory work of the transaction, but not including costs that would have otherwise been incurred by the subject limited partnerships in the ordinary course of business, or solicitation expenses. (2) Transaction costs of a rejected rollup transaction are not apportioned between general and limited partners of the subject limited partnerships according to the final vote on the proposed transaction as follows: (A) The general partner or sponsor bears all rollup transaction costs in proportion to the number of votes to reject the rollup transaction. (B) Limited partners bear transaction costs in proportion to the number of votes to approve the rollup transaction. (3) The dissenting limited partnership is required to pay any of the costs of the rollup transaction and the general partner or sponsor is not required to pay the rollup transaction costs on behalf of the dissenting limited partnerships in a rollup in which one or more limited partnerships determines not to approve the transaction, but where the rollup transaction is consummated with respect to one or more approving limited partnerships. (f) The rights of limited partners shall be presumed not to be protected as to fees of general partners and sponsors, if: (1) General partners and sponsors are not prevented from receiving both unearned management fees discounted to a present value, if those fees were not previously provided for in the limited partnership agreement and disclosed to limited partners, and new asset-based fees. (2) Property management fees and other management fees are not appropriate, not reasonable and greater than what would be paid to third parties for performing similar services. (3) Changes in fees which are substantial and adverse to limited partners are not approved by an independent committee according to the facts and circumstances of each transaction. (g) A general partner or sponsor proposing a rollup transaction shall pay all solicitation expenses related to the transaction, including all preparatory work related thereto, in the event the rollup transaction is not approved. For purposes of this section, "solicitation expenses" include direct marketing expenses such as telephone calls, broker-dealer factsheets, legal and other fees related to the solicitation, as well as direct solicitation compensation to brokers and dealers. (h) A broker or dealer may not receive compensation for soliciting votes or tenders from limited partners in connection with a rollup transaction unless that compensation: (1) Is payable and equal in amount regardless of whether the limited partner votes affirmatively or negatively in the proposed rollup. (2) In the aggregate, does not exceed 2 percent of the exchange value of the newly created securities. (3) Is paid regardless of whether the limited partners reject the proposed rollup transaction. (i) As used in this section, the following terms have the following meanings: (1) "Limited partnership" includes any entity determined to be a "partnership" pursuant to Section 14(h)(4)(B) of the Securities Exchange Act of 1934 or such other entity having a substantially economically equivalent form of ownership instrument. (2) "Dissenting limited partner" means a holder or a beneficial interest in a limited partnership that is the subject of a rollup transaction who casts a vote against the rollup transaction, except that for purposes of an exchange or tender offer dissenting limited partner means any person who files a dissent from the terms of the transaction with the party responsible for tabulating the votes or tenders, to be received in connection with the transaction during the period in which the offer is outstanding. (3) "Management fee" means a fee paid to the sponsor, general partner, their affiliates, or other persons for management and administration of the limited partnership.


25015. "Real estate development" means a development (a) which consists or will consist of separately owned lots, parcels or areas with either or both of the following features: (1) one or more additional continguous or noncontiguous lots, parcels, or areas owned in common by the owners of the separately owned lots, parcels, or areas, or (2) mutual, common, or reciprocal interests in or restrictions upon all or portions of such separately owned lots, parcels, or areas; and (b) in which the several owners of the separately owned lots, parcels, or areas have rights, directly or indirectly, to the beneficial use and enjoyment of the lots, parcels, or areas owned in common, or any one or more of them or portions thereof or interests therein, or of the interests or restrictions referred to in clause (a) above, or both. The estate in a separately or commonly owned lot, parcel, or area may be an estate of inheritance or perpetual estate, an estate for life, or an estate for years. The common ownership of the lots, parcels, or areas or the enjoyment of the interests or restrictions referred to in clause (a) above or both may be through ownership of shares of stock or memberships in an owners' association or otherwise.


25016. "Rule" means any published regulation or standard of general application issued by the commissioner. "Order" means a consent, authorization, approval, permit, or requirement applicable to a specific case issued by the commissioner.


25017. (a) "Sale" or "sell" includes every contract of sale of, contract to sell, or disposition of, a security or interest in a security for value. "Sale" or "sell" includes any exchange of securities and any change in the rights, preferences, privileges, or restrictions of or on outstanding securities. (b) "Offer" or "offer to sell" includes every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security for value. (c) Any security given or delivered with, or as a bonus on account of, any purchase of securities or any other thing constitutes a part of the subject of the purchase and is considered to have been offered and sold for value. (d) A purported gift of assessable stock involves an offer and sale. (e) Every sale or offer of a warrant or right to purchase or subscribe to another security of the same or another issuer, as well as every sale or offer of a security which gives the holder a present or future right or privilege to convert the security into another security of the same or another issuer, includes an offer and sale of the other security only at the time of the offer or sale of the warrant or right or convertible security; but neither the exercise of the right to purchase or subscribe or to convert nor the issuance of securities pursuant thereto is an offer or sale. (f) The terms defined in this section do not include: (1) any bona fide secured transaction in or loan of outstanding securities; (2) any stock dividend payable with respect to common stock of a corporation solely (except for any cash or scrip paid for fractional shares) in shares of such common stock, if the corporation has no other class of voting stock outstanding; provided, that shares issued in any such dividend shall be subject to any conditions previously imposed by the commissioner applicable to the shares with respect to which they are issued; or (3) any act incident to a transaction or reorganization approved by a state or federal court in which securities are issued and exchanged for one or more outstanding securities, claims, or property interests, or partly in that exchange and partly for cash, and nothing in this division shall be construed to prohibit a court from applying the protections described in Section 25014.7 or 25140 and the regulations adopted thereunder when approving any transaction involving a rollup participant.


25018. "Securities Act of 1933," "Securities Exchange Act of 1934," "Public Utility Holding Company Act of 1935," "Investment Advisers Act of 1940," and "Investment Company Act of 1940" mean the federal statutes of those names as amended before or after the effective date of this law.

25019. "Security" means any note; stock; treasury stock; membership in an incorporated or unincorporated association; bond; debenture; evidence of indebtedness; certificate of interest or participation in any profit-sharing agreement; collateral trust certificate; preorganization certificate or subscription; transferable share; investment contract; viatical settlement contract or a fractionalized or pooled interest therein; life settlement contract or a fractionalized or pooled interest therein; voting trust certificate; certificate of deposit for a security; interest in a limited liability company and any class or series of those interests (including any fractional or other interest in that interest), except a membership interest in a limited liability company in which the person claiming this exception can prove that all of the members are actively engaged in the management of the limited liability company; provided that evidence that members vote or have the right to vote, or the right to information concerning the business and affairs of the limited liability company, or the right to participate in management, shall not establish, without more, that all members are actively engaged in the management of the limited liability company; certificate of interest or participation in an oil, gas or mining title or lease or in payments out of production under that title or lease; put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof); or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency; any beneficial interest or other security issued in connection with a funded employees' pension, profit sharing, stock bonus, or similar benefit plan; or, in general, any interest or instrument commonly known as a "security"; or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing. All of the foregoing are securities whether or not evidenced by a written document. "Security" does not include: (1) any beneficial interest in any voluntary inter vivos trust which is not created for the purpose of carrying on any business or solely for the purpose of voting, or (2) any beneficial interest in any testamentary trust, or (3) any insurance or endowment policy or annuity contract under which an insurance company admitted in this state promises to pay a sum of money (whether or not based upon the investment performance of a segregated fund) either in a lump sum or periodically for life or some other specified period, or (4) any franchise subject to registration under the Franchise Investment Law (Division 5 (commencing with Section 31000)), or exempted from registration by Section 31100 or 31101.

25020. "State" means any state, territory, or possession of the United States, the District of Columbia and Puerto Rico.


25021. "Subdivided lands" and "subdivision" have the meanings prescribed in Sections 11000, 11004.5, and 11218 of the Business and Professions Code.

25022. "Underwriter" means a person who has agreed with an issuer or other person on whose behalf a distribution is to be made (a) to purchase securities for distribution or (b) to distribute securities for or on behalf of such issuer or other person or (c) to manage or supervise a distribution of securities for or on behalf of such issuer or other person.


25023. (a) Except as provided in subdivision (b), "viatical settlement contract" means an agreement as defined in paragraph (1) of subdivision (a) of Section 10113.1 of the Insurance Code and "life settlement contract" means an agreement, other than a viatical settlement contract, for the purchase, sale, assignment, transfer, devise, or bequest of any portion of the death benefit or ownership of a life insurance policy or certificate for consideration that is less than the expected death benefit of the life insurance policy or certificate. (b) "Viatical settlement contract" and "life settlement contract" do not include any of the following: (1) The assignment, transfer, sale, devise, or bequest of a death benefit, life insurance policy, or certificate of insurance by the insured or the original owner to any person if the assignment, transfer, sale, devise, or bequest (A) is not accompanied by the publication of any advertisement and (B) is not effected by or through a broker-dealer (Section 25004). (2) The assignment of a life insurance policy to a bank, savings bank, savings association, credit union, or other lender (either licensed or not required to be licensed) as collateral for a loan, or to a stop-loss insurer or reinsurer. (3) The exercise of accelerated benefits pursuant to the terms of a life insurance policy issued in accordance with the insurance laws of this state. (4) The assignment, transfer, sale, devise or bequest of any undivided death benefit, life insurance policy, or certificate of insurance by an entity licensed pursuant to Section 10113.2 of the Insurance Code, or a viatical or life settlement provider licensed from another state, to one individual or entity, provided that the individual or entity represents that the individual or entity is purchasing for its own account (or trust account, if the entity is a trustee) and not with a view to or for sale in connection with a distribution of the individual death benefit, life insurance policy, or certificate of insurance.


Part 2. Qualification Of And Filing Requirements For The Sale Of Securities

Chapter 1. Exemptions And Certain Securities And Transactions Not Subject To Qualification

Ca Codes (corp:25100-25105) Corporations Code Section 25100-25105



25100. The following securities are exempted from Sections 25110, 25120, and 25130: (a) Any security (including a revenue obligation) issued or guaranteed by the United States, any state, any city, county, city and county, public district, public authority, public corporation, public entity, or political subdivision of a state or any agency or corporate or other instrumentality of any one or more of the foregoing; or any certificate of deposit for any of the foregoing. (b) Any security issued or guaranteed by Canada, any Canadian province, any political subdivision or municipality of that province, or by any other foreign government with which the United States currently maintains diplomatic relations, if the security is recognized as a valid obligation by the issuer or guarantor; or any certificate of deposit for any of the foregoing. (c) Any security issued or guaranteed by and representing an interest in or a direct obligation of a national bank or a bank or trust company incorporated under the laws of this state, and any security issued by a bank to one or more other banks and representing an interest in an asset of the issuing bank. (d) Any security issued or guaranteed by a federal savings association or federal savings bank or federal land bank or joint land bank or national farm loan association or by any savings association, as defined in subdivision (a) of Section 5102 of the Financial Code, which is subject to the supervision and regulation of the Commissioner of Financial Institutions of this state. (e) Any security (other than an interest in all or portions of a parcel or parcels of real property which are subdivided land or a subdivision or in a real estate development), the issuance of which is subject to authorization by the Insurance Commissioner, the Public Utilities Commission, or the Real Estate Commissioner of this state. (f) Any security consisting of any interest in all or portions of a parcel or parcels of real property which are subdivided lands or a subdivision or in a real estate development; provided that the exemption in this subdivision shall not be applicable to: (1) any investment contract sold or offered for sale with, or as part of, that interest, or (2) any person engaged in the business of selling, distributing, or supplying water for irrigation purposes or domestic use that is not a public utility except that the exemption is applicable to any security of a mutual water company (other than an investment contract as described in paragraph (1)) offered or sold in connection with subdivided lands pursuant to Chapter 2 (commencing with Section 14310) of Part 7 of Division 3 of Title 1. (g) Any mutual capital certificates or savings accounts, as defined in the Savings Association Law, issued by a savings association, as defined by subdivision (a) of Section 5102 of the Financial Code, and holding a license or certificate of authority then in force from the Commissioner of Financial Institutions of this state. (h) Any security issued or guaranteed by any federal credit union, or by any credit union organized and supervised, or regulated, under the Credit Union Law. (i) Any security issued or guaranteed by any railroad, other common carrier, public utility, or public utility holding company which is (1) subject to the jurisdiction of the Interstate Commerce Commission or its successor or (2) a holding company registered with the Securities and Exchange Commission under the Public Utility Holding Company Act of 1935 or a subsidiary of that company within the meaning of that act or (3) regulated in respect of the issuance or guarantee of the security by a governmental authority of the United States, of any state, of Canada or of any Canadian province; and the security is subject to registration with or authorization of issuance by that authority. (j) Any security (except evidences of indebtedness, whether interest bearing or not) of an issuer (1) organized exclusively for educational, benevolent, fraternal, religious, charitable, social, or reformatory purposes and not for pecuniary profit, if no part of the net earnings of the issuer inures to the benefit of any private shareholder or individual, or (2) organized as a chamber of commerce or trade or professional association. The fact that amounts received from memberships or dues or both will or may be used to construct or otherwise acquire facilities for use by members of the nonprofit organization does not disqualify the organization for this exemption. This exemption does not apply to the securities of any nonprofit organization if any promoter thereof expects or intends to make a profit directly or indirectly from any business or activity associated with the organization or operation of that nonprofit organization or from remuneration received from that nonprofit organization. (k) Any agreement, commonly known as a "life income contract," of an issuer (1) organized exclusively for educational, benevolent, fraternal, religious, charitable, social, or reformatory purposes and not for pecuniary profit and (2) which the commissioner designates by rule or order, with a donor in consideration of a donation of property to that issuer and providing for the payment to the donor or persons designated by him or her of income or specified periodic payments from the donated property or other property for the life of the donor or those other persons. (l) Any note, draft, bill of exchange, or banker's acceptance which is freely transferable and of prime quality, arises out of a current transaction or the proceeds of which have been or are to be used for current transactions, and which evidences an obligation to pay cash within nine months of the date of issuance, exclusive of days of grace, or any renewal of that paper which is likewise limited, or any guarantee of that paper or of that renewal, provided that the paper is not offered to the public in amounts of less than twenty-five thousand dollars ($25,000) in the aggregate to any one purchaser. In addition, the commissioner may, by rule or order, exempt any issuer of any notes, drafts, bills of exchange or banker's acceptances from qualification of those securities when the commissioner finds that the qualification is not necessary or appropriate in the public interest or for the protection of investors. (m) Any security issued by any corporation organized and existing under the provisions of Chapter 1 (commencing with Section 54001) of Division 20 of the Food and Agricultural Code. (n) Any beneficial interest in an employees' pension, profit-sharing, stock bonus or similar benefit plan which meets the requirements for qualification under Section 401 of the federal Internal Revenue Code or any statute amendatory thereof or supplementary thereto. A determination letter from the Internal Revenue Service stating that an employees' pension, profit-sharing, stock bonus or similar benefit plan meets those requirements shall be conclusive evidence that the plan is an employees' pension, profit-sharing, stock bonus or similar benefit plan within the meaning of the first sentence of this subdivision until the date the determination letter is revoked in writing by the Internal Revenue Service, regardless of whether or not the revocation is retroactive. (o) Any security listed or approved for listing upon notice of issuance on a national securities exchange, if the exchange has been certified by rule or order of the commissioner and any warrant or right to purchase or subscribe to the security. The exemption afforded by this subdivision does not apply to securities listed or approved for listing upon notice of issuance on a national securities exchange, in a rollup transaction unless the rollup transaction is an eligible rollup transaction as defined in Section 25014.7. That certification of any exchange shall be made by the commissioner upon the written request of the exchange if the commissioner finds that the exchange, in acting on applications for listing of common stock, substantially applies the minimum standards set forth in either subparagraph (A) or (B) of paragraph (1), and, in considering suspension or removal from listing, substantially applies each of the criteria set forth in paragraph (2). (1) Listing standards: (A) (i) Shareholders' equity of at least four million dollars ($4,000,000). (ii) Pretax income of at least seven hundred fifty thousand dollars ($750,000) in the issuer's last fiscal year or in two of its last three fiscal years. (iii) Minimum public distribution of 500,000 shares (exclusive of the holdings of officers, directors, controlling shareholders, and other concentrated or family holdings), together with a minimum of 800 public holders or minimum public distribution of 1,000,000 shares together with a minimum of 400 public holders. The exchange may also consider the listing of a company's securities if the company has a minimum of 500,000 shares publicly held, a minimum of 400 shareholders and daily trading volume in the issue has been approximately 2,000 shares or more for the six months preceding the date of application. In evaluating the suitability of an issue for listing under this trading provision, the exchange shall review the nature and frequency of that activity and any other factors as it may determine to be relevant in ascertaining whether the issue is suitable for trading. A security that trades infrequently shall not be considered for listing under this paragraph even though average daily volume amounts to 2,000 shares per day or more. Companies whose securities are concentrated in a limited geographical area, or whose securities are largely held in block by institutional investors, normally may not be considered eligible for listing unless the public distribution appreciably exceeds 500,000 shares. (iv) Minimum price of three dollars ($3) per share for a reasonable period of time prior to the filing of a listing application; provided, however, in certain instances an exchange may favorably consider listing an issue selling for less than three dollars ($3) per share after considering all pertinent factors, including market conditions in general, whether historically the issue has sold above three dollars ($3) per share, the applicant's capitalization, and the number of outstanding and publicly held shares of the issue. (v) An aggregate market value for publicly held shares of at least three million dollars ($3,000,000). (B) (i) Shareholders' equity of at least four million dollars ($4,000,000). (ii) Minimum public distribution set forth in clause (iii) of subparagraph (A) of paragraph (1). (iii) Operating history of at least three years. (iv) An aggregate market value for publicly held shares of at least fifteen million dollars ($15,000,000). (2) Criteria for consideration of suspension or removal from listing: (i) If a company that (A) has shareholders' equity of less than one million dollars ($1,000,000) has sustained net losses in each of its two most recent fiscal years, or (B) has net tangible assets of less than three million dollars ($3,000,000) and has sustained net losses in three of its four most recent fiscal years. (ii) If the number of shares publicly held (excluding the holdings of officers, directors, controlling shareholders and other concentrated or family holdings) is less than 150,000. (iii) If the total number of shareholders is less than 400 or if the number of shareholders of lots of 100 shares or more is less than 300. (iv) If the aggregate market value of shares publicly held is less than seven hundred fifty thousand dollars ($750,000). (v) If shares of common stock sell at a price of less than three dollars ($3) per share for a substantial period of time and the issuer shall fail to effectuate a reverse stock split of the shares within a reasonable period of time after being requested by the exchange to take that action. A national securities exchange, certified by rule or order of the commissioner under this subdivision, shall file annual reports when requested to do so by the commissioner. The annual reports shall contain, by issuer: the variances granted to an exchange's listing standards, including variances from corporate governance and voting rights' standards, for any security of that issuer; the reasons for the variances; a discussion of the review procedure instituted by the exchange to determine the effect of the variances on investors and whether the variances should be continued; and any other information that the commissioner deems relevant. The purpose of these reports is to assist the commissioner in determining whether the quantitative and qualitative requirements of this subdivision are substantially being met by the exchange in general or with regard to any particular security. The commissioner after appropriate notice and opportunity for hearing in accordance with the provisions of the Administrative Procedure Act, Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, may, in his or her discretion, by rule or order, decertify any exchange previously certified that ceases substantially to apply the minimum standards or criteria as set forth in paragraphs (1) and (2). A rule or order of certification shall conclusively establish that any security listed or approved for listing upon notice of issuance on any exchange named in a rule or order of certification, and any warrant or right to purchase or subscribe to that security, is exempt under this subdivision until the adoption by the commissioner of any rule or order decertifying the exchange. (p) A promissory note secured by a lien on real property, which is neither one of a series of notes of equal priority secured by interests in the same real property nor a note in which beneficial interests are sold to more than one person or entity. (q) Any unincorporated interindemnity or reciprocal or interinsurance contract, that qualifies under the provisions of Section 1280.7 of the Insurance Code, between members of a cooperative corporation, organized and operating under Part 2 (commencing with Section 12200) of Division 3 of Title 1, and whose members consist only of physicians and surgeons licensed in California, which contracts indemnify solely in respect to medical malpractice claims against the members, and which do not collect in advance of loss any moneys other than contributions by each member to a collective reserve trust fund or for necessary expenses of administration. (1) Whenever it appears to the commissioner that any person has engaged or is about to engage in any act or practice constituting a violation of any provision of Section 1280.7 of the Insurance Code, the commissioner may, in the commissioner's discretion, bring an action in the name of the people of the State of California in the superior court to enjoin the acts or practices or to enforce compliance with Section 1280.7 of the Insurance Code. Upon a proper showing a permanent or preliminary injunction, a restraining order, or a writ of mandate shall be granted and a receiver or conservator may be appointed for the defendant or the defendant's assets. (2) The commissioner may, in the commissioner's discretion, (A) make public or private investigations within or outside of this state as the commissioner deems necessary to determine whether any person has violated or is about to violate any provision of Section 1280.7 of the Insurance Code or to aid in the enforcement of Section 1280.7, and (B) publish information concerning the violation of Section 1280.7. (3) For the purpose of any investigation or proceeding under this section, the commissioner or any officer designated by the commissioner may administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence, and require the production of any books, papers, correspondence, memoranda, agreements, or other documents or records which the commissioner deems relevant or material to the inquiry. (4) In case of contumacy by, or refusal to obey a subpoena issued to, any person, the superior court, upon application by the commissioner, may issue to the person an order requiring the person to appear before the commissioner, or the officer designated by the commissioner, to produce documentary evidence, if so ordered, or to give evidence touching the matter under investigation or in question. Failure to obey the order of the court may be punished by the court as a contempt. (5) No person is excused from attending or testifying or from producing any document or record before the commissioner or in obedience to the subpoena of the commissioner or any officer designated by the commissioner, or in any proceeding instituted by the commissioner, on the ground that the testimony or evidence (documentary or otherwise), required of the person may tend to incriminate the person or subject the person to a penalty or forfeiture, but no individual may be prosecuted or subjected to any penalty or forfeiture for or on account of any transaction, matter, or thing concerning which the person is compelled, after validly claiming the privilege against self-incrimination, to testify or produce evidence (documentary or otherwise), except that the individual testifying is not exempt from prosecution and punishment for perjury or contempt committed in testifying. (6) The cost of any review, examination, audit, or investigation made by the commissioner under Section 1280.7 of the Insurance Code shall be paid to the commissioner by the person subject to the review, examination, audit, or investigation, and the commissioner may maintain an action for the recovery of these costs in any court of competent jurisdiction. In determining the cost, the commissioner may use the actual amount of the salary or other compensation paid to the persons making the review, examination, audit, or investigation plus the actual amount of expenses including overhead reasonably incurred in the performance of the work. The recoverable cost of each review, examination, audit, or investigation made by the commissioner under Section 1280.7 of the Insurance Code shall not exceed twenty-five thousand dollars ($25,000), except that costs exceeding twenty-five thousand dollars ($25,000) shall be recoverable if the costs are necessary to prevent a violation of any provision of Section 1280.7 of the Insurance Code. (r) Any shares or memberships issued by any corporation organized and existing pursuant to the provisions of Part 2 (commencing with Section 12200) of Division 3 of Title 1, provided the aggregate investment of any shareholder or member in shares or memberships sold pursuant to this subdivision does not exceed three hundred dollars ($300). This exemption does not apply to the shares or memberships of that corporation if any promoter thereof expects or intends to make a profit directly or indirectly from any business or activity associated with the corporation or the operation of the corporation or from remuneration, other than reasonable salary, received from the corporation. This exemption does not apply to nonvoting shares or memberships of that corporation issued to any person who does not possess, and who will not acquire in connection with the issuance of nonvoting shares or memberships, voting power (Section 12253) in the corporation. This exemption also does not apply to shares or memberships issued by a nonprofit cooperative corporation organized to facilitate the creation of an unincorporated interindemnity arrangement that provides indemnification for medical malpractice to its physician and surgeon members as set forth in subdivision (q). (s) Any security consisting of or representing an interest in a pool of mortgage loans that meets each of the following requirements: (1) The pool consists of whole mortgage loans or participation interests in those loans, which loans were originated or acquired in the ordinary course of business by a national bank or federal savings association or federal savings bank having its principal office in this state, by a bank incorporated under the laws of this state or by a savings association as defined in subdivision (a) of Section 5102 of the Financial Code and which is subject to the supervision and regulation of the Commissioner of Financial Institutions, and each of which at the time of transfer to the pool is an authorized investment for the originating or acquiring institution. (2) The pool of mortgage loans is held in trust by a trustee which is a financial institution specified in paragraph (1) as trustee or otherwise. (3) The loans are serviced by a financial institution specified in paragraph (1). (4) The security is not offered in amounts of less than twenty-five thousand dollars ($25,000) in the aggregate to any one purchaser. (5) The security is offered pursuant to a registration under the Securities Act of 1933, or pursuant to an exemption under Regulation A under that act, or in the opinion of counsel for the issuer, is offered pursuant to an exemption under Section 4(2) of that act. (t) (1) Any security issued or guaranteed by and representing an interest in or a direct obligation of an industrial loan company incorporated under the laws of the state and authorized by the Commissioner of Financial Institutions to engage in industrial loan business. (2) Any investment certificate in or issued by any industrial loan company that is organized under the laws of a state of the United States other than this state, that is insured by the Federal Deposit Insurance Corporation, and that maintains a branch office in this state.


25100.1. The following securities are not subject to Sections 25110, 25120, and 25130: (a) A security defined as a "covered security" pursuant to Section 18(b)(1) of the Securities Act of 1933 (15 U.S.C. Sec. 77r). (b) A security issued by an investment company that is registered or that has filed a registration statement under the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1) and that is defined as a "covered security" pursuant to Section 18(b)(2) of the Securities Act of 1933, and all the following requirements are met: (1) Prior to any offer or sale in this state, there is filed with or paid to the commissioner each of the following: (A) A notice consisting of all documents that are part of a federal registration statement filed with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or, in lieu thereof, a form prescribed by the commissioner, and that a consent to service of process is either on file with the commissioner or is attached to the notice. (B) As necessary to compute fees, a report of the value of securities covered under this subdivision that are offered or sold in this state. (C) The notice filing fee provided for in subdivision (a) of Section 25608.1. (2) If any offer or sale is to be made pursuant to Section 18(b) (2) of the Securities Act of 1933 and this subdivision more than 12 months after the date the notice was filed under this subdivision, the issuer shall file another notice and pay the fee specified in subparagraph (C) of paragraph (1).


25101. The following securities are exempt from the provisions of Section 25130: (a) Any security issued by a person that is the issuer of any security listed on a national securities exchange, if the exchange is certified by rule or order of the commissioner. (b) The exemption provided by subdivision (a) does not apply to securities offered pursuant to a registration under the Securities Act of 1933 or pursuant to the exemption afforded by Regulation A under that act if the aggregate offering price of the securities offered pursuant to that exemption exceeds fifty thousand dollars ($50,000).

25101.1. The following securities are not subject to Sections 25110, 25120, and 25130: (a) A security that is offered or sold in a transaction that is exempt from registration under Section 4(1) or 4(3) of the Securities Act of 1933 (15 U.S.C. 77r) pursuant to Section 18(b)(4)(A) of that act, if the issuer, other than a foreign (other country) issuer described in subdivision (b), of the security files the required reports with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, (15 U.S.C. 78a et seq.). (b) A security of a foreign (other country) issuer that avails itself of the exemption from registration under Section 12(g)(3) of the Securities Exchange Act of 1934 is subject to the qualification requirements of Sections 25110, 25120, and 25130, unless the issuer is a reporting company under the Securities Exchange Act of 1934 and files the required reports under Section 13 or 15(d) of that act.


25102. The following transactions are exempted from the provisions of Section 25110: (a) Any offer (but not a sale) not involving any public offering and the execution and delivery of any agreement for the sale of securities pursuant to the offer if (1) the agreement contains substantially the following provision: "The sale of the securities that are the subject of this agreement has not been qualified with the Commissioner of Corporations of the State of California and the issuance of the securities or the payment or receipt of any part of the consideration therefor prior to the qualification is unlawful, unless the sale of securities is exempt from the qualification by Section 25100, 25102, or 25105 of the California Corporations Code. The rights of all parties to this agreement are expressly conditioned upon the qualification being obtained, unless the sale is so exempt" ; and (2) no part of the purchase price is paid or received and none of the securities are issued until the sale of the securities is qualified under this law unless the sale of securities is exempt from the qualification by this section, Section 25100, or 25105. (b) Any offer (but not a sale) of a security for which a registration statement has been filed under the Securities Act of 1933 but has not yet become effective, or for which an offering statement under Regulation A has been filed but has not yet been qualified, if no stop order or refusal order is in effect and no public proceeding or examination looking towards an order is pending under Section 8 of the act and no order under Section 25140 or subdivision (a) of Section 25143 is in effect under this law. (c) Any offer (but not a sale) and the execution and delivery of any agreement for the sale of securities pursuant to the offer as may be permitted by the commissioner upon application. Any negotiating permit under this subdivision shall be conditioned to the effect that none of the securities may be issued and none of the consideration therefor may be received or accepted until the sale of the securities is qualified under this law. (d) Any transaction or agreement between the issuer and an underwriter or among underwriters if the sale of the securities is qualified, or exempt from qualification, at the time of distribution thereof in this state, if any. (e) Any offer or sale of any evidence of indebtedness, whether secured or unsecured, and any guarantee thereof, in a transaction not involving any public offering. (f) Any offer or sale of any security in a transaction (other than an offer or sale to a pension or profit-sharing trust of the issuer) that meets each of the following criteria: (1) Sales of the security are not made to more than 35 persons, including persons not in this state. (2) All purchasers either have a preexisting personal or business relationship with the offeror or any of its partners, officers, directors or controlling persons, or managers (as appointed or elected by the members) if the offeror is a limited liability company, or by reason of their business or financial experience or the business or financial experience of their professional advisers who are unaffiliated with and who are not compensated by the issuer or any affiliate or selling agent of the issuer, directly or indirectly, could be reasonably assumed to have the capacity to protect their own interests in connection with the transaction. (3) Each purchaser represents that the purchaser is purchasing for the purchaser's own account (or a trust account if the purchaser is a trustee) and not with a view to or for sale in connection with any distribution of the security. (4) The offer and sale of the security is not accomplished by the publication of any advertisement. The number of purchasers referred to above is exclusive of any described in subdivision (i), any officer, director, or affiliate of the issuer, or manager (as appointed or elected by the members) if the issuer is a limited liability company, and any other purchaser who the commissioner designates by rule. For purposes of this section, a husband and wife (together with any custodian or trustee acting for the account of their minor children) are counted as one person and a partnership, corporation, or other organization that was not specifically formed for the purpose of purchasing the security offered in reliance upon this exemption, is counted as one person. The commissioner may by rule require the issuer to file a notice of transactions under this subdivision. The failure to file the notice or the failure to file the notice within the time specified by the rule of the commissioner shall not affect the availability of this exemption. An issuer who fails to file the notice as provided by rule of the commissioner shall, within 15 business days after discovery of the failure to file the notice or after demand by the commissioner, whichever occurs first, file the notice and pay to the commissioner a fee equal to the fee payable had the transaction been qualified under Section 25110. (g) Any offer or sale of conditional sale agreements, equipment trust certificates, or certificates of interest or participation therein or partial assignments thereof, covering the purchase of railroad rolling stock or equipment or the purchase of motor vehicles, aircraft, or parts thereof, in a transaction not involving any public offering. (h) Any offer or sale of voting common stock by a corporation incorporated in any state if, immediately after the proposed sale and issuance, there will be only one class of stock of the corporation outstanding that is owned beneficially by no more than 35 persons, provided all of the following requirements have been met: (1) The offer and sale of the stock is not accompanied by the publication of any advertisement, and no selling expenses have been given, paid, or incurred in connection therewith. (2) The consideration to be received by the issuer for the stock to be issued consists of any of the following: (A) Only assets (which may include cash) of an existing business enterprise transferred to the issuer upon its initial organization, of which all of the persons who are to receive the stock to be issued pursuant to this exemption were owners during, and the enterprise was operated for, a period of not less than one year immediately preceding the proposed issuance, and the ownership of the enterprise immediately prior to the proposed issuance was in the same proportions as the shares of stock are to be issued. (B) Only cash or cancellation of indebtedness for money borrowed, or both, upon the initial organization of the issuer, provided all of the stock is issued for the same price per share. (C) Only cash, provided the sale is approved in writing by each of the existing shareholders and the purchaser or purchasers are existing shareholders. (D) In a case where after the proposed issuance there will be only one owner of the stock of the issuer, only any legal consideration. (3) No promotional consideration has been given, paid, or incurred in connection with the issuance. Promotional consideration means any consideration paid directly or indirectly to a person who, acting alone or in conjunction with one or more other persons, takes the initiative in founding and organizing the business or enterprise of an issuer for services rendered in connection with the founding or organizing. (4) A notice in a form prescribed by rule of the commissioner, signed by an active member of the State Bar of California, is filed with or mailed for filing to the commissioner not later than 10 business days after receipt of consideration for the securities by the issuer. That notice shall contain an opinion of the member of the State Bar of California that the exemption provided by this subdivision is available for the offer and sale of the securities. The failure to file the notice as required by this subdivision and the rules of the commissioner shall not affect the availability of this exemption. An issuer who fails to file the notice within the time specified by this subdivision shall, within 15 business days after discovery of the failure to file the notice or after demand by the commissioner, whichever occurs first, file the notice and pay to the commissioner a fee equal to the fee payable had the transaction been qualified under Section 25110. The notice, except when filed on behalf of a California corporation, shall be accompanied by an irrevocable consent, in the form that the commissioner by rule prescribes, appointing the commissioner or his or her successor in office to be the issuer's attorney to receive service of any lawful process in any noncriminal suit, action, or proceeding against it or its successor that arises under this law or any rule or order hereunder after the consent has been filed, with the same force and validity as if served personally on the issuer. An issuer on whose behalf a consent has been filed in connection with a previous qualification or exemption from qualification under this law (or application for a permit under any prior law if the application or notice under this law states that the consent is still effective) need not file another. Service may be made by leaving a copy of the process in the office of the commissioner, but it is not effective unless (A) the plaintiff, who may be the commissioner in a suit, action, or proceeding instituted by him or her, forthwith sends notice of the service and a copy of the process by registered or certified mail to the defendant or respondent at its last address on file with the commissioner, and (B) the plaintiff's affidavit of compliance with this section is filed in the case on or before the return day of the process, if any, or within the further time as the court allows. (5) Each purchaser represents that the purchaser is purchasing for the purchaser's own account, or a trust account if the purchaser is a trustee, and not with a view to or for sale in connection with any distribution of the stock. For the purposes of this subdivision, all securities held by a husband and wife, whether or not jointly, shall be considered to be owned by one person, and all securities held by a corporation that has issued stock pursuant to this exemption shall be considered to be held by the shareholders to whom it has issued the stock. All stock issued by a corporation pursuant to this subdivision as it existed prior to the effective date of the amendments to this section made during the 1996 portion of the 1995-96 Regular Session that required the issuer to have stamped or printed prominently on the face of the stock certificate a legend in a form prescribed by rule of the commissioner restricting transfer of the stock in a manner provided for by that rule shall not be subject to the transfer restriction legend requirement and, by operation of law, the corporation is authorized to remove that transfer restriction legend from the certificates of those shares of stock issued by the corporation pursuant to this subdivision as it existed prior to the effective date of the amendments to this section made during the 1996 portion of the 1995-96 Regular Session. (i) Any offer or sale (1) to a bank, savings and loan association, trust company, insurance company, investment company registered under the Investment Company Act of 1940, pension or profit-sharing trust (other than a pension or profit-sharing trust of the issuer, a self-employed individual retirement plan, or individual retirement account), or other institutional investor or governmental agency or instrumentality that the commissioner may designate by rule, whether the purchaser is acting for itself or as trustee, or (2) to any corporation with outstanding securities registered under Section 12 of the Securities Exchange Act of 1934 or any wholly owned subsidiary of the corporation that after the offer and sale will own directly or indirectly 100 percent of the outstanding capital stock of the issuer, provided the purchaser represents that it is purchasing for its own account (or for the trust account) for investment and not with a view to or for sale in connection with any distribution of the security. (j) Any offer or sale of any certificate of interest or participation in an oil or gas title or lease (including subsurface gas storage and payments out of production) if either of the following apply: (1) All of the purchasers meet one of the following requirements: (A) Are and have been during the preceding two years engaged primarily in the business of drilling for, producing, or refining oil or gas (or whose corporate predecessor, in the case of a corporation, has been so engaged). (B) Are persons described in paragraph (1) of subdivision (i). (C) Have been found by the commissioner upon written application to be substantially engaged in the business of drilling for, producing, or refining oil or gas so as not to require the protection provided by this law (which finding shall be effective until rescinded). (2) The security is concurrently hypothecated to a bank in the ordinary course of business to secure a loan made by the bank, provided that each purchaser represents that it is purchasing for its own account for investment and not with a view to or for sale in connection with any distribution of the security. (k) Any offer or sale of any security under, or pursuant to, a plan of reorganization under Chapter 11 of the federal bankruptcy law that has been confirmed or is subject to confirmation by the decree or order of a court of competent jurisdiction. (l) Any offer or sale of an option, warrant, put, call, or straddle, and any guarantee of any of these securities, by a person who is not the issuer of the security subject to the right, if the transaction, had it involved an offer or sale of the security subject to the right by the person, would not have violated Section 25110 or 25130. (m) Any offer or sale of a stock to a pension, profit-sharing, stock bonus, or employee stock ownership plan, provided that (1) the plan meets the requirements for qualification under Section 401 of the Internal Revenue Code, and (2) the employees are not required or permitted individually to make any contributions to the plan. The exemption provided by this subdivision shall not be affected by whether the stock is contributed to the plan, purchased from the issuer with contributions by the issuer or an affiliate of the issuer, or purchased from the issuer with funds borrowed from the issuer, an affiliate of the issuer, or any other lender. (n) Any offer or sale of any security in a transaction, other than an offer or sale of a security in a rollup transaction, that meets all of the following criteria: (1) The issuer is (A) a California corporation or foreign corporation that, at the time of the filing of the notice required under this subdivision, is subject to Section 2115, or (B) any other form of business entity, including without limitation a partnership or trust organized under the laws of this state. The exemption provided by this subdivision is not available to a "blind pool" issuer, as that term is defined by the commissioner, or to an investment company subject to the Investment Company Act of 1940. (2) Sales of securities are made only to qualified purchasers or other persons the issuer reasonably believes, after reasonable inquiry, to be qualified purchasers. A corporation, partnership, or other organization specifically formed for the purpose of acquiring the securities offered by the issuer in reliance upon this exemption may be a qualified purchaser if each of the equity owners of the corporation, partnership, or other organization is a qualified purchaser. Qualified purchasers include the following: (A) A person designated in Section 260.102.13 of Title 10 of the California Code of Regulations. (B) A person designated in subdivision (i) or any rule of the commissioner adopted thereunder. (C) A pension or profit-sharing trust of the issuer, a self-employed individual retirement plan, or an individual retirement account, if the investment decisions made on behalf of the trust, plan, or account are made solely by persons who are qualified purchasers. (D) An organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, each with total assets in excess of five million dollars ($5,000,000) according to its most recent audited financial statements. (E) With respect to the offer and sale of one class of voting common stock of an issuer or of preferred stock of an issuer entitling the holder thereof to at least the same voting rights as the issuer's one class of voting common stock, provided that the issuer has only one-class voting common stock outstanding upon consummation of the offer and sale, a natural person who, either individually or jointly with the person's spouse, (i) has a minimum net worth of two hundred fifty thousand dollars ($250,000) and had, during the immediately preceding tax year, gross income in excess of one hundred thousand dollars ($100,000) and reasonably expects gross income in excess of one hundred thousand dollars ($100,000) during the current tax year or (ii) has a minimum net worth of five hundred thousand dollars ($500,000). "Net worth" shall be determined exclusive of home, home furnishings, and automobiles. Other assets included in the computation of net worth may be valued at fair market value. Each natural person specified above, by reason of his or her business or financial experience, or the business or financial experience of his or her professional adviser, who is unaffiliated with and who is not compensated, directly or indirectly, by the issuer or any affiliate or selling agent of the issuer, can be reasonably assumed to have the capacity to protect his or her interests in connection with the transaction. The amount of the investment of each natural person shall not exceed 10 percent of the net worth, as determined by this subparagraph, of that natural person. (F) Any other purchaser designated as qualified by rule of the commissioner. (3) Each purchaser represents that the purchaser is purchasing for the purchaser's own account (or trust account, if the purchaser is a trustee) and not with a view to or for sale in connection with a distribution of the security. (4) Each natural person purchaser, including a corporation, partnership, or other organization specifically formed by natural persons for the purpose of acquiring the securities offered by the issuer, receives, at least five business days before securities are sold to, or a commitment to purchase is accepted from, the purchaser, a written offering disclosure statement that shall meet the disclosure requirements of Regulation D (17 C.F.R. 230.501 et seq.), and any other information as may be prescribed by rule of the commissioner, provided that the issuer shall not be obligated pursuant to this paragraph to provide this disclosure statement to a natural person qualified under Section 260.102.13 of Title 10 of the California Code of Regulations. The offer or sale of securities pursuant to a disclosure statement required by this paragraph that is in violation of Section 25401, or that fails to meet the disclosure requirements of Regulation D (17 C.F.R. 230.501 et seq.), shall not render unavailable to the issuer the claim of an exemption from Section 25110 afforded by this subdivision. This paragraph does not impose, directly or indirectly, any additional disclosure obligation with respect to any other exemption from qualification available under any other provision of this section. (5) (A) A general announcement of proposed offering may be published by written document only, provided that the general announcement of proposed offering sets forth the following required information: (i) The name of the issuer of the securities. (ii) The full title of the security to be issued. (iii) The anticipated suitability standards for prospective purchasers. (iv) A statement that (I) no money or other consideration is being solicited or will be accepted, (II) an indication of interest made by a prospective purchaser involves no obligation or commitment of any kind, and, if the issuer is required by paragraph (4) to deliver a disclosure statement to prospective purchasers, (III) no sales will be made or commitment to purchase accepted until five business days after delivery of a disclosure statement and subscription information to the prospective purchaser in accordance with the requirements of this subdivision. (v) Any other information required by rule of the commissioner. (vi) The following legend: "For more complete information about (Name of Issuer) and (Full Title of Security), send for additional information from (Name and Address) by sending this coupon or calling (Telephone Number)." (B) The general announcement of proposed offering referred to in subparagraph (A) may also set forth the following information: (i) A brief description of the business of the issuer. (ii) The geographic location of the issuer and its business. (iii) The price of the security to be issued, or, if the price is not known, the method of its determination or the probable price range as specified by the issuer, and the aggregate offering price. (C) The general announcement of proposed offering shall contain only the information that is set forth in this paragraph. (D) Dissemination of the general announcement of proposed offering to persons who are not qualified purchasers, without more, shall not disqualify the issuer from claiming the exemption under this subdivision. (6) No telephone solicitation shall be permitted until the issuer has determined that the prospective purchaser to be solicited is a qualified purchaser. (7) The issuer files a notice of transaction under this subdivision both (A) concurrent with the publication of a general announcement of proposed offering or at the time of the initial offer of the securities, whichever occurs first, accompanied by a filing fee, and (B) within 10 business days following the close or abandonment of the offering, but in no case more than 210 days from the date of filing the first notice. The first notice of transaction under subparagraph (A) shall contain an undertaking, in a form acceptable to the commissioner, to deliver any disclosure statement required by paragraph (4) to be delivered to prospective purchasers, and any supplement thereto, to the commissioner within 10 days of the commissioner's request for the information. The exemption from qualification afforded by this subdivision is unavailable if an issuer fails to file the first notice required under subparagraph (A) or to pay the filing fee. The commissioner has the authority to assess an administrative penalty of up to one thousand dollars ($1,000) against an issuer that fails to deliver the disclosure statement required to be delivered to the commissioner upon the commissioner's request within the time period set forth above. Neither the filing of the disclosure statement nor the failure by the commissioner to comment thereon precludes the commissioner from taking any action deemed necessary or appropriate under this division with respect to the offer and sale of the securities. (o) An offer or sale of any security issued by a corporation or limited liability company pursuant to a purchase plan or agreement, or issued pursuant to an option plan or agreement, where the security at the time of issuance or grant is exempt from registration under the Securities Act of 1933, as amended, pursuant to Rule 701 adopted pursuant to that act (17 C.F.R. 230.701), the provisions of which are hereby incorporated by reference into this section, provided that (1) the terms of any purchase plan or agreement shall comply with Sections 260.140.42, 260.140.45, and 260.140.46 of Title 10 of the California Code of Regulations, (2) the terms of any option plan or agreement shall comply with Sections 260.140.41, 260.140.45, and 260.140.46 of Title 10 of the California Code of Regulations, and (3) the issuer files a notice of transaction in accordance with rules adopted by the commissioner no later than 30 days after the initial issuance of any security under that plan, accompanied by a filing fee as prescribed by subdivision (y) of Section 25608. The failure to file the notice of transaction within the time specified in this subdivision shall not affect the availability of this exemption. An issuer that fails to file the notice shall, within 15 business days after discovery of the failure to file the notice or after demand by the commissioner, whichever occurs first, file the notice and pay the commissioner a fee equal to the maximum aggregate fee payable had the transaction been qualified under Section 25110. Offers and sales exempt pursuant to this subdivision shall be deemed to be part of a single, discrete offering and are not subject to integration with any other offering or sale, whether qualified under Chapter 2 (commencing with Section 25110), or otherwise exempt, or not subject to qualification. (p) An offer or sale of nonredeemable securities to accredited investors (Section 28031) by a person licensed under the Capital Access Company Law (Division 3 (commencing with Section 28000) of Title 4), provided that all purchasers either (1) have a preexisting personal or business relationship with the offeror or any of its partners, officers, directors, controlling persons, or managers (as appointed or elected by the members), or (2) by reason of their business or financial experience or the business or financial experience of their professional advisers who are unaffiliated with and who are not compensated by the issuer or any affiliate or selling agent of the issuer, directly or indirectly, could be reasonably assumed to have the capacity to protect their own interests in connection with the transaction. All nonredeemable securities shall be evidenced by certificates that shall have stamped or printed prominently on their face a legend in a form to be prescribed by rule or order of the commissioner restricting transfer of the securities in the manner as the rule or order provides. The exemption under this subdivision shall not be available for any offering that is exempt or asserted to be exempt pursuant to Section 3(a)(11) of the Securities Act of 1933 (15 U.S.C. Sec. 77c(a)(11)) or Rule 147 (17 C.F.R. Sec. 230.147) thereunder or otherwise is conducted by means of any form of general solicitation or general advertising. (q) Any offer or sale of any viatical or life settlement contract or fractionalized or pooled interest therein in a transaction that meets all of the following criteria: (1) Sales of securities described in this subdivision are made only to qualified purchasers or other persons the issuer reasonably believes, after reasonable inquiry, to be qualified purchasers. A corporation, partnership, or other organization specifically formed for the purpose of acquiring the securities offered by the issuer in reliance upon this exemption may be a qualified purchaser only if each of the equity owners of the corporation, partnership, or other organization is a qualified purchaser. Qualified purchasers include the following: (A) A person designated in Section 260.102.13 of Title 10 of the California Code of Regulations. (B) A person designated in subdivision (i) or any rule of the commissioner adopted thereunder. (C) A pension or profit-sharing trust of the issuer, a self-employed individual retirement plan, or an individual retirement account, if the investment decisions made on behalf of the trust, plan, or account are made solely by persons who are qualified purchasers. (D) An organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, each with total assets in excess of five million dollars ($5,000,000) according to its most recent audited financial statements. (E) A natural person who, either individually or jointly with the person's spouse, (i) has a minimum net worth of one hundred fifty thousand dollars ($150,000) and had, during the immediately preceding tax year, gross income in excess of one hundred thousand dollars ($100,000) and reasonably expects gross income in excess of one hundred thousand dollars ($100,000) during the current tax year or (ii) has a minimum net worth of two hundred fifty thousand dollars ($250,000). "Net worth" shall be determined exclusive of home, home furnishings, and automobiles. Other assets included in the computation of net worth may be valued at fair market value. Each natural person specified above, by reason of his or her business or financial experience, or the business or financial experience of his or her professional adviser, who is unaffiliated with and who is not compensated, directly or indirectly, by the issuer or any affiliate or selling agent of the issuer, can be reasonably assumed to have the capacity to protect his or her interests in connection with the transaction. The amount of the investment of each natural person shall not exceed 10 percent of the net worth, as determined by this subdivision, of that natural person. (F) Any other purchaser designated as qualified by rule of the commissioner. (2) Each purchaser represents that the purchaser is purchasing for the purchaser's own account (or trust account, if the purchaser is a trustee) and not with a view to or for sale in connection with a distribution of the security. (3) Each natural person purchaser, including a corporation, partnership, or other organization specifically formed by natural persons for the purpose of acquiring the securities offered by the issuer, receives, at least five business days before securities described in this subdivision are sold to, or a commitment to purchase is accepted from, the purchaser, the following information in writing: (A) The name, principal business and mailing address, and telephone number of the issuer. (B) The suitability standards for prospective purchasers as set forth in paragraph (1) of this subdivision. (C) A description of the issuer's type of business organization and the state in which the issuer is organized or incorporated. (D) A brief description of the business of the issuer. (E) If the issuer retains ownership or becomes the beneficiary of the insurance policy, an audit report of an independent certified public accountant together with a balance sheet and related statements of income, retained earnings, and cashflows that reflect the issuer's financial position, the results of the issuer's operations, and the issuer's cashflows as of a date within 15 months before the date of the initial issuance of the securities described in this subdivision. The financial statements listed in this subparagraph shall be prepared in conformity with generally accepted accounting principles. If the date of the audit report is more than 120 days before the date of the initial issuance of the securities described in this subdivision, the issuer shall provide unaudited interim financial statements. (F) The names of all directors, officers, partners, members, or trustees of the issuer. (G) A description of any order, judgment, or decree that is final as to the issuing entity of any state, federal, or foreign country governmental agency or administrator, or of any state, federal or foreign country court of competent jurisdiction (i) revoking, suspending, denying, or censuring for cause any license, permit, or other authority of the issuer or of any director, officer, partner, member, trustee, or person owning or controlling, directly or indirectly, 10 percent or more of the outstanding interest or equity securities of the issuer, to engage in the securities, commodities, franchise, insurance, real estate, or lending business or in the offer or sale of securities, commodities, franchises, insurance, real estate, or loans, (ii) permanently restraining, enjoining, barring, suspending, or censuring any such person from engaging in or continuing any conduct, practice, or employment in connection with the offer or sale of securities, commodities, franchises, insurance, real estate, or loans, (iii) convicting any such person of, or pleading nolo contendere by any such person to, any felony or misdemeanor involving a security, commodity, franchise, insurance, real estate, or loan, or any aspect of the securities, commodities, franchise, insurance, real estate, or lending business, or involving dishonesty, fraud, deceit, embezzlement, fraudulent conversion, or misappropriation of property, or (iv) holding any such person liable in a civil action involving breach of a fiduciary duty, fraud, deceit, embezzlement, fraudulent conversion, or misappropriation of property. This subparagraph does not apply to any order, judgment, or decree that has been vacated, overturned, or is more than 10 years old. (H) Notice of the purchaser's right to rescind or cancel the investment and receive a refund pursuant to Section 25508.5. (I) The name, address, and telephone number of the issuing insurance company, and the name, address, and telephone number of the state or foreign country regulator of the insurance company. (J) The total face value of the insurance policy and the percentage of the insurance policy the purchaser will own. (K) The insurance policy number, issue date, and type. (L) If a group insurance policy, the name, address, and telephone number of the group, and, if applicable, the material terms and conditions of converting the policy to an individual policy, including the amount of increased premiums. (M) If a term insurance policy, the term and the name, address, and telephone number of the person who will be responsible for renewing the policy if necessary. (N) That the insurance policy is beyond the state statute for contestability and the reason therefor. (O) The insurance policy premiums and terms of premium payments. (P) The amount of the purchaser's moneys that will be set aside to pay premiums. (Q) The name, address, and telephone number of the person who will be the insurance policy owner and the person who will be responsible for paying premiums. (R) The date on which the purchaser will be required to pay premiums and the amount of the premium, if known. (S) A statement to the effect that any projected rate of return to the purchaser from the purchase of a viatical or life settlement contract or a fractionalized or pooled interest therein is based on an estimated life expectancy for the person insured under the life insurance policy; that the return on the purchase may vary substantially from the expected rate of return based upon the actual life expectancy of the insured that may be less than, equal to, or may greatly exceed the estimated life expectancy; and that the rate of return would be higher if the actual life expectancy were less than, and lower if the actual life expectancy were greater than the estimated life expectancy of the insured at the time the viatical or life settlement contract was closed. (T) A statement that the purchaser should consult with his or her tax adviser regarding the tax consequences of the purchase of the viatical or life settlement contract or fractionalized or pooled interest therein and, if the purchaser is using retirement funds or accounts for that purchase, whether or not any adverse tax consequences might result from the use of those funds for the purchase of that investment. (U) Any other information as may be prescribed by rule of the commissioner.

25102.1. The following transactions are not subject to Sections 25110, 25120, and 25130: (a) Any offer or sale of a security to a "qualified purchaser" as that term is defined by rule of the Securities and Exchange Commission pursuant to Section 18(b)(3) of the Securities Act of 1933 (15 U.S.C. 77r), if all of the following requirements are met: (1) A notice is filed with the commissioner prior to an offer in this state, along with any documents filed with the Securities and Exchange Commission in annual or periodic reports that the commissioner by rule or order deems appropriate. (2) A consent to service of process under Section 25165 is filed with the notice required by paragraph (1). (3) Payment of a notice filing fee provided for in subdivision (b) of Section 25608.1. (b) Any offer and sale of a security with respect to a transaction that is exempt from registration under Section 4(4) of the Securities Act of 1933 pursuant to Section 18 (b) (4) (B) of that act. (c) Any offer or sale of a security with respect to a transaction that is exempt from registration under the Securities Act of 1933 pursuant to Section 18(b)(4)(C) of that act. (d) Any offer or sale of a security with respect to a transaction that is exempt from registration under the Securities Act of 1933 pursuant to Section 18(b)(4)(D) of that act, if all of the following requirements are met: (1) A notice in the form of a copy of the completed Form D (17 C.F.R. 239.500) filed with the Securities and Exchange Commission is filed with the commissioner within 15 days of the first sale in this state, along with documents filed with the Securities and Exchange Commission in annual or periodic reports that the commissioner by rule or order deems appropriate. The commissioner may allow for a notice in the form of the electronic transmission of the information in Form D. (2) A consent to service of process under Section 25165 is filed with the notice as required by paragraph (1). (3) Payment of the notice filing fee provided for in subdivision (c) of Section 25608.1 is made. (e) Notwithstanding the language of subdivisions (a), (b), (c), and (d) of this section, an issuer may file an application for qualification pursuant to Section 25111, 25112, 25113, 25121, 25131, or 25142.

25102.5. There shall be exempted from Section 25110 a transaction that is the sale of a series of notes secured directly by an interest in the same real property, or the sale of undivided interests in a note secured directly by real property equivalent to a series transaction, that complies with all of the provisions of Article 6 (commencing with Section 10237) of Chapter 3 of Part 1 of Division 4 of the Business and Professions Code. For purposes of this section, a real estate broker licensed by the Real Estate Commissioner of this state who engages in the offer and sale of notes secured directly by real property of various makers, which are a series of notes or notes in which undivided interests are offered and sold, shall be deemed to be the issuer of these notes and undivided interests if the notes of the various makers are offered and sold pursuant to a plan or arrangement that is common to the various makers with respect to documentation and loan standards and that include provisions for servicing these notes on behalf of purchasers.


25103. The following transactions are exempted from the provisions of Section 25110 and Section 25120: (a) Any negotiations or agreements prior to general solicitation of approval by the holders of equity securities, and subject to that approval, of (1) a change in the rights, preferences, privileges, or restrictions of or on outstanding securities, (2) a merger, consolidation, or sale of assets in consideration of the issuance of securities, or (3) an entity conversion transaction. (b) Any change in the rights, preferences, privileges, or restrictions of or on outstanding securities or any entity conversion transaction, unless the holders of at least 25 percent of the outstanding shares or units of any class of securities that will be directly or indirectly affected substantially and adversely by that change or transaction have addresses in this state according to the records of the issuer. (c) Any exchange incident to a merger, consolidation, or sale of assets in consideration of the issuance of securities of another issuer, unless at least 25 percent of the outstanding securities of any class, any holders of which are to receive securities in the exchange, are held by persons who have addresses in this state according to the records of the issuer of which they are holders. This exemption is not available for a rollup transaction as defined by Section 25014.6. The exemption is also not available for a transaction excluded from the definition of rollup transaction by virtue of paragraph (5) or (6) of subdivision (b) of Section 25014.6 if the transaction is one of a series of transactions that directly or indirectly through acquisition or otherwise involves the combination or reorganization of one or more rollup participants. (d) For the purposes of subdivision (b) and subdivision (c) of this section, (1) any securities held to the knowledge of the issuer in the names of broker-dealers or nominees of broker-dealers and (2) any securities controlled by any one person who controls directly or indirectly 50 percent or more of the outstanding securities of that class shall not be considered outstanding. The determination of whether 25 percent of the outstanding securities are held by persons having addresses in this state, for the purposes of subdivision (b) and subdivision (c) of this section, shall be made as of the record date for the determination of the security holders entitled to vote on or consent to the action, if approval of those holders is required, or, if not, as of the date of directors' approval of that action. (e) Any change (other than a stock split or reverse stock split) in the rights, preferences, privileges, or restrictions of or on outstanding equity securities, except the following if they materially and adversely affect any class of equity securities: (1) to add, change, or delete assessment provisions; (2) to change the rights to dividends thereon; (3) to change the redemption provisions; (4) to make them redeemable; (5) to change the amount payable on liquidation; (6) to change, add, or delete conversion rights; (7) to change, add, or delete voting rights; (8) to change, add, or delete preemptive rights; (9) to change, add, or delete sinking fund provisions; (10) to rearrange the relative priorities of outstanding equity securities; (11) to impose, change, or delete restrictions upon the transfer of equity securities in the organizational documents for the entity; (12) to change the right of holders of equity securities with respect to the calling of special meetings of holders of equity securities; and (13) to change, add, or delete any rights, preferences, privileges, or restrictions of, or on, the outstanding shares or memberships of a mutual water company or other corporation or entity organized primarily to provide services or facilities to its shareholders or members. Changes in the rights, preferences, privileges, or restrictions of or on outstanding equity securities do not materially and adversely affect any class of holders of equity securities within the meaning of this subdivision if they arise from (i) the addition to articles of incorporation of the provisions described or referred to in subdivision (a) of Section 158 upon the conversion of an existing corporation to a close corporation pursuant to subdivision (b) of Section 158, (ii) the deletion from the articles of incorporation of the provisions described or referred to in subdivision (a) of Section 158 upon the voluntary termination of close corporation status pursuant to subdivisions (c) and (e) of Section 158, (iii) the involuntary cessation of close corporation status pursuant to subdivision (e) of Section 158, or (iv) the termination of a shareholders' agreement pursuant to subdivision (b) of Section 300. (f) Any stock split or reverse stock split, except the following: (1) any stock split or reverse stock split if the corporation has more than one class of shares outstanding and the split would have a material effect on the proportionate interests of the respective classes as to voting, dividends, or distributions; (2) any stock split of a stock that is traded in the market and its market price as of the date of directors' approval of the stock split adjusted to give effect to the split was less than two dollars ($2) per share; and (3) any reverse stock split if the corporation has the option of paying cash for any fractional shares created by the reverse split and as a result of that action the proportionate interests of the shareholders would be substantially altered. Any shares issued upon a stock split or reverse stock split exempted by this subdivision shall be subject to any conditions previously imposed by the commissioner applicable to the shares with respect to which they are issued. (g) Any change in the rights of outstanding debt securities, except the following if they substantially and adversely affect any class of securities: (1) to change the rights to interest thereon; (2) to change their redemption provisions; (3) to make them redeemable; (4) to extend the maturity thereof or to change the amount payable thereon at maturity; (5) to change their voting rights; (6) to change their conversion rights; (7) to change sinking fund provisions; and (8) to make them subordinate to other indebtedness. (h) Any exchange incident to a merger, consolidation, or sale of assets, other than a rollup transaction (as defined in Section 25014.6), in consideration of the issuance of equity securities of another entity or any entity conversion transaction that meets the following conditions: (1) The exchange incident to a merger, consolidation, or sale of assets or the entity conversion transaction, had the exchange transaction involved the issuance of a security in a transaction subject to the provisions of Section 25110, would have been exempt from qualification by subdivision (f) of Section 25102, without giving effect to paragraph (3) thereof, and either of the following is applicable: (A) (i) Not less than 75 percent of the outstanding equity securities of each constituent or converting entity entitled to vote on the proposed transaction voted in favor of the transaction, (ii) not more than 10 percent of the outstanding equity securities of each constituent or converting entity entitled to vote on the proposed transaction voted against the transaction, and (iii) each constituent or converting entity whose security holders are entitled to vote on the proposed transaction is subject to a state statute that has provisions for dissenters' rights for holders of equity securities entitled to vote on the proposed transaction that do not vote in favor of or voted against the transaction. (B) (i) The transaction is solely for the purposes of changing the issuer's state of incorporation or organization, or form of organization, (ii) all the securities of the same class or series, unless all the security holders of the class or series consent, are treated equally, and (iii) the holders of nonredeemable voting equity securities receive nonredeemable voting equity securities. (2) The commissioner may, by rule, require the acquiring or surviving entity to file a notice of transaction under this section. However, the failure to file the notice or the failure to file the notice within the time specified by the rule of the commissioner shall not affect the availability of this exemption. An acquiring or surviving entity that fails to file the notice as provided by rule of the commissioner shall, within 15 business days after demand by the commissioner, file the notice and pay to the commissioner a fee equal to the fee payable had the transaction been qualified under Section 25110 or 25120. (i) Any exchange of securities in connection with any merger or consolidation or sale of corporate assets in consideration wholly or in part of the issuance of securities or any entity conversion transaction under, or pursuant to, a plan of reorganization that pursuant to the provisions of the United States Bankruptcy Code (Title 11 of the United States Code) has been confirmed or is subject to confirmation by the decree or order of a court of competent jurisdiction.

25104. The following transactions are exempted from the provisions of Section 25130: (a) Any offer or sale of a security by the bona fide owner thereof for his or her own account if the sale (1) is not accompanied by the publication of any advertisement and (2) is not effected by or through a broker-dealer in a public offering. (b) Any offer or sale effected by or through a licensed broker-dealer pursuant to an unsolicited order or offer to buy. For the purpose of this subdivision, an inquiry regarding a written bid for a security or a written solicitation of an offer to sell a security made by another broker-dealer within the previous 60 days shall not be considered the solicitation of an order or offer to buy. (c) Any offer or sale to a bank, savings and loan association, trust company, insurance company, investment company registered under the Investment Company Act of 1940, pension or profit-sharing trust (other than a pension or profit-sharing trust of the issuer, a self-employed individual retirement plan, or individual retirement account), or such other institutional investor or governmental agency or instrumentality as the commissioner may designate by rule, whether the purchaser is acting for itself or as trustee; provided the purchaser represents that it is purchasing for its own account (or for the trust account) for investment and not with a view to or for sale in connection with any distribution of the security. (d) Any transaction or agreement between a person on whose behalf an offering is made and an underwriter or among underwriters, if the sale of the securities is exempt from qualification at the time of or qualified prior to distribution in this state, if any. (e) Any offer or sale of any security by or for the account of a bona fide secured party selling the security in the ordinary course of business to liquidate a bona fide debt. (f) Any transaction by an executor, administrator, sheriff, marshal, receiver, trustee in bankruptcy, guardian, or conservator. (g) Any offer (but not a sale) of a security for which a registration statement has been filed under the Securities Act of 1933 but has not yet become effective, or for which an offering statement under Regulation A has been filed but has not yet been qualified, if no stop order or refusal order is in effect and no public proceeding or examination looking toward such an order is pending under Section 8 of that act and no order under Section 25140 or subdivision (a) of Section 25143 is in effect under this division. (h) Any offer or sale of a security if a qualification under Chapter 2 (commencing with Section 25110) of this part for any securities of the same class has become effective within 18 months, or longer period as the commissioner may order provided that each consecutive order shall be for no more than six months, prior to the offer or sale or if a qualification under Chapter 3 (commencing with Section 25120) or Chapter 4 (commencing with Section 25130) of this part for any securities of the same class has become effective within 12 months prior to that offer or sale, provided no order under Section 25140 or subdivision (a) of Section 25143 is in effect under this division with respect to the qualification, and, provided further, that this exemption does not apply to securities offered pursuant to a registration under the Securities Act of 1933 or pursuant to an exemption under Regulation A under that act if the aggregate offering price of the securities offered under such exemption exceeds fifty thousand dollars ($50,000). The commissioner may, by rule or order, withhold this exemption with respect to securities qualified only pursuant to a limited offering qualification.

25105. There shall be exempted from the provisions of Section 25110, 25120 or 25130 any other transaction which the commissioner by rule exempts as not being comprehended within the purposes of this law and the qualification of which he finds is not necessary or appropriate in the public interest or for the protection of investors.


Chapter 2. Issuer Transactions

Ca Codes (corp:25110-25118) Corporations Code Section 25110-25118



25110. It is unlawful for any person to offer or sell in this state any security in an issuer transaction (other than in a transaction subject to Section 25120), whether or not by or through underwriters, unless such sale has been qualified under Section 25111, 25112 or 25113 (and no order under Section 25140 or subdivision (a) of Section 25143 is in effect with respect to such qualification) or unless such security or transaction is exempted or not subject to qualification under Chapter 1 (commencing with Section 25100) of this part. The offer or sale of such a security in a manner that varies or differs from, exceeds the scope of, or fails to conform with either a material term or material condition of qualification of the offering as set forth in the permit or qualification order, or a material representation as to the manner of offering which is set forth in the application for qualification, shall be an unqualified offer or sale.

25111. (a) Any security for which a registration statement has been filed under the Securities Act of 1933 in connection with the same offering may be qualified by coordination under this section either in an issuer or nonissuer transaction. The term "registration statement" as used in this section includes an offering statement as defined by Rule 252(a) under Regulation A (17 C.F.R. 230.252(a)) under the Securities Act of 1933, as amended. The term "effective," as used in this section in connection with an offering statement, means an offering statement that has been qualified under Regulation A of the Securities Act of 1933. (b) Except as provided in subdivision (d), an application for qualification under this section shall contain the following information and be accompanied by the following documents, in addition to the information specified in Section 25160 and the consent to service of process required by Section 25165: (1) a copy of the registration statement under the Securities Act of 1933, together with all exhibits (other than exhibits incorporated by reference and those specified by rule of the commissioner, unless requested by the commissioner); (2) an undertaking to forward to the commissioner all future amendments to the registration statement under the Securities Act of 1933, other than an amendment that merely delays the effective date of the registration statement, promptly and in any event not later than the first business day after the day they are forwarded to or filed with the Securities and Exchange Commission, whichever first occurs; and (3) other information required to evidence compliance with any rules of the commissioner. The application must be filed with the commissioner not later than the fifth business day following filing of the registration statement with the Securities and Exchange Commission, unless that time is extended by rule or order of the commissioner. (c) Except as provided in subdivision (d), qualification of the sale of securities under this section automatically becomes effective (and the securities may be offered and sold in accordance with the terms of the application as amended) at the moment the federal registration statement becomes effective if all the following conditions are satisfied: (1) no stop order or order under subdivision (a) of Section 25143 is in effect under this law; (2) the application has been on file with the commissioner for at least 10 days; and (3) a statement of the maximum and minimum proposed offering prices and the maximum underwriting discounts and commissions has been on file for two business days or such shorter period as the commissioner permits by rule or order and the offering is made within those limitations. The applicant shall promptly notify the commissioner by telephone or telegram of the date and time when the federal registration statement became effective and the content of the price amendment, if any, and shall promptly file a posteffective amendment to the application containing the information and documents in the price amendment. "Price amendment" means the final federal amendment that includes a statement of the offering price, underwriting and selling discounts or commissions, amount of proceeds, interest, dividend or conversion rates, call prices and other matters related to the offering price. Upon failure to receive the required notification and posteffective amendment with respect to the price amendment, the commissioner may enter a stop order, without notice or hearing, retroactively denying effectiveness to the application for qualification or suspending its effectiveness until compliance with this subdivision, if he or she promptly notifies the applicant by telephone or telegram (and promptly confirms by letter or telegram when he or she notifies by telephone) of the issuance of the order. If the applicant proves compliance with the requirements of this subdivision as to notice and posteffective amendment, the stop order is void as of the time of its entry. The commissioner may by rule or order waive either or both of the conditions specified in clauses (2) and (3) of this subdivision. If the federal registration statement becomes effective before all the conditions in this subdivision are satisfied and they are not waived, the application for qualification automatically becomes effective as soon as all the conditions are satisfied. If the applicant advises the commissioner of the date when the federal registration statement is expected to become effective, the commissioner shall promptly advise the applicant by telephone or telegram, at the applicant's expense, whether all the conditions are satisfied and whether he or she then contemplates the institution of a proceeding under Section 25140 or 25143; but this advice by the commissioner does not preclude the institution of such a proceeding at any time. (d) (1) An open-end investment company or a unit investment trust that has previously qualified the sale of its securities pursuant to this section shall, in lieu of filing the application specified in subdivision (b), file pursuant to this subdivision if it has made no material change in its offering and if it is in compliance with all terms of its prior qualification. An application filed pursuant to this subdivision shall contain the following information and be accompanied by the following documents, in addition to the information specified in Section 25160 and the consent to service of process required by Section 25165: (A) a statement that the applicant has made no material change in its offering and that it is in compliance with the terms of its qualification; and (B) a copy of its current registration statement under the Securities Act of 1933. If no stop order or orders under subdivision (a) of Section 25143 are in effect under this law, qualification of the sale of securities under this subdivision automatically becomes effective (and the securities may be offered and sold in accordance with the terms of the application) upon the day following the expiration of its prior qualification pursuant to this section or, if that qualification has expired, upon the first business day following the filing of the application pursuant to this subdivision. Nothing contained in this subdivision shall restrict the authority of the commissioner pursuant to Section 25140 or 25143. (2) A unit investment trust that has not previously applied to qualify the sale of its securities pursuant to this section but that is substantially the same as one or more unit investment trusts previously qualified under this section by the same sponsor, shall file pursuant to this subdivision if it can make the statements specified below. An application filed pursuant to this subdivision shall contain the following information and be accompanied by the following documents, in addition to the information specified in Section 25160 and the consent to service of process required by Section 25165: (A) a statement that the applicant, in its organization, its plan of business, its securities and its offering, is substantially the same as a unit investment trust previously qualified under this section by the same sponsor; (B) a statement that those previously qualified unit investment trusts are in compliance with the terms of their qualifications and (C) a copy of its current registration statement under the Securities Act of 1933. If no stop order or orders under subdivision (a) of Section 25143 are in effect under this law, qualification of the sale of securities under this subdivision automatically becomes effective (and the security may be offered and sold in accordance with the terms of the application) at the moment the federal registration becomes effective or, if the registration is effective when the application is filed, upon the first business day following the filing of the application pursuant to this subdivision.


25112. (a) Any security issued by a person which is the issuer of any security registered under Section 12 of the Securities Exchange Act of 1934 or issued, by an investment company registered under the Investment Company Act of 1940, and which is not eligible for qualification under Section 25111, may be qualified by notification under this section. (b) An application for qualification under this section shall contain such information and be accompanied by such documents as shall be required by rule of the commissioner, in addition to the information specified in Section 25160 and the consent to service of process required by Section 25165. For this purpose, the commissioner may classify issuers and types of securities. (c) If no stop order or order under subdivision (a) of Section 25143 is in effect under this law, qualification of the sale of the securities under this section automatically becomes effective (and the securities may be offered and sold in accordance with the terms of the application as amended) at 12 o'clock noon California time of the 10th business day after the filing of the application or the last amendment thereto or at such earlier time as the commissioner determines.


25113. (a) All securities, whether or not eligible for qualification by coordination under Section 25111 or qualification by notification under Section 25112, may be qualified by permit under this section. (b) (1) An application for a permit under this section shall contain any information and be accompanied by any documents as shall be required by rule of the commissioner, in addition to the information specified in Section 25160 and the consent to service of process required by Section 25165. For this purpose, the commissioner may classify issuers and types of securities. (2) An applicant may file a small company application for permit under this section if it meets all of the following conditions: (A) The applicant is: (i) a California corporation or a foreign corporation, which at the time of filing an application under this subdivision is subject to Section 2115, and neither corporation is a "blind pool" company, as that term is defined by the commissioner; (ii) not engaged in oil and gas exploration or production, or mining or other extractive industries; (iii) not an investment company subject to the Investment Company Act of 1940; and (iv) not subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934. (B) The total offering of voting common stock and preferred stock by the applicant to be sold in a 12-month period, within or outside this state, is limited to one million dollars ($1,000,000), less the aggregate offering price for all securities sold (within the 12 months before the start, and during the offering, of the voting common stock or preferred stock) under Rule 504 of the Securities and Exchange Commission, in reliance on any exemption under subdivision (b) of Section 3 of the Securities Act of 1933, or in violation of subdivision (a) of Section 5 of that act, and immediately after the proposed sale and issuance there will be only one class of voting common stock. (C) The minimum offering price of the voting common stock and preferred stock (and the conversion price if the preferred stock is convertible into the voting common stock) to be sold is two dollars ($2) per share and the applicant files an undertaking with the commissioner that there will be no stock splits, stock dividends, spinoffs, or mergers for a period of two years from the close of the offering. The undertaking notwithstanding, the commissioner may approve a spinoff or merger pursuant to an application for qualification filed by an applicant. (D) The net proceeds from the offering are to be expended in the operations of the business. (E) The offering is made pursuant to a Small Corporate Offering Registration disclosure document based on the Form U-7 as adopted by the North American Securities Administrators Association and any additional requirements as the commissioner shall prescribe, that may include, but not be limited to, investor suitability and due diligence investigation requirements. (F) The application and disclosure document is reviewed and signed by a majority of the members of the board of directors of the applicant. (G) The application shall contain that information and be accompanied by those documents required by rule of the commissioner, in addition to the information specified in Section 25610 and the consent to service of process required by Section 25165. (c) Qualification of securities under this section becomes effective upon the commissioner issuing a permit authorizing the issuance of those securities.


25114. Every qualification under this chapter is effective for 12 months from its effective date, unless the commissioner by order or rule specifies a different period, except during the time an order under Section 25140 or subdivision (a) of Section 25143 is in effect.


25115. Every application for qualification of an issuer transaction under this chapter shall be signed and verified by the issuer; every application for qualification of a nonissuer transaction under Section 25111 shall be signed and verified by the person on whose behalf the offering is being made or by the issuer on behalf of such person.


25116. (a) An evidence of indebtedness issued pursuant to a qualification under this chapter or Chapter 3 (commencing with Section 25120), and the purchasers or holders thereof, shall be exempt from the usury provisions of the Constitution, subject to compliance by the issuer and purchaser with the terms and requirements that may be imposed by the commissioner as a condition of the qualification. This section creates and authorizes a class of transactions and persons pursuant to Section 1 of Article XV of the Constitution. (b) Any evidence of indebtedness issued in compliance with this section shall be entitled to the benefits of the usury exemption contained in this section regardless of whether subsequent to its issuance the evidence of indebtedness is determined by a court of competent jurisdiction to be a "security."


25117. (a) An evidence of indebtedness, and the purchasers or holders thereof, shall be exempt from the usury provisions of Section 1 of Article XV of the California Constitution if (1) the evidence of indebtedness is rated or provisionally rated by Standard & Poor's Corporation as AAA, AA, A, BBB, or investment grade commercial paper, or by Moody's Investors Service, Inc. as Aaa, Aa, A, Baa, or investment grade commercial paper, including any such ratings with "+" or "--" designation or other variations that occur within these ratings, or has a rating or a provisional rating by another nationally recognized rating agency or system, which rating and agency or system have been certified by rule or order of the commissioner, or (2) the issuer thereof either (A) has any security listed or approved for listing upon notice of issuance on a national securities exchange, if the exchange has been certified by the commissioner, pursuant to subdivision (o) of Section 25100, or (B) meets each of the following requirements: (i) The issuer is a corporation which is subject to Section 13 of the Securities Exchange Act of 1934. (ii) The issuer had total shareholders' equity of at least one million dollars ($1,000,000) at the end of its most recent fiscal year, and had consolidated net income, after all charges, including taxes and extraordinary losses, and excluding extraordinary gains, of at least five hundred thousand dollars ($500,000) for three of its last four fiscal years, including its most recent fiscal year. The determination of total shareholders' equity and net income shall be determined in conformity with generally accepted accounting principles applicable to that fiscal year or years, on a consolidated basis, or (3) the evidence of indebtedness is issued by any corporation all of the outstanding shares of which are owned by an issuer which meets the requirements of subparagraph (A) or (B) of paragraph (2). (b) This section creates and authorizes a class of transactions and persons pursuant to Section 1 of Article XV of the California Constitution. (c) Any evidence of indebtedness issued in compliance with this section shall be entitled to the benefits of the usury exemption contained in this section regardless of whether subsequent to its issuance the evidence of indebtedness is determined by a court of competent jurisdiction to be a "security."

25118. (a) An evidence of indebtedness issued by an entity or guaranteed by an entity that is an affiliate (as defined in Section 150) of the borrower that, on the day the evidence of indebtedness issued or guaranty is first issued or entered into, has total assets of at least two million dollars ($2,000,000) according to its then most recent financial statements, and the purchasers or holders thereof, shall be exempt from the usury provisions of the California Constitution. The financial statements referred to in the preceding sentence shall meet both of the following requirements: (1) Be as of a date not more than 90 days prior to the date the evidence of indebtedness or guaranty is first issued or entered into. (2) Be prepared in accordance with either of the following: (A) In accordance with generally accepted accounting principles and, if the entity has consolidated subsidiaries, on a consolidated basis. (B) In accordance with the rules and requirements of the Securities and Exchange Commission, whether or not required by law to be prepared in accordance with those rules and requirements. (b) Any one or more evidences of indebtedness, and the purchasers or holders thereof, shall be exempt from the usury provisions of the California Constitution if either of the following applies: (1) The evidences of indebtedness aggregate at the time of issuance at least three hundred thousand dollars ($300,000) in original face amount, or, if the evidences of indebtedness are purchased with original issue discount, they are purchased for an aggregate purchase price at the time of issuance of at least three hundred thousand dollars ($300,000). (2) The evidences of indebtedness are issued pursuant to a bona fide written commitment for the lending to the issuer of at least three hundred thousand dollars ($300,000), or the provision of a line of credit to the issuer in a principal amount of at least three hundred thousand dollars ($300,000). The exemption provided by this paragraph shall not be affected by a subsequent event of default or other event not in the lender's control that has relieved or may relieve the lender from its commitment. (c) Any evidence of indebtedness described in subdivision (a) or (b), and the purchasers or holders thereof, shall be entitled to the benefits of the usury exemption contained in this section regardless of whether, at any time after the evidence of indebtedness or guaranty upon which the exemption is based is first issued or entered into, the evidence of indebtedness or guaranty is determined by a court of competent jurisdiction not to be a "security." (d) This section creates and authorizes a class of transactions and persons pursuant to Section 1 of Article XV of the California Constitution. (e) This section does not apply to: (1) Any evidence of indebtedness issued or guaranteed (if the guaranty is part of the consideration for the indebtedness) by an individual, a revocable trust having one or more individuals as trustors, or a partnership in which, at the time of issuance, one or more individuals are general partners. (2) Any transaction subject to the limitation on permissible rates of interest set forth in paragraph (1) of the first sentence of Section 1 of Article XV of the California Constitution. (f) The exemptions created by this section shall only be available in a transaction that meets either of the following criteria: (1) The lender and either the issuer of the indebtedness or the guarantor, as the case may be, or any of their respective officers, directors, or controlling persons, or, if any party is a limited liability company, the managers as appointed or elected by the members, have a preexisting personal or business relationship. (2) The lender and the issuer, or the lender and the guarantor, by reason of their own business and financial experience or that of their professional advisers, could reasonably be assumed to have the capacity to protect their own interests in connection with the transaction. (g) For purposes of this section, "preexisting personal or business relationship" and "capacity to protect their own interests in connection with the transaction" as used in subdivision (f) shall have the same meaning as, and be determined according to the same standards as, specified in paragraph (2) of subdivision (f) of Section 25102 and its implementing regulations provided that, solely with respect to this section, a lender or purchaser who is represented by counsel may designate that person as its professional adviser whether or not that person is compensated by the issuer or guarantor, as long as that person has a bona fide attorney-client relationship with the lender or purchaser. (h) This section shall not exempt any person from the application of the California Finance Lenders Law (Division 9 (commencing with Section 22000) of the Financial Code).


Chapter 3. Recapitalizations And Reorganizations

Ca Codes (corp:25120-25122) Corporations Code Section 25120-25122



25120. (a) Except as provided in subdivision (b), it is unlawful for any person to offer or sell in this state any security in any of the following manners: (1) In an issuer transaction in connection with any change in the rights, preferences, privileges, or restrictions of or on outstanding securities. (2) In any exchange of securities by the issuer with its existing security holders exclusively. (3) In any exchange in connection with any merger or consolidation or purchase of assets in consideration wholly or in part of the issuance of securities. (4) In an entity conversion transaction. (b) Subdivision (a) shall not apply to a security if the security is qualified for sale under this chapter (and no order under Section 25140 or subdivision (a) of Section 25143 is in effect with respect to the qualification) or if the security or transaction is exempted or not subject to qualification under Chapter 1 (commencing with Section 25100) of this part.


25121. The securities qualified for sale under this chapter shall be qualified by permit under this section. The application for the permit shall be signed and verified by the issuer and shall contain such information and be accompanied by such documents as shall be required by rule of the commissioner, in addition to the information specified in Section 25160 and the consent to service of process required by Section 25165. For this purpose, the commissioner may classify issuers and types of securities and transactions.


25122. Qualification of securities under this chapter becomes effective upon the commissioner issuing a permit authorizing the issuance of such securities.


Chapter 4. Nonissuer Transactions

Ca Codes (corp:25130-25134) Corporations Code Section 25130-25134



25130. It is unlawful for any person to offer or sell any security in this state in any nonissuer transaction unless it is qualified for such sale under this chapter or under Section 25111 or 25113 of Chapter 2 (commencing with Section 25110) of this part (and no order under Section 25140 or subdivision (a) of Section 25143 is in effect with respect to such qualification) or unless such security or transaction is exempted or not subject to qualification under Chapter 1 (commencing with Section 25100) of this part.


25131. (a) The securities to be offered or sold in a nonissuer transaction, which are not eligible for qualification under Section 25111, shall be qualified by notification under this section; provided however that securities offered in a nonissuer transaction pursuant to an exemption under Regulation A under the Securities Act of 1933 shall be qualified under Section 25113. (b) The application for qualification by notification under this section shall be signed and verified by the person on whose behalf the offering is being made or by the issuer or by any broker-dealer and shall contain such information and be accompanied by such documents as shall be required by rule of the commissioner, in addition to the information specified in Section 25160 and the consent to service of process required by Section 25165. For this purpose, the commissioner may classify issuers and types of securities. (c) If no stop order or order under subdivision (a) of Section 25143 is in effect under this law, a qualification under this section automatically becomes effective (and the securities may be offered and sold in accordance with the terms of the application as amended) at 12 o'clock noon California time on the 10th business day after the filing of the application or the last amendment thereto or at such earlier time as the commissioner determines. (d) Information may not be required under this section unless it is known to the person filing the application or to the persons on whose behalf the distribution is to be made, or can be furnished by them without unreasonable effort or expense.


25132. Every qualification under this chapter and every qualification of a nonissuer transaction under Section 25111 is effective for 12 months from its effective date, except during the time a stop order under Section 25140 or an order under subdivision (a) of Section 25143 is in effect. A qualification under this chapter may be withdrawn only in the discretion of the commissioner. The commissioner may by rule or order extend the effective period of any qualification under this chapter.


25133. It is unlawful for any person without the written consent of the commissioner to consummate the sale or transfer of any securities heretofore or hereafter placed in escrow pursuant to a condition ordered by the commissioner and that have not been released from escrow, or that are subject to a currently effective legend condition requiring such consent (except as permitted therein), or concerning which the commissioner has issued a written notice to the holders thereof pursuant to Section 25534 ordering the certificates evidencing the securities to be stamped or printed with a legend as provided in the section.

25134. Every applicant seeking qualification for the sale of securities shall, upon request of the commissioner, furnish to the commissioner an authorization for examination of the applicant's financial records of the sale of such securities pursuant to Section 7473 of the Government Code.


Chapter 5. Authority Of The Commissioner

Ca Codes (corp:25140-25151) Corporations Code Section 25140-25151



25140. (a) (1) The commissioner may issue a stop order denying effectiveness to, or suspending or revoking the effectiveness of, any qualification of an underwritten offering of securities under Section 25111, 25112 or 25131 or may suspend or revoke any permit issued under Section 25113 or 25122 if he or she finds (A) that the order is in the public interest and (B) that the proposed plan of business of the issuer or the proposed issuance or sale of securities is not fair, just, or equitable, or that the issuer does not intend to transact its business fairly and honestly, or that the securities proposed to be issued or the method to be used in issuing them will tend to work a fraud upon the purchaser thereof. (2) In the case of an application for or qualification of securities under Section 25111, 25112, or 25131 that is not an underwritten offering of securities, the commissioner may issue a stop order denying effectiveness to, or suspending or revoking the effectiveness of the qualification unless he or she finds (A) that the stop order is not in the public interest and (B) that the proposed plan of business of the applicant or the proposed issuance of securities is fair, just, and equitable, that the issuer intends to transact its business fairly and honestly, and that the securities that the issuer proposes to issue or the method to be used in issuing them are not such as will work a fraud upon the purchaser thereof. (b) The commissioner may refuse to issue a permit under Section 25113 unless he or she finds that the proposed plan of business of the applicant and the proposed issuance of securities are fair, just, and equitable, that the applicant intends to transact its business fairly and honestly, and that the securities which it proposes to issue and the methods to be used by it in issuing them are not such as, in his or her opinion, will work a fraud upon the purchaser thereof. (c) The commissioner may refuse to issue a permit under Section 25122 unless he or she finds that the proposed plan of recapitalization or reorganization and the proposed issuance of securities are fair, just, and equitable to all security holders affected. (d) Notwithstanding the provisions of subdivisions (a) and (b) of this section, the commissioner shall not have authority to issue any stop order or to refuse to issue or to suspend or revoke any permit on the basis that the price at which the security is to be offered is unfair, unjust or inequitable in any case where the security is being publicly offered for cash pursuant to a registration statement under the Securities Act of 1933 and the offering is the subject of a firm commitment underwriting by an underwriter or syndicate of underwriters all of whom are registered under the Securities Exchange Act of 1934. For the purposes of this subdivision a firm commitment underwriting means an underwriting pursuant to which the underwriter or syndicate of underwriters is committed to take up and pay for the securities subject only to the usual or customary conditions, but not including any "market out" or similar condition operative after the time of commencement of the offering. (A condition relating to the suspension of all trading on a national securities exchange, a banking holiday, war, civil insurrection, or the like is not a "market out" or similar condition within the meaning of this subdivision.) Nothing contained in this subdivision shall deny authority to the commissioner to issue a stop order or to refuse to issue or to suspend or revoke a permit because of unreasonable discounts, commissions or other compensation to underwriters, sellers or others, unreasonable promoters' profits or participations or unreasonable amounts or kinds of options.


25141. The commissioner may impose as a condition of qualification under Chapter 2 (commencing with Section 25110) or Chapter 3 (commencing with Section 25120) of this part conditions requiring the deposit in escrow of securities, imposing a legend condition restricting the transferability thereof, impounding the proceeds from the sale thereof, limiting the expense in connection with the sale thereof, requiring the waiver of assets, dividends or voting rights by the holders of promotional securities, or any other condition if the commissioner finds that without such condition the offering will be unfair, unjust or inequitable. The commissioner may in his or her discretion modify or remove any such conditions when in his or her opinion they are no longer necessary or appropriate.


25142. When application is made for a permit to issue securities or to deliver other consideration (whether or not the security or transaction is exempt from qualification or not required to be qualified) in exchange for one or more bona fide outstanding securities, claims, or property interests, or partly in such exchange and partly for cash, the commissioner is expressly authorized to approve the terms and conditions of such issuance and exchange or such delivery and exchange and the fairness of such terms and conditions, and is expressly authorized to hold a hearing upon the fairness of such terms and conditions, at which all persons to whom it is proposed to issue securities or to deliver such other consideration in such exchange have the right to appear. The application for a permit to deliver consideration other than securities shall be in such form, contain such information and be accompanied by such documents as shall be required by rule of the commissioner or, in the absence thereof, in substantially the form of an application filed pursuant to Section 25121.


25143. (a) The commissioner may by order summarily postpone or suspend the effectiveness of any qualification pending final determination of any proceeding under this chapter. Upon the entry of the order, the commissioner shall promptly notify each person specified in subdivision (b) of this section that it has been entered and of the reasons therefor and that upon the receipt of a written request the matter will be set down for hearing to commence within 15 business days after such receipt unless the applicant consents to a later date. If no hearing is requested and none is ordered by the commissioner, the order will remain in effect until it is modified or vacated by the commissioner. If a hearing is requested or ordered, the commissioner, after notice and hearing in accordance with subdivision (b) of this section, may modify or vacate the order or extend it until final determination. (b) No stop order may be entered under this chapter except under subdivision (a) of this section without appropriate prior notice to the applicant, the issuer, and the person on whose behalf the securities are to be or have been offered and hearing in accordance with the provisions of the Administrative Procedure Act, Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, in connection with which the commissioner shall have all of the powers granted thereunder. In the case of qualification by permit, such hearing shall be held upon such notice within 20 business days after a written request therefor by the applicant unless the permit is issued prior to the expiration of such period or the applicant consents to a later date.


25144. The commissioner may vacate or modify a stop order if he finds that the conditions which caused its entry have changed or that it is otherwise in the public interest to do so.


25145. Every issuer qualifying securities for sale in this state shall at all times keep and maintain a complete set of books, records, and accounts of such sales and the disposition of the proceeds thereof, and shall thereafter, at such times as are required by the commissioner, make and file in the office of the commissioner a report, setting forth the securities sold by it under such qualification, the proceeds derived therefrom and the disposition thereof.

25146. For a period of 18 months after the qualification is effective, the commissioner may by rule or order require an issuer who has filed an application to file reports not more often than semiannually for the purpose of keeping reasonably current the information contained in the application; provided, that the commissioner may not require the filing of any such report after completion of the offering if a nonissuer transaction in the security would be entitled to exemption under Section 25101.


25147. The commissioner may by rule or order require as a condition of qualification that any security qualified under Section 25113 be sold only on a specified form of subscription or sale contract, and that a signed or conformed copy of each contract be preserved for any period up to three years specified in the rule or order.


25148. Except in cases where the delivery of a prospectus or proxy statement is required under the Securities Act of 1933 or the Securities Exchange Act of 1934, the commissioner may by rule or order require as a condition of qualification under Section 25112, 25113, 25122 or 25131 that a prospectus or proxy statement containing any designated part of the information required in the application be given to each person to whom an offer is made before the sale of the security to be issued under the permit or order.


25149. The commissioner may act as escrow holder for securities required to be deposited in escrow by his order.


25150. The commissioner may accept and act upon the opinions, appraisements and reports of any engineers, appraisers, or other experts which may be presented by an applicant on any question of fact concerning or affecting the securities proposed to be offered and sold. In lieu of, or in addition to, such opinions, appraisements, and reports, the commissioner may have any or all matters concerning or affecting such securities investigated, appraised, passed upon and certified to him by engineers, appraisers, or other experts selected by him.

25151. (a) Upon the filing of a written request for the consent to transfer securities referred to in Section 25133, accompanied by such information and documents as the commissioner may by rule require, the commissioner shall issue such consent if the commissioner finds that the transfer requested will be fair, just, and equitable to the proposed transferees, and otherwise the commissioner shall deny such consent. (b) The issuance of the commissioner's consent pursuant to this section shall not be a qualification of the transaction pursuant to, nor an exemption from the qualification requirements of, Section 25110, 25120, or 25130.


Chapter 6. General Provisions

Ca Codes (corp:25160-25166) Corporations Code Section 25160-25166



25160. Every application for qualification shall state (1) the maximum amount of securities proposed to be offered in this state; and (2) any adverse order, judgment, or decree entered in connection with the offering by the regulatory authority in any state or by any court or by the Securities and Exchange Commission. Verification of an application shall be in the manner provided in the Code of Civil Procedure for the verification of pleadings. All information required to be included in an application shall be true and complete as of the time the qualification of the sale of securities becomes effective; and an applicant shall promptly supply by amendment prior to the effectiveness of such qualification any information based on facts occurring after the original date of filing which is necessary to supplement or correct the information contained in the original application so as to make such information not materially misleading as of the effective date of such qualification.


25161. Any document filed under this law or a predecessor statute may be incorporated by reference in a subsequent application or notice filing if it was filed within four years prior to the filing of the application or notice filing, or is otherwise available in the files of the commissioner, to the extent that the document is currently accurate.


25162. An amendment to an application filed after the effective date of the qualification of the sale of securities, if such amendment is approved by the commissioner, shall become effective on such date as the commissioner may determine, having due regard to the public interest and the protection of investors.


25163. In any proceeding under this law, the burden of proving an exemption or an exception from a definition is upon the person claiming it.

25164. (a) Neither (1) the fact that an application for qualification under this law has been filed nor (2) the fact that such qualification has become effective constitutes a finding by the commissioner that any document filed under this law is true, complete, or not misleading. Neither any such fact nor the fact that a notice is filed or an exemption is available for a security or a transaction means that the commissioner has passed in any way upon the merits or qualifications of, or recommended or given approval to, any person, security or transaction (except as provided in Section 25142). (b) It is unlawful to make or cause to be made to any prospective purchaser any representation inconsistent with subdivision (a) of this section. (c) Every permit issued by the commissioner shall recite in bold type that the issuance thereof is permissive only and does not constitute a recommendation or endorsement of the securities permitted to be issued.


25165. Every applicant for qualification of the sale of securities under this law or every person filing an application or a notice under Sections 25100.1, 25101.1, 25102.1, and 25230.1 or a request for or notice of an exemption from qualification (other than a California corporation or a person licensed as a broker-dealer in this state) shall file with the commissioner, in such form as prescribed by rule, an irrevocable consent appointing the commissioner or his or her successor in office to be the applicant's or person's attorney to receive service of any lawful process in any noncriminal suit, action or proceeding against the applicant or person or the successor, executor or administrator thereof, which arises under this law or any rule or order hereunder after the consent has been filed, with the same force and validity as if served personally on the person filing the consent. A person who has filed such a consent in connection with a previous qualification under this law (or application for a permit under any prior law if the application under this law states that such consent is still effective), or in connection with a notice filing under Section 25100.1, 25101.1, 25102.1, and 25230.1, need not file another. Service may be made by leaving a copy of the process in the office of the commissioner but it is not effective unless (1) the plaintiff, who may be the commissioner in a suit, action or proceeding instituted by him or her, forthwith sends notice of the service and a copy of the process by registered or certified mail to the defendant or respondent at the last address on file with the commissioner, and (2) the plaintiff's affidavit of compliance with this section is filed in the case on or before the return day of the process, if any, or within such further time as the court allows.


25166. It is unlawful for any person willfully to make any untrue statement of a material fact in any application, notice, or report filed with the commissioner under this part or pursuant to subdivision (b) of Section 25507, or willfully to omit to state in any such application, notice, or report any material fact which is required to be stated therein.


Part 3. Regulation And Notice Filing Requirements Of Agents, Broker-dealers, Investment Adviser

Representatives, And Investment Advisers

Chapter 1. Exemptions

Ca Codes (corp:25200-25209) Corporations Code Section 25200-25209



25200. A broker-dealer registered under the Securities Exchange Act of 1934, who has not previously had any certificate denied or revoked under this law or any predecessor statute, shall be exempted from the provisions of Section 25210 if he has no place of business in this state and he does not direct offers to sell or buy into this state in any manner to persons other than broker-dealers, banks, savings and loan associations, trust companies, insurance companies, investment companies registered under the Investment Company Act of 1940, pension or profit-sharing trusts (other than self-employed individual retirement plans), or other institutional investors or governmental agencies or instrumentalities designated by rule of the commissioner, or to more than 15 other customers (whether or not self-employed individual retirement plans) having an existing account with such broker-dealer prior to any offer made to them in this state, during any period of 12 consecutive months, whether or not the offeror or any of the offerees is then present in this state.


25202. (a) An investment adviser shall not be subject to Section 25230 if (1) the investment adviser does not have a place of business in this state and (2) during the preceding 12-month period has had fewer than six clients who are residents of this state. (b) For the purpose of this section only, "client" has the same meaning as the term "client" is defined by the Securities and Exchange Commission under the rule adopted pursuant to Section 222(d) of the Investment Advisers Act of 1940, as amended. Also, for the purpose of this section only, "client" does not mean other investment advisers, broker-dealers, banks, savings and loan associations, trust companies, insurance companies, investment companies registered under the Investment Company Act of 1940, pension and profit-sharing trusts (other than self-employed individual retirement plans), or other institutional investors or governmental agencies or instrumentalities designated by rule or order of the commissioner.


25203. A person whose only clients are insurance companies shall be exempted from the provisions of Section 25230.


25204. The commissioner may by such rules as he deems necessary or appropriate in the public interest or for the protection of investors, either unconditionally or upon specified terms and conditions or for specified periods, exempt from the provisions of Section 25210 or Section 25230 any class of persons specified in such rules.


25206. A broker licensed by the Real Estate Commissioner is exempt from the provisions of Section 25210 when engaged in transactions in any interest in any general or limited partnership, joint venture, unincorporated association, or similar organization (but not a corporation) owned beneficially by no more than 100 persons and formed for the sole purpose of, and engaged solely in, investment in or gain from an interest in real property, including, but not limited to, a sale, exchange, trade, or development. An interest held by a husband and wife shall be considered held by one person for the purposes of this section.

25207. A financial institution that undertakes activities with respect to an investment company pursuant to the provisions of Section 1338, 6524, 14652.5, or 18022.5 of the Financial Code shall not be subject to Section 25210 or 25230 in connection with such activities but shall be subject to Sections 25218, 25234, 25235, and 25237 and to subdivisions (a), (b), and (d) of Section 25216, and such rules thereunder as the commissioner may specify by rule. Nothing in this section shall affect the status of such a financial institution as a broker-dealer or investment adviser, or the employees of such persons, when engaged in the activities authorized by the provisions of the Financial Code specified above.


25208. A person licensed as a capital access company under Division 3 (commencing with Section 28000) of Title 4 is exempt from the provisions of Section 25210 when engaged in the transaction of business pursuant to the requirements of the Capital Access Company Law and the regulations promulgated thereunder.


25209. Section 25210 shall not apply to an agent of an issuer when engaged in transactions exempted by subdivision (q) of Section 25102, provided that the agent is a life agent licensed in California or in the state of domicile of the purchaser.


Chapter 2. Licensing Of Agents And Broker-dealers

Ca Codes (corp:25210-25221) Corporations Code Section 25210-25221



25210. (a) Unless exempted under the provisions of Chapter 1 (commencing with Section 25200) of this part, no broker-dealer shall effect any transaction in, or induce or attempt to induce the purchase or sale of, any security in this state unless the broker-dealer has first applied for and secured from the commissioner a certificate, then in effect, authorizing that person to act in that capacity. (b) No person shall, on behalf of a broker-dealer licensed pursuant to Section 25211, or on behalf of an issuer, effect any transaction in, or induce or attempt to induce the purchase or sale of, any security in this state unless that broker-dealer and agent have complied with any rules as the commissioner may adopt for the qualification and employment of those agents. (c) The commissioner shall, consistent with Section 25213, review the disciplinary histories of agents upon the filing of notice of (1) the employment or transfer of an agent for a broker-dealer, (2) an amendment to the information filed by the agent at the time of employment or transfer, and (3) the termination of employment of the agent from the broker-dealer.


25211. (a) The application for a certificate as a broker-dealer shall be accompanied by the consent to service of process specified in Section 25240 and, unless filed pursuant to subdivision (b), shall contain such information in such detail relating to the applicant and any persons associated with him or her as the commissioner may by rule require. (b) A broker-dealer registered under the Securities Exchange Act of 1934 who is a member of the New York Stock Exchange, the NYSE Amex, the NYSE Arca, or the Financial Industry Regulatory Authority, and who has not had any certificate as a broker-dealer, investment adviser or agent denied or revoked under this law or any predecessor statute, may be licensed by notification pursuant to this subdivision by filing with the commissioner an application setting forth the following information in such form and detail as the commissioner may by rule require: (1) Such information as is necessary to identify the broker-dealer and its offices in this state, and the location of its records and principal office. (2) Such information as is necessary to establish that the broker-dealer meets the requirements for licensure by notification under this subdivision. (3) The consent to service of process specified in Section 25240. (4) Such information as the commissioner may require as to the jurisdictions in which the broker-dealer is licensed or registered and as to the nature of the business conducted by the broker-dealer. (c) Unless a proceeding has been instituted under Section 25212, a certificate under subdivision (b) shall become effective on the third business day after the application is filed with the commissioner or upon the day the certificate is issued, whichever first occurs. However, the commissioner may by order delay effectiveness for a period not exceeding 15 business days (or for an additional period with the consent of the applicant) if the commissioner believes that the delay is necessary in the public interest to determine if a proceeding should be instituted under Section 25212. The commissioner may by rule or order waive that provision of subdivision (b) which precludes application thereunder by a person who has had a certificate denied or revoked under this law or any predecessor statute if the commissioner finds the waiver to be in the public interest. The commissioner, after appropriate notice and opportunity for hearing in accordance with the provisions of the Administrative Procedure Act, Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, may by rule or order disqualify a self-regulatory organization specified in subdivision (b) from the provisions thereof. The commissioner may by rule establish standards or criteria pursuant to which disqualification may be made and he or she may disqualify upon a finding that the self-regulatory organization fails substantially to comply with those standards or criteria. Disqualification by the commissioner shall not affect a certificate which has become effective pursuant to this subdivision prior to the effective date of that rule or order of disqualification but each person licensed pursuant to subdivision (b) upon the basis of membership in that organization shall, within 90 days after the effective date of that rule or order, or such additional time as the commissioner may allow, file with the commissioner a complete and current application in the form required pursuant to subdivision (a). If a broker-dealer licensed pursuant to subdivision (b) ceases to meet the qualifications for licensing pursuant to that subdivision, he or she shall, within 10 days after that event, file with the commissioner a complete and current application in the form required pursuant to subdivision (a). (d) An application for a certificate as a broker-dealer, with respect to a broker-dealer to be formed or organized, may be made by a licensed broker-dealer to which the broker-dealer to be formed or organized is to be the successor. The application shall contain such information in such detail relating to the applicant and to the successor and any person associated with the applicant or the successor as the commissioner may by rule require. The application shall become effective and the successor may transact business as a broker-dealer 30 days after the receipt of the application by the commissioner or within such shorter period of time as the commissioner may determine, unless an order has been entered under Section 25212 denying a certificate to the successor or a proceeding looking toward an order has been instituted under that section. The certificate shall terminate on the 45th day after the effective date thereof, unless prior thereto the successor shall, in accordance with such rules as the commissioner may prescribe, adopt the application as its own and file the consent to service of process specified in Section 25240.


25211.5. A broker-dealer acting pursuant to a certificate which is then in effect and which is issued pursuant to Section 25211, shall be exempt from the usury provisions of the State Constitution. This section creates and authorizes a class of persons pursuant to Section 1 of Article XV of the Constitution.

25212. The commissioner may, after appropriate notice and opportunity for hearing, by order censure, deny a certificate to, suspend for a period not exceeding 12 months or revoke the certificate of, any broker-dealer if the commissioner finds that the censure, denial, suspension, or revocation is in the public interest and that the broker-dealer, whether prior or subsequent to becoming a broker-dealer, or any partner, officer, director, or branch manager of the broker-dealer, whether prior or subsequent to becoming associated with the broker-dealer, or any person directly or indirectly controlling the broker-dealer, whether prior or subsequent to becoming such, or any agent employed by the broker-dealer while so employed has done any of the following: (a) Has willfully made or caused to be made in any application for a certificate or in any report required to be filed with the commissioner under this law, or in any proceeding before the commissioner, any statement which was at the time and in the light of the circumstances under which it was made false or misleading with respect to any material fact, or has willfully omitted to state in the application or report any material fact which is required to be stated therein. (b) Has been either (1) convicted of or has pled nolo contendere to a felony or misdemeanor, or (2) held liable in a civil action by final judgment of a court based upon conduct showing moral turpitude, and the commissioner finds that the felony, misdemeanor, or civil action (A) involved the purchase or sale of any security, (B) arose out of the conduct of the business of a broker-dealer or investment adviser, (C) involved theft, or (D) involved the violation of Section 1341, 1342, or 1343 of Title 18 of the United States Code. (c) Is permanently or temporarily enjoined by order, judgment, or decree of any court of competent jurisdiction from acting as an investment adviser, underwriter, or broker-dealer, or as an affiliated person or employee of any investment company, bank, or insurance company, or from engaging in or continuing any conduct or practice in connection with that activity or in connection with the purchase or sale of any security. (d) Is or has been subject to (1) any order of the Securities and Exchange Commission or the securities administrator of any other state denying registration to, or revoking or suspending the registration of, the person as a broker, dealer, agent, or investment adviser, (2) any order of any national securities association or national securities exchange (registered under the Securities Exchange Act of 1934) suspending or expelling that person from membership in the association or exchange or from association with any member thereof, or (3) any other order of the commission or any administrator, association, or exchange referred to in this subdivision which is or has been necessary for the protection of any investor. (e) Has willfully violated any provision of the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Advisers Act of 1940, the Investment Company Act of 1940, the Commodity Exchange Act, or Title 4 (commencing with Section 25000), including the Franchise Investment Law, Division 5 (commencing with Section 31000), or the California Commodity Law of 1990, Division 4.5 (commencing with Section 29500), or of any rule or regulation under any of those statutes, or any order of the commissioner which is or has been necessary for the protection of any investor. (f) Is or has been subject to (1) any order of the Commodity Futures Trading Commission denying registration to, or revoking or suspending the registration of, that person under the Commodity Exchange Act, (2) any order of any board of trade or commodity exchange, including, but not limited to, the New York Mercantile Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade, or the Chicago Board Options Exchange, suspending or expelling that person from membership in the board of trade or commodity exchange or from association with any member thereof, or (3) any other order of the commission or any board or exchange referred to in this subdivision which is or has been necessary for the protection of any investor. (g) Has willfully aided, abetted, counseled, commanded, induced, or procured the violation by any other person of any of the statutes or rules or regulations referred to in subdivision (e) above, or has failed reasonably to supervise, with a view to preventing violations of those statutes, rules and regulations, another person who commits a violation, if the other person is subject to his or her supervision; for the purposes of this subdivision, no person shall be deemed to have failed reasonably to supervise any person if (1) there have been established procedures, and a system for applying those procedures, which would reasonably be expected to prevent and detect, insofar as practicable, any violation by the other person, and (2) that person has reasonably discharged the duties and obligations incumbent upon him or her by reason of those procedures and system without reasonable cause to believe that those procedures and system were not being complied with. (h) Is subject to any currently effective order of the commissioner entered pursuant to Section 25213 revoking or suspending the certificate of the person as an agent. (i) Has violated any provision of this division or the rules thereunder or, in the case of an applicant only, any similar regulatory scheme of the State of California or a foreign jurisdiction.


25212.1. The commissioner may immediately revoke by order the certificate of any broker-dealer if the broker-dealer fails to comply with any currently effective order of the commissioner which is necessary for the protection of any investor, unless the broker-dealer secures a court order restraining the enforcement of the commissioner's revocation order within 10 days of the date the order is issued.


25213. The commissioner may, after appropriate notice and opportunity for hearing, by order censure, or suspend for a period not exceeding 12 months, or deny or bar from any position of employment, management or control of any broker-dealer or investment adviser, any officer, director, partner, agent, employee of, or person performing similar functions for, a broker-dealer, or any other person, if the commissioner finds that the censure, suspension, denial, or bar is in the public interest and that the person has committed any act or omission enumerated in subdivision (a), (e), (f), or (g) of Section 25212 or has been convicted of, or pled nolo contendere to, any offense or been held liable in any civil action specified in subdivision (b) of Section 25212, or is enjoined from any act, conduct or practice specified in subdivision (c) of Section 25212 or is subject to any order specified in subdivision (d) of Section 25212.

25213.3. The commissioner shall, after appropriate notices and opportunity for hearing, by order suspend, for a period not exceeding 12 months, or bar from any position of employment, management or control of any broker-dealer, any officer, director, partner, agent, employee of, or person performing similar functions for, a broker-dealer, or any other person, if the person has been convicted of, or has pleaded nolo contendere to, a felony or misdemeanor in violation of Section 25541 that was committed on or after January 1, 1989.

25214. (a) It is unlawful for any person, as to whom an order suspending or barring employment or control is in effect pursuant to Section 25213 or 25213.3, willfully to become or to be employed by any broker-dealer or investment adviser, contrary to the terms of that order, without the consent of the commissioner; and it is unlawful for any broker-dealer to permit a person as to whom an order is in effect pursuant to Section 25213, 25213.3, or 25232.1 to become or to remain a person employed by the broker-dealer, contrary to the terms of that order, without the consent of the commissioner, if the broker-dealer knew, or in the exercise of reasonable care should have known, of the order. (b) Any person as to whom an order suspending or barring employment or control is issued pursuant to Section 25213 or 25213.3 may petition the commissioner for reinstatement or reduction of penalty, or for modification of the order, as provided in and subject to the provisions of Section 11522 of the Government Code. The commissioner may, at any time and with the consent of that person without hearing, modify such order.


25215. No order may be entered under Section 25212, 25213, 25213.3, or 25252 except after notice to any person affected thereby (and, in the case of an agent, to his or her employer or prospective employer if known to the commissioner) of the intention of the commissioner to enter that order and of the reasons therefor and that upon receipt of a request the matter will be set down for hearing to commence within 15 business days after that receipt unless the person affected consents to a later date. If no hearing is requested within 30 days after the mailing of the notice and none is ordered by the commissioner, the order may be entered without hearing to remain in effect until it is modified or vacated by the commissioner. In the case of an original application for a certificate, that hearing shall be set down to commence within 15 business days after receipt of a written request by the applicant made 30 days or more after the filing of the application, even though no notice by the commissioner has been given, unless the applicant consents to a later date. If a hearing is requested or ordered, it shall be held in accordance with the provisions of the Administrative Procedure Act (Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code), and the commissioner shall have all of the powers granted thereunder.


25216. (a) No broker-dealer or agent shall effect any transaction in, or induce or attempt to induce the purchase or sale of, any security in this state by means of any manipulative, deceptive or other fraudulent scheme, device, or contrivance. The commissioner shall, for the purposes of this subdivision, by rule define such schemes, devices or contrivances as are manipulative, deceptive, or otherwise fraudulent. (b) No broker-dealer or agent shall effect any transaction in, or induce or attempt to induce the purchase or sale of, any security in this state in connection with which such broker-dealer or agent engages in any fraudulent, deceptive or manipulative act or practice or makes any fictitious quotation. The commissioner shall, for the purposes of this subdivision, by rule define and prescribe means reasonably designed to prevent such acts and practices as are fraudulent, deceptive, or manipulative and such quotations as are fictitious. (c) No broker-dealer or agent shall effect any transaction in, or induce or attempt to induce the purchase or sale of, any security in this state in contravention of such rules as the commissioner may prescribe as necessary or appropriate in the public interest or for the protection of investors to provide safeguards with respect to the financial responsibility of broker-dealers. Subject to the limitations of Section 15(h) of the Securities Exchange Act of 1934, those rules may require a minimum capital for broker-dealers or prescribe a ratio between net capital and aggregate indebtedness or both and a fidelity bond. (d) No broker-dealer or agent shall effect or attempt to effect in this state, in contravention of such rules as the commissioner may prescribe as necessary or appropriate in the public interest or for the protection of investors, (1) any transaction in connection with any security whereby any party to such transaction acquires any put, call, straddle, or other option or privilege (A) of buying or selling the security, (B) on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the market value thereof), (C) entered into on a national securities exchange relating to foreign currency, or (2) any transaction in connection with any security with relation to which the broker-dealer or agent has, directly or indirectly, any interest in any such put, call, straddle, option, or privilege, or (3) any transaction in any security for the account of any person who the broker-dealer or agent has reason to believe has, and who actually has, directly or indirectly, any interest in any such put, call, straddle, option, or privilege with relation to such security. (e) The commissioner may by rule require any issuer who employs agents in connection with any security or transaction not exempted by Chapter 1 (commencing with Section 25100) of Part 2 of this division to post a surety bond in an amount not exceeding ten thousand dollars ($10,000), conditioned that the issuer will comply with the provisions of this law and the rules and orders issued thereunder. The bond, unless previously canceled, shall cover for the entire period that the qualification is in effect. If a deposit in lieu of a bond is made pursuant to Article 7 (commencing with Section 995.710) of Chapter 2 of Title 14 of Part 2 of the Code of Civil Procedure, the deposit may include an appropriate deposit of securities. No suit may be maintained to enforce any liability on the bond unless brought within two years after the contract of sale or other act upon which the suit is based.


25217. (a) No broker-dealer licensed under this chapter shall, effect any transaction in, or induce or attempt to induce the purchase or sale of, any security in this state unless such broker-dealer and all agents employed by such broker-dealer meet such specified and appropriate standards with respect to training, experience, supervision, terms of employment, and other qualifications as the commissioner finds necessary or desirable. The commissioner may establish such standards by rules, which may: (1) appropriately classify broker-dealers and agents (taking into account relevant matters, including types of business done and nature of securities sold); (2) specify that all or any portion of such standards shall be applicable to any such class; (3) require persons in any such class to pass examinations prescribed in accordance with such rules; and (4) provide that persons in any such class, other than a broker-dealer and partners, officers and supervisory employees (which term may be defined by the commissioner's rules and as so defined shall include branch managers of broker-dealers) of broker-dealers, may be qualified solely on the basis of compliance with such specified standards of training and such other qualifications as the commissioner finds appropriate. (b) In addition to the fees imposed by Section 25608, the commissioner may prescribe by rule reasonable fees and charges to defray the cost of any examination administered by the commissioner or under the commissioner's direction. The commissioner may cooperate with national securities associations and national securities exchanges and with the Securities and Exchange Commission in administering examinations and may require broker-dealers and agents to pass examinations administered by or on behalf of any such association or exchange or by the Securities and Exchange Commission and to pay to such association or exchange or such commission reasonable fees or charges to defray the costs incurred by such association or exchange or commission in administering such examinations. (c) A broker-dealer licensed under this chapter making loans to its customers which are subject to the provisions of Division 9 (commencing with Section 22000) of the Financial Code shall be licensed as a personal property broker under that division.


25218. No broker-dealer licensed under this chapter shall effect any transaction in, or induce or attempt to induce the purchase or sale of, any security in this state in contravention of such rules as the commissioner may prescribe designed to promote just and equitable principles of trade, to provide safeguards against unreasonable profits or unreasonable rates of commissions or other charges, and in general to protect investors and the public interest, and to remove impediments to and perfect the mechanism of a free and open market.

25219. Notwithstanding any other provision of this division, if in his or her opinion the public interest and the protection of investors so require, the commissioner is authorized summarily to suspend all over-the-counter trading in this state by broker-dealers and agents in any security or summarily to suspend all trading on a national securities exchange located in this state in any security (provided, in the case of trading on that exchange, that the security is not listed on any national securities exchange located outside this state on which trading has not been suspended) for a period not exceeding 90 days, and for successive periods of 90 days. No broker-dealer or agent shall effect any transaction (other than an unsolicited brokerage transaction effected on a national securities exchange located outside this state) in, or induce or attempt to induce the purchase or sale of, any security in this state in which trading is in any manner suspended under this section, except in performance of a contract previously entered into.


25220. At any time after the issuance of an order under Section 25219, any interested person (including, but not limited to, the issuer of the security and any broker-dealer who has been making a market in the security) may in writing request that the suspension of trading be rescinded. Upon the receipt of such a written request, the matter shall be set down for hearing to commence within 15 business days after such receipt unless the person making the request consents to a later date. After such hearing, which shall be conducted in accordance with the provisions of the Administrative Procedure Act, Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, and in connection with which the commissioner shall have all of the powers granted thereunder, the commissioner may order such suspension to be continued until modified or rescinded by further order of the commissioner if he finds that trading in the security will be unfair, unjust, or inequitable to investors or will tend to work a fraud upon the purchasers or sellers of such security. Otherwise, he shall rescind the suspension of trading and no further orders may be entered under Section 25219 with respect to the same security in the absence of changed circumstances justifying such order.


25221. (a) Notwithstanding any other provision of law, a broker-dealer, or any affiliate thereof, licensed under this chapter, or any officer or employee thereof, may submit to the Department of Justice fingerprints of an applicant for employment for the purpose of obtaining information as to the existence and nature of a record of a conviction and of an arrest for which the Department of Justice establishes that the applicant was released on bail or on his or her own recognizance pending trial. Fingerprints taken pursuant to this section include fingerprints taken by the use of fingerprint live-scan technology, as described in Section 1596.871 of the Health and Safety Code. (b) The Department of Justice shall provide the following information to the broker-dealer, affiliate, or officer or employee thereof pursuant to subdivision (a): (1) Every conviction rendered against the applicant. (2) Every arrest for which the Department of Justice establishes that the applicant was released on bail or on his or her own recognizance pending trial.


Chapter 3. Licensing And Notice Filing Requirements Of Investment Adviser Representatives And

Investment Advisers Ca Codes (corp:25230-25238) Corporations Code Section 25230-25238



25230. (a) It is unlawful for any investment adviser to conduct business as an investment adviser in this state unless the investment adviser has first applied for and secured from the commissioner a certificate, then in effect, authorizing the investment adviser to do so or unless the investment adviser is exempted by the provisions of Chapter 1 (commencing with Section 25200) of this part or unless the investment adviser is subject to Section 25230.1. (b) No person, on behalf of an investment adviser that has obtained a certificate pursuant to Section 25231, may, in this state: offer or negotiate for the sale of investment advisory services of the investment adviser; determine which recommendations shall be made to, make recommendations to, or manage the accounts of, clients of the investment adviser; or determine the reports or analyses concerning securities to be published by the investment adviser, unless the investment adviser and that person have complied with rules that the commissioner may adopt for the qualification and employment of those persons. (c) The commissioner may, consistent with Section 25232.1, review the disciplinary history of an investment adviser representative upon the filing of notice of any of the following: (1) The employment, association, or transfer of the investment adviser representative. (2) An amendment to the information filed by the investment adviser representative at the time of employment, association, or transfer. (3) The termination of employment or association of the investment adviser representative.

25230.1. (a) A person that is registered under Section 203 of the Investment Advisers Act of 1940 as an investment adviser is not subject to the requirement of obtaining a certificate under Section 25230, but may not conduct business in this state unless the person has fewer than six clients as specified in Section 25202 or unless the person first complies with subdivision (b). An investment adviser representative that has a place of business in this state may be required to obtain a certificate pursuant to Section 25231. (b) A person subject to subdivision (a) shall: (1) File with the commissioner an annual notice, consisting of those documents filed with the Securities and Exchange Commission pursuant to the securities laws that the commissioner by rule or order deems appropriate or, in lieu thereof, a form prescribed by the commissioner, and a consent to service of process under Section 25240. (2) Pay the notice filing fee provided for in subdivision (d) of Section 25608.1. (c) No investment adviser representative, on behalf of an investment adviser subject to subdivision (a), may, in this state: offer or negotiate for the sale of investment advisory services of the investment adviser; determine which recommendations shall be made to, make recommendations to, or manage the accounts of, clients of the investment adviser; or determine the reports or analysis concerning securities to be published by the investment adviser, unless the investment adviser representative has complied with rules that the commissioner may adopt for the qualification and employment of investment adviser representatives. (d) Subdivision (a) does not prohibit the commissioner from investigating and bringing enforcement actions with respect to fraud or deceit, including and without limitation, fraud or deceit under Section 25235 and the rules of the commissioner adopted thereunder, against an investment adviser or an investment adviser representative.

25231. (a) Any investment adviser, or any person who contemplates becoming an investment adviser, may apply for a certificate to act as an investment adviser by filing with the commissioner an application. The application shall be accompanied by the consent to service of process specified in Section 25240 and shall contain information, in such form and detail, as the commissioner may by rule prescribe. (b) Unless otherwise provided by rule or order of the commissioner, all investment adviser and investment adviser representative applications, amendments, reports, notices, related filings, and fees required to be filed with the commissioner pursuant to this title shall be filed electronically with and transmitted to the Web-based Investment Adviser Registration Depository operated by the Financial Industry Regulatory Authority.


25232. The commissioner may, after appropriate notice and opportunity for hearing, by order censure, deny a certificate to, or suspend for a period not exceeding 12 months or revoke the certificate of, an investment adviser, if the commissioner finds that the censure, denial, suspension, or revocation is in the public interest and that the investment adviser, whether prior or subsequent to becoming such, or any partner, officer or director thereof or any person performing similar functions or any person directly or indirectly controlling the investment adviser, whether prior or subsequent to becoming such, or any employee of the investment adviser while so employed has done any of the following: (a) Has willfully made or caused to be made in any application for a certificate or any report filed with the commissioner under this division, or in any proceeding before the commissioner, any statement which was at the time and in the light of the circumstances under which it was made false or misleading with respect to any material fact, or has willfully omitted to state in the application or report any material fact which is required to be stated therein. (b) Has been either (1) convicted of or has pled nolo contendere to any felony or misdemeanor, or (2) held liable in a civil action by final judgment of a court based upon conduct showing moral turpitude, and the commissioner finds that the felony, misdemeanor or civil action (A) involved the purchase or sale of any security, (B) arose out of the conduct of the business of a broker-dealer or investment adviser, (C) involved theft, or (D) involved the violation of Section 1341, 1342, or 1343 of Title 18 of the United States Code. (c) Is permanently or temporarily enjoined by order, judgment, or decree of any court of competent jurisdiction from acting as an investment adviser, underwriter or broker-dealer or as an affiliated person or employee of any investment company, bank, or insurance company, or from engaging in or continuing any conduct or practice in connection with that activity, or in connection with the purchase or sale of any security. (d) Is or has been subject to (1) any order of the Securities and Exchange Commission or the securities administrator of any other state denying or revoking or suspending his or her registration as an investment adviser, or investment adviser representative, or as a broker or dealer or agent, (2) any order of any national securities association or national securities exchange (registered under the Securities Exchange Act of 1934) suspending or expelling him or her from membership in that association or exchange or from association with any member thereof, or (3) any other order of the commission or any administrator, association, or exchange referred to in this subdivision which is or has been necessary for the protection of any investor. (e) Has willfully violated any provision of the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Advisers Act of 1940, the Investment Company Act of 1940, the Commodity Exchange Act, or Title 4 (commencing with Section 25000), including the Franchise Investment Law, Division 5 (commencing with Section 31000), or the California Commodity Law of 1990, Division 4.5 (commencing with Section 29500), or of any rule or regulation under any of those statutes, or any order of the commissioner which is or has been necessary for the protection of any investor. (f) Is or has been subject to (1) any order of the Commodity Futures Trading Commission denying registration to, or revoking or suspending the registration of, that person under the Commodity Exchange Act, (2) any order of any board of trade or commodity exchange, including, but not limited to, the New York Mercantile Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade, or the Chicago Board Options Exchange, suspending or expelling that person from membership in the board of trade or commodity exchange or from association with any member thereof, or (3) any other order of the commission or any board or exchange referred to in this subdivision which is or has been necessary for the protection of any investor. (g) Has aided, abetted, counseled, commanded, induced, or procured the violation by any other person of any statute or rule or regulation referred to in subdivision (e). (h) Has violated any provision of this division or the rules thereunder or, in the case of an applicant only, any similar regulatory scheme of the State of California or a foreign jurisdiction.


25232.1. The commissioner may, after appropriate notice and opportunity for hearing, by order censure, or suspend for a period not exceeding 12 months, or bar from any position of employment, management or control of any investment adviser, broker-dealer or commodity adviser, any officer, director, partner, employee of, or person performing similar functions for, an investment adviser, or any other person, if he or she finds that the censure, suspension or bar is in the public interest and that the person has committed any act or omission enumerated in subdivision (a), (e), (f), or (g) of Section 25232 or has been convicted of any offense or held liable in any civil action specified in subdivision (b) of Section 25232 or is enjoined from any act, conduct or practice specified in subdivision (c) of Section 25232 or is subject to any order specified in subdivision (d) of Section 25232.


25232.2. (a) It is unlawful for any person, as to whom an order suspending or revoking the person's certificate as an investment adviser is in effect pursuant to Section 25232 or as to whom an order suspending or barring employment is in effect pursuant to Section 25232.1, willfully to become or to be employed by any investment adviser, broker-dealer or commodity adviser, without the consent of the commissioner, and it is unlawful for any investment adviser to permit a person as to whom an order is in effect pursuant to Section 25212.1 or 25232.1 to become or to remain employed by the investment adviser, without the consent of the commissioner, if such investment adviser knew, or in the exercise of reasonable care should have known, of such order. (b) Any person as to whom an order suspending or barring employment with or participation is issued pursuant to Section 25232.1 may petition the commissioner for reinstatement or reduction of penalty as provided in and subject to the provisions of Section 11522 of the Government Code.


25232.3. The commissioner may immediately revoke the certificate of any investment adviser if the investment adviser fails to comply with any currently effective order of the commissioner which is necessary for the protection of any investor, unless the investment adviser secures a court order restraining the enforcement of the commissioner's revocation order within 10 days of the date the order is issued.


25233. No order may be entered under Section 25232, 25232.1, or 25252 except after notice to the person affected thereby of the intention of the commissioner to enter that order and of the reasons therefor and that upon receipt of a request the matter shall be set down for hearing to commence within 15 business days after that receipt unless the person affected consents to a later date. If no hearing is requested within 30 days after the mailing of that notice and none is ordered by the commissioner, the order may be entered without hearing to remain in effect until it is modified or vacated by the commissioner. In the case of an original application for a certificate, such a hearing shall be set down to commence within 15 business days after receipt of a written request by the applicant made 30 days or more after the filing of the application, even though no such notice by the commissioner has been given, unless the applicant consents to a later date. If a hearing is requested or ordered, it shall be held in accordance with the provisions of the Administrative Procedure Act (Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code), and the commissioner shall have all of the powers granted thereunder.


25234. (a) No investment adviser licensed under this chapter shall in this state enter into, extend or renew any investment advisory contract, or in any way perform any investment advisory contract entered into, extended or renewed on or after the effective date of this law, if that contract: (1) Provides for compensation to the investment adviser on the basis of a share of capital gains upon or capital appreciation of the funds or any portion of the funds of the client, except as may be permitted by rule or order of the commissioner; (2) Fails to provide, in substance, that no assignment of the contract shall be made by the investment adviser without the consent of the other party to the contract; (3) Fails to provide, in substance, that the investment adviser, if a partnership, will notify the other party to the contract of any change in the membership of the partnership within a reasonable time after the change. (b) As used in this section, "investment advisory contract" means any contract or agreement whereby a person agrees to act as investment adviser or to manage any investment or trading account for a person other than an investment company. Paragraph (1) of subdivision (a) of this section does not prohibit an investment advisory contract that provides for compensation based upon the total value of a fund averaged over a definite period, or as of definite dates, or taken as of a definite date.

25235. It is unlawful for any investment adviser, directly or indirectly, in this state: (a) To employ any device, scheme, or artifice to defraud any client or prospective client. (b) To engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon any client or prospective client. (c) Acting as principal for his own account, knowingly to sell any security to or purchase any security from a client for whom he is acting as investment adviser, or, acting as broker for a person other than such client, knowingly to effect any sale or purchase of any security for the account of such client, without disclosing to such client in writing before the completion of the transaction the capacity in which he is acting and obtaining the written consent of the client to such transaction. (d) To engage in any act, practice, or course of business which is fraudulent, deceptive, or manipulative. The commissioner shall, for the purpose of this subdivision, by rule define and prescribe means reasonably designed to prevent such acts, practices, and courses of business as are fraudulent, deceptive, or manipulative. (e) To represent that he is an investment counsel or to use the name "investment counsel" as descriptive of his business unless his principal business consists of acting as investment adviser and a substantial part of his business consists of rendering investment advisory services on the basis of the individual needs of his clients.

25236. (a) No investment adviser licensed under this chapter shall conduct any business as such investment adviser in this state unless the investment adviser and all natural persons associated with such investment adviser meet such specified and appropriate standards with respect to training, experience and other qualifications as the commissioner finds necessary or desirable. The commissioner may establish such standards by rule, which may (1) Appropriately classify investment advisers and persons associated with investment advisers; (2) Specify that all or any portion of such standards shall be applicable to any such class; and (3) Require persons in any such class to pass examinations prescribed in accordance with such rules. (b) In addition to the fees imposed by Section 25608, the commissioner may prescribe by rule reasonable fees and charges to defray the costs of carrying out this section, including, but not limited to, fees for any examination administered by him or under his direction.

25237. The commissioner shall prescribe rules with respect to investment advisers licensed under this chapter who have custody of their clients' securities or funds or who have any power of attorney from their clients to execute transactions as he or she finds to be necessary or appropriate in the public interest or for the protection of investors. The rules may require a minimum capital for those investment advisers or prescribe a minimum ratio between net capital and aggregate indebtedness or both, and may require a fidelity bond.


25238. No investment adviser licensed under this chapter and no natural person associated with the investment adviser shall engage in investment advisory activities, or attempt to engage in investment advisory activities, in this state in contradiction of such rules as the commissioner may prescribe designed to promote fair, equitable and ethical principles.


Chapter 4. General Provisions

Ca Codes (corp:25240-25256) Corporations Code Section 25240-25256



25240. Every applicant for a certificate as a broker-dealer or an investment adviser (other than a California corporation), and every investment adviser subject to Section 25230.1, shall file with the commissioner, in such form as the commissioner by rule prescribes, an irrevocable consent appointing the commissioner or the commissioner' s successor in office to be the person's attorney to receive service of any lawful process in any noncriminal suit, action or proceeding against the person or the person's successor, executor, or administrator, which arises under this law or any rule or order hereunder after the consent has been filed, with the same force and validity as if served personally on the person filing the consent. A person who has filed such a consent in connection with a previous application under this law (or under any prior law if the application states that such consent is still effective), or a person who has filed such a consent in connection with a previous notice filed under Section 25230.1, need not file another. Service may be made by leaving a copy of the process in the office of the commissioner, but it is not effective unless (1) the plaintiff, who may be the commissioner in a suit, action or proceeding instituted by the commissioner, forthwith sends notice of the service and a copy of the process by registered or certified mail to the defendant or respondent at the person's last address on file with the commissioner, and (2) the plaintiff's affidavit of compliance with this section is filed in the case on or before the return day of the process, if any, or within such further time as the court allows.


25241. (a) Every broker-dealer and every investment adviser licensed under Section 25230 shall make and keep accounts, correspondence, memorandums, papers, books, and other records and shall file financial and other reports as the commissioner by rule requires, subject to the limitations of Section 15(h) of the Securities Exchange Act of 1934 with respect to broker-dealers and Section 222 of the Investment Advisers Act of 1940 with respect to investment advisers. (b) All records so required shall be preserved for the time specified in the rule. (c) All records referred to in this section are subject at any time and from time to time to reasonable periodic, special, or other examinations by the commissioner, within or without this state, as the commissioner deems necessary or appropriate in the public interest or for the protection of investors. (d) For the purpose of avoiding unnecessary duplications of examinations, the commissioner, insofar as he or she deems it practicable in administering this section, may cooperate with the securities administrators of other states, the Securities and Exchange Commission and any national securities exchange or national securities association. (e) Unless otherwise provided by rule, every investment adviser subject to Section 25230 and every broker-dealer, including an applicant for a license under Section 25210 or 25230, shall furnish an authorization for disclosure to the commissioner of financial records of the licensee's broker-dealer or investment adviser business pursuant to Section 7473 of the Government Code.


25242. (a) Surrender of a certificate as a broker-dealer or investment adviser becomes effective 30 days after receipt of an application to surrender that certificate or within a shorter period of time as the commissioner may determine, unless a revocation or suspension proceeding is pending when the application is filed or a proceeding to revoke or suspend or to impose conditions upon the withdrawal is instituted within 30 days after the application is filed. If a proceeding is pending or instituted, withdrawal becomes effective at a time and upon any conditions as the commissioner by order determines. (b) If the commissioner finds that any broker-dealer or investment adviser is no longer in existence, or has ceased to do business as a broker-dealer or investment adviser, or is subject to an adjudication of mental incompetence or to the control of a committee or conservator or guardian, or cannot be located after reasonable search, the commissioner may by order summarily revoke the certificate of that broker-dealer or investment adviser. (c) The commissioner may summarily suspend or revoke the certificate of a broker-dealer or investment adviser if he or she (1) fails to pay any fee required by Section 25608 or imposed pursuant to Section 25217, 25218 or 25236 within 10 days after notice by the commissioner that the fee is due and unpaid, (2) fails to file any report required under Section 25241 within 10 days after notice by the commissioner that the report is due, (3) fails to maintain any bond required by subdivision (e) of Section 25216 or by Section 25237, (4) fails to file an application pursuant to subdivision (a) of Section 25211 when required by subdivision (c) of that section, within the time specified therein or within 10 days after notice by the commissioner that the application is required, whichever last occurs, (5) fails to maintain any capital required by subdivision (c) of Section 25216 or by Section 25237, or (6) fails to maintain records as required by Section 25241.


25243. It is unlawful for any person holding a certificate as a broker-dealer or investment adviser under this part to represent or imply in any manner whatsoever that such person has been sponsored, recommended, or approved or that the person's abilities or qualifications have in any respect been passed upon by the commissioner. Nothing in this section prohibits a statement (other than in a paid advertisement) that a person holds a certificate under this law, if such statement is true in fact and if the effect of such licensing is not misrepresented.

25243.5. (a) A broker-dealer or investment adviser, or an agent or representative thereof, shall not use a senior-specific certification, credential, or professional designation in connection with the offer, sale, or purchase of securities, or the provision of advice as to the value of or the advisability of investing in, purchasing, or selling securities, either directly or indirectly or through publications or writings or by issuing or promulgating analyses or reports relating to securities, that indicates or implies that the broker-dealer, investment adviser, or an agent or representative thereof, has special certification or training in advising or servicing senior citizens or retirees, in such a way as to mislead any person. (b) The prohibited use of these certifications, credentials, or professional designations includes, but is not limited to, the following: (1) The use of a certification, credential, or professional designation by a person who has not actually earned or is otherwise ineligible to use the certification, credential, or designation. (2) The use of a nonexistent or self-conferred certification, credential, or professional designation. (3) The use of a certification, credential, or professional designation that indicates or implies a level of occupational qualifications obtained through education, training, or experience that the person using the certification, credential, or professional designation does not have. (4) The use of a certification, credential, or professional designation that was obtained from a designating, credentialing, or certifying organization where any of the following apply: (A) The organization is primarily engaged in the business of instruction in sales marketing. (B) The organization does not have reasonable standards or procedures for assuring the competency of individuals to whom it grants a certification, credential, or professional designation. (C) The organization does not have reasonable standards or procedures for monitoring and disciplining individuals with a certification, credential, or professional designation for improper or unethical conduct. (D) The organization does not have reasonable continuing education requirements for individuals with a certification, credential, or professional designation in order to maintain the certificate, credential, or professional designation. (c) There is a rebuttable presumption that a designating, credentialing, or certifying organization is not disqualified solely for the purposes of paragraph (4) of subdivision (b) when the organization has been accredited by the American National Standards Institute, the National Commission for Certifying Agencies, or an organization that is on the United States Department of Education's list entitled "Accrediting Agencies Recognized for Title IV Purposes" and the certification, credential, or professional designation issued therefrom does not primarily apply to sales and/or marketing. (d) In determining whether a combination of words, or an acronym standing for a combination of words, constitutes a certification, credential, or professional designation indicating or implying that a person has special certification or training in advising or serving senior citizens or retirees, factors to be considered shall include both of the following: (1) Use of one or more word such as "senior," "retirement," "elder," or like words combined with one or more words such as "certified," "registered," "chartered," "adviser," "specialist," "consultant," "planner," or like words, in the name of the certification, credential, or professional designation or credential. (2) The manner in which those words are combined. (e) This section shall not apply to the use of a job title by a person within an organization that is licensed or registered by the Department of Corporations or a federal financial services regulatory agency, when that job title indicates seniority or standing within the organization, or specifies a person's area of specialization within the organization. For the purposes of this subdivision, federal financial services regulatory agency includes, but is not limited to, an agency that regulates brokers or dealers, investment advisers, or investment companies as described under the Investment Company Act of 1940 (15 U.S.C. Sec. 809-1 et seq.). (f) (1) This section shall not apply to a broker or agent who is licensed by the Department of Insurance and is in compliance with the requirements of Section 787.1 of the Insurance Code. (2) This subdivision shall be operative only if Assembly Bill 2150 of the 2007-08 Regular Session is chaptered and becomes effective and that bill adds Section 787.1 to the Insurance Code. (g) This section shall become operative on July 1, 2009.


25244. Any person whose certificate as a broker-dealer or investment adviser has been suspended or revoked shall immediately surrender such certificate to the commissioner.


25245. It is unlawful for any person willfully to make any untrue statement of a material fact in any application, notice, or report filed with the commissioner under this part, or willfully to omit to state in any such application, notice, or report any material fact which is required to be stated therein.


25246. It is unlawful for any agent or broker-dealer to require, as a condition to the purchase or sale of securities for and in the name of a married person, that the prior consent or authorization of the spouse of that person be obtained.


25247. (a) Upon written or oral request, the commissioner shall make available to any person the information specified in Section 6254.12 of the Government Code and made available through the Public Disclosure Program of the Financial Industry Regulatory Authority with respect to any broker-dealer or agent licensed or regulated under this part. The commissioner shall also make available the current license status and the year of issuance of the license of a broker-dealer. Any information disclosed pursuant to this subdivision shall constitute a public record. Notwithstanding any other provisions of law, the commissioner may disclose either orally or in writing that information pursuant to this subdivision. There shall be no liability on the part of and no cause of action of any nature shall arise against the State of California, the Department of Corporations, the Commissioner of Corporations, or any officer, agent, or employee of the state or of the Department of Corporations for the release of any false or unauthorized information, unless the release of that information was done with knowledge and malice. (b) Any broker-dealer or agent licensed or regulated under this part shall upon request deliver a written notice to any client when a new account is opened stating that information about the license status or disciplinary record of a broker-dealer or an agent may be obtained from the Department of Corporations, or from any other source that provides substantially similar information. (c) The notice provided under subdivision (b) shall contain the office location or telephone number where the information may be obtained. (d) A broker-dealer or agent shall be exempt from providing the notice required under subdivision (b) if a person who does not have a financial relationship with the broker-dealer or agent, requests only general operational information such as the nature of the broker-dealer's or agent's business, office location, hours of operation, basic services, and fees, but does not solicit advice regarding investments or other services offered. (e) Upon written or oral request, the commissioner shall make available to any person the disciplinary records maintained on the Investment Adviser Registration Depository and made available through the Investment Advisor Public Disclosure Web site with respect to any investment adviser, investment adviser representative, or associated person of an investment adviser licensed or regulated under this part. The commissioner shall also make available the current license status and the year of issuance of the license of an investment adviser. Any information disclosed pursuant to this subdivision shall constitute a public record. Notwithstanding any other provision of law, the commissioner may disclose that information either orally or in writing pursuant to this subdivision. There shall be no liability on the part of and no cause of action of any nature shall arise against the State of California, the Department of Corporations, the Commissioner of Corporations, or any officer, agent, or employee of the state or of the Department of Corporations for the release of any false or unauthorized information, unless the release of that information was done with knowledge and malice. (f) Section 461 of the Business and Professions Code shall not be applicable to the Department of Corporations when using a national, uniform application adopted or approved for use by the Securities and Exchange Commission, the North American Securities Administrators Association, or the Financial Industry Regulatory Authority that is required for participation in the Central Registration Depository or the Investment Adviser Registration Depository. (g) This section shall not require the disclosure of criminal history record information maintained by the Federal Bureau of Investigation pursuant to Section 534 of Title 28 of the United States Code, and the rules thereunder, or information not otherwise subject to disclosure under the Information Practices Act of 1977.


25248. (a) If the commissioner finds, as a result of any examination or investigation or from any report made to the commissioner, that any person subject to this part, other than an investment adviser subject to Section 25230.1, is in an insolvent condition, or is conducting a securities, broker-dealer, or investment advisory business in such an unsafe, injurious, or unauthorized manner as to render further operations hazardous to the public or to customers, the commissioner may, by an order addressed to and served by registered or certified mail or by personal service on that person and on any other person having in his or her possession or control any client funds, trust funds, or other property deposited with that person, direct discontinuance of the disbursement of client or trust funds by the parties or any of them, the receipt of client or trust funds, or other business operations. No person having in his or her possession any of these funds shall be liable for failure to comply with the order unless he or she has received written notice of the order. Subject to subdivision (b), the order shall remain in effect until set aside by the commissioner, in whole or in part, the person is the subject of an order for relief in bankruptcy, or pursuant to Section 25253, the commissioner has assumed possession of the broker-dealer or investment adviser. (b) Within 15 days from the date of an order pursuant to subdivision (a), the person may request a hearing under the Administrative Procedure Act (Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code). Upon receipt of a request, the matter shall be set for hearing to commence within 30 days after that receipt unless the person subject to this division consents to a later date. If no hearing is requested within 15 days after the mailing or service of the notice and none is ordered by the commissioner, the failure to request a hearing shall constitute a waiver of the right to a hearing. Neither the request for a hearing nor the hearing itself shall stay the order issued by the commissioner under subdivision (a).


25249. If, after examination or investigation, the commissioner has reasonable grounds to believe that any broker-dealer or investment adviser has violated any law or rule binding upon it, the commissioner shall, by written order addressed to the broker-dealer or investment adviser, direct the discontinuance of the violation. The order shall be effective immediately, but shall not become final except in accordance with the provisions of Section 25251.


25250. If, after examination or investigation, the commissioner has reasonable grounds to believe that any broker-dealer or investment adviser, other than an investment adviser subject to Section 25230.1, is conducting business in an unsafe or injurious manner, the commissioner shall, by written order addressed to the broker-dealer or investment adviser, direct the discontinuance of the unsafe or injurious practices. The order shall be effective immediately, but shall not become final except in accordance with the provisions of Section 25251.

25251. (a) No order issued pursuant to Section 25249 or 25250 may become final except after notice to the affected broker-dealer or investment adviser of the commissioner's intention to make the order final and of the reasons for the finding. The commissioner shall also notify the broker-dealer or investment adviser that upon receiving a request the matter shall be set for hearing to commence within 15 business days after receipt of the request. The broker-dealer or investment adviser may consent to have the hearing commence at a later date. If no hearing is requested within 30 days after the mailing or service of the required notice, and none is ordered by the commissioner, the order may become final without a hearing and the broker-dealer or investment adviser shall immediately discontinue the practices named in the order. If a hearing is requested or ordered, it shall be held in accordance with the provisions of the Administrative Procedure Act (Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code), and the commissioner shall have all of the powers granted under that act. If, upon the conclusion of the hearing, it appears to the commissioner that the broker-dealer or investment adviser is conducting business in an unsafe and injurious manner or is violating any law of this state, or any rule binding upon it, the commissioner shall make the order of discontinuance final and the broker-dealer or investment adviser shall immediately discontinue the practices named in the order. (b) The broker-dealer or investment adviser may within 10 days after an order is made final commence an action to restrain enforcement of the order. If the enforcement of the order is not enjoined within 10 days by the court in which the action is brought, the broker-dealer or investment adviser shall comply with the order.


25252. The commissioner may, after appropriate notice and opportunity for hearing, by orders, levy administrative penalties as follows: (a) Any person subject to this division, other than a broker-dealer or investment adviser, who willfully violates any provision of this division, or who willfully violates any rule or order adopted or issued pursuant to this division, is liable for administrative penalties of not more than one thousand dollars ($1,000) for the first violation, and not more than two thousand five hundred dollars ($2,500) for each subsequent violation. (b) Any broker-dealer or investment adviser that willfully violates any provision of this division to which it is subject, or that willfully violates any rule or order adopted or issued pursuant to this division and to which it is subject, is liable for administrative penalties of not more than five thousand dollars ($5,000) for the first violation, not more than ten thousand dollars ($10,000) for the second violation, and not more than fifteen thousand dollars ($15,000) for each subsequent violation. (c) The administrative penalties shall be collected by the commissioner and paid into the State Corporations Fund. (d) The administrative penalties available to the commissioner pursuant to this section are not exclusive, and may be sought and employed in any combination with civil, criminal, and other administrative remedies deemed advisable by the commissioner to enforce the provisions of this division.


25253. (a) Whenever it appears to the commissioner that any of the conditions specified in subdivision (b) has occurred with respect to any broker-dealer or investment adviser subject to this division, the commissioner shall dispatch a written notice demanding remedial action and a summary of findings, as referred to in Section 25248, to the principal officer of that broker-dealer or investment adviser or to its manager of record. (b) The conditions that require the commissioner to commence remedial action against a broker-dealer or investment adviser pursuant to subdivision (a) includes any of the following: (1) The broker-dealer or investment adviser is in an insolvent condition. (2) It is conducting its securities, broker-dealer, or investment advisory business in an unsafe or unauthorized manner. (3) It has violated any rule or order adopted or issued pursuant to this division that is or has been necessary for the protection of any investor. (4) It refuses to submit its books, papers, and affairs to the inspection of any examiner or investigator. (5) It neglects or refuses to observe any order of the commissioner made pursuant to this division that is or has been necessary for the protection of any investor, within the time specified therein, unless the enforcement of the order is restrained in a proceeding brought by the broker-dealer or investment adviser. (6) It has violated any provision of this division or any similar regulatory scheme of this state or a foreign jurisdiction relating to the protection of any investor. (7) Any officer, director, stockholder, or partner of the broker-dealer or investment adviser, or attorney-in-fact of the broker-dealer or investment adviser has embezzled, misappropriated, or willfully diverted the assets or client or trust funds of the broker-dealer or investment adviser. (8) It has permitted its capital to be lower than the minimum required by law, including any rule or order adopted or issued pursuant to this division. (9) It has failed to comply with the bonding requirements of Chapter 2 (commencing with Section 25210) or Chapter 3 (commencing with Section 25230) of this part. (c) The broker-dealer or investment adviser shall be afforded a reasonable opportunity to comply or otherwise effect those remedies specified in the written notice or any other remedies that the commissioner may deem acceptable. However, if the broker-dealer or investment adviser fails to comply within five days of receipt of the notice, or as soon as it appears to the commissioner that no compliance is possible, or in the event prompt delivery of the written notice is impossible, the commissioner may take possession of the property and business of the broker-dealer or investment adviser and retain possession until the broker-dealer or investment adviser, subject to those conditions that the commissioner may prescribe, resumes its business or its affairs are finally liquidated. (d) Whenever the commissioner has taken possession of any broker-dealer or investment adviser, the broker-dealer or investment adviser, within 10 days after the taking, may apply to the superior court to enjoin further proceedings in any California county or city and county in which the California office or offices of the broker-dealer or investment adviser is located. The court, after ordering the commissioner to show cause why further proceedings should not be enjoined and after a hearing and a determination of the facts upon the merits, may dismiss the application or enjoin the commissioner from further proceedings and direct the commissioner to surrender the property and business to the broker-dealer or investment adviser, or make any further order that may be just. (e) If any facts occur that would entitle the commissioner under subdivision (b) to take possession of the property, business, and assets of a broker-dealer or investment adviser, the commissioner may appoint a conservator of the broker-dealer or investment adviser and require the conservator to post a bond. The conservator, under the direction of the commissioner, shall take possession of the property, business, and assets of the broker-dealer or investment adviser and take any action that the conservator deems necessary to conserve the assets of the broker-dealer or investment adviser pending further disposition of its business. The conservator shall retain possession until the property, business, and assets of the broker-dealer or investment adviser are returned to the broker-dealer or investment adviser or until further order of the commissioner. (f) Subject to the other provisions of this section, a conservator, while in possession of the property, business, and assets of a broker-dealer or investment adviser, has the same powers and rights and is subject to the same duties and obligations as the commissioner while in possession of the property, business, and assets of a broker-dealer or investment adviser. During that time, the rights of a broker-dealer or investment adviser and of all persons with respect thereto, subject to the other provisions of this section, are the same as if the commissioner had taken possession of the property, business, and assets. A conservator, while in possession of the property, business, and assets of a broker-dealer or investment adviser shall have all the rights, powers, and privileges of the broker-dealer or investment adviser, its officers and directors or partners. All expenses of the conservatorship shall be paid out of the assets of the broker-dealer or investment adviser and shall be a lien thereon which shall be prior to any other lien. (g) An investment adviser subject to Section 25230.1 is not subject to this section, unless that investment adviser or persons acting on behalf of that investment adviser committed any of the acts of fraud or deceit set forth in paragraph (7) of subdivision (b).


25254. (a) If the commissioner determines it is in the public interest, the commissioner may include in any administrative action brought under this part a claim for ancillary relief, including, but not limited to, a claim for restitution or disgorgement or damages on behalf of the persons injured by the act or practice constituting the subject matter of the action, and the administrative law judge shall have jurisdiction to award additional relief. (b) In an administrative action brought under this part, the commissioner is entitled to recover costs, which in the discretion of the administrative law judge may include an amount representing reasonable attorney's fees and investigative expenses for the services rendered, for deposit into the State Corporations Fund for the use of the Department of Corporations.


25255. The civil, criminal, and administrative remedies available to the commissioner pursuant to this division are not exclusive, and may be sought and employed in any combination deemed advisable by the commissioner to enforce the provisions of this division.


25256. (a) For any broker-dealer or investment adviser, a disciplinary action taken by the State of California, another state, an agency of the federal government, or another country for an action substantially related to the activity regulated under this division may be grounds for disciplinary action by the commissioner. A certified copy of the record of the disciplinary action taken against the licensee by the State of California, other state, agency of the federal government, or other country shall be conclusive evidence of the events related therein. (b) Nothing in this section precludes the commissioner from applying a specific statutory provision in this division providing for discipline against a broker-dealer or investment adviser, as a result of disciplinary action taken against a broker-dealer or an investment adviser, by the State of California, another state, an agency of the federal government, or another country.


Part 4. Advertising Securities

Ca Codes (corp:25300-25302) Corporations Code Section 25300-25302



25300. (a) No person shall publish any advertisement in this state concerning any security sold or offered for sale in this state unless a true copy of the advertisement has first been filed in the office of the commissioner at least three business days prior to the publication or such shorter period as the commissioner may by rule or order allow. (b) Subdivision (a) of this section does not apply to: (1) Any advertisement for any security published by a licensed broker-dealer if he or she is not effecting transactions in such security as an underwriter or other participant in a distribution for the issuer; (2) Any advertisement for any security published by an issuer or any underwriter or other participant in a distribution for the issuer if the security or transaction is exempted by the provisions of Chapter 1 (commencing with Section 25100) of Part 2 of this division; (3) Any advertisement for any security in a nonissuer transaction if the security is exempted by Section 25100 or an offer of the security is exempted by subdivision (g) of Section 25104; (4) Any advertisement permitted or required by Section 5(b)(2) or Section 2(10)(b) of the Securities Act of 1933 with respect to a security which has been registered under the Securities Act of 1933 and qualified for sale in this state; (5) Any advertisement with respect to (A) a security that is subject to Sections 25100.1 and 25101.1 and the advertisement is permitted or required under the Securities Act of 1933, (B) a transaction that is subject to Section 25102.1 and the advertisement is permitted or required under the Securities Act of 1933, or (C) an investment adviser that is subject to Section 25230.1 and the advertisement is permitted or required under the Investment Adviser Act of 1940; or (6) Any other advertisement exempted by rule of the commissioner.


25301. All advertisements published by any broker-dealer that are exempted from filing by paragraph (1) or paragraph (6) of subdivision (b) of Section 25300 shall be approved prior to use by signature or initial of an officer, partner, or responsible supervisory official of the broker-dealer and the signed or initialed copy shall be retained by the broker-dealer in an appropriate file for a period of three years, subject to examination by the commissioner.


25302. (a) No person shall publish any advertisement concerning any security in this state after the commissioner finds that the advertisement contains any statement that is false or misleading or omits to make any statement necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading and so notifies the person in writing. Such notification may be given summarily without notice or hearing. At any time after the issuance of a notification under this section, the person desiring to use the advertisement may in writing request that the order be rescinded. Upon the receipt of such a written request, the matter shall be set down for hearing to commence within 15 business days after such receipt unless the person making the request consents to a later date. After such hearing, which shall be conducted in accordance with the provisions of the Administrative Procedure Act, Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, the commissioner shall determine whether to affirm and continue or to rescind such order, and the commissioner shall have all the powers granted under such act. (b) This section does not apply to any advertisement for any security which is subject to the supervision, regulation or examination of any of the following: (1) The Insurance Commissioner. (2) The Commissioner of Financial Institutions. (3) The Public Utilities Commission. (4) The Office of Thrift Supervision. (5) The Comptroller of the Currency of the United States. (6) The Federal Deposit Insurance Corporation. (7) The Board of Governors of the Federal Reserve System.


Part 5. Fraudulent And Prohibited Practices

Ca Codes (corp:25400-25404) Corporations Code Section 25400-25404



25400. It is unlawful for any person, directly or indirectly, in this state: (a) For the purpose of creating a false or misleading appearance of active trading in any security or a false or misleading appearance with respect to the market for any security, (1) to effect any transaction in a security which involves no change in the beneficial ownership thereof, or (2) to enter an order or orders for the purchase of any security with the knowledge that an order or orders of substantially the same size, at substantially the same time and at substantially the same price, for the sale of any such security, has been or will be entered by or for the same or different parties, or (3) to enter an order or orders for the sale of any security with the knowledge that an order or orders of substantially the same size, at substantially the same time and at substantially the same price, for the purchase of any such security, has been or will be entered by or for the same or different parties. (b) To effect, alone or with one or more other persons, a series of transactions in any security creating actual or apparent active trading in such security or raising or depressing the price of such security, for the purpose of inducing the purchase or sale of such security by others. (c) If such person is a broker-dealer or other person selling or offering for sale or purchasing or offering to purchase the security, to induce the purchase or sale of any security by the circulation or dissemination of information to the effect that the price of any such security will or is likely to rise or fall because of market operations of any one or more persons conducted for the purpose of raising or depressing the price of such security. (d) If such person is a broker-dealer or other person selling or offering for sale or purchasing or offering to purchase the security, to make, for the purpose of inducing the purchase or sale of such security by others, any statement which was, at the time and in the light of the circumstances under which it was made, false or misleading with respect to any material fact, or which omitted to state any material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, and which he knew or had reasonable ground to believe was so false or misleading. (e) For a consideration, received directly or indirectly from a broker-dealer or other person selling or offering for sale or purchasing or offering to purchase the security, to induce the purchase or sale of any security by the circulation or dissemination of information to the effect that the price of such security will or is likely to rise or fall because of the market operations of any one or more persons conducted for the purpose of raising or depressing the price of such security.

25401. It is unlawful for any person to offer or sell a security in this state or buy or offer to buy a security in this state by means of any written or oral communication which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.


25402. It is unlawful for an issuer or any person who is an officer, director or controlling person of an issuer or any other person whose relationship to the issuer gives him access, directly or indirectly, to material information about the issuer not generally available to the public, to purchase or sell any security of the issuer in this state at a time when he knows material information about the issuer gained from such relationship which would significantly affect the market price of that security and which is not generally available to the public, and which he knows is not intended to be so available, unless he has reason to believe that the person selling to or buying from him is also in possession of the information.


25403. (a) Every person who with knowledge directly or indirectly controls and induces any person to violate any provision of this division or any rule or order thereunder shall be deemed to be in violation of that provision, rule, or order to the same extent as the controlled and induced person. (b) Any person that knowingly provides substantial assistance to another person in violation of any provision of this division or any rule or order thereunder shall be deemed to be in violation of that provision, rule, or order to the same extent as the person to whom the assistance was provided. (c) It shall be unlawful for any person directly or indirectly to do any act or thing which would be unlawful for that person to do under any provision of this division or any rule or order thereunder through or by any other person. (d) Nothing in this section shall be construed to limit the power of the state to punish any person for any conduct which constitutes a crime under any other statute.


25404. (a) It is unlawful for any person to knowingly alter, destroy, mutilate, conceal, cover up, falsify, or make a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the administration or enforcement of this division. (b) It is unlawful for any person to knowingly make an untrue statement to the commissioner during the course of licensing, investigation, or examination, with the intent to impede, obstruct, or influence the administration or enforcement of any provision of this division.


Part 6. Enforcement

Chapter 1. Civil Liability

Ca Codes (corp:25500-25510) Corporations Code Section 25500-25510



25500. Any person who willfully participates in any act or transaction in violation of Section 25400 shall be liable to any other person who purchases or sells any security at a price which was affected by such act or transaction for the damages sustained by the latter as a result of such act or transaction. Such damages shall be the difference between the price at which such other person purchased or sold securities and the market value which such securities would have had at the time of his purchase or sale in the absence of such act or transaction, plus interest at the legal rate.


25501. Any person who violates Section 25401 shall be liable to the person who purchases a security from him or sells a security to him, who may sue either for rescission or for damages (if the plaintiff or the defendant, as the case may be, no longer owns the security), unless the defendant proves that the plaintiff knew the facts concerning the untruth or omission or that the defendant exercised reasonable care and did not know (or if he had exercised reasonable care would not have known) of the untruth or omission. Upon rescission, a purchaser may recover the consideration paid for the security, plus interest at the legal rate, less the amount of any income received on the security, upon tender of the security. Upon rescission, a seller may recover the security, upon tender of the consideration paid for the security plus interest at the legal rate, less the amount of any income received by the defendant on the security. Damages recoverable under this section by a purchaser shall be an amount equal to the difference between (a) the price at which the security was bought plus interest at the legal rate from the date of purchase and (b) the value of the security at the time it was disposed of by the plaintiff plus the amount of any income received on the security by the plaintiff. Damages recoverable under this section by a seller shall be an amount equal to the difference between (1) the value of the security at the time of the filing of the complaint plus the amount of any income received by the defendant on the security and (2) the price at which the security was sold plus interest at the legal rate from the date of sale. Any tender specified in this section may be made at any time before entry of judgment.

25501.5. (a) (1) A person who purchases a security from or sells a security to a broker-dealer that is required to be licensed and has not, at the time of the sale or purchase, applied for and secured from the commissioner a certificate under Part 3 (commencing with Section 25200), that is in effect at the time of the sale or purchase authorizing that broker-dealer to act in that capacity, may bring an action for rescission of the sale or purchase or, if the plaintiff or the defendant no longer owns the security, for damages. (2) Upon rescission and tender of the security, a purchaser may recover the consideration paid for the security plus interest at the legal rate, less the amount of any income received on the security. (3) Upon rescission and tender of the consideration paid for the security plus interest at the legal rate, a seller may recover the security plus the amount of any income received by the defendant on the security. (4) Damages recoverable under this section by a purchaser shall be an amount equal to the difference between the following: (A) The price at which the security was bought plus interest at the legal rate from the date of purchase. (B) The value of the security at the time it was disposed of by the plaintiff plus the amount of any income received on the security by the plaintiff. (5) Damages recoverable under this section by a seller shall be an amount equal to the difference between the following: (A) The value of the security at the time of the filing of the complaint plus the amount of any income received by the defendant on the security. (B) The price at which the security was sold plus interest at the legal rate from the date of sale. (6) A tender of a security or of consideration paid for a security plus interest pursuant to this section may be made at any time before entry of judgment. (b) The court, in its discretion, may award reasonable attorney's fees and costs to a prevailing plaintiff under this section.


25502. Any person who violates Section 25402 shall be liable to the person who purchases a security from him or sells a security to him, for damages equal to the difference between the price at which such security was purchased or sold and the market value which such security would have had at the time of the purchase or sale if the information known to the defendant had been publicly disseminated prior to that time and a reasonable time had elapsed for the market to absorb the information, plus interest at the legal rate, unless the defendant proves that the plaintiff knew the information or that the plaintiff would have purchased or sold at the same price even if the information had been revealed to him.

25502.5. (a) Any person other than the issuer who violates Section 25402 shall be liable to the issuer of the security purchased or sold in violation of Section 25402 for damages in an amount up to three times the difference between the price at which the security was purchased or sold and the market value which the security would have had at the time of the purchase or sale if the information known to the defendant had been publicly disseminated prior to that time and a reasonable time had elapsed for the market to absorb the information and shall be liable to the issuer of the security or to a person who institutes an action under this section in the right of the issuer of the security for reasonable costs and attorney's fees. (b) The amounts recoverable under this section by the issuer shall be reduced by any amount paid by the defendant in a proceeding brought by the Securities and Exchange Commission with respect to the same transaction or transactions under the federal Insider Trading Sanctions Act of 1984 (15 U.S.C. Secs. 78a, 78c, 78o, 78t, 78u, and 78ff) or any other act regardless of whether the amount was paid pursuant to a judgment or settlement or paid before or after the filing of an action by the plaintiff against the defendant. If a proceeding has been commenced by the Securities and Exchange Commission but has not been finally resolved, the court shall delay entering a judgment for the plaintiff under this section until that proceeding is resolved. (c) If any shareholder of an issuer alleges to the board that there has been a violation of this section, the board shall be required to consider the allegation in good faith, and if the allegation involves misconduct by any director, that director shall not be entitled to vote on any matter involving the allegation. However, that director may be counted in determining the presence of a quorum at a meeting of the board or a committee of the board. (d) This section shall only apply to issuers who have total assets in excess of one million dollars ($1,000,000) and have a class of equity security held of record by 500 or more persons.


25503. Any person who violates Section 25110, 25130 or 25133, or a condition of qualification under Chapter 2 (commencing with Section 25110) of this part, imposed pursuant to Section 25141, or an order suspending trading issued pursuant to Section 25219, shall be liable to any person acquiring from him the security sold in violation of such section, who may sue to recover the consideration he paid for such security with interest thereon at the legal rate, less the amount of any income received therefrom, upon the tender of such security, or for damages, if he no longer owns the security, or if the consideration given for the security is not capable of being returned. Damages, if the plaintiff no longer owns the security, shall be equal to the difference between (a) his purchase price plus interest at the legal rate from the date of purchase and (b) the value of the security at the time it was disposed of by the plaintiff plus the amount of any income received therefrom by the plaintiff. Damages, if the consideration given for the security is not capable of being returned, shall be equal to the value of that consideration plus interest at the legal rate from the date of purchase, provided the security is tendered; and if the plaintiff no longer owns the security, damages in such case shall be equal to the difference between (a) the value of the consideration given for the security plus interest at the legal rate from the date of purchase and (b) the value of the security at the time it was disposed of by the plaintiff plus the amount of any income received therefrom by the plaintiff. Any person who violates Section 25120 or a condition of qualification under Chapter 3 (commencing with Section 25120) of this part imposed pursuant to Section 25141, shall be liable to any person acquiring from him the security sold in violation of such section who may sue to recover the difference between (a) the value of the consideration received by the seller and (b) the value of the security at the time it was received by the buyer, with interest thereon at the legal rate from the date of purchase. Any person on whose behalf an offering is made and any underwriter of the offering, whether on a best efforts or a firm commitment basis, shall be jointly and severally liable under this section, but in no event shall any underwriter (unless such underwriter shall have knowingly received from the issuer for acting as an underwriter some benefit, directly or indirectly, in which all other underwriters similarly situated did not share in proportion to their respective interest in the underwriting) be liable in any suit or suits authorized under this section for damages in excess of the total price at which the securities underwritten by him and distributed to the public were offered to the public. Any tender specified in this section may be made at any time before entry of judgment. No person shall be liable under this section for violation of Section 25110, 25120 or 25130 if the sale of the security is qualified prior to the payment or receipt of any part of the consideration for the security sold, even though an offer to sell or a contract of sale may have been made or entered into without qualification.


25504. Every person who directly or indirectly controls a person liable under Section 25501 or 25503, every partner in a firm so liable, every principal executive officer or director of a corporation so liable, every person occupying a similar status or performing similar functions, every employee of a person so liable who materially aids in the act or transaction constituting the violation, and every broker-dealer or agent who materially aids in the act or transaction constituting the violation, are also liable jointly and severally with and to the same extent as such person, unless the other person who is so liable had no knowledge of or reasonable grounds to believe in the existence of the facts by reason of which the liability is alleged to exist.


25504.1. Any person who materially assists in any violation of Section 25110, 25120, 25130, 25133, or 25401, or a condition of qualification under Chapter 2 (commencing with Section 25110) of Part 2 of this division imposed pursuant to Section 25141, or a condition of qualification under Chapter 3 (commencing with Section 25120) of Part 2 of this division imposed pursuant to Section 25141, or an order suspending trading issued pursuant to Section 25219, with intent to deceive or defraud, is jointly and severally liable with any other person liable under this chapter for such violation.


25504.2. (a) Any accountant, engineer, appraiser, or other person whose profession gives authority to a statement made by such person, who pursuant to rule of the commissioner has given written consent to be and has been named in any prospectus or offering circular distributed in connection with the offer or sale of securities as having prepared or certified in such capacity either any part of such document or any written report or valuation which is distributed with or referred to in any such document is jointly and severally liable with any other person liable under Section 25501 if: (1) The part of such document so prepared or certified or the report or valuation so distributed or referred to includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and (2) The person asserting such liability acquired a security described in such document in reliance on such untrue statement or in reliance on such part of the document or on such report or valuation without notice of such omission. (b) Notwithstanding the provisions of subdivision (a), no such accountant, engineer, appraiser, or other person shall be liable as provided therein if such person sustains the burden of proof that: (1) Such person had, after reasonable investigation, reasonable ground to believe and did believe, at the time such person consented to such use of such person's name, that the statements so included in such part of such document or in such report or valuation were true and that there was no omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or (2) Such part of such document did not fairly represent such person's statement as an expert or was not a fair copy of or extract from such person's report or valuation as an expert; or (3) Prior to the acquisition of the security by the person asserting the liability, such accountant, engineer, appraiser, or other person advised the issuer and the commissioner in writing that such person would not be responsible for such part of the document or the report or valuation. (c) A person who participates in the preparation of a document described in subdivision (a) of this section shall be deemed to have prepared or certified only those portions thereof which are expressly stated with such person's written consent to have been made on such person's authority.


25505. A corporation which is liable under this chapter shall have a right of indemnification against any of its principal executive officers, directors, and controlling persons whose willful violation of any provision of this law gave rise to such liability. All persons liable under this chapter shall have a right of contribution against all other persons similarly liable, based upon each person's proportionate share of the total liability, except that no person whose willful violation of any provision of this law has given rise to any liability shall have any right of contribution against any other person guilty merely of a negligent violation, and except that no principal executive officer, director, or controlling person whose willful violation has given rise to any liability shall have any right of contribution against the corporation to which he sustains that relationship.


25506. (a) For proceedings commencing before January 1, 2005, no action shall be maintained to enforce any liability created under Section 25500, 25501, or 25502 (or Section 25504 or Section 25504.1 insofar as they related to those sections) unless brought before the expiration of four years after the act or transaction constituting the violation or the expiration of one year after the discovery by the plaintiff of the facts constituting the violation, whichever shall first expire. (b) For proceedings commencing on or after January 1, 2005, no action shall be maintained to enforce any liability created under Section 25500, 25501, or 25502 (or Section 25504 or Section 25504.1 insofar as they related to those sections) unless brought before the expiration of five years after the act or transaction constituting the violation or the expiration of two years after the discovery by the plaintiff of the facts constituting the violation, whichever shall first expire.


25506.1. No action shall be maintained to enforce any liability created under Section 25504.2 unless brought within one year after the discovery of the facts constituting the violation, or after such discovery should have been made by the exercise of reasonable diligence. In no event shall any such action be brought more than three years after the act or transaction constituting the violation.


25507. (a) No action shall be maintained to enforce any liability created under Section 25503 (or Section 25504 or Section 25504.1 insofar as they relate to that section) unless brought before the expiration of two years after the violation upon which it is based or the expiration of one year after the discovery by the plaintiff of the facts constituting such violation, whichever shall first expire. (b) No buyer may commence an action under Section 25503 (or Section 25504 or Section 25504.1 insofar as they relate to that section) if, before suit is commenced, such buyer shall have received a written offer approved as to form by the commissioner (1) stating the respect in which liability under such section may have arisen, (2) offering to repurchase the security for a cash price payable upon delivery of the security or offering to pay the buyer an amount in cash equal in either case to the amount recoverable by the buyer in accordance with Section 25503, or, offering to rescind the transaction by putting the parties back in the same position as before the transaction, (3) providing that such offer may be accepted by the buyer at any time within a specified period of not less than 30 days after the date of receipt thereof unless rejected earlier during such period by the buyer, (4) setting forth the provisions of this subdivision (b), and (5) containing such other information as the commissioner may require by rule or order, and such buyer shall have failed to accept such offer in writing within the specified period after receipt thereof. (c) The commissioner may by rule or order impose as a condition to approval of an offer under subdivision (b) of this section, if the commissioner finds such action is necessary and appropriate for the protection of investors, conditions requiring: (1) That equivalent and concurrent offers be made to all investors as to whom liability may have arisen and still exists under Section 25503 (or Section 25504 or Section 25504.1 insofar as they relate to that section) in connection with the distribution or transaction; (2) That the offer be made subject to a condition voiding such offer if the issuer, by reason of acceptances, is disabled from commencing or continuing business; (3) That the offer be made within a specified period after approval thereof by the commissioner; (4) If the consideration paid by the offeree was other than monetary or if the offer is of rescission, and if the offer is rejected by the offeree on the ground that it does not accord him the damages payable under Section 25503 or that the rescission offered does not place the parties back in the same position as before the transaction, that an offer so rejected shall not bar the commencement of an action by the offeree under Section 25503 (or Section 25504 or Section 25504.1 insofar as they relate to that section); or (5) That the offeror file a report or reports with the commissioner containing such information as he may require concerning the making of the offer, its acceptance or rejection, and compliance with its terms and conditions or with conditions imposed under this subdivision. (d) Each person who files a repurchase offer with the commissioner pursuant to subdivision (b) shall file with the commissioner, in such form as the commissioner by rule prescribes, an irrevocable consent appointing the commissioner or the commissioner's successor in office to be such person's attorney to receive service of any lawful process in any noncriminal suit, action or proceeding against such person or such person's successor, executor or administrator, which arises under this law or any rule or order hereunder after the consent has been filed, with the same force and validity as if served personally on the person filing the consent. A person who has filed such a consent in connection with a qualification under this law (or application for a permit under any prior law if the application under this law states that such consent is still effective) need not file another. Service may be made by leaving a copy of the process in the office of the commissioner but it is not effective unless (1) the plaintiff, who may be the commissioner in a suit, action or proceeding instituted by him, forthwith sends notice of the service and a copy of the process by registered or certified mail to the defendant or respondent at such person's last address on file with the commissioner, and (2) the plaintiff's affidavit of compliance with this section is filed in the case on or before the return day of the process, if any, or within such further time as the court allows.


25508. No action shall be maintained to enforce any right of indemnification or contribution created by Section 25505 unless brought before the expiration of one year after final judgment based upon the liability for which the right of indemnification or contribution exists.


25508.5. In addition to any other rights provided for under this division, including, but not limited to, Sections 25501 and 25506, or otherwise, a person who purchases a viatical or life settlement contract or a fractionalized or pooled interest therein may rescind or cancel the purchase for any reason. The person may rescind or cancel the purchase at any time before seven calendar days after the date the person remits the required consideration to the issuer or the issuer's agent by giving written notice of rescission or cancellation to the issuer or the issuer's agent. No specific form is required for the rescission or cancellation. The notice is effective when personally delivered, deposited in the United States mail, or deposited with a commercial courier or delivery service. The issuer shall refund all the person's money within seven calendar days after receiving the notice of rescission or cancellation.


25509. Every cause of action under this chapter survives the death of any person who might have been a plaintiff or defendant.


25510. Except as explicitly provided in this chapter, no civil liability in favor of any private party shall arise against any person by implication from or as a result of the violation of any provision of this law or any rule or order hereunder. Nothing in this chapter shall limit any liability which may exist by virture of any other statute or under common law if this law were not in effect.


Chapter 2. Powers Of The Commissioner

Ca Codes (corp:25530-25536) Corporations Code Section 25530-25536



25530. (a) Whenever it appears to the commissioner that any person has engaged or is about to engage in any act or practice constituting a violation of any provision of this division or any rule or order hereunder, the commissioner may in the commissioner's discretion bring an action in the name of the people of the State of California in the superior court to enjoin the acts or practices or to enforce compliance with this law or any rule or order hereunder. Upon a proper showing, a permanent or preliminary injunction, restraining order, or writ of mandate shall be granted and a receiver, monitor, conservator, or other designated fiduciary or officer of the court may be appointed for the defendant or the defendant's assets, or any other ancillary relief may be granted as appropriate. A receiver, monitor, conservator, or other designated fiduciary or officer of the court appointed by the superior court pursuant to this section may, with the approval of the court, exercise any or all of the powers of the defendant's officers, directors, partners, trustees or persons who exercise similar powers and perform similar duties, including the filing of a petition for bankruptcy. No action at law or in equity may be maintained by any party against the commissioner, or a receiver, monitor, conservator, or other designated fiduciary or officer of the court, by reason of their exercising these powers or performing these duties pursuant to the order of, or with the approval of, the superior court. (b) If the commissioner determines it is in the public interest, the commissioner may include in any action authorized by subdivision (a) a claim for ancillary relief, including but not limited to, a claim for restitution or disgorgement or damages on behalf of the persons injured by the act or practice constituting the subject matter of the action, and the court shall have jurisdiction to award additional relief. (c) In any case in which a defendant is ordered by the court to pay restitution to a victim, the court may in its order require the payment as a money judgment, which shall be enforceable by a victim as if the restitution order were a separate civil judgment, and enforceable in the same manner as is provided for the enforcement of any other money judgment. Any order issued under this subdivision shall contain provisions that are designed to achieve a fair and orderly satisfaction of the judgment.


25530.1. In any proceeding under Section 25530, the court may prohibit, conditionally or unconditionally, and permanently or for such period of time as it shall determine, any person who violated Section 25401 from acting as an officer or director of any issuer that has securities qualified pursuant to Section 25110, or that has securities or a transaction exempt from qualification pursuant to Section 25100, 25102, or 25103, if the person's conduct demonstrates unfitness to serve as an officer or director of the issuer.


25531. (a) The commissioner in his discretion (1) may make such public or private investigations within or outside of this state as he deems necessary to determine whether any person has violated or is about to violate any provision of this law or any rule or order hereunder or to aid in the enforcement of this law or in the prescribing of rules and forms hereunder, and (2) may publish information concerning any violation of this law or any rule or order hereunder. (b) In making any investigation authorized by subdivision (a) of this section, the commissioner may, for a reasonable time not exceeding 30 days, take possession of the books, records, accounts and other papers pertaining to the business of any broker-dealer or investment adviser and place a keeper in exclusive charge of them in the place where they are usually kept. During such possession no person shall remove or attempt to remove any of the books, records, accounts, or other papers except pursuant to a court order or with the consent of the commissioner; but the directors, officers, partners, and employees of the broker-dealer or investment adviser may examine them, and employees shall be permitted to make entries therein reflecting current transactions. (c) For the purpose of any investigation or proceeding under this law, the commissioner or any officer designated by him may administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence, and require the production of any books, papers, correspondence, memoranda, agreements, or other documents or records which the commissioner deems relevant or material to the inquiry. (d) In case of contumacy by, or refusal to obey a subpoena issued to, any person, the superior court, upon application by the commissioner, may issue to the person an order requiring him to appear before the commissioner, or the officer designated by him, there to produce documentary evidence, if so ordered, or to give evidence touching the matter under investigation or in question. Failure to obey the order of the court may be punished by the court as a contempt. (e) No person is excused from attending and testifying or from producing any document or record before the commissioner, or in obedience to the subpoena of the commissioner or any officer designated by him, or in any proceeding instituted by the commissioner, on the ground that the testimony or evidence (documentary or otherwise) required of him may tend to incriminate him or subject him to a penalty or forfeiture; but no individual may be prosecuted or subjected to any penalty or forfeiture for or on account of any transaction, matter, or thing concerning which he is compelled, after validly claiming his privilege against self-incrimination, to testify or produce evidence (documentary or otherwise), except that the individual testifying is not exempt from prosecution and punishment for perjury or contempt committed in testifying.


25532. (a) If, in the opinion of the commissioner, (1) the sale of a security is subject to qualification under this law and it is being or has been offered or sold without first being qualified, the commissioner may order the issuer or offeror of the security to desist and refrain from the further offer or sale of the security until qualification has been made under this law or (2) the sale of a security is subject to the requirements of Section 25100.1, 25101.1, or 25102.1 and the security is being or has been offered or sold without first meeting the requirements of those sections, the commissioner may order the issuer or offeror of that security to desist and refrain from the further offer or sale of the security until those requirements have been met. (b) If, in the opinion of the commissioner, a person has been or is acting as a broker-dealer or investment adviser, or has been or is engaging in broker-dealer or investment adviser activities, in violation of Section 25210, 25230, or 25230.1, the commissioner may order that person to desist and refrain from the activity until the person has been appropriately licensed or the required filing has been made under this law. (c) If, in the opinion of the commissioner, a person has violated or is violating Section 25401, the commissioner may order that person to desist and refrain from the violation. (d) If, after an order has been served under subdivision (a), (b), or (c), a request for hearing is filed in writing within 30 days of the date of service of the order by the person to whom the order was directed, a hearing shall be held in accordance with provisions of the Administrative Procedure Act, Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner shall have all of the powers granted under that chapter. Unless the hearing is commenced within 15 business days after the request is filed (or the person affected consents to a later date), the order is rescinded. If that person fails to file a written request for a hearing within 30 days from the date of service of the order, the order shall be deemed a final order of the commissioner and is not subject to review by any court or agency, notwithstanding Section 25609.


25533. The commissioner may refer any evidence available concerning any violation of this law or of any rule or order hereunder to the Attorney General or the district attorney of the county in which the violation occurred, who may, with or without this type of a reference, institute appropriate criminal proceedings under this law. The commissioner and his or her counsel, deputies, or assistants may, upon request of the Attorney General or the district attorney, assist the prosecuting attorney in presenting the law or facts at the trial.

25533.5. The commissioner shall send a copy of a desist and refrain order issued under this law to the Attorney General and the district attorney of the county in which the person who is the subject of the order resides or maintains a principal place of business. There shall be no liability on the part of, and no cause of action of any nature shall arise against, the State of California, the department and its employees, the commissioner, the members of the commissioner' s staff, or the commissioner's authorized representatives for the failure to provide to the Attorney General or the district attorney a copy of the order as required by this section.


25534. Whenever any securities are issued which the commissioner determines were offered or sold in violation of Section 25110, 25120, or 25130, the commissioner may, by written order to the issuer and notice to the holders of such securities, require certificates evidencing such securities to have stamped or printed prominently on their face a legend, in the form prescribed by rule of the commissioner, restricting the transfer of such securities. Upon receipt of the order, the issuer shall stamp or print such legend prominently on the face of all outstanding certificates subject to the order. If, after such order or notice has been given, a request for a hearing is filed in writing by the person or persons to whom such order or notice was addressed, a hearing shall be held in accordance with the provisions of the Administrative Procedure Act, Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner shall have all the powers granted thereunder; unless such hearing is commenced within 15 business days after the request for hearing is received by the commissioner (or the person or persons affected and the issuer consent to a later date), such order and notice are rescinded.


25535. (a) Any person who violates any provision of this law, or who violates any rule or order under this law, shall be liable for a civil penalty not to exceed twenty-five thousand dollars ($25,000) for each violation, which shall be assessed and recovered in a civil action brought in the name of the people of the State of California by the commissioner in any court of competent jurisdiction. (b) As applied to the penalties for acts in violation of this division, the remedies provided by this section and by other sections of this division are not exclusive, and may be sought and employed in any combination to enforce the provisions of this division. (c) No action shall be maintained to enforce any liability created under subdivision (a) unless brought before the expiration of four years after the act or transaction constituting the violation.


25536. (a) The commissioner may take such actions as are authorized by Section 6d of the federal Commodity Exchange Act (7 U.S.C. Sec. 1 et seq.) as amended before or after the effective date of this section. (b) Nothing in this section shall be construed as a limitation on the powers of the commissioner under this division or any other law administered by the commissioner.


Chapter 3. Crimes

Ca Codes (corp:25540-25542) Corporations Code Section 25540-25542



25540. (a) Except as provided for in subdivision (b), any person who willfully violates any provision of this division, or who willfully violates any rule or order under this division, shall upon conviction be fined not more than one million dollars ($1,000,000), or imprisoned in the state prison, or in a county jail for not more than one year, or be punished by both that fine and imprisonment; but no person may be imprisoned for the violation of any rule or order if he or she proves that he or she had no knowledge of the rule or order. (b) Any person who willfully violates Section 25400, 25401, or 25402, or who willfully violates any rule or order under this division adopted pursuant to those provisions, shall upon conviction be fined not more than ten million dollars ($10,000,000), or imprisoned in the state prison for two, three, or five years, or be punished by both that fine and imprisonment. (c) Any issuer, as defined in Section 2 of the Sarbanes-Oxley Act of 2002 (Public Law 107-204), who willfully violates Section 25400, 25401, or 25402, or who willfully violates any rule or order under this division adopted pursuant to those provisions, shall upon conviction be fined not more than twenty-five million dollars ($25,000,000), or imprisoned in the state prison for two, three, or five years, or be punished by both that fine and imprisonment.


25540. (a) Except as provided for in subdivision (b), any person who willfully violates any provision of this division, or who willfully violates any rule or order under this division, shall upon conviction be fined not more than one million dollars ($1,000,000), or imprisoned pursuant to subdivision (h) of Section 1170 of the Penal Code, or in a county jail for not more than one year, or be punished by both that fine and imprisonment; but no person may be imprisoned for the violation of any rule or order if he or she proves that he or she had no knowledge of the rule or order. (b) Any person who willfully violates Section 25400, 25401, or 25402, or who willfully violates any rule or order under this division adopted pursuant to those provisions, shall upon conviction be fined not more than ten million dollars ($10,000,000), or imprisoned pursuant to subdivision (h) of Section 1170 of the Penal Code for two, three, or five years, or be punished by both that fine and imprisonment. (c) Any issuer, as defined in Section 2 of the Sarbanes-Oxley Act of 2002 (Public Law 107-204), who willfully violates Section 25400, 25401, or 25402, or who willfully violates any rule or order under this division adopted pursuant to those provisions, shall upon conviction be fined not more than twenty-five million dollars ($25,000,000), or imprisoned pursuant to subdivision (h) of Section 1170 of the Penal Code for two, three, or five years, or be punished by both that fine and imprisonment.


25541. (a) Any person who willfully employs, directly or indirectly, any device, scheme, or artifice to defraud in connection with the offer, purchase, or sale of any security or willfully engages, directly or indirectly, in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person in connection with the offer, purchase, or sale of any security shall upon conviction be fined not more than ten million dollars ($10,000,000), or imprisoned in the state prison for two, three, or five years, or be punished by both that fine and imprisonment. (b) Any issuer, as defined in Section 2 of the Sarbanes-Oxley Act of 2002 (Public Law 107-204), who willfully violates subdivision (a) shall upon conviction be fined not more than twenty-five million dollars ($25,000,000), or imprisoned in the state prison for two, three, or five years, or be punished by both that fine and imprisonment.

25541. (a) Any person who willfully employs, directly or indirectly, any device, scheme, or artifice to defraud in connection with the offer, purchase, or sale of any security or willfully engages, directly or indirectly, in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person in connection with the offer, purchase, or sale of any security shall upon conviction be fined not more than ten million dollars ($10,000,000), or imprisoned pursuant to subdivision (h) of Section 1170 of the Penal Code for two, three, or five years, or be punished by both that fine and imprisonment. (b) Any issuer, as defined in Section 2 of the Sarbanes-Oxley Act of 2002 (Public Law 107-204), who willfully violates subdivision (a) shall upon conviction be fined not more than twenty-five million dollars ($25,000,000), or imprisoned pursuant to subdivision (h) of Section 1170 of the Penal Code for two, three, or five years, or be punished by both that fine and imprisonment.


25542. Nothing in this law limits the power of the state to punish any person for any conduct which constitutes a crime under any other statute.


Chapter 4. Service Of Process

Ca Codes (corp:25550) Corporations Code Section 25550



25550. When any person, including any nonresident of this state, engages in conduct prohibited or made actionable by this law or any rule or order hereunder, whether or not he has filed a consent to service of process under subdivision (h) of Section 25102, Section 25165, or Section 25240, and personal jurisdiction over him cannot otherwise be obtained in this state, that conduct shall be considered equivalent to his appointment of the commissioner or his successor in office to be his attorney to receive service of any lawful process in any noncriminal suit, action, or proceeding against him or his successor, executor, or administrator which grows out of that conduct and which is brought under this law or any rule or order hereunder, with the same force and validity as if served on him personally. Service may be made by leaving a copy of the process in the office of the commissioner, but it is not effective unless (a) the plaintiff, who may be the commissioner in a suit, action, or proceeding instituted by him, forthwith sends notice of the service and a copy of the process by registered or certified mail to the defendant or respondent at his last known address or takes other steps which are reasonably calculated to give actual notice, and (b) the plaintiff's affidavit of compliance with this section is filed in the case on or before the return day of the process, if any, or within such further time as the court allows.


Part 7. Administration

Ca Codes (corp:25600-25620) Corporations Code Section 25600-25620



25600. There is in the state government, in the Business and Transportation Agency a Department of Corporations, which shall administer the provisions of this division. The chief officer of the Department of Corporations is the Commissioner of Corporations. The commissioner shall be appointed by the Governor and shall hold office at the pleasure of the Governor. He or she shall receive an annual salary as fixed in the Government Code. Within 15 days from the time of his or her appointment the commissioner shall take and subscribe to the constitutional oath of office and file it in the office of the Secretary of State. Whenever the term "Division of Corporations" is used in the law, it means the Department of Corporations.


25601. The commissioner shall have his principal office in the City of Sacramento, and may establish branch offices in the City and County of San Francisco, in the City of Los Angeles and in the City of San Diego. The commissioner shall from time to time obtain the necessary furniture, stationery, fuel, light, and other proper conveniences for the transaction of the business of the Department of Corporations.


25602. In accordance with the laws governing the state civil service, the commissioner shall employ and, with the approval of the Department of Finance, fix the compensation of such personnel as the commissioner needs to discharge properly the duties imposed upon the commissioner by law, including legal counsel to act as the attorney for the commissioner in actions or proceedings brought by or against the commissioner under or pursuant to any provision of any law under the commissioner's jurisdiction, or in which the commissioner joins or intervenes as to a matter within the commissioner's jurisdiction, as a friend of the court or otherwise, and stenographic reporters to take and transcribe the testimony in any formal hearing or investigation before the commissioner or before a person authorized by the commissioner. The personnel of the Department of Corporations shall perform such duties as the commissioner assigns to them. Such employees as the commissioner designates by rule or order shall, within 15 days after their appointments, take and subscribe to the constitutional oath of office and file it in the office of the Secretary of State.


25603. The commissioner shall adopt a seal bearing the inscription: "Commissioner of Corporations, State of California." The seal shall be affixed to or imprinted on all orders and certificates issued by him and such other instruments as he directs. All courts shall take judicial notice of this seal.

25604. The administration and enforcement of, and the education of the public relative to, the laws and programs of the Department of Corporations shall be supported from the State Corporations Fund. Funds appropriated from the State Corporations Fund and made available for expenditure for any law or program of the department may come from fees collected from the following: (a) Section 25608, except for fees collected pursuant to subdivisions (o) to (r), inclusive, of Section 25608. (b) Section 25608.1.


25605. (a) The commissioner may publish any information filed with him or obtained by him, if, in the judgment of the commissioner, such action is in the public interest. No provision of this law authorizes the commissioner or any of his assistants, clerks, or deputies to disclose any information withheld from public inspection except among themselves or when necessary or appropriate in a proceeding or investigation under this law or to other federal or state regulatory agencies. No provision of this law either creates or derogates from any privilege which exists at common law or otherwise when documentary or other evidence is sought under a subpoena directed to the commissioner or any of his assistants, clerks, or deputies. (b) It is unlawful for the commissioner or any of his assistants, clerks, or deputies to use for personal benefit any information which is filed with or obtained by the commissioner and which is not then generally available to the public.


25606. (a) The Attorney General shall render to the commissioner opinions upon all questions of law, relating to the construction or interpretation of any law under the commissioner's jurisdiction or arising in the administration thereof, that may be submitted to the Attorney General by the commissioner, and upon the commissioner's request shall act as the attorney for the commissioner in actions and proceedings brought by or against the commissioner under or pursuant to any provision of any law under the commissioner's jurisdiction. (b) Sections 11041, 11042 and 11043 of the Government Code do not apply to the Commissioner of Corporations.


25607. (a) Neither the commissioner nor any of the commissioner's assistants, clerks, or deputies shall be interested as a director, officer, shareholder, member (other than a member of an organization formed for religious purposes), partner, agent, or employee of any person who, during the period of the official's or employee's association with the Department of Corporations, (1) was licensed or applied for license as a broker-dealer or investment adviser under this division, or (2) applied for or secured the qualification of the sale of securities under this division. (b) Nothing contained in subdivision (a) shall prohibit the holding or purchasing of any securities by any assistant, clerk, or deputy in accordance with rules as the commissioner shall adopt for the purpose of protecting the public interest and avoiding conflicts of interest. (c) Nothing contained in subdivision (a) shall prohibit the holding or purchasing of any securities by the commissioner if any of the following criteria is met: (1) The securities held or purchased by the commissioner are exempt from the qualification requirements of Sections 25110, 25120, and 25130 by virtue of Section 25100, provided that the holding or purchasing of those securities is in accordance with rules adopted for the purpose of protecting the public interest and avoiding conflicts of interest. (2) The securities held or purchased by the commissioner are not subject to Sections 25110, 25120, and 25130 by virtue of Section 25100.1, provided that the holding or purchasing of those securities is in accordance with rules adopted for the purpose of protecting the public interest and avoiding conflicts of interest. (3) The holding or purchasing of any securities by the commissioner meets each of the following requirements: (A) The securities are held or purchased through a management account or trust administered by a bank or trust company authorized to do business in this state, and the bank or trust company has sole investment discretion regarding the holding, purchase, and sale of securities. (B) The commissioner did not, directly or indirectly, advise, counsel, command, or suggest the holding, purchase, or sale of any security or furnish any information relating to the security to the bank or trust company. (C) The account or trust does not at any time have more than 10 percent of its total assets invested in the securities of any one issuer or hold more than 5 percent of the outstanding shares or units of any class of securities of any one issuer. (D) The commissioner shall report to the Attorney General not less often than quarterly all holdings, purchases, and sales of securities by him or her as authorized in paragraph (3), which reports shall be retained by the Attorney General as public documents.


25608. (a) The commissioner shall charge and collect the fees fixed in this section and Section 25608.1. All fees charged and collected under this section and Section 25608.1 shall be transmitted to the Treasurer at least weekly, accompanied by a detailed statement thereof and shall be credited to the State Corporations Fund. (b) The fee for filing an application for a negotiating permit under subdivision (c) of Section 25102 is fifty dollars ($50). (c) The fee for filing a notice pursuant to paragraph (5) of subdivision (h) of Section 25102 and the fee for filing a notice pursuant to paragraph (4) of subdivision (f) of Section 25102, in addition to the fee prescribed in those paragraphs, if applicable, shall be determined based on the value of the securities proposed to be sold in the transaction for which the notice is filed and in accordance with subdivision (g), and shall be as follows: Value of Securities Proposed to be Sold Filing Fee $25,000 or less $ 25 $25,001 to $100,000 $ 35 $100,001 to $500,000 $ 50 $500,001 to $1,000,000 $150 Over $1,000,000 $300 (d) The fee for filing an application for designation of an issuer pursuant to subdivision (k) of Section 25100 is fifty dollars ($50). (e) The fee for filing an application for qualification of the sale of securities by notification under Section 25112 or by permit under paragraph (1) of subdivision (b) of Section 25113 (except applications for qualification by permit of the sale of any guarantee of any security, the fees for which applications are fixed in subdivision (k)) is two hundred dollars ($200) plus one-fifth of 1 percent of the aggregate value of the securities sought to be sold in this state up to a maximum aggregate fee of two thousand five hundred dollars ($2,500). The fee for filing a small company application for qualification of the sale of securities by permit under paragraph (2) of subdivision (b) of Section 25113 is two thousand five hundred dollars ($2,500). In the case where the costs of processing a small company application exceed the filing fee, an additional fee shall be charged, not to exceed one thousand dollars ($1,000), over and above the filing fee based on the costs of the salary or other compensation paid to persons processing the application plus overhead costs reasonably incurred in the performance of the work. In determining the costs, the commissioner may use the estimated average hourly cost for all persons processing applications for the fiscal year. (f) The fee for filing an application for qualification of the sale of securities by coordination under Section 25111 or a notice of intention to sell under subdivision (t) of Section 25100 is two hundred dollars ($200) plus one-fifth of 1 percent of the aggregate value of the securities sought to be sold in this state up to a maximum aggregate fee of two thousand five hundred dollars ($2,500). (g) For the purpose of determining the fees fixed in subdivisions (e) and (f): (1) The value of the securities shall be the price at which the company proposes to sell the securities, or the value, as alleged in the application, or the actual value, as determined by the commissioner, of the consideration (if other than money) to be received in exchange therefor, or of the securities when sold, whichever is greater. (2) Interim or voting trust certificates shall have a value equal to the aggregate value of the securities to be represented by the interim or voting trust certificates. (3) The value of a warrant or right to purchase or subscribe to another security of the same or another issuer shall be an amount equal to the consideration to be paid for that warrant or right plus an amount equal to the consideration to be paid upon purchase of the additional securities, provided that if the latter amount is not determinable at the time of qualification, that amount shall then be the value of the additional securities as determined by the commissioner. (4) In the case of a share dividend where the shareholders are given an option to accept either cash or additional shares of common stock, the value of the securities to be sold shall be the maximum amount of cash that would be payable in the event that all shareholders elected to accept cash. (h) The fee for filing an application for qualification of the sale of securities by permit under Section 25121 is: (1) Two hundred dollars ($200) in connection with any change (including any stock split or reverse stock split or stock dividend, except a stock dividend where the shareholders are given an option to accept either cash or additional shares of common stock) in the rights, preferences, privileges, or restrictions of or on outstanding securities. (2) Two hundred dollars ($200) plus one-fifth of 1 percent of the value, as alleged in the application, or the actual value, as determined by the commissioner, of the consideration to be received in exchange therefor, up to a maximum aggregate fee of two thousand five hundred dollars ($2,500), in any exchange of securities by the issuer with its existing security holders exclusively, or in any exchange in connection with any merger or consolidation or purchase of corporate assets in consideration of the issuance of securities, or any entity conversion transaction. (i) The fee for filing an application for qualification of the sale of securities by notification under Section 25131 shall be one hundred dollars ($100). (j) The fee for an application for the removal of any condition under Section 25141 is fifty dollars ($50). (k) The fee for filing any application for a permit to execute or issue any guarantee of any security is fifty dollars ($50). (l) The fee for acting as escrowholder for securities under Section 25149 is fifty dollars ($50). In addition, a fee of two dollars and fifty cents ($2.50) shall be paid for the deposit with the commissioner of each new certificate or other document resulting from a transfer in escrow. (m) The fee for filing an application for an order (1) consenting to the transfer in escrow of securities or (2) consenting to the transfer of securities subject to any condition imposed by the commissioner requiring the commissioner's consent to the transfer is twenty dollars ($20) for each transfer. (n) The filing fee for an amendment to an application filed after the effective date of the qualification of the sale of securities is fifty dollars ($50) plus any additional fee that would have been required to be paid with the original application for qualification of the sale of securities under this section if the matters set forth in the amendment had been included in the original application. (o) (1) The fee for filing an application for a broker-dealer certificate under Section 25211 is three hundred dollars ($300). (2) Each broker-dealer shall pay to the commissioner its pro rata share of all costs and expenses, reasonably incurred in the administration of the broker-dealer program under this division, as estimated by the commissioner for the ensuing year and any deficit actually incurred or anticipated in the administration of the program in the year in which the assessment is made. The pro rata share shall be the proportion that the broker-dealer and the number of its agents in this state bears to the aggregate number of broker-dealers and agents in this state as shown by records maintained by or on behalf of the commissioner. The pro rata share may include the costs of any examinations, audit, or investigation provided for in subdivision (r). (3) Every broker-dealer who has secured from the commissioner a certificate shall, in order to keep the certificate in effect for an additional period, pay a minimum assessment of seventy-five dollars ($75) on or before the 31st of December in each year. (4) The commissioner may assess and levy against each broker-dealer any additional amount above the minimum assessment amount of seventy-five dollars ($75) that is reasonable and necessary to support the broker-dealer program under this division. If an additional amount is assessed, the commissioner shall notify each broker-dealer by mail of any additional amount assessed and levied against it on or before the 30th day of May in each year, and that amount shall be paid within 20 days thereafter. If payment is not made within 20 days, the commissioner shall assess and collect a penalty in addition to the assessment of 1 percent of the assessment for each month or part of a month that the payment is delayed or withheld. (5) If a broker-dealer fails to pay any assessment on or before the 30th day of the month following the day upon which payment is due, the commissioner may by order summarily suspend or revoke the certificate issued to the broker-dealer. If, after that order is made, a request for hearing is filed in writing and a hearing is not held within 60 days thereafter, the order is deemed rescinded as of its effective date. During any period when its certificate is revoked or suspended, a broker-dealer shall not conduct business pursuant to this division except as may be permitted by order of the commissioner; provided, however, that the revocation, suspension, or surrender of a certificate shall not affect the powers of the commissioner as provided under this division. (6) In determining the amount assessed, the commissioner shall consider all appropriations from the State Corporations Fund for the support of the broker-dealer program under this division and all reimbursements applicable to the administration of the broker-dealer program under this division. (p) The commissioner shall charge a fee of twenty-five dollars ($25) for the filing of a notice or report required by rule adopted pursuant to subdivision (b) of Section 25210 or subdivision (b) of Section 25230. (q) (1) Except as provided for in paragraph (2), the fee for filing an application for an investment adviser under Section 25231 is one hundred twenty-five dollars ($125), and payment of this amount shall keep the certificate, if granted, in effect during the calendar year during which it is granted. Every investment adviser who has secured from the commissioner a certificate shall, in order to keep the certificate in effect for an additional period, pay a renewal fee of one hundred twenty-five dollars ($125) on or before the 31st day of December. (2) Paragraph (1) shall not apply to a broker-dealer licensed under Section 25210. (r) (1) Except as provided for in paragraph (2), the fee for any routine or nonroutine regulatory examination, audit, or investigation is the amount of the salary or other compensation paid to the persons making the examination, audit, or investigation plus the amount of expenses including overhead reasonably incurred in the performance of the work. In determining the costs associated with an examination, audit, or investigation, the commissioner may use the estimated average hourly cost for all persons performing examinations, audits, or investigations for the fiscal year. (2) An investment adviser licensed under Section 25230 pursuant to the Investment Adviser Registration Depository shall not be subject to paragraph (1) only in regard to the fee for a routine regulatory examination of its investment advisory services for which it is licensed under Section 25230. (s) The fee for any hearing held by the commissioner pursuant to Section 25142 shall be the sum determined by the commissioner to cover the actual expense of noticing and holding the hearing. (t) The commissioner may fix by rule a reasonable charge for any publications issued under his or her authority. The charges shall not apply to reports of the commissioner in the ordinary course of distribution. (u) The fee for filing an offer under subdivision (b) of Section 25507 shall be the amount of filing fee payable under subdivision (e), (f), (h), or (i) of this section if an application had been filed to qualify the transaction in which the securities upon which the offer is to be made were sold in violation of the qualification provisions of this law. (v) The fee for filing an application for exemption pursuant to subdivision (l) of Section 25100 is two hundred fifty dollars ($250). (w) The commissioner may by rule require payment of a fee for filing a notice or report required by a rule adopted pursuant to Section 25105. The fee required in connection with a transaction as defined by that rule shall not exceed the fees specified in subdivision (c) based on the value of the securities sold, but the commissioner may permit a single notice for more than one transaction. (x) The fee for filing the first notice of transaction under subdivision (n) of Section 25102 is six hundred dollars ($600). (y) The fee for filing a notice of transaction under subdivision (o) of Section 25102 shall be the fee for filing an application for qualification of the sale of securities by permit under paragraph (1) of subdivision (b) of Section 25113 as set forth in subdivision (e) of this section. (z) The fee for filing a notice of transaction under subdivision (h) of Section 25103 shall be six hundred dollars ($600).


25608.1. (a) The fee for an investment company filing a notice pursuant to subdivision (b) of Section 25100.1 is two hundred dollars ($200) plus one-fifth of 1 percent of the aggregate value of the securities sought to be sold in this state up to a maximum aggregate fee of two thousand five hundred dollars ($2,500). (b) The fee for an issuer filing a notice pursuant to subdivision (a) of Section 25102.1 is six hundred dollars ($600). (c) The fee for an issuer filing a notice pursuant to subdivision (d) of Section 25102.1 is three hundred dollars ($300). (d) The fee for an investment adviser filing a notice pursuant to subdivision (b) of Section 25230.1 is one hundred twenty-five dollars ($125) and the fee for filing a notice or report required by rule adopted pursuant to subdivision (c) of Section 25230.1 is twenty-five dollars ($25).

25608.2. Commencing July 1, 2000, the fee provisions of subdivision (c) of Section 25608, as they apply to the fee for filing a notice pursuant to paragraph (4) of subdivision (f) of Section 25102, and the fee provisions of subdivisions (a), (b), and (c) of Section 25608.1, shall be the maximum fees that may be levied on a notice filing under subdivision (b) of Section 25100.1, subdivision (f) of Section 25102, and subdivisions (a), (c), and (d) of Section 25102.1. The commissioner, however, may set the notice filing fee under subdivision (c) of Section 25608, as it relates to a notice filing under subdivision (f) of Section 25102, and the notice filing fees under subdivisions (a), (b), and (c) of Section 25608.1, at amounts below the maximum fees set forth in those sections. The commissioner shall set the notice filing fees under those sections for the upcoming fiscal year on or about June 1 of each year. If the commissioner fails to set the notice filing fees for the upcoming fiscal year, then the filing fees shall be the maximum fees that may be levied under those sections for the upcoming fiscal year.


25608.3. (a) Notwithstanding Sections 25608 and 25608.1, the commissioner may set any fee under those sections at an amount below the maximum fee set forth in those sections. The commissioner shall set the fee for the upcoming fiscal year on or about June 1 of each year, except that for the six-month period of January 1, 2002, through June 30, 2002, and for the 2002-03 fiscal year, the commissioner, on January 1, 2002, shall, in a reasonable and prudent manner, reduce any fee under Sections 25608 and 25608.1 by an amount below the maximum fee set forth in those sections. For the fiscal year commencing on July 1, 2003, and thereafter, the commissioner shall establish the level of fees adequate to cover anticipated costs, including the maintenance of a prudent reserve, but not to exceed the maximum fees that may be levied under Sections 25608 and 25608.1. If, for the fiscal year commencing on July 1, 2003, or thereafter, the commissioner fails to set the fee for the upcoming fiscal year on or before June 1, then the fee for the next fiscal year shall be the fee that was in effect for the current fiscal year. (b) In carrying out this section, the commissioner shall reduce or suspend fees to achieve no more than a 25-percent fund balance in the State Corporations Fund by June 30, 2007, and thereafter. (c) The department shall report by February 1, 2002, to the Chair of the Joint Legislative Budget Committee and the chairs of the budget committees on the fees to be reduced and the projected revenue and fund balance impact on the State Corporations Fund through the 2006-07 fiscal year. Each year from 2002 through 2007, the department shall submit a status update report by November 1 on the fees reduced, the revenue and fund balance impact in the prior fiscal year, and the projected revenue and fund balance impact through the 2006-07 fiscal year.


25609. Every final order, decision, license, or other official act of the commissioner is subject to judicial review in accordance with law.

25610. The commissioner may from time to time make, amend and rescind such rules, forms, and orders as are necessary to carry out the provisions of this law, including rules and forms governing applications and reports, and defining any terms, whether or not used in this law, insofar as the definitions are not inconsistent with the provisions of this law. For the purpose of rules and forms, the commissioner may classify securities, persons, and matters within his jurisdiction, and may prescribe different requirements for different classes. The commissioner may in his discretion waive any requirement of any rule or form in situations where in his opinion such requirement is not necessary in the public interest or for the protection of investors.


25611. The commissioner may prepare and make available to interested persons lists of persons whose securities are qualified for trading purposes in this state, are exempt from qualification, or are not subject to qualification as the commissioner may determine to be necessary or desirable, and the commissioner may make reasonable charges for those lists to defray the expenses of preparation and dissemination.


25612. No rule, form or order may be made, amended, or rescinded unless the commissioner finds that the action is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policy and provisions of this law.


25612.3. Unless otherwise provided by rule, the commissioner shall require the use of the following forms: (a) Form BD (Uniform Application for Broker-Dealer Registration) for a broker-dealer application. (b) Form ADV (Uniform Application for Investment Adviser Registration) for an investment adviser application. (c) Form BDW (Uniform Request for Broker-Dealer Withdrawal) for withdrawing from licensure as a broker-dealer. (d) Form ADV-W (Notice of Withdrawal from Registration as Investment Adviser) for withdrawing from licensure as an investment adviser. (e) Form U-4 (Uniform Application for Securities Industry Registration or Transfer) for the reporting of an agent of a broker-dealer or an investment adviser representative or associated person of an investment adviser. (f) Form U-5 (Uniform Termination Notice for Securities Industry Registration) for the reporting of the termination of an agent of a broker-dealer or an investment adviser representative or associated person of an investment adviser.

25612.5. (a) To encourage uniform interpretation and administration of this law and the Franchise Investment Law (Division 5 (commencing with Section 31000)) and effective securities and franchise regulation and enforcement, the commissioner may cooperate with the securities agencies or administrators of one or more states, Canadian provinces or territories, or other countries, the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Securities Investor Protection Corporation, any self-regulatory organization, any national or international organization or securities officials or agencies, and any governmental law enforcement or regulatory agency. (b) The cooperation authorized by subdivision (a) includes, but is not limited to, the following actions: (1) Prescribing rules and forms with a view to achieving maximum uniformity in the form and content of registration statements, applications, and reports wherever practicable. (2) Participating in a nationwide central depository for qualification or registration of securities under this law and for documents or records required or allowed to be maintained under this law. (3) Participating in the Central Registration Depository, or any successor or alternative nationwide or regional depository, for the registering, certifying, or licensing of broker-dealers or agents, or both. (4) Participating in the Investment Adviser Registration Depository, or any successor or alternative nationwide or regional depository, for the registering, certifying, or licensing of investment advisers or investment adviser representatives, or both. (5) Cooperating in any regulatory activity necessary in the administration of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law 107-56; USA Patriot Act), consistent with state law. (c) Notwithstanding any other provision of law, any application for qualification, amendment to the application or related securities qualification or registration document or notice under Sections 25100.1, 25101.1, 25102, 25102.1, 25110, 25120, 25130, and 25230.1 or record otherwise required to be signed that is filed in this state as an electronic record pursuant to a nationwide central depository for qualification or registration of securities, or any electronic record filed through the Central Registration Depository or the Investment Adviser Registration Depository, shall be deemed to be a valid original document upon reproduction to paper form by the Department of Corporations. (d) For purposes of this section, "electronic record" has the same meaning as in subdivision (g) of Section 1633.2 of the Civil Code.


25613. The commissioner may by rule or order prescribe (1) the form and content of financial statements required under this law, (2) the circumstances under which consolidated financial statements shall be filed, and (3) the circumstances under which financial statements shall be audited by independent certified public accountants or public accountants.


25614. All rules of the commissioner (other than those relating solely to the internal administration of the Department of Corporations) shall be made, amended or rescinded in accordance with the provisions of the Administrative Procedure Act, Chapter 4 (commencing with Section 11370) of Part 1 of Division 3 of Title 2 of the Government Code. Rules may be adopted prior to the effective date of this law to become effective upon its effective date.


25615. A document is filed when it is received by the commissioner; but no qualification of the sale of securities shall become effective until the appropriate fee has been paid.


25616. The commissioner shall keep an index of all qualifications which are or have ever been effective, all denial, suspension, or revocation orders which have been entered and all permits and certificates which have been issued by him under this law.


25617. Upon request and at such reasonable charges as he prescribes by rule, the commissioner shall furnish to any person photostatic or other copies (certified under his seal of office if requested) of any document which is retained as a matter of public record, except that he shall not charge or collect any fee for photostatic or other copies of any document furnished to public officers for use in their official capacity. In any judicial proceeding or prosecution, any copy so certified is prima facie evidence of the contents of the document certified.


25618. The commissioner in his discretion may honor requests from interested persons for interpretive opinions.


25619. (a) The commissioner may destroy any applications, notices, orders, permits, and revoked or surrendered certificates, together with the files and folders, as useless or obsolete, four years after the date of filing or issuance, with the approval of the Department of General Services; provided, that a permanent record shall be maintained of any disciplinary action taken by the commissioner. (b) When acting as escrow holder for securities, the commissioner may destroy any certificates evidencing securities of any corporation which has been dissolved or whose charter has been suspended for a period of not less than two years for nonpayment of taxes or penalties and may destroy any other records pertaining to the escrow of the securities destroyed, and he or she shall have no further liability or accountability therefor; provided, that the commissioner shall maintain a permanent record containing such information as he or she may by rule prescribe relating to the certificates and records so destroyed. (c) Copies on microfilm or in other form which may be retained by the commissioner in his discretion of any records destroyed under this section shall be accepted for all purposes as equivalent to the original when certified by the commissioner.


25620. (a) Notwithstanding any other provision of law, the commissioner may by rule or order prescribe circumstances under which to accept electronic records or electronic signatures. However, nothing in this section requires the commissioner to accept electronic records or electronic signatures. (b) For purposes of this section, the following terms have the following meanings: (1) "Electronic record" means a record created, generated, sent, communicated, received, or stored by electronic means, and includes a record transmitted by means of facsimile machine or other telephone transceiving equipment. (2) "Electronic signature" means an electronic sound, symbol, or process attached to or logically associated with an electronic record and executed or adopted by a person with the intent to sign the electronic record. (c) The Legislature hereby finds and declares that the Department of Corporations has continuously implemented methods to file records electronically, including broker-dealer and investment adviser applications, and is encouraged to continue to expand its use of electronic filings to the extent feasible, as budget, resources, and equipment are made available to accomplish that goal.


Part 8. General Provisions

Ca Codes (corp:25700-25707) Corporations Code Section 25700-25707



25700. No provision of this law imposing any liability applies to any act done or omitted in good faith in conformity with any rule, form, permit, order, or written interpretive opinion of the commissioner, or any such opinion of the Attorney General, notwithstanding that the rule, form, permit, order, or written interpretive opinion may later be amended or rescinded or be determined by judicial or other authority to be invalid for any reason.

25701. Any condition, stipulation or provision purporting to bind any person acquiring any security to waive compliance with any provision of this law or any rule or order hereunder is void.


25702. Whenever a person is entitled under this law to a hearing in accordance with the provisions of the Administrative Procedure Act, Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, a formal hearing before the Department of Corporations may be substituted with the consent of such person and of the commissioner for such hearing before an independent hearing officer; and in that case after such hearing before the Department of Corporations such person shall not be entitled to any further administrative remedy.


25703. If any provision of this law or the application thereof to any person or circumstance is held invalid, the invalidity shall not affect other provisions or applications of this law which can be given effect without the invalid provision or application, and to this end the provisions of this law are declared to be severable.


25704. (a) Except as expressly provided in this section, prior law exclusively governs all suits, actions, prosecutions or proceedings which are pending or may be initiated on the basis of facts or circumstances occurring before the effective date of this law. (b) No civil suit or action may be maintained to enforce any liability or to establish that any securities are void under prior law unless brought within any period of limitation which applied when the cause of action accrued and, in any event, within three years after the effective date of this law. (c) All effective permits, certificates, orders, consents, and registrations under prior law, all administrative orders relating to the same and all conditions imposed upon the same remain in effect so long as they would have remained in effect if this law had not been enacted. They are considered to have been filed, entered, or imposed under this law, but are governed by prior law. Certificates dated as of January 1, 1969, may be issued by the commissioner after the effective date of this law pursuant to applications filed prior thereto and shall be considered to have been issued under the prior law. Applications for permits filed prior to January 1, 1969, may subsequently be processed without amendment if they comply with prior law, but thereafter shall be otherwise governed by this law. (d) Judicial review of all administrative orders as to which review proceedings have not been instituted by the effective date of this law are governed by Section 25609, except that no review proceeding may be instituted unless the petition is filed within any period of limitation which applied to a review proceeding when the order was entered.


25705. All references to "the Corporate Securities Law" in any code or statute of the State of California shall hereafter be deemed to be references to the Corporate Securities Law of 1968.


25706. (a) All effective permits, orders, and consents under the Real Estate Syndicate Act, all administrative orders relating to the Real Estate Syndicate Act, and all conditions imposed upon the Real Estate Syndicate Act remain in effect so long as they would have remained in effect if such act had not been repealed, but shall be considered to have been filed, entered, or imposed under this law. An application to amend, extend, modify, revoke, or set aside any such permits, orders, or consents shall be filed under and be subject to the provisions of this division. (b) Any application pending under the Real Estate Syndicate Act, upon the effective date of this section, shall be processed by the Real Estate Commissioner pursuant to the provisions of the Real Estate Syndicate Act in effect on December 31, 1977, until such application is granted or denied by such commissioner. (c) Except as expressly provided by this section, the Real Estate Syndicate Act continues to govern all suits, actions, prosecutions, or proceedings which are pending prior to, or which may be initiated thereunder on the basis of facts or circumstances occurring prior to, the effective date of this section. (d) No civil suit or action may be maintained to enforce any liability under the Real Estate Syndicate Act, unless brought within any period of limitation which applied the time the cause of action accrued. (e) Judicial review of all administrative orders under the Real Estate Syndicate Act as to which review proceedings have not been commenced prior to the effective date of this section shall be governed by Section 25609, except that no review proceeding may be commenced unless the petition is filed within the applicable period of limitation which applied to a review proceeding when the order was issued and except that judicial review of administrative orders of the Real Estate Commissioner made pursuant to subdivision (b) shall be governed by the provisions of law applicable to such proceedings on December 31, 1977.


25707. (a) All permits and orders issued under Article 6 (commencing with Section 10237) of Chapter 3 of Part 1 of Division 4 of the Business and Professions Code, and all conditions imposed pursuant to those provisions, shall remain in effect for the period of time that they would have remained in effect if those provisions had not been repealed by the act enacting this section. Following the repeal of those provisions, the permits, orders, and conditions shall be deemed to have been issued or imposed under this division. An application to amend, extend, modify, revoke, or set aside a permit or order shall be filed under this division and is subject to this division. (b) An application pending under Article 6 (commencing with Section 10237) of Chapter 3 of Part 1 of Division 4 of the Business and Professions Code, on the effective date of this section, shall be processed by the Real Estate Commissioner subject to those provisions as they were in effect on December 31, 1996, until each application that was pending on the effective date of this section is granted or denied by the Real Estate Commissioner. (c) Except as expressly provided by this section, all actions, prosecutions, or proceedings under Article 6 (commencing with Section 10237) of Chapter 3 of Part 1 of Division 4 of the Business and Professions Code that are pending prior to the effective date of this section, or that otherwise could be initiated based on facts or circumstances occurring prior to the effective date of this section, shall be governed by those provisions. (d) No civil action may be brought to enforce any liability under Article 6 (commencing with Section 10237) of Chapter 3 of Part 1 of Division 4 of the Business and Professions Code, unless it is brought within the period of limitations that applied to the action at the time the action accrued. (e) Judicial review of orders under Article 6 (commencing with Section 10237) of Chapter 3 of Part 1 of Division 4 of the Business and Professions Code that had not commenced prior to the effective date of this section shall be governed by Section 25609, except that no review proceeding shall be commenced unless the petition is filed within the applicable period of limitations that applied to a review proceeding when the order was issued. Judicial review of an order of the Real Estate Commissioner made pursuant to subdivision (b) shall be governed by the provisions of law applicable to those proceedings on December 31, 1996.


Division 2. Security Owners Protection

Chapter 1. Definitions And General Provisions

Ca Codes (corp:27000-27003) Corporations Code Section 27000-27003



27000. Unless the provision or the context otherwise indicates, and except as expressly otherwise provided in this chapter, words used in this division have the meanings prescribed in Part 1 (commencing with Section 25000) of the Corporate Securities Law.


27001. As used in this division "security" includes all of the things enumerated in Section 25019 and also includes shares, stock, and investment certificates as defined in the Savings Association Law.

27002. (a) As used in this division, "individual" includes every natural person, domestic or foreign private corporation, nonprofit corporation, unincorporated association, company, partnership of whatever kind, syndicate, joint stock company, trustee, protective committee, depositors' league, and other similar organization however described. (b) As used in this division, "individual" does not include any of the following persons: (1) Any licensed practicing attorney rendering or performing services in connection with the practice of law. (2) Any person holding a broker-dealer's or investment adviser's certificate then in effect issued by the commissioner, rendering or performing services as such. (3) Any holder of a permit then in effect, granted by the commissioner under the Corporate Securities Law, permitting the issue of certificates of deposit. (4) Any securities depository as defined in Section 30004 of the Financial Code, which is licensed under Section 30200 of the Financial Code or exempted from licensing thereunder by Section 30005 or 30006 of the Financial Code. (5) Any broker licensed by the Real Estate Commissioner of this state rendering or performing services with respect to securities, if the person would not be subject to the broker-dealer certification requirements for effecting transactions in the securities. (6) Any security owner or holder who, without compensation of any kind, induces or attempts to induce, other security holders or owners of the same issuer into entering into agreements with persons who are excluded from "individual" by virtue of paragraphs (1) to (5), inclusive.

27003. If any provision of this division, or the application thereof to any person or circumstance, is held invalid, the remainder of this division, or the application of such provision to other persons or circumstances, shall not be affected thereby.


Chapter 2. Unlawful And Fraudulent Conduct

Ca Codes (corp:27100-27101) Corporations Code Section 27100-27101



27100. Any individual who, within this state, solicits, receives, collects, or solicits any subscription or contract to pay, any contributions, fees, funds, or compensation of any kind, from any owner or holder of any security, for the purpose of protecting, enforcing, or representing the rights of the security owners or holders evidenced by the security, shall be subject to the provisions of this division.


27101. It is unlawful for any individual, directly or indirectly, in connection with the solicitation, receipt, or collection of, or solicitation of any subscription or contract to pay any contributions, fees, funds, or compensation of any kind, from any owner or holder of any security, for the purpose of protecting, enforcing, or representing the rights of the security owners or holders evidenced by the security, to do any of the following: (a) Employ any device, scheme, or artifice to defraud. (b) By means of any written or oral communication, make any untrue statement of a material fact, or omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading. (c) Engage in any transaction, act, practice, or course of business which operates or would operate as a fraud or deceit upon any person. (d) Misappropriate or convert the funds, security, or property of any other person.


Chapter 3. Civil Liability And Crimes

Ca Codes (corp:27200-27202) Corporations Code Section 27200-27202



27200. Every individual who solicits, receives, collects, or contracts for the payment of, any contributions, fees, funds, or compensation of any kind, in violation of this division, is civilly liable for the return of the full amount of that contribution, fee, or fund, together with reasonable attorney's fees. This liability is both joint and several.


27201. No action shall be maintained to enforce any liability created under Section 27200 unless brought before the expiration of two years after the violation upon which it is based or the expiration of one year after the discovery by the plaintiff of the facts constituting the violation, whichever shall first expire.


27202. Every individual who willfully violates Section 27101 is guilty of a public offense punishable by a fine not exceeding two hundred fifty thousand dollars ($250,000), or by imprisonment in the state prison for two, three, or four years, or by both fine and imprisonment.


27202. Every individual who willfully violates Section 27101 is guilty of a public offense punishable by a fine not exceeding two hundred fifty thousand dollars ($250,000), or by imprisonment pursuant to subdivision (h) of Section 1170 of the Penal Code for two, three, or four years, or by both fine and imprisonment.



Division 3. Capital Access Companies

Chapter 1. General Provisions

Article 1. Short Title And Construction

Ca Codes (corp:28000-28004) Corporations Code Section 28000-28004



28000. This division shall be known and may be cited as the "Capital Access Company Law."


28001. This division shall be liberally construed to accomplish its purposes.

28002. The provisions of the Corporate Securities Law of 1968 (Division 1 (commencing with Section 25000) of Title 4) shall apply to licensees.

28003. The Legislature finds all of the following: (a) It is necessary to increase job opportunities in the state. (b) Promoting the establishment, growth, and expansion of small business firms in this state is an efficient way to increase job opportunities in the state. (c) Small business firms are unable to grow and create job opportunities unless they have access to risk capital. (d) Congress has exempted from the provisions of the federal Investment Company Act of 1940, certain companies that are not in the business of issuing redeemable securities, the operations of which are subject to state regulation governing entities that provide financial or managerial assistance to enterprises doing business, or proposing to do business, in that state. (e) Therefore, in order for the state to obtain the full benefits of that exemption, it is necessary that the state provide for the licensure and regulation of capital access companies, to permit these companies to operate pursuant to the exemption from regulation under the federal Investment Company Act of 1940.


28004. (a) The purpose of this division is to provide for the licensure and regulation of capital access companies that will provide risk capital and management assistance, primarily to small business firms in the state, to enable those companies to operate pursuant to the exemption from regulation under the federal Investment Company Act of 1940. (b) The purpose of this division as set forth in subdivision (a) constitutes the standard that the commissioner shall observe in administering the provisions of this division.


Article 2. Definitions

Ca Codes (corp:28030-28049) Corporations Code Section 28030-28049



28030. Subject to additional definitions contained in this division which are applicable to specific provisions of this division, and unless the context otherwise requires, the definitions in this article apply throughout this division.

28031. "Accredited investor" means a person who is defined in Section 2(a)(15) of the Securities Act of 1933, or any other person that the Securities and Exchange Commission may so designate by rule, regulation, or order, who, by purchasing the securities of a licensee, provides the investment funds with which the licensee will provide financial assistance to small business firms.


28032. "Affiliate" means any person or persons controlling, controlled by, or under common control with, other specified persons.


28033. "Commissioner" means the Commissioner of Corporations or his or her designee with respect to a particular matter.


28034. "Company" means a corporation, limited partnership, limited liability company, or other form of business entity, which is organized under the laws of the State of California.


28035. "Control" means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a specified person.


28036. "Controlling person," when used with respect to a specified person, means any person who controls the specified person, directly or indirectly, through one or more intermediaries.


28037. "Insolvent," when used with respect to any person, means a person who has ceased to pay his or her debts in the ordinary course of business, who cannot pay his or her debts as they become due, or whose liabilities exceed his or her assets.


28038. "License" means a license issued under this division authorizing a licensee to transact business as a capital access company.

28039. "Licensee" means a company that is licensed under this division.

28040. "Officer" means either of the following: (a) When used with respect to a corporation, any person appointed or designated as an officer of the corporation by or pursuant to applicable law or the articles of incorporation or bylaws of the corporation or any person who performs with respect to the corporation functions usually performed by an officer of a corporation. (b) When used with respect to a specified person other than a natural person or a corporation, any person who performs with respect to the specified person functions usually performed by an officer of a corporation with respect to the corporation.


28041. "Order" means any approval, consent, authorization, exemption, denial, prohibition, or requirement applicable to a specific case issued by the commissioner. "Order" includes any condition of a license and any agreement made by any person with the commissioner under this division.


28042. "Parent," when used with respect to a specified person other than a natural person, means any person other than a natural person that controls the specified person, directly or indirectly, through one or more intermediaries.

28043. "Person" means any natural person, proprietorship, joint venture, partnership, trust, business trust, syndicate, association, joint stock company, corporation, limited liability company, government, agency of any government, or any other organization. However, "person," when used with respect to acquiring control of or controlling a specified person, includes any combination of two or more persons acting in concert.


28044. "Principal security holder," means any person who owns, directly or indirectly, of record or beneficially, securities representing 10 percent or more of the voting power of the issuer of those securities.

28045. "To provide financing assistance to a person" means to purchase securities issued by the person, either directly from the person, or indirectly through a securities underwriter.


28046. "Security" has the meaning set forth in Section 25019.


28047. "Small business firm" means a person that proposes to transact, or transacts, business on a regular and continuous basis in California and, together with its affiliates, has a net worth of not more than eighteen million dollars ($18,000,000) and average net income after federal income taxes, excluding any carryover losses, for the preceding two years no greater than six million dollars ($6,000,000).


28047.1. "Smaller business firm" means a person that proposes to transact, or transacts, business on a regular and continuous basis in California and, together with its affiliates, has a net worth of not more than six million dollars ($6,000,000), and average net income after federal income taxes, excluding any carryover losses, for the preceding two years no greater than two million dollars ($2,000,000).


28048. "Subsidiary," when used with respect to a specified person other than a natural person, means any person other than a natural person controlled by the specified person, directly or indirectly, through one or more intermediaries.

28049. "Voting power" has the meaning set forth in Section 194.5.


Chapter 2. Administration

Ca Codes (corp:28100-28111) Corporations Code Section 28100-28111



28100. The commissioner shall administer and enforce the provisions of this division in a manner that facilitates the legislative purposes set forth in Section 28004, consistent with protection of investors.

28101. Whenever the commissioner issues an order or license under this division, the commissioner may impose any conditions that are in his or her opinion necessary to carry out the provisions and purposes of this division.

28102. Any application filed with the commissioner under this division or under any regulation or order issued under this division shall be in a form, shall contain information, shall be signed in a manner, and shall be verified in a manner, that the commissioner may by regulation or order require.


28103. In determining whether to approve any application filed under this division or under any regulation or order issued under this division, the commissioner may consider proposals made by the applicant, including, but not limited to, proposals to appoint officers, sell securities, obtain financing, or purchase securities of small business firms, and, if in the opinion of the commissioner it is probable that the applicant will be able to implement the proposal, the commissioner may make findings on the basis of the proposal. However, whenever the commissioner approves an application on the basis, in whole or in part, of a proposal made by the applicant, the commissioner shall impose upon the approval appropriate conditions requiring that the applicant implement the proposal within a period of time specified by the commissioner.


28104. (a) The commissioner may do both of the following: (1) Make public or private investigations within or outside this state that he or she deems necessary to determine whether to approve any application filed under this division or under any regulation or order issued under this division, to determine whether any person has violated or may violate any provision of this division or of any regulation or order issued under this division, to aid in the enforcement of any provision of this division or of any regulation or order issued under this division, or to aid in the issuing of regulations or orders under this division. (2) Publish information concerning any violation of any provision of this division or of any regulation or order issued under this division. (b) For purposes of any investigation, examination, or other proceeding under this division, the commissioner may administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence, and require the production of any books, papers, correspondence, memoranda, agreements, or other documents or records that the commissioner deems relevant or material to the inquiry. (c) In case of contumacy by, or refusal to obey a subpoena issued to, any person, the superior court, upon application by the commissioner, may issue to the person an order requiring him or her to appear before the commissioner, and to produce documentary evidence, if so ordered, or to give evidence relevant to the matter under investigation or in question. Failure to obey the order of the court may be punished by the court as a contempt.


28105. The commissioner may provide information relating to a licensee or any parent or subsidiary of the licensee to, or receive information relating to a licensee or any parent or subsidiary of the licensee from, any governmental agency.


28106. If the commissioner permits any licensee, any affiliate of the licensee, or any governmental agency to inspect or make copies of any record relating to the licensee or to any director, officer, employee, or affiliate of the licensee, or if the commissioner provides the record, or a copy thereof, to any of those persons, Sections 6254 and 6255 of the Government Code shall continue to apply to the record to the extent that these sections applied to the record prior to that action by the commissioner.


28107. The commissioner may refer any evidence available concerning any violation of this division or of any regulation or order issued under this division that constitutes a crime to the district attorney of the county in which the violation occurred, who may, with or without that reference, institute appropriate criminal proceedings.


28108. Before any applicant for a license is issued a license, the applicant and each parent and subsidiary of the applicant shall file, and each person that becomes a parent or subsidiary of a licensee shall file, not less than 30 days after becoming a parent or subsidiary of the licensee, with the commissioner, in the form the commissioner may by regulation or order require, an irrevocable consent appointing the commissioner to be the person's attorney-in-fact to receive service of any lawful process in any noncriminal judicial or administrative proceeding against the person, or the person's successor, executor, or administrator, which arises under this division or under any regulation or order issued under this division after the consent has been filed, with the same force and validity as if served personally on the person. Service may be made by leaving a copy of the process at any office of the commissioner, but the service is not effective unless (a) the party making the service, who may be the commissioner, forthwith sends notice of the service and a copy of the process by registered or certified mail to the person served at the person's last address on file with the commissioner, and (b) an affidavit of compliance with this section by the party making service is filed on or before the return date, if any, or within that further time as the court, in the case of a judicial proceeding, or the administrative agency, in the case of an administrative proceeding, allows.


28109. Whenever any person, including any nonresident of this state, engages in conduct prohibited or made actionable by this division or by any regulation or order issued under this division, whether or not the person has filed a consent to service of process under Section 28108, and if personal jurisdiction over the person cannot otherwise be obtained in this state, that conduct shall be considered equivalent to the person's appointment of the commissioner to be the person's attorney-in-fact to receive service of any lawful process in any noncriminal judicial or administrative proceeding against the person or the person's successor, executor, or administrator, which grows out of that conduct and which is brought under this division or under any regulation or order issued under this division, with the same force and validity as if served on the person personally. Service may be made by leaving a copy of the process in any office of the commissioner, but the service is not effective unless (a) the party making the service, who may be the commissioner, forthwith sends notice of the service and a copy of the process by registered or certified mail to the person served at the person's last known address or takes other steps which are reasonably calculated to give actual notice, and (b) an affidavit of compliance with this section by the party making service is filed in the case on or before the return date, if any, or within that further time as the court, in the case of a judicial proceeding, or the administrative agency, in the case of an administrative proceeding, allows.


28110. (a) Fees shall be paid to, and collected by, the commissioner, as follows: (1) The fee for filing with the commissioner an application for a license shall be no greater than two thousand dollars ($2,000). (2) The fee for filing with the commissioner an application for approval to acquire control of a licensee shall be no greater than one thousand dollars ($1,000). (3) The fee for filing with the commissioner an application for approval for a licensee to merge with another company, an application for approval for a licensee to purchase all or substantially all of the business of another person, or an application for approval for a licensee to sell all or substantially all of its business or of the business of any of its offices to another licensee, shall be no greater than one thousand dollars ($1,000). However, whenever two or more applications relating to the same merger, purchase, or sale are filed with the commissioner, the fee for filing each application shall be the quotient determined by dividing one thousand dollars ($1,000) by the number of the applications. (4) Whenever the commissioner examines, audits, or investigates any licensee or any affiliate of a licensee, that licensee shall pay, within 10 days after receipt of a statement from the commissioner, a fee that equals the amount of the salary or other compensation paid to the persons making the examination, audit, or investigation plus the amount of expenses, including overhead, reasonably incurred in the performance of the work. The licensee shall be given a preliminary estimate of the fee before the commissioner commences an examination, audit, or investigation. In determining the costs associated with an examination, audit, or investigation, the commissioner may use the estimated average hourly cost for all departmental persons performing examinations, audits, or investigations for the fiscal year. (b) (1) Each fee for filing an application with the commissioner shall be paid at the time the application is filed with the commissioner. (2) No fee for filing an application with the commissioner shall be refundable, regardless of whether the application is approved, denied, withdrawn, or abandoned. (c) All fees charged and collected under this section shall be transmitted to the Treasurer at least weekly, accompanied by a detailed statement therefor, and shall be credited to the State Corporations Fund.


28111. (a) If a licensee becomes licensed as a small business investment company and is subject to regulation by the Small Business Administration under the federal Small Business Investment Act of 1958, the commissioner may by rule or order provide that a licensee in compliance with those federal regulations shall be deemed to be in compliance with the regulatory requirements under this division except those provisions required to exempt licensees from regulation under the federal Investment Company Act of 1940, and the provisions of Chapter 8 (commencing with Section 28550), Chapter 9 (commencing with Section 28600), Chapter 10 (commencing with Section 28650), Chapter 11 (commencing with Section 28700), Chapter 12 (commencing with Section 28800), Chapter 13 (commencing with Section 28900), and Chapter 14 (commencing with Section 28950). (b) A violation by a licensee of any regulation promulgated by the Small Business Administration that the commissioner has by rule or order deemed to be consistent with the regulatory requirements under this division shall constitute a violation of this division. The commissioner shall have all of the powers granted in this division to enforce those federal regulations against a licensee.


Chapter 3. Licensing

Ca Codes (corp:28150-28155) Corporations Code Section 28150-28155



28150. (a) Except as provided in subdivision (b), no person proposing to transact or transacting business in this state, other than a licensee, shall use any name or title that indicates that it is a capital access company or otherwise represent that it is a capital access company or that it is a licensee. (b) Any company that proposes to apply for a license or that has applied for a license, may, before being issued a license, use a name or title that indicates that it is a capital access company if it meets all of the following requirements: (1) The company appends to the name the designation "proposed," "in organization," or "in formation," or any similar designation that the commissioner may approve. The designation shall be set forth at least as conspicuously as the name or title. (2) The company performs only those acts that may be necessary to (A) apply for and obtain the license and (B) prepare to commence transacting business as a licensee. (3) The company does not represent that it is a licensee.


28151. No person other than a person who meets the definition of a licensee may be issued a license under this division.


28152. If the commissioner finds all of the following with respect to an application for a license, the commissioner shall approve the application: (a) That the applicant has a tangible net worth, exclusive of the funds to invest under subdivision (b), in an amount that is not less than two hundred fifty thousand dollars ($250,000) and that the tangible net worth is adequate for the applicant to transact business as a capital access company. (b) That the applicant has funds to invest in an amount that is not less than five million dollars ($5,000,000). (c) That the applicant has, in addition to the requirements of subdivisions (a) and (b), financial resources in an amount that is adequate for the applicant to pay its expenses in transacting business as a capital access company for a period of not less than three years from the date of licensure. (d) That the directors, officers, and controlling persons of the applicant are each of good character and sound financial standing, that the directors and officers of the applicant are each competent to perform their functions with respect to the applicant, and that the directors and officers of the applicant are collectively adequate to manage the business of the applicant as a capital access company. For purposes of this subdivision, the commissioner shall accord weight to the prior or current successful operation of a commercial or investment enterprise. (e) That none of the following persons are subject to any act or omission enumerated in subdivision (a), (e), (f), or (g) of Section 25212, or has been convicted of, or pled nolo contendere to, any offense or been held liable in any civil action specified in subdivision (b) of Section 25212, or is enjoined from any act, conduct, or practice specified in subdivision (c) of Section 25212, or is subject to any order specified in subdivision (d) of Section 25212: (1) A person who is or will be a controlling person of the applicant. (2) A person who makes or will make recommendations with respect to the investment of funds of the applicant. (3) A person who is or will be a partner, principal executive officer, manager, or director of the applicant. (4) A person who occupies or will occupy a similar status or who performs or will perform similar functions to those listed above in paragraphs (1) to (3), inclusive. (5) An employee who materially aids or assists or will materially aid or assist in the applicant's investment-related functions. (6) A broker-dealer or agent who materially aids or assists or will materially aid or assist in the sale or distribution of any securities of the applicant. (f) That it is reasonable to believe that the applicant, if licensed, will comply with the provisions of Section 6(a)(5) of the Investment Company Act of 1940, the applicable provisions of the Corporate Securities Law of 1968, this division, and of any regulation adopted or order issued under this division. If, after notice and a hearing, the commissioner finds otherwise, the commissioner shall deny the application.


28153. (a) For purposes of Section 28152, the commissioner may find: (1) That a director, officer, or controlling person of an applicant is not of good character if the director, officer, or controlling person or any director or officer of the controlling person has been convicted of, or has pleaded nolo contendere to, a crime involving fraud or dishonesty. (2) That it is not reasonable to believe that an applicant, if licensed, will comply with all applicable provisions of this division and of any regulation or order issued under this division if the applicant has been convicted of, or has pleaded nolo contendere to, a crime involving fraud or dishonesty. (b) Subdivision (a) shall not be deemed to be the only grounds upon which the commissioner may find, for purposes of Section 28152, that a director, officer, or controlling person of an applicant is not of good character or that it is not reasonable to believe that an applicant, if licensed, will comply with all applicable provisions of the Investment Company Act of 1940, the Corporate Securities Law of 1968, this division, and of any regulation or order issued under this division.


28154. Except pursuant to Section 28551, no license shall be transferable or assignable.


28155. No licensee shall represent that it is sponsored, recommended, or approved by, or that its abilities or qualifications have in any respect been passed upon by, the commissioner. No licensee shall advertise, print, display, publish, distribute, or broadcast, or cause or permit to be advertised, printed, displayed, published, distributed, or broadcast in any manner, any statement or representation with regard to the business subject to the provisions of this division that is false, misleading, or deceptive, or that omits material information that is necessary to make the statements not false, misleading, or deceptive, or in the case of a licensee, that refers to the supervision of business by the state or any department or official of the state. Nothing in this section shall be deemed to prohibit a licensee from stating that it is licensed if the effect of such license is not misrepresented.


Chapter 4. Organizational Matters

Article 1. Organization And Name

Ca Codes (corp:28200-28201) Corporations Code Section 28200-28201



28200. The organizational documents of the licensee shall include the following statement: (a) The activities of the licensee are limited to the promotion of economic, business, or industrial development in the State of California through the provision of financial or managerial assistance primarily to small business firms and to other activities that are incidental or necessary to carry out that purpose. (b) The licensee will not engage in the business of issuing redeemable securities. (c) The security holders of the licensee are limited, on a class-by-class basis, to persons who reside in the State of California, or who have a substantial business presence in the State of California, and who hold not less than 80 percent of the licensee' s securities. (d) The securities of the licensee will be sold solely to accredited investors (Section 28031) and the licensee will not purchase any securities issued by an investment company as defined in Section 3 of the Investment Company Act of 1940 or issued by any company that would be an investment company except for the exclusions from that definition under paragraph (1) or (7) of Section 3(a) of that act, other than (1) any debt security that is rated investment grade by not less than one nationally recognized statistical rating organization or (2) any security issued by a registered open-end investment company that is required by its investment policies to invest not less than 65 percent of its total assets in securities described in paragraph (1) or securities that are determined by that registered open-end investment company to be comparable in quality to securities described in paragraph (1). (e) The licensee will engage in the transaction of business pursuant to the exemption from registration under the Investment Company Act of 1940 afforded to economic, business, and industrial development companies as provided for by Section 6(a)(5) of the Investment Company Act of 1940, as amended (15 U.S.C. Sec. 80a-6(a)), and a license pursuant to the Capital Access Company Law (Division 3 (commencing with Section 28000)). (f) The investment of funds by the licensee will be limited by and subject to the provisions of Section 6(a)(5) of the Investment Company Act of 1940, the Corporate Securities Law of 1968, and the Capital Access Company Law.


28201. No licensee shall, except by prior written notice to the commissioner, transact business under any name other than its corporate name.


Article 2. Directors

Ca Codes (corp:28210-28212) Corporations Code Section 28210-28212



28210. Each licensee shall have a board of directors, executive committee, or other policy body, which shall consist of not less than three members.

28211. The board of directors, executive committee, or other policy body of each licensee shall hold a meeting not less frequently than once each calendar year.


28212. The board of directors, executive committee, or other policy body of each licensee shall approve the contract to be entered into between the licensee and any person who will make recommendations with respect to the investment of funds of the licensee.


Chapter 5. Offices

Article 1. Establishing, Relocating, And Closing Offices

Ca Codes (corp:28320) Corporations Code Section 28320



28320. (a) No licensee shall relocate its head office without prior written notice to the commissioner. (b) No licensee shall establish, relocate, or close any office (other than its head office) unless it files a notice with the commissioner not less than two business days after taking the action.


Chapter 6. Transaction Of Business

Ca Codes (corp:28400-28405) Corporations Code Section 28400-28405



28400. No licensee shall engage in any business other than the following: (a) The business of providing financing assistance through the purchase of securities of small business firms or smaller business firms doing business or proposing to do business wholly or substantially in this state. (b) The business of providing managerial assistance (including managerial and technical assistance) to small business firms or smaller business firms doing business or proposing to do business wholly or substantially in this state. (c) At least 20 percent of all financing assistance provided by the licensee shall be through purchase of securities of smaller business firms doing business or proposing to do business wholly or substantially in this state.


28404. No licensee shall provide financing assistance to any small business firm for the purpose of evading the requirements of this division.

28405. This section creates and authorizes an exempt class of persons pursuant to Section 1 of Article XV of the California Constitution. The restrictions upon rates of interest contained in Section 1 of Article XV of the California Constitution shall not apply to any evidence of indebtedness purchased by any licensee.



Chapter 7. Records, Reports, And Examinations

Ca Codes (corp:28500-28505) Corporations Code Section 28500-28505



28500. Each licensee shall make and keep books, accounts, and other records in the form and in the manner that the commissioner may by regulation or order require. All records so required shall be kept at the place and shall be preserved for the time that the commissioner may by regulation or order specify.

28501. Each licensee shall, not more than 90 days after the close of each of its fiscal years or within a longer period that the commissioner may by regulation or order specify, file with the commissioner an audit report containing all of the following: (a) Financial statements (including balance sheets, statements of income or loss, statements of changes in capital accounts, and statements of cashflows or, in the case of a licensee that is a California nonprofit corporation, comparable financial statements) for, or as of, the end of the fiscal year, prepared, with audit, by an independent certified public accountant in accordance with generally accepted accounting principles. (b) A report, certificate, or opinion of the independent certified public accountant or independent public accountant, stating that the financial statements were prepared in accordance with generally accepted accounting principles. (c) Any other information that the commissioner may by regulation or order require.

28502. Each licensee, director, officer, and employee of a licensee, and each parent and subsidiary of a licensee shall file with the commissioner all reports that the commissioner may by regulation or order require within the timeframe specified. In addition, each affiliate of a licensee (other than a parent or subsidiary of the licensee) shall file with the commissioner all reports regarding transactions between the affiliate and the licensee that the commissioner may require within the timeframe specified. Each report shall be in a form, shall contain information, shall be signed in a manner, and shall be verified in a manner, that the commissioner may by regulation or order require.


28503. (a) The commissioner shall examine each licensee not less frequently than once each calendar year. (b) (1) The commissioner may at any time examine any licensee or any parent or subsidiary of a licensee. (2) The commissioner may at any time examine any affiliate of a licensee (other than a parent or subsidiary of the licensee), but only with respect to matters relating to transactions between the affiliate and the licensee. (c) The directors, officers, and employees of any licensee or of any affiliate of a licensee being examined by the commissioner and any other person having custody of any of the books, accounts, or records of the licensee or of the affiliate shall exhibit to the commissioner, on request, any or all of the books, accounts, and other records of the licensee or of the affiliate and shall otherwise facilitate the examination so far as it may be in their power to do so. However, in the case of an examination of an affiliate of a licensee other than a parent or subsidiary of the licensee, only books, accounts, and records of the affiliate that relate to transactions between the affiliate and the licensee shall be subject to this subdivision. (d) The commissioner may, if in his or her opinion it is necessary in the examination of any licensee or of any affiliate of a licensee, retain any certified public accountant, attorney, appraiser, or other person to assist him or her, and the licensee shall pay, within 10 days after receipt of a statement from the commissioner, the fees of the person retained.


28504. (a) A licensee may, after the approval of the board of directors, executive committee, or other policy body of the licensee, cause or permit any other person to make or keep any of its books, accounts, or other records. (b) If any person other than a licensee makes or keeps any of the books, accounts, or other records of the licensee, the provisions of this division and of any regulation or order issued under this division shall apply to the person with respect to the performance of those services and with respect to those books, accounts, and other records to the same extent as if the person were the licensee. (c) If any person other than an affiliate of a licensee makes or keeps any of the books, accounts, or other records of the affiliate or, in the case of an affiliate other than a parent or subsidiary of the licensee, the books, accounts, and other records of the affiliate that relate to transactions between the affiliate and the licensee, the provisions of this division and of any regulation or order issued under this division shall apply to the person with respect to those books, accounts, and other records to the same extent as if the person were the affiliate.


28505. Subject to the provisions of Rules 250.10 and 250.10.5 of the Commissioner of Corporations (10 C.C.R. Secs. 250.10 and 250.10.5), the commissioner may make available to the public any report filed with him or her under this division or under any regulations or order issued under this division.


Chapter 8. Acquisition Of Control

Ca Codes (corp:28550-28552) Corporations Code Section 28550-28552



28550. No person shall, except with the prior written approval of the commissioner, acquire control of a licensee.


28551. The commissioner shall approve an application for approval to acquire control of a licensee only if, after notice and a hearing, the commissioner finds all of the following: (a) That the applicant and the directors and officers of the applicant are of good character and sound financial standing. (b) That it is reasonable to believe that, if the applicant acquires control of the licensee, the applicant will comply with all applicable provisions of this division and of any regulation or order issued under this division. (c) That the applicant's plans, if any, to make any major change in the business, corporate structure, or management of the licensee are not detrimental to the safety and soundness of the licensee or the accredited investors of the licensee, or to the public convenience and advantage.


28552. (a) For purposes of Section 28551, the commissioner may find: (1) That an applicant or a director or officer of an applicant is not of good character if the person has been convicted of, or has pleaded nolo contendere to, a crime involving fraud or dishonesty. (2) That an applicant's plan to make a major change in the management of a licensee is detrimental to the safety and soundness of the licensee or the accredited investors of the licensee and to the public convenience and advantage if the plan provides for a person who has been convicted of, or has pleaded nolo contendere to, a crime involving fraud or dishonesty to become a director or officer of the licensee. (b) Subdivision (a) shall not be deemed to be the only grounds upon which the commissioner may find, for purposes of Section 28551, that an applicant or a director or officer of an applicant is not of good character or that an applicant's plan to make a major change in the management of a licensee is detrimental to the safety and soundness of a licensee or to the accredited investors of the licensee, or to the public convenience and advantage.


Chapter 9. Merger And Purchase Or Sale Of Business

Ca Codes (corp:28600-28604) Corporations Code Section 28600-28604



28600. For purposes of this chapter: (a) "Acquiring licensee" means either of the following: (1) In the case of a merger, the licensee that is the surviving company. (2) In the case of a purchase or sale, the licensee that is the purchaser. (b) "Disappearing company" has the meaning set forth in Section 165. (c) "Surviving company" has the meaning set forth in Section 190.


28601. No licensee shall merge with any other company unless either of the following apply: (a) If the licensee is to be the surviving company, the merger is first approved by the commissioner. (b) If the licensee is to be a disappearing company, the surviving company is a licensee and the merger is first approved by the commissioner.


28602. No licensee shall purchase all or substantially all of the business of any other person unless the purchase is first approved by the commissioner.

28603. No licensee shall sell all or substantially all of its business to any other person unless the other person is a licensee and the sale is first approved by the commissioner.


28604. The commissioner shall approve an application for approval of a merger, purchase, or sale, only if, after notice and a hearing, the commissioner finds all of the following: (a) That the merger, purchase, or sale will be safe and sound with respect to the acquiring licensee. (b) That it is reasonable to believe that, upon consummation of the merger, purchase, or sale, the acquiring licensee will comply with all applicable provisions of this division and of any regulation or order issued under this division. (c) That the merger, purchase, or sale will not be detrimental to the licensee or the accredited investors of the licensee, or the public convenience and advantage, or, if the merger, purchase, or sale would be detrimental to any of the foregoing, then it is necessary in the interests of the safety and soundness of any of the parties to it.


Chapter 10. Voluntary Surrender Of License

Ca Codes (corp:28650-28651) Corporations Code Section 28650-28651



28650. Any licensee may offer to surrender its license by filing with the commissioner the license and a report, which shall (a) be in a form, (b) contain information, and (c) be signed and verified in a manner, that the commissioner may by regulation or order require.


28651. (a) Except as otherwise provided in subdivision (b), a voluntary surrender of a license shall be effective upon the issuance of an order by the commissioner accepting the offer of surrender and the report required under Section 28650. (b) If a proceeding to revoke or suspend a license is pending at the time when the license and the report required under Section 28650 are filed with the commissioner or if a proceeding to revoke or suspend a license or to impose conditions upon the surrender of a license is instituted before the license and the report called for in Section 28650 are filed with the commissioner, the voluntary surrender of the license shall become effective at the time and upon the conditions that the commissioner may by order specify.


Chapter 11. Enforcement

Ca Codes (corp:28700-28716) Corporations Code Section 28700-28716



28700. For purposes of this chapter, unless the context otherwise requires: (a) "Office with a licensee" means the position of director, officer, or employee of the licensee or of any subsidiary of the licensee. (b) "Subject person," when used with respect to a licensee, means any of the following: (1) Any controlling person or affiliate of the licensee. (2) Any director, officer, or employee of the licensee or of any of the persons specified in paragraph (1). (3) Any other person who participates in the conduct of the business of the licensee.


28701. Whenever it appears to the commissioner that any person has violated, or that there is reasonable cause to believe that any person may violate, any provision of this division or of any regulation or order issued under this division, the commissioner may bring an action in the name of the people of this state in the superior court to enjoin the violation or to enforce compliance with this division or with any regulation or order issued under this division. Upon a proper showing, a restraining order, preliminary or permanent injunction, or writ of mandate shall be granted, and a receiver or a conservator may be appointed for the defendant or the defendant's assets. The court may not require the commissioner to post a bond.


28702. (a) If the commissioner finds that any person has violated, or that there is reasonable cause to believe that any person may violate, Section 28150, the commissioner may order the person to cease and desist from the violation unless and until the person is issued a license. (b) (1) Within 30 days after an order is issued pursuant to subdivision (a), the person to whom the order is directed may file with the commissioner an application for a hearing on the order. If the commissioner fails to commence a hearing within 15 business days after the application is filed with him or her (or within any longer period to which the person consents), the order shall be deemed rescinded. Upon the completion of the hearing, the commissioner shall affirm, modify, or rescind the order. (2) The right of any person to whom an order is issued under subdivision (a) to petition for judicial review of the order shall not be affected by the failure of the person to apply to the commissioner for a hearing on the order pursuant to paragraph (1).


28703. The commissioner may issue a cease and desist order, including an order to take appropriate corrective action, if, after notice and a hearing, the commissioner finds either of the following: (a) That any licensee or any subject person of a licensee has violated, is violating, or that there is reasonable cause to believe that any licensee or any subject person of a licensee may violate, any provision of this division or of any regulation or order issued under this division or any provision of any other applicable law. (b) That any licensee or any subject person of a licensee has engaged or participated in, is engaging or participating in, or that there is reasonable cause to believe that any licensee or any subject person of a licensee may engage or participate in, any unsafe or unsound act with respect to the business of the licensee.


28704. (a) The commissioner may issue a cease and desist order, including an order to take appropriate corrective action, if the commissioner finds both of the following: (1) That any of the factors set forth in Section 28703 is true with respect to any licensee or any subject person of a licensee. (2) That the action or violation is likely to cause the insolvency of, or substantial dissipation of the assets or earnings of, the licensee, or is likely to seriously weaken the condition of the licensee or otherwise to seriously prejudice the interests of the licensee or the accredited investors of the licensee, prior to the completion of proceedings conducted pursuant to Section 28703. (b) (1) Within 30 days after an order is issued pursuant to subdivision (a), any licensee or subject person of a licensee to whom the order is directed may file with the commissioner an application for a hearing on the order. The filing of an application for a hearing shall not stay the effectiveness of the order. If the commissioner fails to commence a hearing within 15 business days after the application is filed (or within any longer period to which the licensee or subject person consents), the order shall be deemed rescinded. Upon the completion of the hearing, the commissioner shall affirm, modify, or rescind the order. (2) The right of any licensee or subject person of a licensee to whom an order is issued under subdivision (a) to petition for judicial review of the order shall not be affected by the failure of the licensee or subject person to apply to the commissioner for a hearing on the order pursuant to paragraph (1).


28705. The commissioner may issue an order removing a subject person from that person's office with the licensee, if any, and prohibiting that person from further participating in any manner in the conduct of the business of the licensee, if, after notice and a hearing, the commissioner finds all of the following: (a) (1) That the subject person of a licensee has violated a provision of this division or of any regulation or order issued under this division or any provision of any other applicable law; (2) That the subject person of a licensee has engaged or participated in any unsafe or unsound act with respect to the business of the licensee; or (3) That the subject person of a licensee has engaged or participated in any act which constitutes a breach of his or her fiduciary duty as a subject person. (b) (1) That the act, violation, or breach of fiduciary duty has caused or is likely to cause substantial financial loss or other damage to the licensee or the accredited investors of the licensee; or (2) That the act, violation, or breach of fiduciary duty has seriously prejudiced or is likely to seriously prejudice the interests of the licensee or the accredited investors of the licensee; or (3) That the subject person has received financial gain by reason of the act, violation, or breach of fiduciary duty. (c) That the act, violation, or breach of fiduciary duty either involves dishonesty on the part of the subject person or demonstrates the subject person's gross negligence with respect to the business of the licensee or a willful disregard for the safety and soundness of the licensee.


28706. The commissioner may issue an order removing a subject person from his or her office, if any, with the licensee and prohibiting him or her from further participating in any manner in the conduct of the business of the licensee, except with the prior consent of the commissioner, if the commissioner finds, after notice and a hearing, that the subject person of a licensee has, by engaging or participating in any act with respect to any financial or other business institution which resulted in substantial financial loss or other damage, demonstrated either of the following: (a) Dishonesty. (b) Willful or continuing disregard for the safety and soundness of the financial or other business institution.


28707. (a) The commissioner may issue an order suspending a subject person from his or her office, if any, with the licensee and prohibiting him or her from further participating in any manner in the conduct of the business of the licensee, except with the consent of the commissioner, if the commissioner finds both of the following: (1) That the factors set forth in subdivisions (a), (b), and (c) of Section 28705 or the factors set forth in subdivision (a) of Section 28706 are true with respect to the subject person of a licensee. (2) That it is necessary for the protection of the interests of the licensee or the accredited investors of the licensee, or for the protection of the public interest that the commissioner immediately suspend the subject person from his or her office, if any, with the licensee and prohibit him or her from further participating in any manner in the conduct of the business of the licensee. (b) (1) Within 30 days after an order is issued pursuant to subdivision (a), any subject person of a licensee to whom the order is directed may file with the commissioner an application for a hearing on the order. The filing of an application for a hearing shall not stay the effectiveness of the order. If the commissioner fails to begin a hearing within 15 business days after the application is filed (or within any longer period to which the subject person consents), the order shall be deemed rescinded. Upon the completion of the hearing, the commissioner shall affirm, modify, or rescind the order. (2) The right of any subject person of a licensee to whom an order is issued under subdivision (a) to petition for judicial review of the order shall not be affected by the failure of the subject person to apply to the commissioner for a hearing on the order pursuant to paragraph (1).

28708. (a) The commissioner may issue an order suspending a subject person from his or her office, if any, with the licensee and prohibiting him or her from further participating in any manner in the conduct of the business of the licensee, except with the consent of the commissioner, if the commissioner finds both of the following: (1) That the subject person of a licensee has been indicted by a grand jury for, or held to answer by a magistrate for, a crime involving dishonesty or breach of trust. (2) That the continuation of that person as a subject person of the licensee may threaten the interests of the licensee or the accredited investors of the licensee, or may threaten to impair public confidence in the licensee. (b) The commissioner may issue an order suspending or removing the subject person or former subject person from his or her office, if any, with the licensee and prohibiting him or her from further participating in any manner in the conduct of the business of the licensee, except with the prior consent of the commissioner, if the commissioner finds both of the following: (1) That the subject person or former subject person of a licensee to whom an order was issued pursuant to subdivision (a) or any other subject person of a licensee has been finally convicted of a crime which is punishable by imprisonment for a term exceeding one year and which involves dishonesty or breach of trust. (2) That the continuation or resumption by that person as a subject person of the licensee may threaten the interests of the licensee or the accredited investors of the licensee, or may threaten to impair public confidence in the licensee. (c) (1) Within 30 days after an order is issued pursuant to subdivision (a) or (b), any subject person of a licensee to whom the order is directed may file with the commissioner an application for a hearing on the order. If the commissioner fails to commence a hearing within 15 business days after the application is filed (or within any longer period to which the subject person consents), the order shall be deemed rescinded. Upon the completion of the hearing, the commissioner shall affirm, modify, or rescind the order. (2) The right of any subject person or former subject person of a licensee to whom an order is issued under subdivision (a) or (b) to petition for judicial review of the order shall not be affected by the failure of the person to apply to the commissioner for a hearing on the order pursuant to paragraph (1). (d) The fact that any subject person of a licensee charged with a crime involving dishonesty or breach of trust is not finally convicted of the crime shall not preclude the commissioner from issuing an order to the subject person pursuant to any other section of this division.


28709. Any person to whom an order is issued under Section 28705, 28706, 28707, or 28708 may apply to the commissioner to modify or rescind the order. The commissioner shall not grant the application unless the commissioner finds that it is in the public interest to do so and that it is reasonable to believe that the person will, if and when he or she becomes a subject person of a licensee, comply with all applicable provisions of this division and of any regulation or order issued under this division.


28710. The commissioner may issue an order suspending or revoking the license of a licensee, if, after notice and a hearing, the commissioner finds any of the following: (a) That the licensee or any controlling person or affiliate of the licensee has violated any provision of this division or of any regulation or order issued under this division or any provision of any other applicable law. (b) That the licensee is conducting its business in an unsafe and unsound manner. (c) That the licensee is in a condition that it is unsafe or unsound for it to transact business. (d) That the licensee has ceased to transact business as a capital access company. (e) That the licensee is insolvent. (f) That the licensee has suspended payment of its obligations, has made an assignment for the benefit of its creditors, or has admitted in writing its inability to pay its debts as they become due. (g) That the licensee is the subject of an order for relief in bankruptcy or has sought other similar relief under any other bankruptcy, reorganization, insolvency, or moratorium law, or that any person has applied for any of that relief under any of those laws against any licensee and the licensee has by any affirmative act approved of or consented to the action or the relief has been granted. (h) That any fact or condition exists which, if it had existed at the time when any licensee applied for its license, would have been grounds for denying the application.


28711. (a) If the commissioner finds that any of the factors set forth in Section 28710 is true with respect to any licensee and that it is necessary for the protection of the public interest that the commissioner immediately suspend or revoke the license of the licensee, the commissioner may issue an order suspending or revoking the license of the licensee. (b) Within 30 days after an order is issued pursuant to subdivision (a), any licensee to whom the order is directed may file with the commissioner a request for a hearing on the order. If the commissioner fails to commence a hearing within 15 business days after the request is filed (or within any longer period to which the licensee consents), the order shall be deemed rescinded. Upon the completion of the hearing, the commissioner shall affirm, modify, or rescind the order.


28712. Any person whose license is suspended or revoked shall immediately deliver the license to the commissioner.


28713. Any person to whom an order is issued under Section 28709 or 28710 may apply to the commissioner to modify or rescind the order. The commissioner shall not grant the application unless the commissioner finds that it is in the public interest to do so and that it is reasonable to believe that the person will, if and when it becomes a licensee, comply with all applicable provisions of this division and of any regulation or order issued under this division.


28714. (a) If the commissioner finds that any of the factors set forth in Section 28709 is true with respect to any licensee and that it is necessary for the protection of the interests of the licensee or the accredited investors of the licensee, or for the protection of the public interest that the commissioner take immediate possession of the property and business of the licensee, the commissioner may forthwith take possession of the property and business of the licensee and retain possession until the licensee resumes business or is finally liquidated. The licensee may, with the consent of the commissioner, resume business upon any conditions that the commissioner may prescribe. (b) Whenever the commissioner takes possession of the property and business of a licensee pursuant to subdivision (a), the licensee may apply within 10 days to the superior court in the county in which the head office of the licensee is located to enjoin further proceedings. The court, after citing the commissioner to show cause why further proceedings should not be enjoined and after a hearing, may dismiss the application or enjoin the commissioner from further proceedings and order the commissioner to surrender the property and business of the licensee to the licensee or make any further order that may be just. (c) An appeal may be taken from the judgment of the superior court by the commissioner or by the licensee in the manner provided by law for appeals from the judgment of a superior court. An appeal from the judgment of the superior court shall operate as a stay of the judgment. No bond need be given if the appeal is taken by the commissioner, but if the appeal is taken by the licensee, a bond shall be given as required by the Code of Civil Procedure. (d) Whenever the commissioner takes possession of the property and business of a licensee pursuant to subdivision (a), the commissioner shall conserve or liquidate the property and business of the licensee.

28715. Sections 11041, 11042, and 11043 of the Government Code do not apply to the Commissioner of Corporations.


28716. (a) It is unlawful for any person to knowingly alter, destroy, mutilate, conceal, cover up, falsify, or make a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the administration or enforcement of this division. (b) It is unlawful for any person to knowingly make an untrue statement to the commissioner during the course of licensing, investigation, or examination, with the intent to impede, obstruct, or influence the administration or enforcement of any provision of this division.


Chapter 12. Crimes And Criminal Penalties

Article 1. General Provisions

Ca Codes (corp:28800-28802) Corporations Code Section 28800-28802



28800. It shall be unlawful for any person willfully to make any untrue statement of a material fact in any application, report, or other document filed with the commissioner under this division or under any regulation or order issued under this division, or willfully to omit to state in any application, report or other document filed with the commissioner under this division any material fact which is required to be stated therein.


28801. It shall be unlawful for any person having custody of any of the books, accounts, or other records of a licensee willfully to refuse to allow the commissioner, upon request, to inspect or make copies of any of those books, accounts, or other records.


28802. It shall be unlawful for any person, with intent to deceive any director, officer, employee, auditor, or attorney of a licensee, the commissioner or any governmental agency, to make any false entry in any of the books, accounts or other records of the licensee, to omit to make any entry in those books, accounts or other records which the person is required to make, or to alter, conceal, or destroy any of those books, accounts, or other records.


Article 2. Conflicts Of Interest

Ca Codes (corp:28820-28821) Corporations Code Section 28820-28821



28820. In this article, unless the context otherwise requires: (a) (1) "Associate," when used with respect to a licensee, means all of the following: (A) Any principal shareholder, director, officer, manager, agent, or adviser of the licensee. (B) Any director, officer, partner, general manager, agent, employer, or employee of any person referred to in subparagraph (A). (C) Any person who controls, is controlled by, or is under common control with, any person referred to in subparagraph (A), directly or indirectly, through one or more intermediaries. (D) Any close relative of any person referred to in subparagraph (A). (E) Any person of whom any person referred to in subparagraphs (A) to (D), inclusive, is a director or officer. (F) Any person in whom any person referred to in subparagraphs (A) to (D), inclusive, or any combination of persons acting in concert owns or controls, directly or indirectly, a 10-percent or greater equity interest. (2) For purposes of this subdivision, any person who is in any of the relationships referred to in subparagraphs (A) to (F), inclusive, of paragraph (1) within six months before or after a licensee provides financing assistance shall be deemed to be in the relationship as of the date when the licensee provides the financing assistance. (3) For purposes of this subdivision, if a licensee, in order to protect its interests, designates any person to serve as a director of, officer of, or in any capacity in the management of, a small business firm to which the licensee provides financing assistance, the person shall not, on that account, be deemed to have any relationship with the small business firm. However, this paragraph shall not apply in any case where the person has, directly or indirectly, any other financial interest in the small business firm or where the person, at any time before the licensee provides the financing assistance, served as a director of, officer of, or in any other capacity in the management of, the small business firm for a period of 30 days or more. (b) "Close relative" means ancestor, lineal descendant, brother or sister and lineal descendants of either, spouse, father-in-law, mother-in-law, son-in-law, brother-in-law, daughter-in-law, or sister-in-law.

28821. (a) A licensee shall not provide financial or managerial assistance to, or for the benefit of, any person to the detriment of a small business firm or smaller business firm, the licensee, its shareholders, or partners. Unless a licensee obtains a prior written exemption from the commissioner for special instances in which providing financial assistance may further the purposes of this division despite presenting a conflict of interest, a licensee shall not directly or indirectly do any of the following: (1) Provide financial assistance to any of the licensee's associates. (2) Provide financial assistance to an associate of another licensee, if one of the licensee's associates has received or will receive any direct or indirect financial assistance or a commitment from that licensee or a third licensee, including financial assistance or commitments received under any understanding, agreement, or cross dealing, reciprocal or circular arrangement. (3) Borrow money from any of the following: (A) A small business firm or smaller business firm to which the licensee has provided financial assistance. (B) An officer, director, or owner of at least a 10-percent equity interest in the business. (C) A close relative of a person described in subparagraph (B). (4) Provide financial assistance to a small business firm or smaller business firm to discharge an obligation to a licensee's associate or to make other funds available to pay the obligation, except if the obligation is to an associate lending institution and is a line of credit or other obligation incurred in the normal course of business. (5) Provide financial assistance to a small business firm or smaller business firm for the purpose of purchasing property from a licensee's associate. (b) Without the commissioner's prior written approval, a licensee' s associates shall not, directly or indirectly, do either of the following: (1) Borrow money from any person described in paragraph (3) of subdivision (a). (2) Receive from a small business firm or smaller business firm any compensation in connection with any financial assistance a licensee provides or anything of value for procuring, attempting to procure, or influencing a licensee's action with respect to that financial assistance. (c) (1) Without the commissioner's prior written approval, a licensee shall not provide financial assistance to any business in which the licensee's associate has either a voting equity interest, or total equity interests, including potential interests, of at least 5 percent. (2) If a licensee and its associate provide financial assistance to the same small business firm or smaller business firm, whether at the same time or different times, a licensee shall demonstrate to the commissioner's satisfaction that the terms and conditions are, or were, fair and equitable to the licensee, taking into account any differences in the timing of each party's financial transactions. (3) Financial assistance that meets either of the following criteria is exempt from the prior approval requirement in paragraph (1) and shall be presumed to be fair and equitable to the licensee for the purposes of paragraph (2): (A) The licensee's associate is a lending institution that is providing financing under a credit facility in order to meet the operational needs of a small business firm or smaller business firm, and the terms of that financing are usual and customary. (B) The licensee's associate invests in the small business firm or smaller business firm on the same terms and conditions and at the same time as the licensee. (d) To protect a licensee's investment, a licensee may designate an associate to serve as an officer, director, or other participant in the management of a small business firm or smaller business firm. The licensee shall identify this associate in the licensee's records maintained and made available for the commissioner's review. Without the commissioner's prior written approval, the associate shall not do any of the following: (1) Have any other direct or indirect financial interest in the small business firm or smaller business firm that exceeds, or has the potential to exceed, 5 percent of the firm's equity. (2) Have served for more than 30 days as an officer, director, or other participant in the management of the small business firm or smaller business firm before the licensee provided the financial assistance. (3) Receive any income or anything of value from the small business firm or smaller business firm unless it is for the licensee' s benefit, with the exception of director's fees, expenses, and distributions based upon the associate's ownership interest in the small business firm or smaller business firm.


Article 3. Criminal Penalties

Ca Codes (corp:28880-28881) Corporations Code Section 28880-28881



28880. Any person who willfully violates any provision under this chapter shall upon conviction be fined not more than two hundred fifty thousand dollars ($250,000) or be imprisoned in the state prison, or in a county jail for not more than one year, or be punished by both that fine and imprisonment.


28880. Any person who willfully violates any provision under this chapter shall upon conviction be fined not more than two hundred fifty thousand dollars ($250,000) or be imprisoned pursuant to subdivision (h) of Section 1170 of the Penal Code, or in a county jail for not more than one year, or be punished by both that fine and imprisonment.


28881. Nothing in this division limits the power of the state to punish any person for any act which constitutes a crime under any statute.


Chapter 13. Civil Penalties

Ca Codes (corp:28900-28901) Corporations Code Section 28900-28901



28900. If, after notice and a hearing, the commissioner finds that any person has violated any provision of this division or of any regulation or order issued under this division, the commissioner may order the person to pay to the commissioner a civil penalty in that amount as the commissioner may specify. However, the amount of the civil penalty shall not exceed two thousand five hundred dollars ($2,500) for each violation, or in the case of a continuing violation, two thousand five hundred dollars ($2,500) for each day for which the violation continues.


28901. The provisions of Section 28900 are additional to, and not alternative to, other provisions of this division which authorize the commissioner to issue orders or to take other action on account of a violation of any provision of this division or of any regulation or order issued under this division. However, no person who has been finally convicted under Chapter 12 (commencing with Section 28800) of this division on account of a violation of any provision of Chapter 12 (commencing with Section 28800) shall be liable to pay a civil penalty under Section 28900 on account of the violation.


Chapter 14. Miscellaneous Provisions

Ca Codes (corp:28950-28958) Corporations Code Section 28950-28958



28950. No provision of this division imposing any liability applies to any act done or omitted in good faith in conformity with any rule, form, permit, order, or written interpretive opinion of the commissioner, or any written interpretive opinion of the Attorney General, notwithstanding that the rule, form, permit, order, or written interpretive opinion may later be amended or rescinded or be determined by judicial or other authority to be invalid for any reason.

28951. (a) The commissioner may from time to time make, amend, and rescind the rules, forms, and orders that are necessary to carry out this law, and define any terms, whether or not used in this law, insofar as the definitions are not inconsistent with this law. For the purpose of rules, the commissioner may, among other things, classify persons within the commissioner's jurisdiction and may prescribe different requirements for different classes. The commissioner may, in the commissioner's discretion, waive any requirement of any rule or form in situations where in his or her opinion the requirement is not necessary in the public interest. (b) The commissioner may, by regulation or order, either unconditionally or upon specified terms and conditions or for specified periods, exempt from the provisions of this division any person or transaction or class of persons or transactions, if the commissioner finds that action to be in the public interest and that the regulation of those persons or transactions is not necessary for the purposes of this division.


28952. The commissioner may honor requests from interested persons for interpretive opinions.


28953. In any proceeding under this law, the burden of proving an exemption or an exception from a definition is upon the person claiming it.

28954. Every final order, decision, license, or other official act of the commissioner is subject to judicial review in accordance with law.

28955. Nothing in this law, shall impair, derogate, or otherwise affect the authority or powers of the commissioner under the Corporate Securities Law of 1968 (Part 3 (commencing with Section 25000)) or the application of any provision thereof to any person or transaction subject thereto.


28956. If any provision of this division , or the application thereof to any person or circumstance, is held invalid, the invalidity shall not affect other provisions or applications of this law that can be given effect without the invalid provision or application, and to this end the provisions of this division are declared to be severable.


28957. Neither the commissioner nor any employee of the commissioner shall use any information which is filed with or obtained by the commissioner which is not public information for personal gain or benefit, nor shall the commissioner nor any employee of the commissioner engage in any securities transaction based on that information, even though public, if there has not been a sufficient period of time for the securities or commodity markets to assimilate that information.


28958. (a) The program established by this division shall be supported from funds appropriated by the Legislature from the State Corporations Fund. (b) The funds appropriated from the State Corporations Fund and made available for expenditure under subdivision (a) of this section shall come from fees collected under Section 28110, penalties collected under Sections 28880 and 28900, and securities application filing fees collected under subdivisions (e), (f), (h), and (i) of Section 25608 and notice filing fees collected under subdivision (a) of Section 25608.1.


Division 4. Bucket Shop Law

Chapter 1. Definitions

Ca Codes (corp:29000-29008) Corporations Code Section 29000-29008



29000. Unless the provision or the context otherwise requires, the definitions set forth in this chapter govern the construction of this division.

29001. "Person" means an individual, partnership, corporation, limited liability company, or association, either domestic or foreign, whether acting in his or her own right or as the officer, agent, servant, employee, correspondent, or representative of another or as trustee.


29002. (a) "Trustee" means a person executing a trust, as defined in this section. (b) "Trust" means any voluntary trust expressly created by or declared in an instrument in writing, other than a will or a judicial writ, order, decree, or judgment, to carry on any business or to secure the payment or repayment of money.


29003. "Contract" includes any agreement, trade, or transaction.


29004. "Securities" means all shares in any corporation or association or of trustees, bonds, coupons, scrip, rights, choses in action, and other evidences of debt or property and options for the purchase or sale thereof or of any right entitling the holder thereof to participate in profits or a division of assets.


29005. "Commodities" means anything movable that is bought and sold.

29006. "Bucket shop" means any room, office, store, building, or other place where any bucketing or bucket shopping contract is made or offered to be made.

29007. "Keeper" means any person owning, keeping, managing, operating, or promoting a bucket shop, or assisting to keep, manage, operate, or promote a bucket shop.


29008. "Bucketing" or "bucket shopping" means any of the following: (a) Making or offering to make any contract respecting the purchase or sale of any securities or commodities, wherein both parties intend, or the keeper intends, that the contract shall be, or may be, terminated, closed, or settled according to or upon the basis of the public market quotations of prices made on any board of trade or exchange upon which the securities or commodities are dealt in, without a bona fide purchase or sale of the securities or commodities. (b) Making or offering to make any contract respecting the purchase or sale of any securities or commodities, wherein both parties intend, or the keeper intends, that the contract shall be, or may be, deemed terminated, closed, or settled when the public market quotations of prices for the securities or commodities named in the contract reach a certain figure without a bona fide purchase or sale of the securities or commodities. (c) Making or offering to make any contract respecting the purchase or sale of any securities or commodities, wherein both parties do not intend, or such keeper does not intend, the actual or bona fide receipt or delivery of the securities or commodities, but do intend, or the keeper does intend, a settlement of the contract based upon the differences in the public market quotations of prices at which the securities or commodities are or are asserted to be bought and sold. (d) The sale by a keeper of any security or commodity purchased by him for the account of or upon the order of another when the proceeds of the sale are not immediately credited by the keeper to the account of the other person and when a report or statement in writing of the sale is not rendered to the other person by the keeper on the next business day following the sale.


Chapter 2. Prohibited Activities

Ca Codes (corp:29100-29105) Corporations Code Section 29100-29105



29100. Any person who makes or offers to make any contract constituting bucketing under Section 29008, or who makes any sale constituting bucketing under Section 29008, or who is the keeper of any bucket shop, is guilty of a felony.

29101. Any person who communicates, receives, exhibits, or displays in any manner any statement of quotations of prices of any securities or commodities, with an intent to make, or to offer to make, or to aid in making or offering to make, any contract constituting bucketing under Section 29008 is guilty of a felony.


29102. The felonies specified in this chapter are punishable, for each offense, if the offender is a corporation, by a fine of not less than one thousand dollars ($1,000) nor more than ten thousand dollars ($10,000) or, if the offender is not a corporation, by imprisonment in a state prison or by a fine of not less than one thousand dollars ($1,000) nor more than ten thousand dollars ($10,000), or by both such imprisonment and fine.


29102. The felonies specified in this chapter are punishable, for each offense, if the offender is a corporation, by a fine of not less than one thousand dollars ($1,000) nor more than ten thousand dollars ($10,000) or, if the offender is not a corporation, by imprisonment pursuant to subdivision (h) of Section 1170 of the Penal Code, or by a fine of not less than one thousand dollars ($1,000) nor more than ten thousand dollars ($10,000), or by both that imprisonment and fine.


29103. The prosecution, conviction, and punishment of a corporation under any provision of this chapter shall not be deemed to be a prosecution, conviction, or punishment of any of its officers, directors, or shareholders.

29104. All contracts for the purchase or sale of shares of the capital stock of any corporation or association without any intention on the part of one party to deliver and of the other party to receive the shares, and contemplating merely the payment of differences between the contract and market prices on divers days, shall be void, and neither party to any such contract shall be entitled to recover any damages for failure to perform the same, or any money paid thereon, in any court of this state.


29105. (a) It is unlawful for any person to knowingly alter, destroy, mutilate, conceal, cover up, falsify, or make a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the administration or enforcement of this division. (b) It is unlawful for any person to knowingly make an untrue statement to the commissioner during the course of licensing, investigation, or examination, with the intent to impede, obstruct, or influence the administration or enforcement of any provision of this division.


Chapter 3. Required Records And Statements

Ca Codes (corp:29200-29201) Corporations Code Section 29200-29201



29200. Every person doing business as a broker or making contracts as a broker or agent for the purchase or sale of any securities or commodities on any board of trade or exchange shall keep or cause to be kept at his office or place of business correct and permanent records or books of account showing each of such transactions as a separate item. The failure so to keep or cause to be kept such records or books of account is prima facie evidence that any such contract was bucketing or bucketshopping. Such records or books of account shall at all times be open to inspection by the Commissioner of Corporations or by any deputy, investigator, or auditor of the Department of Corporations to whom he may delegate such authority in writing.


29201. Every person shall, upon written demand therefor, furnish to any customer or principal for whom he has executed any order for the actual purchase or sale of any securities or commodities on any board of trade or exchange, either for immediate or future delivery, a written statement showing the name of the person from whom the property was bought or to whom it was sold, as the case may be, and the time when, place where, and the price at which it was either bought or sold. If any such person refuses or neglects to furnish such a statement within forty-eight hours after such demand, the refusal or neglect is prima facie evidence that the transaction was bucketing or bucket shopping within the terms of this division.



Division 4.5. Commodities

Chapter 1. Definitions

Ca Codes (corp:29500-29516) Corporations Code Section 29500-29516



29500. This division shall be known and may be cited as the "California Commodity Law of 1990." References herein to "this law" refer to the applicable provisions of this division unless the context otherwise requires. The definitions in this chapter govern the construction of this law.


29501. "Board of trade" means any person or group of persons engaged in buying or selling any commodity or receiving the same for sale on consignment, whether the person or group of persons is characterized as a board of trade, exchange, or other form of marketplace.


29502. "Business days" are all days other than every Saturday, every Sunday and such other days as are specified or provided for as holidays in the Government Code.


29503. "Commissioner" means the Commissioner of Corporations.


29504. "Commodity" means, except as otherwise specified by the commissioner by rule or order, any agricultural, grain, or livestock product or byproduct, any metal or mineral (including a precious metal set forth in Section 29515), any gem or gemstone (whether characterized as precious, semiprecious, or otherwise), any fuel (whether liquid, gaseous, or otherwise), any foreign currency, and all other goods, articles, products, or items of any kind. However, the term "commodity" shall not include (a) a numismatic coin whose fair market value is at least 15 percent higher than the value of the metal it contains, or (b) any work of art offered or sold by art dealers, at public auction, or through a private sale by the owner of the work of art.


29505. (a) "Commodity contract" means any account, agreement, or contract for the purchase or sale, primarily for speculation or investment purposes and not for use or consumption by the offeree or purchaser, of one or more commodities, whether for immediate or subsequent delivery or whether delivery is intended by the parties, and whether characterized as a cash contract, deferred shipment or deferred delivery contract, forward contract, futures contract, installment or margin contract, leverage contract, or otherwise. A "commodity contract" includes a commodity option as defined in Section 29510, unless otherwise specified. Any "commodity contract" offered or sold shall, in the absence of evidence to the contrary, be presumed to be offered or sold for speculation or investment purposes. (b) A "commodity contract" shall not include any contract or agreement which requires, and under which the purchaser personally receives, or at the request of the purchaser a family member or an individual (which individual is other than the seller or any affiliate of the seller, including any officer, director, or employee of the seller or any affiliate of the seller) with whom the purchaser has a preexisting close personal or preexisting business relationship personally receives, within 28 calendar days from the full payment in good funds of the purchase price, actual physical delivery of the quantity of each commodity purchased under the contract or agreement. In the case of a seller who requires a partial payment of the total purchase price before obligating itself to actually physically deliver the quantity of each commodity purchased under the contract or agreement described in this subdivision, both the amount remaining on the total purchase price shall be paid in good funds and actual physical delivery of the quantity of each commodity purchased under the contract or agreement shall be personally received (by the purchaser or above-described individual) within 28 calendar days from the date of the partial payment in good funds. Otherwise, for the purposes of this exclusion from the definition of a "commodity contract," a partial payment of, or an installment payment on, the purchase price is not a full payment in good funds of the purchase price.


29506. "Commodity Exchange Act" means the federal statute so named, as amended before or after January 1, 1991.


29507. "Commodity Futures Trading Commission" means the independent regulatory agency established by Congress to administer the Commodity Exchange Act.

29508. "CFTC Rule" means any rule, regulation, or order of the Commodity Futures Trading Commission in effect on January 1, 1991, and all subsequent amendments, additions, or other revisions thereto, unless the commissioner, within 10 days following the effective date of any amendment, addition, or revision, disallows the application thereof to this law or to any provision thereof by rule or order.


29509. "Commodity merchant" means any of the following, as defined or described in the Commodity Exchange Act or by CFTC Rule: (a) Futures commission merchant. (b) Commodity pool operator. (c) Commodity trading advisor. (d) Introducing broker. (e) Leverage transaction merchant. (f) An associated person of any person specified in subdivisions (a) to (d), inclusive. (g) Floor broker. (h) Any other person (other than a futures association) required to register with the Commodity Futures Trading Commission.


29510. "Commodity option" means any account, agreement, or contract giving a party thereto the right but not the obligation to purchase or sell one or more commodities or one or more commodity contracts, or both, whether characterized as an option, privilege, indemnity, bid, offer, put, call, advance guaranty, decline guaranty, or otherwise, but shall not include an option traded on a national securities exchange registered with the United States Securities and Exchange Commission.


29511. "Financial institution" means (a) a national bank or a bank or trust company incorporated under the laws of this state, (b) a federal savings and loan association or federal savings bank, or (c) a federally insured bank chartered by a state of the United States when the commodity depository activities of the bank are supervised by the bank regulator of that state.


29512. "Good funds" means the verified receipt of immediately available funds according to the applicable requirements of federal Regulation CC.

29513. "Offer" includes every offer to sell, offer to purchase, or offer to enter into a commodity contract or commodity option.


29514. "Person" means an individual, a corporation, a partnership, a limited liability company, an association, a joint stock company, a trust, an unincorporated organization, a government, or a political subdivision of a government.

29515. "Precious metal" means the following in either coin, bullion, or other form: (a) Silver. (b) Gold. (c) Platinum. (d) Palladium. (e) Copper. (f) Other items that the commissioner may specify by rule or order.

29515.5. "Purchase price" means all funds paid by or on behalf of a purchaser to a seller of a commodity contract or a commodity option (or to another person at the request or direction of a seller), including, but not limited to, the sale price of a commodity, an administrative charge or fee, assessment, deposit, dues, handling charge or fee, holding charge or fee, membership charge or fee, reservation charge or fee, or any charge, fee, or other payment made or paid in connection with the sale of a commodity contract or a commodity option.

29516. "Sale" or "sell" includes every sale, contract of sale, contract to sell, or disposition, for value.


Chapter 2. Unlawful Commodity Transactions

Ca Codes (corp:29520) Corporations Code Section 29520



29520. Except as otherwise provided in Section 29530, 29531, or 29532, no person shall sell or purchase or offer to sell or purchase any commodity under any commodity contract or under any commodity option, or offer to enter into, or enter into, as seller or purchaser any commodity contract or any commodity option.


Chapter 3. Exemptions

Ca Codes (corp:29530-29532) Corporations Code Section 29530-29532



29530. (a) The prohibitions in Section 29520 shall not apply to any transaction offered by and in which any of the following persons (or any employee, officer, or director thereof acting solely in that capacity) is the purchaser or seller: (1) A person registered with the Commodity Futures Trading Commission as a futures commission merchant or as a leverage transaction merchant whose activities require registration. (2) A person affiliated with, and whose obligations and liabilities under the transaction are guaranteed by, a person referred to in subdivision (a). (3) A person who is a member of a contract market designated by the Commodity Futures Trading Commission (or any clearinghouse thereof) when the transaction at issue requires membership in and is subject to the regulatory jurisdiction of that contract market. (4) A financial institution. (5) A broker-dealer licensed under Section 25211, or exempt from licensure under Section 25200, when engaging in activities subject to the exclusive regulatory jurisdiction of the Commodity Futures Trading Commission. (6) A person licensed pursuant to Chapter 14 (commencing with Section 1800) of Division 1 of the Financial Code to receive money for transmittal to foreign countries if (A) the license has not expired or been surrendered, suspended, or revoked, (B) the licensed person has a tangible net worth of at least 3 million dollars ($3,000,000) according to its audited financial statements prepared by an independent certified public accountant for each of the immediately preceding three fiscal years, and (C) pursuant to the provisions of subdivision (b) of Section 29531, the licensed person issues and a purchaser receives a certificate, document of title, confirmation, or other instrument evidencing that the purchased quantity of precious metals or foreign currencies has been delivered to a depository which is a financial institution located in a state of the United States. (b) The exemption provided by subdivision (a) shall not apply to any transaction or activity which is prohibited by the Commodity Exchange Act or CFTC Rule.


29531. The prohibitions in Section 29520 shall not apply to the following: (a) An account, agreement, or transaction within the exclusive regulatory jurisdiction of the Commodity Futures Trading Commission as granted under Section 2 of Title 42 of the United States Code (Section 2(a)(1)(A) of the Commodity Exchange Act). (b) A commodity contract for the purchase of one or more precious metals or foreign currencies which requires full payment in good funds of the purchase price and under which the purchaser receives, within 28 calendar days from the full payment in good funds of the purchase price, substitute delivery of the quantity of the precious metals or foreign currencies purchased, or a commodity contract for the purchase of one or more precious metals or foreign currencies which allows partial payment in good funds of the purchase price and under which the purchaser receives within 28 calendar days from the partial payment in good funds of the purchase price, substitute delivery of the quantity of precious metals or foreign currencies purchased by that payment; provided that, for purposes of this subdivision, substitute delivery shall be deemed to have occurred if, within the 28-day period, the quantity of precious metals or foreign currencies purchased by the full or partial payment is actually physically delivered (whether in specifically segregated or fungible bulk form) into the possession of a depository (other than the seller) which is either (1) a financial institution, (2) a depository, the warehouse receipts of which are recognized for delivery purposes for any commodity on a contract market designated by the Commodity Futures Trading Commission, (3) a storage facility licensed or regulated by the United States or any agency thereof, or (4) a facility for the storage of precious metals or foreign currencies located within a state of the United States and operated by an armored contract carrier defined under subdivision (e), or (5) a depository designated by the commissioner. The depository (or other person which itself qualifies as a depository) enumerated in this subdivision shall issue and the purchaser shall receive a certificate, document of title, confirmation or other instrument evidencing that the quantity of precious metals has been delivered to the depository and is being and will continue to be held by the depository on the purchaser's behalf, free and clear of all liens and encumbrances, other than liens of the purchaser, tax liens, liens agreed to by the purchaser, or liens of the depository for fees and expenses, which have previously been disclosed to the purchaser. (c) A commodity contract solely between persons engaged in producing, processing, using commercially or handling as merchants, each commodity subject thereto, or any byproduct thereof. (d) A commodity contract under which the offeree or the purchaser is a person referred to in Section 29530, an insurance company, or an investment company as defined in Section 80a-3 of Title 15 of the United States Code (Section 3 of Title I of the federal Investment Company Act of 1940). (e) For the purposes of this section, "armored contract carrier" means a person who: (1) is operating as a carrier transporting coin, currency, precious metals, securities, or negotiable items pursuant to a currently effective permit as a highway contract carrier and a city carrier issued by the Public Utilities Commission of this state and is also operating a facility for the storage of precious metals or foreign currencies pursuant to a commodity contract; (2) has purchased and maintains sufficient amounts of insurance coverage for all risks associated with the operation of a facility for the storage of precious metals or foreign currencies from an insurance company admitted in this state; (3) has continuously operated as a carrier under its permit and has continuously operated a facility for the storage of precious metals or foreign currencies for at least five years; (4) has a tangible net worth of at least five million dollars ($5,000,000) for each of the immediately preceding five fiscal years according to its financial statements prepared on an individual company basis, or on a combining or consolidating basis with any affiliates, which financial statements have been audited by an independent certified public accountant; and (5) provides the following disclosure to a purchaser in 10-point boldface type with the certificate, document of title, confirmation, or other instrument evidencing that the purchased quantity of precious metals or foreign currencies has been delivered to or is on deposit with the storage facility: "(Name of carrier) is not licensed, regulated, or supervised as a depository or storage facility by the United States Government or the State of California."


29532. The commissioner may by rule or order prescribe the terms and conditions of all transactions and contracts covered by this law and exempt any person or transaction from this law conditionally or unconditionally.


Chapter 4. Unlawful Activities And Fraudulent Conduct

Ca Codes (corp:29535-29538) Corporations Code Section 29535-29538



29535. (a) No person shall engage in a trade or business or otherwise act as a commodity merchant unless the person (1) is registered or temporarily licensed with the Commodity Futures Trading Commission for each activity constituting that person as a commodity merchant and the registration or temporary license shall not have expired, been suspended, or revoked; or (2) is exempt from the registration by virtue of the Commodity Exchange Act (7 U.S.C. Sec. 1 et seq.) or of a CFTC rule. (b) No board of trade shall trade, or provide a place for the trading of, any commodity contract required to be traded on or subject to the rules of a contract market designated by the Commodity Futures Trading Commission, unless the board of trade has been so designated for the commodity contract and that designation shall not have been vacated, suspended, or revoked.


29536. It is unlawful for any person, directly or indirectly, in connection with the purchase or sale of, the offer to sell, the offer to purchase, the offer to enter into, or the entry into, a commodity, commodity contract, or commodity option to do any of the following: (a) To willfully employ any device, scheme, or artifice to defraud. (b) To willfully make any false report, enter any false record, make any untrue statement of a material fact, or omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading. (c) To willfully engage in any transaction, act, practice, or course of business which operates or would operate as a fraud or deceit upon any persons. (d) To willfully misappropriate or convert the funds, security, or property of any other person.

29537. (a) Sections 29520, 29535, and 29536 apply to persons who sell or offer to sell when either of the following occur: (1) An offer to sell is made in this state. (2) An offer to buy is made and accepted in this state. (b) Sections 29520, 29535, and 29536 apply to persons who buy or offer to buy when either of the following occur: (1) An offer to buy is made in this state. (2) An offer to sell is made and accepted in this state. (c) For the purpose of this section, an offer to sell or to buy is made in this state, whether or not either party is then present in this state, when the offer: (1) Originates from this state. (2) Is directed by the offeror to this state and received at the place to which it is directed (or at any post office in this state in the case of a mailed offer). (d) For the purpose of this section, an offer to buy or to sell is accepted in this state when acceptance: (1) Is communicated to the offeror in this state. (2) Has not previously been communicated to the offeror, orally or in writing, outside this state. Acceptance is communicated to the offeror in this state, whether or not either party is then present in this state, when the offeree directs it to the offeror in this state, reasonably believing the offeror to be in this state and it is received at the place to which it is directed (or at any post office in this state in the case of a mailed acceptance). (e) An offer to sell or to buy is not made in this state when either of the following occur: (1) The publisher circulates or there is circulated on his or her behalf in this state any bona fide newspaper or other publication of general, regular, and paid circulation which is not published in this state, or which is published in this state but has had more than two-thirds of its circulation outside this state during the past 12 months. (2) A radio or television program originating outside this state is received in this state.

29538. (a) It is unlawful for any person to knowingly alter, destroy, mutilate, conceal, cover up, falsify, or make a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the administration or enforcement of this division. (b) It is unlawful for any person to knowingly make an untrue statement to the commissioner during the course of licensing, investigation, or examination, with the intent to impede, obstruct, or influence the administration or enforcement of any provision of this division.


Chapter 5. Powers Of The Commissioner

Ca Codes (corp:29540-29546) Corporations Code Section 29540-29546



29540. (a) Whenever it appears to the commissioner that any person has engaged, or is about to engage, in any act or practice constituting a violation of any provision of this law or any rule or order under this law, the commissioner may in his or her discretion bring an action in the name of the people of the State of California in the superior court to enjoin the acts or practices or to enforce compliance with this law or any rule or order under this law. Upon a proper showing, a permanent or preliminary injunction, restraining order, or writ of mandate shall be granted and a monitor, receiver, conservator, or other designated fiduciary or officer of the court may be appointed for the defendant or the defendant's assets, or other ancillary relief may be granted as appropriate. A receiver, monitor, conservator, or other designated fiduciary or officer of the court appointed by the superior court pursuant to this section may, with the approval of the court, exercise all of the powers of the defendant's officers, directors, partners, trustees, or persons who exercise similar powers and perform similar duties, including the filing of a petition for bankruptcy. No action at law or in equity may be maintained by any party against the commissioner, or a receiver, monitor, conservator, or other designated fiduciary or officer of the court by reason of their exercising these powers or performing these duties pursuant to the order of, or with the approval of, the superior court. (b) If the commissioner determines it is in the public interest, the commissioner may include in any action authorized by subdivision (a) a claim for ancillary relief, including, but not limited to, a claim for restitution, disgorgement, or damages on behalf of the person injured by the act or practice constituting the subject matter of the action, and the court shall have jurisdiction to award additional relief.


29541. (a) The commissioner in his or her discretion (1) may make public or private investigations within or outside of this state that the commissioner deems necessary to determine whether any person has violated or is about to violate any provision of this law or any rule or order hereunder, or to aid the enforcement of this law or in the prescribing of rules and forms under this law, and (2) may publish information concerning any violation of this law or a rule or order hereunder. (b) For the purpose of any investigation or proceeding under this law, the commissioner or any officer designated by the commissioner may administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence, and require the production of any books, papers, correspondence, memoranda, agreements, or other documents or records which the commissioner deems relevant or material to the inquiry. (c) In case of contumacy by, or refusal to obey a subpoena issued to, any person, the superior court, upon application by the commissioner, may issue to the person an order requiring him or her to appear before the commissioner or the officer designated by the commissioner, to produce documentary evidence, if so ordered, or to give evidence touching the matter under investigation or in question. Failure to obey the order of the court may be punished by the court as a contempt. (d) No person is excused from attending and testifying or from producing any document or record before the commissioner, or in obedience to the subpoena of the commissioner or any officer designated by the commissioner or in any proceeding instituted by the commissioner, on the ground that the testimony or evidence (documentary or otherwise) required of him or her may tend to incriminate him or her or subject him or her to a penalty or forfeiture. However, no individual may be prosecuted or subjected to any penalty or forfeiture for or on account of any transaction, matter, or thing concerning which he or she is compelled, after validly claiming his or her privilege against self-incrimination, to testify or produce evidence (documentary or otherwise), except that the individual testifying is not exempt from prosecution and punishment for perjury or contempt committed in testifying.


29542. (a) If, in the opinion of the commissioner, any person is engaging in any activity in violation of any provision of this law, or rule or order under this law, the commissioner may order the person to desist and refrain from the activity unless and until the activity will not be in violation of any provision of this law or any rule or order under this law. (b) If after an order has been made under subdivision (a), a request for hearing is filed in writing within one year of the date of service of the order by the person to whom the order was directed, a hearing shall be held in accordance with the Administrative Procedure Act (Chapter 5, (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code), and the commissioner shall have all of the powers granted under the Administrative Procedure Act. Unless the hearing is commenced within 15 business days after the request is filed (or the person affected consents to a later date), the order is rescinded. If that person fails to file a written request for a hearing within one year from the date of service of the order, the order shall be deemed a final order of the commissioner and shall not be subject to review by any court or agency, notwithstanding Section 29563.

29543. The commissioner may refer the evidence that is available concerning any violation of this law, or of any rule or order under this law, to the Attorney General or the district attorney of the county in which the violation occurred, who may, with or without such a reference, institute appropriate criminal proceedings under this law. The commissioner and the commissioner's counsel, deputies, or assistants may, upon request of the Attorney General or the district attorney, assist the prosecutor in presenting the law or facts at the trial.

29544. (a) Any person who willfully violates any provision of this law, or who willfully violates any rule or order under this law, shall be liable for a civil penalty not to exceed twenty-five thousand dollars ($25,000) for each violation, which shall be assessed and recovered in a civil action brought in the name of the people of the State of California by the commissioner in any court of competent jurisdiction. The penalty collected shall be paid to the State Corporations Fund to be used for the support of this division. (b) As applied to the penalties for acts in violation of this division, the remedies provided by this section and by other sections of this division are not exclusive, and may be sought and employed in any combination to enforce this division. (c) No action shall be maintained to enforce any liability created under subdivision (a) unless brought before the expiration of four years after the act or transaction constituting the violation.


29545. (a) The commissioner may take actions that are authorized by Section 9a of Title 7 of the United States Code (Section 6d of the federal Commodity Exchange Act) as amended before or after the effective date of this section. (b) Nothing in this section shall be construed as a limitation on the powers of the commissioner under this act or any other law administered by the commissioner.

29546. The commissioner in his or her discretion may honor requests from interested parties for interpretive opinions.


Chapter 6. Crimes And Civil Liability

Ca Codes (corp:29550-29555) Corporations Code Section 29550-29555



29550. (a) Except as provided in subdivision (b), any person who willfully violates any provision of this law, or who willfully violates any rule or order under this law, shall upon conviction be fined not more than two hundred fifty thousand dollars ($250,000) or imprisoned in the state prison or in a county jail for not more than one year, or be punished by both a fine and imprisonment; but no person may be imprisoned for the violation of any rule or order if that person proves that he or she had no knowledge of the rule or order. (b) Any person who willfully violates Section 29536 shall upon conviction be fined not more than two hundred fifty thousand dollars ($250,000), or imprisoned in the state prison for two, three, or four years, or be punished by both a fine and imprisonment. (c) One-half of the fines collected under this section shall be paid to the State Corporations Fund to be used for the support of this division. The remainder of the fines collected under this section shall be paid to the state or local agency which brought the criminal prosecution.


29550. (a) Except as provided in subdivision (b), any person who willfully violates any provision of this law, or who willfully violates any rule or order under this law, shall upon conviction be fined not more than two hundred fifty thousand dollars ($250,000) or imprisoned pursuant to subdivision (h) of Section 1170 of the Penal Code, or in a county jail for not more than one year, or be punished by both a fine and imprisonment; but no person may be imprisoned for the violation of any rule or order if that person proves that he or she had no knowledge of the rule or order. (b) Any person who willfully violates Section 29536 shall upon conviction be fined not more than two hundred fifty thousand dollars ($250,000), or imprisoned pursuant to subdivision (h) of Section 1170 of the Penal Code for two, three, or four years, or be punished by both that fine and imprisonment. (c) One-half of the fines collected under this section shall be paid to the State Corporations Fund to be used for the support of this division. The remainder of the fines collected under this section shall be paid to the state or local agency which brought the criminal prosecution.

29551. Nothing in this law limits the power of the state to punish any person for any conduct which constitutes a crime under any other statute.

29552. Any person who materially assists in any violation of this law, or any rule or order of the commissioner under this law, is jointly and severally liable with any other person liable under this law for the violation.

29553. No action shall be maintained to enforce any liability under Section 29552 unless brought before the expiration of four years after the act or transaction constituting the violation or within one year after the discovery by the plaintiff of the facts constituting the violation, whichever occurs last.

29554. Every cause of action under this law survives the death of any person who might have been a plaintiff or defendant.


29555. Except as explicitly provided in this law, no civil liability in favor of any private party shall arise against any person by implication from, or as a result of, the violation of any provision of this law or any rule or order under this law. Nothing in this law shall limit any liability which may exist by virtue of any other statute or under common law if this law were not in effect.


Chapter 7. Miscellaneous Provisions

Ca Codes (corp:29560-29567) Corporations Code Section 29560-29567



29560. No provision of this law imposing any liability applies to any act done or omitted in good faith in conformity with any rule, form, permit, order, or written interpretive opinion of the commissioner, or any written interpretive opinion of the Attorney General, notwithstanding that the rule, form, permit, order, or written interpretive opinion may later be amended or rescinded or be determined by judicial or other authority to be invalid for any reason.

29561. The commissioner may from time to time make, amend, and rescind the rules, forms, and orders that are necessary to carry out this law, and define any terms, whether or not used in this law, insofar as the definitions are not inconsistent with this law. For the purpose of rules, the commissioner may classify commodities, commodity contracts, commodity options, and persons within the commissioner's jurisdiction and may prescribe different requirements for different classes. The commissioner may, in the commissioner's discretion, waive any requirement of any rule or form in situations where in his or her opinion the requirement is not necessary in the public interest.


29562. In any proceeding under this law, the burden of proving an exemption or an exception from a definition is upon the person claiming it.

29563. Every final order, decision, certificate, registration, or other official act of the commissioner is subject to judicial review in accordance with law.


29564. Nothing in this law, shall impair, derogate, or otherwise affect the authority or powers of the commissioner under the Corporate Securities Law of 1968 (Part 3 (commencing with Section 25000)) or the application of any provision thereof to any person or transaction subject thereto.


29565. If any provision of this law or the application thereof to any person or circumstance is held invalid, the invalidity shall not affect other provisions or applications of this law which can be given effect without the invalid provision or application, and to this end this law is declared to be severable.


29566. Neither the commissioner nor any employee of the commissioner shall use any information which is filed with or obtained by the commissioner which is not public information for personal gain or benefit, nor shall the commissioner nor any employee of the commissioner engage in any securities or commodity transaction based on that information, even though public, if there has not been a sufficient period of time for the securities or commodity markets to assimilate that information.


29567. (a) The program established by this division shall be supported from funds appropriated by the Legislature from the State Corporations Fund. (b) The funds appropriated from the State Corporations Fund and made available for expenditure under subdivision (a) of this section shall come from securities application filing fees collected under subdivisions (e), (f), (h), and (i) of Section 25608 of the Corporations Code.


Division 5. Franchise Investment Law

Part 1. Definitions

Ca Codes (corp:31000-31019) Corporations Code Section 31000-31019



31000. This division may be known as the "Franchise Investment Law." References in this division to "this law" refer to the applicable provisions of this division.


31001. The Legislature hereby finds and declares that the widespread sale of franchises is a relatively new form of business which has created numerous problems both from an investment and a business point of view in the State of California. Prior to the enactment of this division, the sale of franchises was regulated only to the limited extent to which the Corporate Securities Law of 1968 applied to those transactions. California franchisees have suffered substantial losses where the franchisor or his or her representative has not provided full and complete information regarding the franchisor-franchisee relationship, the details of the contract between franchisor and franchisee, and the prior business experience of the franchisor. It is the intent of this law to provide each prospective franchisee with the information necessary to make an intelligent decision regarding franchises being offered. Further, it is the intent of this law to prohibit the sale of franchises where the sale would lead to fraud or a likelihood that the franchisor's promises would not be fulfilled, and to protect the franchisor and franchisee by providing a better understanding of the relationship between the franchisor and franchisee with regard to their business relationship.


31001.1. (a) To enhance the uniform and efficient administration, and the effective enforcement, of this division, it is the intent of the Legislature that the commissioner shall maintain a risk-based process of reviewing franchise applications as described in this section. (b) Under the risk-based review process, the commissioner shall focus on reviewing application information posing the most risk to prospective franchisees in accordance with Section 31115, with emphasis on risks associated with the franchisor's financial condition, the franchisor's compliance record, and significant deficiencies with the franchisor's application. (c) When reviewing franchise filings under this section, the commissioner shall concentrate on helping to prevent misappropriation, mismanagement, and misrepresentation in connection with the offer or sale of any franchise subject to this division. (d) The commissioner shall consider guidelines, or other information developed by the North American Securities Administrators Association that are in effect, to assist in the implementation of the risk-based review process. The risk-based review procedures implemented by the commissioner shall be considered internal management criteria and guidelines within the meaning of subdivisions (d) and (e) of Section 11340.9 of the Government Code.


31002. Unless the context otherwise requires, the definitions in this part apply throughout this division.


31003. "Advertisement" means any written or printed communication or any communication by means of recorded telephone messages or spoken on radio, television, or similar communications media, published in connection with an offer or sale of a franchise.


31003.5. "Business days" are all days other than every Saturday, every Sunday, and such other days as are specified or provided for as holidays in the Government Code.


31004. "Commissioner" means the Commissioner of Corporations.


31005. (a) "Franchise" means a contract or agreement, either expressed or implied, whether oral or written, between two or more persons by which: (1) A franchisee is granted the right to engage in the business of offering, selling or distributing goods or services under a marketing plan or system prescribed in substantial part by a franchisor; and (2) The operation of the franchisee's business pursuant to such plan or system is substantially associated with the franchisor's trademark, service mark, trade name, logotype, advertising or other commercial symbol designating the franchisor or its affiliate; and (3) The franchisee is required to pay, directly or indirectly, a franchise fee. (b) For the purposes of this division, the term "franchise" also means the following: (1) Any contractual agreement between a petroleum corporation or distributor and a gasoline dealer, or between a petroleum corporation and distributor, under which the petroleum distributor or the gasoline dealer is granted the right to use a trademark, trade name, service mark, or other identifying symbol or name owned by the other party to the agreement, or any agreement between a petroleum corporation or distributor and a gasoline dealer, or between a petroleum corporation and distributor, under which the petroleum distributor or the gasoline dealer is granted the right to occupy premises owned, leased, or controlled by the other party to the agreement, for the purposes of engaging in the retail sale of petroleum and other products of the other party to the agreement. (2) Any contract between a refiner and a petroleum distributor, between a refiner and a petroleum retailer, between a petroleum distributor and another petroleum distributor, or between a petroleum distributor and a petroleum retailer, under which a refiner or petroleum distributor authorizes or permits a petroleum retailer or petroleum distributor to use, in connection with the sale, consignment, or distribution of gasoline, diesel, gasohol, or aviation fuel, a trademark which is owned or controlled by such refiner or by a refiner which supplies fuel to the petroleum distributor which authorizes or permits such use. The term "franchise" as defined in this paragraph includes the following: (A) Any contract under which a petroleum retailer or petroleum distributor is authorized or permitted to occupy leased marketing premises, which premises are to be employed in connection with the sale, consignment, or distribution of fuel under a trademark which is owned or controlled by such refiner or by a refiner which supplies fuel to the petroleum distributor which authorizes or permits such occupancy. (B) Any contract pertaining to the supply of fuel which is to be sold, consigned, or distributed under a trademark owned or controlled by a refiner, or under a contract which has existed continuously since May 15, 1973, and pursuant to which, on May 15, 1973, fuel was sold, consigned, or distributed under a trademark owned and controlled on such date by a refiner. (C) The unexpired portion of any franchise, as defined by the preceding provisions of this subdivision, which is transferred or assigned as authorized by the provisions of such franchise or by any applicable provision of state law which permits such transfer or assignment without regard to any provision of the franchise. (c) For purposes of this division, the term "franchise" does not include a nonprofit organization operated on a cooperative basis by and for independent retailers which wholesales goods and services primarily to its member retailers and to which all of the following is applicable: (1) Control and ownership of each member is substantially equal. (2) Membership is limited to those who will avail themselves of the services furnished by the organization. (3) Transfer of ownership is prohibited or limited. (4) Capital investment receives no return. (5) Substantially equal benefits pass to the members on the basis of patronage of the organization. (6) Members are not personally liable for obligations of the organization in the absence of a direct undertaking or authorization by them. (7) Services of the organization are furnished primarily for the use of the members. (8) Each member and prospective member is provided with an offering circular which complies with the specifications of Section 31111. (9) No part of the receipts, income, or profit of the organization is paid to any profitmaking entity, except for arms-length payments for necessary goods and services, and members are not required to purchase goods or services from any designated profitmaking entity. (d) The nonprofit organization is subject to an action for rescission or damages under Section 3343.7 of the Civil Code if the organization fraudulently induced the plaintiff to join the organization.


31005.5. For the purposes of this division and in respect only to a franchise as defined in subdivision (b) of Section 31005, the following terms shall have the following meanings: (a) "Franchisor" means a refiner or petroleum distributor who authorizes or permits, under a franchise, a petroleum retailer or petroleum distributor to use a trademark in connection with the sale, consignment, or distribution of fuel. (b) "Franchisee" means a petroleum retailer or petroleum distributor who is authorized or permitted, under a franchise, to use a trademark in connection with the sale, consignment, or distribution of fuel. (c) "Refiner" means any person engaged in the refining of crude oil to produce fuel, and includes any affiliate of such person. (d) "Petroleum distributor" means any person, including any affiliate of such person, who either purchases fuel for sale, consignment, or distribution to another, or receives fuel on consignment for consignment or distribution to his or her own fuel accounts or to accounts of his or her supplier, but shall not include a person who is an employee of, or merely serves as a common carrier providing transportation service for, such supplier. (e) "Petroleum retailer" means any person who purchases fuel for sale to the general public for ultimate consumption. (f) "Marketing premises" means, in the case of any franchise, premises which, under such franchise, are to be employed by the franchisee in connection with the sale, consignment, or distribution of fuel. (g) "Leased marketing premises" means marketing premises owned, leased, or in any way controlled by a franchisor and which the franchisee is authorized or permitted, under the franchise, to employ in connection with the sale, consignment, or distribution of fuel. (h) "Contract" means any oral or written agreement. For supply purposes, delivery levels during the same month of the previous year shall be prima facie evidence of an agreement to deliver such levels. (i) "Trademark" means any trademark, trade name, service mark, or other identifying symbol or name. (j) "Fuel" means gasoline, diesel, gasohol, or aviation fuel. (k) "Affiliate" means any person who, other than by means of a franchise, controls, is controlled by, or is under common control with, any other person. (l) "Petroleum corporation" means any corporation or person owning, managing, or controlling the exploration, production, processing, transportation, or sale of crude or refined petroleum or any petroleum product.

31006. A "franchisee" is a person to whom a franchise is granted.


31007. A "franchisor" is a person who grants a franchise.


31008. "Area franchise" means any franchise between a franchisor and a franchisee whereby the franchisee is granted the right to operate more than one unit within a specified geographical area.


31008.5. "Subfranchise" means any contract or agreement between a franchisor and a subfranchisor whereby the subfranchisor is granted the right, for consideration given in whole or in part for that right, to sell or negotiate the sale of franchises in the name or on behalf of the franchisor. A contract or agreement which is a franchise does not become a subfranchise merely because under its terms a person is granted the right to receive compensation for referrals to a franchisor or subfranchisor or to receive compensation for acting as a sales representative on their behalf.


31009. A "subfranchisor" is a person to whom a subfranchise is granted.

31010. Where used in this law, unless specifically stated otherwise, "franchise" includes "area franchise" and "subfranchise."


31011. "Franchise fee" means any fee or charge that a franchisee or subfranchisor is required to pay or agrees to pay for the right to enter into a business under a franchise agreement, including, but not limited to, any payment for goods and services. However, the following shall not be considered the payment of a franchise fee: (a) The purchase or agreement to purchase goods at a bona fide wholesale price if no obligation is imposed upon the purchaser to purchase or pay for a quantity of the goods in excess of that which a reasonable businessperson normally would purchase by way of a starting inventory or supply or to maintain a going inventory or supply. (b) The payment of a reasonable service charge to the issuer of a credit card by an establishment accepting or honoring that credit card. (c) Amounts paid to a trading stamp company under Chapter 3 (commencing with Section 17750) of Part 3 of Division 7 of the Business and Professions Code by a person issuing trading stamps in connection with the retail sale of merchandise or service.


31012. "Fraud" and "deceit" are not limited to common law fraud or deceit.

31013. (a) An offer or sale of a franchise is made in this state when an offer to sell is made in this state, or an offer to buy is accepted in this state, or, if the franchisee is domiciled in this state, the franchised business is or will be operated in this state. (b) An offer to sell is made in this state when the offer either originates from this state or is directed by the offeror to this state and received at the place to which it is directed. An offer to sell is accepted in this state when acceptance is communicated to the offeror in this state; and acceptance is communicated to the offeror in this state when the offeree directs it to the offeror in this state reasonably believing the offeror to be in this state and it is received at the place to which it is directed. (c) An offer to sell is not made in this state merely because (1) the publisher circulates or there is circulated on his behalf in this state any bona fide newspaper or other publication of general, regular, and paid circulation which has had more than two-thirds of its circulation outside this state during the past 12 months, or (2) a radio or television program originating outside this state is received in this state.


31014. "Order" means a consent, authorization, approval, prohibition or requirement applicable to a specific case issued by the commissioner.

31015. "Person" means an individual, a corporation, a partnership, a limited liability company, a joint venture, an association, a joint stock company, a trust or an unincorporated organization.


31016. "Publish" means publicly to issue or circulate by newspaper, mail, radio or television, or otherwise to disseminate to the public.

31017. "Rule" means any published regulation or standard of general application issued by the commissioner.


31018. (a) "Sale" or "sell" includes every contract or agreement of sale of, a contract to sell, or disposition of, a franchise or interest in a franchise for value. (b) "Offer" or "offer to sell" includes every attempt to dispose of, or solicitation of an offer to buy, a franchise or interest in a franchise for value. (c) The terms defined in this section do not include the renewal or extension of an existing franchise where there is no interruption in the operation of the franchised business by the franchisee; provided, that a material modification of an existing franchise, whether upon renewal or otherwise, is a "sale" within the meaning of this section.


31019. "State" means any state, territory, or possession of the United States, the District of Columbia and Puerto Rico.


Part 2. Regulation Of The Sale Of Franchises

Chapter 1. Exemptions

Ca Codes (corp:31100-31109.1) Corporations Code Section 31100-31109.1



31100. There shall be exempted from any or all of the provisions of Chapter 2 (commencing with Section 31110) any other transaction which the commissioner by rule exempts as not being comprehended within the purposes of this law and the registration of which the commissioner finds is not necessary or appropriate in the public interest or for the protection of investors.


31101. There shall be exempted from the provisions of Chapter 2 (commencing with Section 31110) of this part the offer and sale of a franchise if the franchisor complies with each of the following minimum net worth, experience, disclosure, and notice filing requirements: (a) Net worth. The franchisor and, when necessary, a corporation owning at least 80 percent of the franchisor (parent) meet one of the following net worth requirements, according to financial statements for the fiscal year just ended. The franchisor and the parent, when necessary, may rely upon the immediately preceding fiscal year's audited financial statement for 15 months from that fiscal year end date. (1) The franchisor has a net worth on a consolidated basis of not less than five million dollars ($5,000,000), according to its audited financial statement. (2) The franchisor has a net worth of not less than one million dollars ($1,000,000) and its parent has a net worth of five million dollars ($5,000,000), according to the audited financial statements of the franchisor and its parent, respectively. (3) The franchisor has a net worth of one million dollars ($1,000,000), according to its unaudited financial statement, and the parent has a net worth on a consolidated basis of not less than five million dollars ($5,000,000), according to its audited financial statement, and the parent absolutely and unconditionally guarantees to assume the duties and obligations of the franchisor under the franchise agreement should the franchisor become unable to perform its duties and obligations. (b) Experience. The franchisor or a corporation owning at least 80 percent of the franchisor (parent) complies with one or more of the following conditions throughout the five-year period immediately preceding the offer and sale of the franchise, or complies with one of the following conditions during part of the period and one or more of the following conditions during the balance of the period: (1) The franchisor has had at least 25 franchisees conducting business which is the subject of the franchise. (2) The franchisor has conducted business which is the subject of the franchise. (3) The parent has had at least 25 franchisees conducting business which is the subject of the franchise. (4) The parent has conducted business which is the subject of the franchise. (c) Disclosure. (1) Except as provided in subparagraph (2), the franchisor discloses in writing to each prospective franchisee, at least 10 business days prior to the execution by the prospective franchisee of any binding franchise or other agreement, or at least 10 business days prior to the receipt of any consideration, the following information: (A) The name of the franchisor, the name under which the franchisor is doing or intends to do business, and the name of any parent or affiliated company that will engage in business transactions with franchisees. (B) The franchisor's principal business address and the name and address of its agent in the State of California authorized to receive service of process. (C) The business form of the franchisor, whether corporate, partnership, or otherwise. (D) The business experience of the franchisor, including the length of time the franchisor (i) has conducted a business of the type to be operated by the franchisees, (ii) has granted franchises for such business, and (iii) has granted franchises in other lines of business. (E) A copy of the typical franchise contract or agreement proposed for use or in use in this state. (F) A statement of the franchise fee charged, the proposed application of the proceeds of such fee by the franchisor, and the formula by which the amount of the fee is determined if the fee is not the same in all cases. (G) A statement describing any payments or fees other than franchise fees that the franchisee or subfranchisor is required to pay to the franchisor, including royalties and payments or fees which the franchisor collects in whole or in part on behalf of a third party or parties. (H) A statement of the conditions under which the franchise agreement may be terminated or renewal refused, or repurchased at the option of the franchisor. (I) A statement as to whether, by the terms of the franchise agreement or by other device or practice, the franchisee or subfranchisor is required to purchase from the franchisor or his or her designee services, supplies, products, fixtures, or other goods relating to the establishment or operation of the franchise business, together with a description thereof. (J) A statement as to whether, by the terms of the franchise agreement or other device or practice, the franchisee is limited in the goods or services offered by him or her to his or her customers. (K) A statement of the terms and conditions of any financing arrangements when offered directly or indirectly by the franchisor or his or her agent or affiliate. (L) A statement of any past or present practice or of any intent of the franchisor to sell, assign, or discount to a third party any note, contract, or other obligation of the franchisee or subfranchisor in whole or in part. (M) If any statement of estimated or projected franchisee earnings is used, a statement of such estimation or projection and the data upon which it is based. (N) A statement as to whether franchisees or subfranchisors receive an exclusive area or territory. (O) A copy of the financial statement or statements required by subdivision (a). (P) A copy of the unconditional guaranty, if applicable, required by paragraph (3) of subdivision (a). (2) In the case of a material modification of an existing franchise, the franchisor discloses in writing to each franchisee information concerning the specific sections of the franchise agreement proposed to be modified and such additional information as may be required by rule or order of the commissioner. Any agreement by such franchisee to such material modifications shall not be binding upon the franchisee if the franchisee, within 10 business days after the receipt of such writing identifying the material modification, notifies the franchisor in writing that the agreement to such modification is rescinded. A writing identifying the material modification is received when delivered to the franchisee. A written notice by the franchisee rescinding an agreement to a material modification is effective when delivered to the franchisor or when deposited in the mail, postage prepaid, and addressed to the franchisor in accordance with any notice provisions in the franchise agreement, or when delivered or mailed to the person designated in the franchise agreement for the receipt of notices on behalf of the franchisor. (d) Notice filing. The franchisor has filed with the commissioner a notice of exemption and paid the fee required by subdivision (f) of Section 31500 prior to an offer or sale of a franchise in this state during any calendar year in which one or more franchises are sold, excluding any material modification.


31102. The offer or sale of a franchise by a franchisee for his own account or the offer or sale of the entire area franchise owned by a subfranchisor for his own account, is exempted from the provisions of Section 31110 if the sale is not effected by or through a franchisor. A sale is not effected by or through a franchisor merely because a franchisor has a right to approve or disapprove a different franchisee.


31103. This division shall not be applicable to any transaction relating to a bank credit card plan. "Bank credit card plan" means a credit card plan in which the issuers of credit cards, as defined in subdivision (a) of Section 1747.02 of the Civil Code are only: banks regulated by or under the supervision of the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Comptroller of the Currency of the United States, or the Commissioner of Financial Institutions of this state under Division 1 (commencing with Section 99) of the Financial Code; or, persons controlling these banks, provided that the assets of such a bank or banks represent a majority of the assets on a consolidated basis of any holding company system of which the card issuers may be a party; or, persons controlled by these banks.


31104. There shall be exempted from the provisions of Chapter 2 (commencing with Section 31110) of this part the offer and sale of a franchise if the franchisor: (a) Is a petroleum corporation or distributor who is a wholesale distributor or marketer of petroleum products; doing business continuously for the past five years and who does not require an advance of funds in the nature of a fee or lease for such franchise agreements; not engaged in the production or the refining of petroleum; and (b) Complies with the provisions of subdivisions (c) and (d) of Section 31101. (c) For the purposes of subdivision (a) of this section: (1) A "wholesale distributor" or "marketer" means any entity which, for wholesale, purchases or receives through transfer, or otherwise obtains, by consignment or otherwise, refined petroleum products and resells or otherwise transfers such products, without substantially changing their form, to other purchasers. (2) An "advance of funds" means (A) a fee or lease for a franchise agreement, and (B) does not mean rent for the possession or use, or both, of premises or property, the purchase of inventory for resale or supplies, utility deposits, and other consideration or expenditures for the formation or operation, or both, of a wholesale distributor or marketer entity.


31105. Any offer, sale, or other transfer of a franchise, or any interest in a franchise, to a resident of another state or any territory or foreign country, shall be exempted from the provisions of Chapter 2 (commencing with Section 31110) of this part, if all locations from which sales, leases or other transactions between the franchised business and its customers are made, or goods or services are distributed, are physically located outside this state.


31106. There shall be exempted from the provisions of Chapter 2 (commencing with Section 31110) of this part, any offer, sale, or other transfer of a franchise or any interest in a franchise, provided that the offer, sale or transfer meets the requirements in subdivisions (a) and (b): (a) Any of the following conditions apply: (1) One or more of the owners of the prospective franchisee owning at least a 50 percent interest in the prospective franchisee meet both of the following: (A) The owner or owners have had, within the seven years before the date of the sale or other transaction, at least 24 months' experience being responsible for the financial and operational aspects of a business offering products or services substantially similar to those offered by the franchised business. (B) The owner or owners are not controlled by the franchisor. (2) One or more of the owners of the prospective franchisee owning at least a 50 percent interest in the prospective franchisee meet both of the following: (A) The owner or owners are, or have been within 60 days prior to the sale or other transaction, an officer, director, managing agent, or an owner of at least a 25 percent interest in the franchisor for at least 24 months. (B) The owner or owners are not controlled by the franchisor. (3) The offer, sale, or other transfer is of an additional franchise to an existing franchisee of the franchisor, or to an entity, one or more of the officers, directors, managing agents or owners of at least a 25 percent interest of which is an existing franchisee of the franchisor; provided that, in either case, for 24 months or more the franchisee, or the qualifying person, has been engaged in a business offering products or services substantially similar to those to be offered by the franchise being sold, or otherwise transferred. (b) The franchisor files with the commissioner a notice of exemption and pays the fee prescribed in subdivision (f) of Section 31500 no later than 15 calendar days after the sale of a franchise in this state pursuant to this section.


31107. There shall be exempted from the provisions of Chapter 2 (commencing with Section 31110) of this part, any offer (but not the sale) by a franchisor of a franchise while an application for renewal or amendment is pending if the prospective franchisee receives all of the following: (a) The offering circular and its exhibits as filed with the commissioner with the application for renewal or amendment. (b) A written statement from the franchisor that (1) the filing has been made but is not effective, (2) the information in the offering circular and exhibits has not been reviewed by the commissioner, and (3) the franchisor will deliver to the prospective franchisee an effective offering circular and exhibits at least 10 business days prior to execution by the prospective franchisee of a binding agreement or payment of any consideration to the franchisor, or any person affiliated with the franchisor, whichever occurs first, showing all material changes from the offering circular and exhibits received by the prospective franchisee under subdivision (a) of this section. (c) The offering circular and exhibits in accordance with paragraph (3) of subdivision (b) of this section.


31108. There shall be exempted from the provisions of Chapter 2 (commencing with Section 31110), any offer or sale of a franchise if the franchise involves the adding of a new product or service line to the existing business of a prospective franchisee, provided all of the following requirements are met: (a) For at least the last 24 months prior to the date of sale of the franchise, the prospective franchisee, or if the prospective franchisee is not a natural person, an existing officer, director, or managing agent of the prospective franchisee who has held that position with the prospective franchisee for at least the last 24 months, has been engaged in a business offering products or services substantially similar or related to those to be offered by the franchised business. (b) The new product or service is substantially similar or related to the product or service being offered by the prospective franchisee's existing business. (c) The franchised business is to be operated from the same business location as the prospective franchisee's existing business. (d) The parties anticipated, in good faith, at the time the agreement establishing the franchise relationship was reached, that sales resulting from the franchised business will not represent more than 20 percent of the total sales in dollar volume of the franchisee on an annual basis. (e) The prospective franchisee is not controlled by the franchisor. (f) The franchisor files with the commissioner a notice of exemption and pays the fee prescribed in subdivision (f) of Section 31500 prior to an offer or sale of such a franchise in this state during any calendar year in which one or more of those franchises are sold.

31109. Any offer or sale of a franchise that meets all of the following requirements shall be exempt from Chapter 2 (commencing with Section 31110): (a) Each and every purchaser of the franchise is one of the following: (1) Any partner, executive officer, or director of the franchisor, or any executive officer of its corporate general partner if the franchisor is a partnership, or any manager if the franchisor is a limited liability company. (2) Any entity with total assets exceeding five million dollars ($5,000,000) according to its most recent financial statements and not specifically formed for the purpose of acquiring the franchise offered. For purposes of this section, "entity" shall mean an organization described in Section 501(c)(3) of the Internal Revenue Code, a corporation, Massachusetts or similar business trust, limited liability company, or partnership. The financial statements referred to in this paragraph shall meet both of the following requirements: (A) Be as of date not more than 90 days prior to the earlier of either the date on which the first prospective purchaser signs any binding franchise or other agreement with the franchisor in connection with the award of the franchise, or the date on which the franchisor receives any consideration from the first prospective purchaser in connection with the award of the franchise. (B) Be prepared in accordance with either of the following: (i) Generally accepted accounting principles and, if the entity has consolidated subsidiaries, on a consolidated basis. (ii) The rules and requirements of the Securities and Exchange Commission, whether or not required by law to be prepared in accordance with those rules and requirements. (3) Any natural person whose net worth, or joint net worth with that person's spouse, exceeds one million dollars ($1,000,000) at the time of his or her purchase of the franchise, excluding the value of that person's personal residence, any and all retirement or pension plan accounts or benefits, home furnishings, and automobiles. (4) Any natural person whose gross income exceeds three hundred thousand dollars ($300,000) per year in each of the two most recent years, or whose joint gross income with that person's spouse exceeds five hundred thousand dollars ($500,000) per year in each of those years, and who reasonably expects to reach the same income level in the current year. (5) Any entity, in which all of the equity owners are persons or entities described in either paragraph (1), (2), (3), or (4). (b) Each and every purchaser of the franchise has knowledge and experience in financial and business matters, either alone or with professional advisers of the purchaser who are unaffiliated with, and not directly or indirectly compensated by, the franchisor or an affiliate or selling agent of the franchisor, such that the franchisor reasonably believes, based on reasonable inquiry before the sale, that each and every purchaser has the capacity to evaluate the merits and risks of, and protect their own interests in, the franchise investment. (c) Each and every purchaser of the franchise purchases the franchise for the purchaser's own account, or a trust account if the purchaser is a trustee, for the purpose of conducting the business as a franchise and not with a view to, or for a sale in connection with, any resale or distribution of the franchise or any interest in the franchise. (d) The immediate cash payment required from a purchaser of the franchise who is a natural person, upon the purchase of the franchise, shall not exceed 10 percent of that person's net worth or joint net worth with that person's spouse, exclusive of that person's personal residence, any and all retirement or pension accounts or benefits, home furnishings and automobiles. (e) The franchisor files with the commissioner a notice of exemption and pays the fee prescribed in subdivision (f) of Section 31500 prior to any offer or sale of a franchise in this state for which the exemption is claimed during any calendar year in which one or more franchises are sold, excluding any material modification. (f) No franchisor or any of its officers, directors, employees, or agents shall form, organize, engage, or assist any person to purchase a franchise for resale or distribution to avoid the registration requirements of Chapter 2 (commencing with Section 31110).


31109.1. (a) There shall be exempted from the provisions of Chapter 2 (commencing with Section 31110) the offer and sale of a franchise registered under Section 31111, 31121, or 31123 on terms different from the terms of the offer registered thereunder if all of the following requirements are met: (1) The initial offer is the offer registered under Section 31111, 31121, or 31123. (2) The prospective franchisee receives all of the following in a separate written appendix to the offering circular: (A) A summary description of each material negotiated term that was negotiated by the franchisor for a California franchise during the 12-month period ending in the calendar month immediately preceding the month in which the negotiated offer or sale is made under this section. (B) A statement indicating that copies of the negotiated terms are available upon written request. (C) The name, telephone number, and address of the representative of the franchisor to whom requests for a copy of the negotiated terms may be obtained. (3) The franchisor certifies or declares in an appendix to its application for renewal that it has complied with all of the requirements of this section, in the event this exemption is claimed. (4) The negotiated terms, on the whole, confer additional benefits on the franchisee. (b) The franchisor shall provide a copy of the negotiated terms described in subdivision (a) to the prospective franchisee within five business days following the request of the franchisee. (c) The franchisor shall maintain copies of all material negotiated terms for which this exemption is claimed for a period of five years from the effective date of the first agreement containing the relevant negotiated term. Upon the request of the commissioner, the franchisor shall make the copies available to the commissioner for review. For purposes of this section, the commissioner may prescribe by rule or order the format and content of the summary description of the negotiated terms required by subparagraph (A) of paragraph (2) of subdivision (a). (d) For purposes of this section, "material" means that a reasonable franchisee would view the terms as important in negotiating the franchise.


Chapter 2. Disclosure

Ca Codes (corp:31110-31125) Corporations Code Section 31110-31125



31110. On and after April 15, 1971, it shall be unlawful for any person to offer or sell any franchise in this state unless the offer of the franchise has been registered under this part or exempted under Chapter 1 (commencing with Section 31100) of this part.


31111. (a) The application for registration of an offer shall be filed with the commissioner upon the Uniform Franchise Registration Application, as identified, modified, and supplemented by rule of the commissioner. (b) An authorization for the commissioner to examine the registrant's financial records of the sale of the franchise pursuant to Section 7473 of the Government Code shall be filed with the application.


31112. Any application or amendment under this law shall be signed and verified by the franchisor or by the subfranchisor. Such verification shall be in the same manner provided in the Code of Civil Procedure for the verification of pleadings.


31113. If the commissioner finds that it is necessary and appropriate for the protection of prospective franchisees or subfranchisors because the applicant has failed to demonstrate that adequate financial arrangements have been made to fulfill the franchisor's obligations to provide real estate, improvements, equipment, inventory, training, or other items included in the offering, the commissioner may by rule or order require the escrow or impound of franchisee fees and other funds paid by the franchisee or subfranchisor until such obligations have been satisfied. At the option of the franchisor, the franchisor may furnish a surety bond as provided by rule of the commissioner.


31114. The application for registration shall be accompanied by a proposed offering circular, which shall contain the material information set forth in the application for registration, as specified by rule of the commissioner, and such additional disclosures as the commissioner may require. The offering circular shall recite in bold type of not less than 10-point type that registration does not constitute approval, recommendation, or endorsement by the commissioner.

31115. The commissioner may summarily issue a stop order denying the effectiveness of or suspending or revoking effectiveness of any registration if the commissioner finds: (a) That there has been a failure to comply with any of the provisions of this law or the rules of the commissioner pertaining thereto. (b) That the offer or sale of the franchise would constitute misrepresentation to, or deceit or fraud of the purchasers, or that, in the case of a franchise other than a subfranchise, a major inducement to prospective franchisees is fees or other compensation from participation in the sale of additional franchises. (c) That the applicant has failed to comply with any rule or order of the commissioner issued pursuant to Section 31113. (d) That any person identified in the application or any officer or director of the franchisor, whether or not identified in the application, meets one or more of the following conditions, and the involvement of this person in the sale or management of the franchise creates an unreasonable risk to prospective franchisees: (1) Has been convicted of a felony, or pleaded nolo contendere to a felony charge, or held liable in a civil action by final judgment if the felony or civil action involved fraud, embezzlement, fraudulent conversion, or misappropriation of property. (2) Is subject to any currently effective order of the Securities and Exchange Commission or the securities administrator of any state denying registration to or revoking or suspending the registration of the person as a securities broker or dealer or investment adviser or is subject to any currently effective order of any national securities association or national securities exchange (as defined in the Securities and Exchange Act of 1934) suspending or expelling the person from membership in the association or exchange. (3) Is subject to any currently effective order or ruling of the Federal Trade Commission. (4) Is subject to any currently effective injunctive or restrictive order relating to business activity as a result of an action brought by any public agency or department, including, without limitation, actions affecting a license as a real estate broker or sales person.

31116. (a) Except as provided in subdivision (b), if no stop order under Section 31115 is in effect under this law, registration of the offer of franchises automatically becomes effective at 12 o'clock noon, California time, of the 15th business day after the filing of the application for registration or the last amendment thereto, or at such earlier time as the commissioner determines. (b) With respect to any application for registration or the last amendment thereto filed between January 1, 1971, and March 15, 1971, if no stop order under Section 31115 is in effect under this law, registration becomes effective on April 15, 1971; with respect to any application filed after March 15, 1971 and before May 10, 1971, if no stop order under Section 31115 is in effect under this law, registration becomes effective on June 1, 1971, or the 15th business day after the filing, whichever is the later, or at such earlier time as the commissioner determines.


31117. Upon the entry of a stop order under Section 31115 the commissioner shall promptly notify the applicant that it has been entered and of the reasons therefor and that upon receipt of written request the matter will be set down for hearing to commence within 15 business days after such receipt unless the applicant consents to a later date. If no hearing is requested within 30 days after receipt of the notice and none is ordered by the commissioner, the order will remain in effect until it is modified or vacated by the commissioner. If a hearing is requested or ordered, the commissioner, after notice and hearing in accordance with the provisions of Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, in connection with which the commissioner shall have all of the powers granted thereunder, may modify or vacate the order or extend it until its final determination.

31118. The commissioner may vacate or modify a stop order if he finds that the conditions which caused its entry have changed or that it is otherwise in the public interest to do so.


31119. (a) It is unlawful to sell any franchise in this state that is subject to registration under this law without first providing to the prospective franchisee, at least 14 days prior to the execution by the prospective franchisee of any binding franchise or other agreement, or at least 14 days prior to the receipt of any consideration, whichever occurs first, a copy of the offering circular, together with a copy of all proposed agreements relating to the sale of the franchise. (b) Nothing in this division shall be construed to prevent a franchisor from providing copies of the offering circular documents to prospective franchisees through electronic means pursuant to any requirements or conditions that may be imposed by rule or order of the commissioner.

31120. A franchise offering shall be deemed duly registered for a period of one year from the effective date of the registration, unless the commissioner by order or rule specifies a different period.

31121. The registration may be renewed for additional periods of one year each, unless the commissioner by rule or order specifies a different period, by submitting to the commissioner a registration renewal statement no later than 15 business days prior to the expiration of the registration unless such period is waived by order of the commissioner. If no stop order or other order under Section 31115 is in effect under this law, registration of the offer of the franchises automatically becomes renewed effective at 12 o'clock noon, California time, of the date on which the prior registration is due to expire, or at such earlier time as the commissioner determines.


31122. The registration renewal statement shall be in the form and content prescribed by the commissioner, and shall be accompanied by a proposed offering prospectus. Each such registration renewal statement shall be accompanied by the fee prescribed in Part 5 (commencing with Section 31500) of this division.


31123. A franchisor shall promptly notify the commissioner in writing, by an application to amend the registration, of any material change in the information contained in the application as originally submitted, amended or renewed. The commissioner may by rule further define what shall be considered a material change for such purposes, and the circumstances under which a revised offering prospectus must accompany such application.


31124. An amendment to an application filed after the effective date of the registration of the sale of franchises, if such amendment is approved by the commissioner, shall become effective on such date as the commissioner may determine, having due regard for the public interest and the protection of franchisees.

31125. (a) An application for registration of a material modification of an existing franchise or of existing franchises shall be in a form and contain information as the commissioner may by rule prescribe, and shall be accompanied by a proposed disclosure form as specified in subdivision (b). The application may be included with an application pursuant to Section 31111 or 31121. (b) Except as provided in subdivisions (c) and (d), it is unlawful to solicit the agreement of a franchisee to a proposed material modification of an existing franchise without first delivering to the franchisee a written disclosure, in a form and containing information as the commissioner may by rule or order require, identifying the proposed modification, either five business days prior to the execution of any binding agreement by the franchisee to the modification or containing a statement that the franchisee may, by written notice mailed or delivered to the franchisor or a specified agent of the franchisor within not less than five business days following the execution of the agreement, rescind the agreement to the material modification. (c) Any modification of a franchise agreement with an existing franchisee of a franchisor shall be exempted from the provisions of this chapter, if all of the following are met: (1) The franchisee receives the complete written modification at least five business days prior to the execution of a binding agreement, or providing that the franchisee may, by written notice mailed or delivered to the franchisor or a specified agent of the franchisor within not less than five business days following the execution of the agreement, rescind the agreement to the material modification; provided (A) the agreement is not executed within 12 months after the date of the franchise agreement, and (B) the modification does not waive any right of the franchisee under the California Franchise Relations Act (Chapter 5.5 (commencing with Section 20000) of Division 8 of the Business and Professions Code), but the modification may include a general release of all known and unknown claims by a party to the modification. (2) The modification meets one of the following: (A) The proposed modification is in connection with the resolution of a bona fide dispute between the franchisor and the franchisee or the resolution of a claimed or actual franchisee or franchisor default, and the modification is not applied on a franchise systemwide basis at or about the time the modification is executed. A modification shall not be deemed to be made on a franchise systemwide basis if it is offered on a voluntary basis to fewer than 25 percent of the franchisor's California franchises within any 12-month period. (B) The proposed modification is offered on a voluntary basis to fewer than 25 percent of the franchisor's California franchises within any 12-month period, provided each franchisee is given a right to rescind the modification agreement if the modification is not made in compliance with paragraph (1) of subdivision (c). (d) Any modification of a franchise agreement with an existing franchise of a franchisee shall be exempted from this chapter if the modification is offered on a voluntary basis and does not substantially and adversely impact the franchisee's rights, benefits, privileges, duties, obligations, or responsibilities under the franchise agreement. (e) For purposes of this section, "California franchise" means: (1) an existing franchise of a franchisee with any location in this state from which sales, leases, or other transactions between the franchised business and its customers are made or goods or services are distributed, or (2) an existing franchise of a franchisee that is a resident of this state and that owns, controls, or has an equity interest in the franchise. (f) A franchisor shall not make modifications in consecutive years for the purpose of evading the 25 percent requirements set forth above.


Chapter 3. General Provisions

Ca Codes (corp:31150-31157) Corporations Code Section 31150-31157



31150. Every franchisor or subfranchisor offering franchises for sale in this state shall at all times keep and maintain a complete set of books, records, and accounts of such sales.


31151. The commissioner may accept and act upon the opinions, appraisements and reports of any engineers, appraisers, or other experts which may be presented by an applicant or any interested party, on any question of fact concerning or affecting the franchises proposed to be offered and sold. In lieu of, or in addition to, such opinions, appraisements, and reports, the commissioner may have any or all matters concerning or affecting such franchises investigated, appraised, passed upon and certified to him by engineers, appraisers or other experts selected by him.


31152. Any document filed under this law or under the Corporate Securities Law of 1968 or a predecessor statute thereto may be incorporated by reference in a subsequent application filed under this law if it was filed within four years prior to the filing of such application, or is otherwise available in the files of the commissioner, to the extent that the document is currently accurate.


31153. In any proceeding under this law, the burden of proving an exemption or an exception from a definition is upon the person claiming it.

31154. (a) Neither (1) the fact that an application for registration under this law has been filed, nor (2) the fact that such registration has become effective constitutes a finding by the commissioner that any document filed under this law is true, complete or not misleading. Neither any such fact nor the fact that an exemption is available for a transaction means that the commissioner has passed in any way upon the merits or qualifications of, or recommended or given approval to, any person, franchise or transaction. (b) It is unlawful to make or cause to be made to any prospective purchaser or offeree any representation inconsistent with subdivision (a) of this section.


31155. Every applicant for registration of an offer to sell franchises under this law, by other than a California corporation, California limited partnership, or California limited liability company, shall file with the commissioner, in such form as he or she by rule prescribed, an irrevocable consent appointing the commissioner or his or her successor in office to be his or her attorney to receive service of any lawful process in any noncriminal suit, action or proceeding against him or her or his or her successor, executor or administrator, which arises under this law or any rule or order hereunder after the consent has been filed, with the same force and validity as if served personally on the person filing the consent. A person who has filed such a consent in connection with a previous registration under this law need not file another. Service may be made by leaving a copy of the process in the office of the commissioner but it is not effective unless (a) the plaintiff, who may be the commissioner in a suit, action, or proceeding instituted by him or her, forthwith sends notice of the service and a copy of the process by registered or certified mail to the defendant or respondent at his or her last address on file with the commissioner, and (b) the plaintiff's affidavit of compliance with this section is filed in the case on or before the return day of the process, if any, or within such further time as the court allows.


31156. No person shall publish in this state any advertisement offering a franchise subject to the registration requirements of this law unless a true copy of the advertisement has been filed in the office of the commissioner at least three business days prior to the first publication or such shorter period as the commissioner by rule or order may allow, or unless such advertisement has been exempted by rule of the commissioner.


31157. No person shall publish any advertisement concerning any franchise in this state after the commissioner finds that the advertisement contains any statement that is false or misleading or omits to make any statement necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading and so notifies the person in writing. Such notification may be given summarily without notice of hearing. At any time after the issuance of a notification under this section, the person desiring to use the advertisement may in writing request that the order be rescinded. Upon the receipt of such a written request, the matter shall be set down for hearing to commence within 15 business days after such receipt unless the person making the request consents to a later date. After such hearing, which shall be conducted in accordance with the provisions of Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, the commissioner shall determine whether to affirm and continue or to rescind such order, and the commissioner shall have all the powers granted under such act.


Part 3. Fraudulent And Prohibited Practices

Chapter 1. Fraudulent Practices

Ca Codes (corp:31200-31204) Corporations Code Section 31200-31204



31200. It is unlawful for any person willfully to make any untrue statement of a material fact in any application, notice or report filed with the commissioner under this law, or willfully to omit to state in any such application, notice, or report any material fact which is required to be stated therein, or fail to notify the commissioner of any material change as required by Section 31123.


31201. It is unlawful for any person to offer or sell a franchise in this state by means of any written or oral communication not enumerated in Section 31200 which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.


31202. It is unlawful for any person willfully to make any untrue statement of a material fact in any statement required to be disclosed in writing pursuant to Section 31101, or willfully to omit to state in any such statement any material fact which is required to be stated therein.


31203. It is unlawful for any person to violate any order of the commissioner or condition to the effectiveness of the registration of the offer or sale of franchises.


31204. (a) It is unlawful for any person to knowingly alter, destroy, mutilate, conceal, cover up, falsify, or make a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the administration or enforcement of any provision of this division. (b) It is unlawful for any person to knowingly make an untrue statement to the commissioner during the course of licensing, investigation, or examination, with the intent to impede, obstruct, or influence the administration or enforcement of any provision of this division.


Chapter 2. Prohibited Practices

Ca Codes (corp:31210-31211) Corporations Code Section 31210-31211



31210. It is unlawful for any person to effect or attempt to effect a sale of a franchise in this state, except in transactions exempted under Chapter 1 (commencing with Section 31100) of Part 2 of this division, unless such person is: (1) identified in an application or amended application filed with the commissioner pursuant to Part 2 (commencing with Section 31100) of this division, (2) licensed by the California Department of Real Estate as a real estate broker or real estate salesman, or (3) licensed by the commissioner as a broker-dealer or agent pursuant to the Corporate Securities Law of 1968.

31211. If in the opinion of the commissioner any person is acting in violation of Section 31210, the commissioner may order such person to desist and refrain from further activity. If, after such an order has been made, a request for a hearing is filed in writing by the person to whom such order was directed, a hearing shall be held in accordance with the provisions of Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner shall have all of the powers granted thereunder; unless such hearing is commenced within 15 business days after the request is made (or the person affected consents to a later date), such order shall be deemed rescinded.


Chapter 3. Unfair Practices

Ca Codes (corp:31220) Corporations Code Section 31220



31220. It shall be a violation of this division for any franchisor, directly or indirectly, through any officer, agent or employee, to restrict or inhibit the right of franchisees to join a trade association or to prohibit the right of free association among franchisees for any lawful purposes. Notwithstanding Section 31410, a violation of this section shall not constitute a crime.


Part 4. Enforcement

Chapter 1. Civil Liability

Ca Codes (corp:31300-31306) Corporations Code Section 31300-31306



31300. Any person who offers or sells a franchise in violation of Section 31101, 31110, 31119, 31200, or 31202, or in violation of any provision of this division that provides an exemption from the provisions of Chapter 2 (commencing with Section 31110) of Part 2 or any portions of Part 2, shall be liable to the franchisee or subfranchisor, who may sue for damages caused thereby, and if the violation is willful, the franchisee may also sue for rescission, unless, in the case of a violation of Section 31200 or 31202, the defendant proves that the plaintiff knew the facts concerning the untruth or omission, or that the defendant exercised reasonable care and did not know, or, if he or she had exercised reasonable care, would not have known, of the untruth or omission.


31301. Any person who violates Section 31201 shall be liable to any person (not knowing or having cause to believe that such statement was false or misleading) who, while relying upon such statement shall have purchased a franchise, for damages, unless the defendant proves that the plaintiff knew the facts concerning the untruth or omission or that the defendant exercised reasonable care and did not know, (or if he had exercised reasonable care would not have known) of the untruth or omission.


31302. Every person who directly or indirectly controls a person liable under Section 31300 or 31301, every partner in a firm so liable, every principal executive officer or director of a corporation so liable, every person occupying a similar status or performing similar functions, every employee of a person so liable who materially aids in the act or transaction constituting the violation, are also liable jointly and severally with and to the same extent as such person, unless the other person who is so liable had no knowledge of or reasonable grounds to believe in the existence of the facts by reason of which the liability is alleged to exist.


31302.5. (a) Any person who violates Section 31220 may be sued in the superior court in the county in which the defendant resides or where a franchise affected by the violation does business, for temporary and permanent injunctive relief and for damages, if any, and the costs of suit, including reasonable attorneys' fees. A plaintiff shall not be required to allege or prove that actual damages have been suffered in order to obtain injunctive relief. (b) No action shall be maintained to enforce any liability created under Section 31220 unless brought before the expiration of two years after the violation upon which it is based or the expiration of one year after the discovery by the plaintiff of the facts constituting such violation, whichever occurs first.


31303. No action shall be maintained to enforce any liability created under Section 31300 unless brought before the expiration of four years after the act or transaction constituting the violation, the expiration of one year after the discovery by the plaintiff of the fact constituting the violation, or 90 days after delivery to the franchisee of a written notice disclosing any violation of Section 31110 or 31200, which notice shall be approved as to form by the commissioner, whichever shall first expire.


31304. No action shall be maintained to enforce any liability created under Section 31301 unless brought before the expiration of two years after the violation upon which it is based, expiration of one year after the discovery by the plaintiff of the facts constituting such violation, or 90 days after delivery to the franchisee of a written notice disclosing any violation of Section 31201 or 31202 which notice shall be approved as to form by the commissioner, whichever shall first expire.


31305. Every cause of action under this chapter survives the death of any person who might have been a plaintiff or defendant.


31306. Except as explicitly provided in this chapter, no civil liability in favor of any private party shall arise against any person by implication from or as a result of the violation of any provision of this law or any rule or order hereunder. Nothing in this chapter shall limit any liability which may exist by virtue of any other statute or under common law if this law were not in effect.


Chapter 2. Powers Of The Commissioner

Ca Codes (corp:31400-31408) Corporations Code Section 31400-31408



31400. (a) Whenever it appears to the commissioner that any person has engaged or is about to engage in any act or practice constituting a violation of any provision of this law or any rule or order hereunder, the commissioner may in the commissioner's discretion bring an action, or the commissioner may request the Attorney General to bring an action in the name of the people of the State of California, in the superior court to enjoin the acts or practices or to enforce compliance with this law or any rule or order hereunder. Upon a proper showing a permanent or preliminary injunction, restraining order or writ of mandate shall be granted and a receiver or conservator may be appointed for the defendant or the defendant's assets. (b) If the commissioner determines it is in the public interest, the commissioner may include in any action authorized by subdivision (a) a claim for ancillary relief, including, but not limited to, a claim for restitution or disgorgement or damages on behalf of the persons injured by the act or practice constituting the subject matter of the action, and the court shall have jurisdiction to award that additional relief.


31400.1. In any proceeding under Section 31400, the court may prohibit, conditionally or unconditionally, and permanently or for such period of time as it shall determine, any person who violated Section 31200, 31201, or 31202 from acting as an officer or director of any franchisor if the person's conduct demonstrates unfitness to serve as an officer or director of the franchisor.


31401. (a) The commissioner may in his discretion (1) make such public or private investigations within or outside of this state as he deems necessary to determine whether any person has violated or is about to violate any provision of this law or any rule or order hereunder or to aid in the enforcement of this law or in the prescribing of rules and forms hereunder, and (2) publish information concerning the violation of this law or any rule or order hereunder. (b) For the purpose of any investigation or proceeding under this law, the commissioner or any officer designated by him may administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence, and require the production of any books, papers, correspondence, memoranda, agreements, or other documents or records which the commissioner deems relevant or material to the inquiry. (c) In case of contumacy by, or refusal to obey a subpoena issued to, any person, the superior court, upon application by the commissioner, may issue to the person an order requiring him to appear before the commissioner, or the officer designated by him, there to produce documentary evidence, if so ordered, or to give evidence touching the matter under investigation or in question. Failure to obey the order of the court may be punished by the court as a contempt. (d) No person is excused from attending and testifying or from producing any document or record before the commissioner, or in obedience to the subpoena of the commissioner or any officer designated by him, or in any proceeding instituted by the commissioner, on the ground that the testimony or evidence (documentary or otherwise) required of him may tend to incriminate him or subject him to a penalty or forfeiture; but no individual may be prosecuted or subjected to any penalty or forfeiture for or on account of any transaction, matter, or thing concerning which he is compelled, after validly claiming his privilege against self-incrimination, to testify or produce evidence (documentary or otherwise), except that the individual testifying is not exempt from prosecution and punishment for perjury or contempt committed in testifying.


31402. If, in the opinion of the commissioner, the offer of any franchise is subject to registration under this law and it is being, or it has been, offered for sale without the offer first being registered, the commissioner may order the franchisor or offeror of that franchise to desist and refrain from the further offer or sale of that franchise unless and until the offer has been duly registered under this law. If, after that order has been made, a request for a hearing is filed in writing within 60 days from the date of service of the order by the person to whom the order was directed, a hearing shall be held in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner shall have all of the powers granted under that chapter. Unless that hearing is commenced within 15 business days after the request is made (or the person affected consents to a later date), the order shall be deemed rescinded. If that person fails to file a written request for a hearing within 60 days from the date of service of the order, the order shall be deemed a final order of the commissioner and shall not be subject to review by any court or agency, notwithstanding Section 31501.


31403. If, in the opinion of the commissioner, the offer of any franchise exempt from registration under this law is being or has been offered for sale without complying with Section 31201, or any other provision that provides an exemption from Chapter 2 (commencing with Section 31110) of Part 2, the commissioner may order the franchisor or offeror of the franchise to desist and refrain from the further offer or sale of the franchise unless and until the offer is made in compliance with this law. If, after that order has been made, a request for a hearing is filed in writing within 60 days from the date of service of the order by the person to whom the order was directed, a hearing shall be held in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code and the commissioner shall have all of the powers granted under that chapter. Unless that hearing is commenced within 15 business days after the request is made, or the person affected consents to a later date, the order shall be deemed rescinded. If that person fails to file a written request for a hearing within 60 days from the date of service of the order, the order shall be deemed a final order of the commissioner and shall not be subject to review by any court or agency, notwithstanding Section 31501.


31404. The commissioner may refer evidence that is available concerning any violation of this law or of any rule or order hereunder to the district attorney of the county in which the violation occurred, who may, with or without such a reference, institute appropriate criminal proceedings under this law. Upon request of the district attorney, the commissioner and the counsel, deputies, or assistants of the commissioner may assist the district attorney in presenting the law or facts at the trial.


31405. (a) Any person who violates any provision of this law, or who violates any rule or order made under this law, shall be liable for a civil penalty not to exceed ten thousand dollars ($10,000) for each violation, which shall be assessed and recovered in a civil action brought in the name of the people of the State of California by the commissioner in any court of competent jurisdiction. (b) As applied to the penalties for acts in violation of this division, the remedies provided by this section and by other sections of this division are not exclusive, and may be sought and employed in any combination to enforce the provisions of this division. (c) No action shall be maintained to enforce any liability created under subdivision (a) unless brought before the expiration of four years after the act or transaction constituting the violation.


31406. (a) If, upon inspection or investigation, based upon a complaint or otherwise, the commissioner has cause to believe that a person is violating any provision of this division or any rule or order promulgated pursuant to this division, the commissioner may issue a citation to that person in writing describing with particularity the basis of the citation. Each citation may contain an order to desist and refrain and an assessment of an administrative penalty not to exceed two thousand five hundred dollars ($2,500) per violation and shall contain reference to this section, including the provisions of subdivision (c). All penalties collected under this section shall be deposited in the State Corporations Fund. (b) The sanctions authorized under this section shall be separate from, and in addition to, all other administrative, civil, or criminal remedies. (c) If within 60 days from the receipt of the citation, the person cited fails to notify the commissioner that the person intends to request a hearing as described in subdivision (d), the citation shall be deemed final. (d) Any hearing under this section shall be conducted in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code. (e) After the exhaustion of the review procedures provided for in this section, the commissioner may apply to the appropriate superior court for a judgment in the amount of the administrative penalty and order compelling the cited person to comply with the order of the commissioner. The application shall include a certified copy of the final order of the commissioner and shall constitute a sufficient showing to warrant the issuance of the judgment and order.


31407. (a) If, after examination or investigation, the commissioner has reasonable grounds to believe that any person is conducting business in violation of any provision of this division or related rule or order binding upon it, the commissioner may, by written order addressed to the person, direct the discontinuance of the violation. The order shall be effective immediately, but shall not become final except in accordance with subdivision (b). (b) An order issued pursuant to this section shall not become final except after notice to the affected person of the commissioner' s intention to make the order final and of the reasons for the finding. The commissioner shall also notify the person that upon receiving a request the matter shall be set for hearing to commence within 15 business days after receipt of the request. The person may consent to have the hearing commence at a later date. If no hearing is requested within 60 days after the mailing or service of the required notice, and none is ordered by the commissioner, the order may become final without a hearing and that person shall immediately discontinue the practices named in the order. If a hearing is requested or ordered it shall be held in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner shall have all of the powers granted under that chapter. If, upon the conclusion of the hearing, it appears to the commissioner that the person is violating any provision of this division or any related rule or order binding upon it, the commissioner shall make the order of discontinuance final and the person shall immediately discontinue the practices named in the order.

31408. (a) If the commissioner determines it is in the public interest, the commissioner may include in any administrative action brought under this division, including a stop order, a claim for ancillary relief, including, but not limited to, a claim for rescission, restitution or disgorgement or damages on behalf of the persons injured by the act or practice constituting the subject matter of the action, and the administrative law judge shall have jurisdiction to award additional relief. The person affected may be required to attend remedial education, as directed by the commissioner. (b) In an administrative action brought under this part the commissioner is entitled to recover costs, which in the discretion of the administrative law judge may include any amount representing reasonable attorney's fees and investigative expenses for the services rendered, for deposit into the State Corporations Fund for the use of the Department of Corporations.


Chapter 3. Crimes

Ca Codes (corp:31410-31412) Corporations Code Section 31410-31412



31410. Any person who willfully violates any provision of this law, or who willfully violates any rule or order under this law, shall upon conviction be fined not more than one hundred thousand dollars ($100,000) or imprisoned in the state prison, or in a county jail for not more than one year, or be punished by both that fine and imprisonment; but no person may be imprisoned for the violation of any rule or order if he or she proves that he or she had no knowledge of the rule or order.


31410. Any person who willfully violates any provision of this law, or who willfully violates any rule or order under this law, shall upon conviction be fined not more than one hundred thousand dollars ($100,000) or imprisoned pursuant to subdivision (h) of Section 1170 of the Penal Code, or in a county jail for not more than one year, or be punished by both that fine and imprisonment; but no person may be imprisoned for the violation of any rule or order if he or she proves that he or she had no knowledge of the rule or order.


31411. Any person who willfully employs, directly or indirectly, any device, scheme, or artifice to defraud in connection with the offer or sale of any franchise or willfully engages, directly or indirectly, in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person in connection with the offer, purchase, or sale of any franchise shall upon conviction be fined not more than one hundred thousand dollars ($100,000) or imprisoned in the state prison, or in a county jail for not more than one year, or be punished by both that fine and imprisonment.

31411. Any person who willfully employs, directly or indirectly, any device, scheme, or artifice to defraud in connection with the offer or sale of any franchise or willfully engages, directly or indirectly, in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person in connection with the offer, purchase, or sale of any franchise shall upon conviction be fined not more than one hundred thousand dollars ($100,000) or imprisoned pursuant to subdivision (h) of Section 1170 of the Penal Code, or in a county jail for not more than one year, or be punished by both that fine and imprisonment.


31412. Nothing in this law limits the power of the state to punish any person for any conduct which constitutes a crime under any other statute.


Chapter 4. Service Of Process

Ca Codes (corp:31420) Corporations Code Section 31420



31420. When any person, including any nonresident of this state, engages in conduct prohibited or made actionable by this law or any rule or order hereunder, whether or not he has filed a consent to service of process under Section 31155, and personal jurisdiction over him cannot otherwise be obtained in this state, that conduct shall be considered equivalent to his appointment of the commissioner or his successor in office to be his attorney to receive service of any lawful process in any noncriminal suit, action, or proceeding against him or his successor, executor, or administrator which grows out of that conduct and which is brought under this law or any rule or order hereunder, with the same force and validity as if served on him personally. Service may be made by leaving a copy of the process in the office of the commissioner, but it is not effective unless (a) the plaintiff, who may be the commissioner in a suit, action, or proceeding instituted by him, forthwith sends notice of the service and a copy of the process by registered or certified mail to the defendant or respondent at his last known address or takes other steps which are reasonably calculated to give actual notice, and (b) the plaintiff's affidavit of compliance with this section is filed in the case on or before the return day of the process, if any, or within such further time as the court allows.


Part 5. Administration

Ca Codes (corp:31500-31506) Corporations Code Section 31500-31506



31500. (a) The commissioner shall charge and collect the fees fixed by this section. All fees and charges collected under this section shall be transmitted to the Treasurer at least weekly, accompanied by a detailed statement thereof and shall be credited to the State Corporations Fund. (b) The fee for filing an application for registration of the offer of franchises under Section 31111 is six hundred seventy-five dollars ($675). (c) The fee for filing an application for renewal of a registration under Section 31121 is four hundred fifty dollars ($450). (d) The fee for filing an amendment to the application filed under Section 31111 or 31121 after the effective date of the registration of the offer of franchises, is fifty dollars ($50). (e) The fee for filing an application for material modification under Section 31125 is fifty dollars ($50), whether or not it accompanies an application under Section 31111 or 31121. (f) The fee for filing the initial notice of exemption under Section 31101 is four hundred fifty dollars ($450) and the fee for filing each consecutive subsequent notice of exemption under these provisions is one hundred fifty dollars ($150). (g) The fee for filing an application for approval of a written notice of violation under Section 31303 or 31304 is six hundred seventy-five dollars ($675).

31501. Every final order, decision, license, or other official act of the commissioner is subject to judicial review in accordance with law.

31502. The commissioner may from time to time make, amend and rescind such rules, forms, and orders as are necessary to carry out the provisions of this law, including rules and forms governing applications and reports, and defining any terms, whether or not used in this law, insofar as the definitions are not inconsistent with the provisions of this law.


31503. All rules of the commissioner, other than those relating solely to the internal administration of the Department of Corporations, shall be made, amended or rescinded in accordance with the provisions of Chapter 4.5 (commencing with Section 11371) of Part 1 of Division 3 of Title 2 of the Government Code.


31504. (a) All applications, reports and other papers and documents filed with the commissioner under this law shall be open to public inspection, except that the commissioner may, in his discretion, withhold from public inspection any information the disclosure of which is, in the judgment of the commissioner, not necessary in the public interest or for the protection of investors. The commissioner may publish any information filed with him or obtained by him, if, in the judgment of the commissioner, such action is in the public interest. No provision of this law authorizes the commissioner or any of his assistants, clerks, or deputies to disclose any information withheld from public inspection except among themselves or when necessary or appropriate in a proceeding or investigation under this law or to other federal or state regulatory agencies. No provision of this law either creates or derogates from any privilege which exists at common law or otherwise when documentary or other evidence is sought under a subpoena directed to the commissioner or any of his assistants, clerks, or deputies. (b) It is unlawful for the commissioner or any of his assistants, clerks, or deputies to use for personal benefit any information which is filed with or obtained by the commissioner and which is not then generally available to the public.

31505. Upon request and at such reasonable charges as he prescribes by rule, the commissioner shall furnish to any person photostatic or other copies (certified under his seal of office if requested) of any document which is retained as a matter of public record, except that he shall not charge or collect any fee for photostatic or other copies of any document furnished to public officers for use in their official capacity. In any judicial proceeding or prosecution, any copy so certified is prima facie evidence of the contents of the document certified.


31506. (a) The commissioner may destroy any applications or orders, together with the files and folders, as useless or obsolete, four years after the date of filing or issuance, with the approval of the Department of General Services; provided that a permanent record shall be maintained of any disciplinary action taken by the commissioner. (b) Copies on microfilm or in other form which may be retained by the commissioner in his discretion of any records destroyed under this section shall be accepted for all purposes as equivalent to the original when certified by the commissioner.


Part 6. General Provisions

Ca Codes (corp:31510-31516) Corporations Code Section 31510-31516



31510. The commissioner in his discretion may honor requests from interested persons for interpretive opinions.


31511. No provision of this law imposing any liability applies to any act done or omitted in good faith in conformity with any rule, form, order, or any written interpretive opinion of the commissioner, or any opinion of the Attorney General, notwithstanding that the rule, form, order, or written interpretive opinion may later be amended or rescinded or be determined by judicial or other authority to be invalid for any reason.


31512. Any condition, stipulation or provision purporting to bind any person acquiring any franchise to waive compliance with any provision of this law or any rule or order hereunder is void.


31513. Whenever a person is entitled under this law to a hearing in accordance with the provisions of Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, a formal hearing before the Department of Corporations may be substituted with the consent of such person and of the commissioner for such hearing before an independent hearing officer; and in that case after such hearing before the Department of Corporations such person shall not be entitled to any further administrative remedy.


31514. If any provision of this law or the application thereof to any person or circumstance is held invalid, the invalidity shall not affect other provisions or applications of this law which can be given effect without the invalid provision or application, and to this end the provisions of this law are declared to be severable.


31515. Prior law exclusively governs all suits, actions, prosecutions or proceedings which are pending or may be initiated on the basis of facts or circumstances occurring before the effective date of this law.

31516. Nothing in this law is intended to preclude the applicability of the Real Estate Law, Part 1 (commencing with Section 10000), Division 4 of the Business and Professions Code, to any sale or lease of real property.


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