Brief Primer on California Corporations Code Section 709

Section 709 of the California Corporations Code empowers shareholders – or any qualified person claiming to have been denied the right to vote in a corporate election – to challenge the legitimacy of that election. This rule applies to all California corporations as well as to foreign corporations that hold such elections in California.

Although this code sounds simple enough, corporate legislation is almost always more complex than it seems. Subtle nuances can have big ramifications both for businesses and for those caught up in business disputes. To that end, we’ve assembled the following brief primer on California Corporations Code Section 709 to help you quickly become familiar with the basics of the law and, more importantly, how it affects you.

Who has the authority to decide?

California law states that the superior court of the appropriate county has the authority to rule in cases of this nature.

What is included in the filing process?

Once a complaint is filed, the court is responsible for entering an order that indicates a fixed date for the hearing, which must be within five days after filing. Although filers may request an extension for this deadline, they must prove “good cause” for the delay. Some examples of good cause include moving the case to federal court, challenging jurisdiction, asserting an arbitration provision, demurring, or commencing the trial within five days and continuing at a later date.

In any case, a copy of the complaint, including notice of the hearing date, must be served to the corporation as well as to the person whose election is in dispute. As a result of the strict timeline enforced by Section 709, the plaintiff often has a significant advantage over the defendant, since the former can begin preparing for court well before filing. The latter, meanwhile, could have less than a few days to prepare a defense.

What will the court determine?

Keep in mind that Section 709 often does not simply dispute a vote count or other technical/procedural issues. Instead, courts are encouraged to use discretion and consider all relevant aspects of the case to determine who the rightful directors should be. In the event that the court does not find the defendant justifiably entitled to the position in question, the superior court will likely make one or more of the following decisions:

• Order a new election to be held
• Determine the validity, effectiveness, and construction of voting agreements and voting trusts
• Determine the validity of the issuance of share and the right of persons to vote

Help with Your California Corporations Code Section 709 Case

Being involved in a complex business dispute or contested corporate election can create challenges that have financial, management and personal ramifications. When you understand how the options and constraints of the law, however, you can play more effectively for various contingencies and protect yourself and your business interested.

Are you confused about your rights and options? Contact our experienced legal team for more information about California Corporations Code Section 709 as well as any other matter related to business litigation and transactional legal services.