United States · California

How to issue shares in California corporations

California is a primary state of operations for many US startups even when incorporated elsewhere. California-incorporated corporations operate under the California Corporations Code, which is more shareholder-protective than the DGCL and broader in inspection rights.

Governing statute
California Corporations Code, Cal. Corp. Code
CCC § 405Issuance of shares
CCC § 408Consideration for shares
CCC § 409Par value; reduction below par
CCC § 416Stock certificates; uncertificated shares
CCC § 1500Books and records; share register
CCC § 25102Securities-law exemptions (Section 25102(f))
At a glance
  • Authorized by the board under CCC § 405; California also permits future services as consideration (§ 408)
  • Stock certificates default under § 416 unless the corporation elects uncertificated
  • Share register required under CCC § 1500, with broad inspection rights without proper-purpose requirement
  • State securities filing under Section 25102(f) for limited offerings, plus federal Form D where applicable
  • Stronger minority-shareholder protections under § 309 (director fiduciary duties) than DGCL

Board authorization under CCC § 405

Stock issuance is authorized by the board of directors under California Corporations Code § 405. The board determines the consideration. Unlike DGCL, California permits future services as consideration under § 408 (the corporation must value the future services in the resolution). The board acts by meeting or by unanimous written consent under § 307(b).

Consideration: cash, property, services, including future services

California permits consideration to include money, services rendered, services to be rendered, debts and securities, and other property. Future services are an important difference from Delaware: California founder grants can be supported by future services commitment with a recital of the value of those services. Consideration must equal at least the par value where stated.

Share register under CCC § 1500

California Corporations Code § 1500 requires every corporation to keep adequate and correct books and records, including a share register. The inspection right under § 1601 is broad: any shareholder of 5% or more, or any holder of voting trust shares, may inspect for any purpose related to their interest as a shareholder. There is no proper-purpose requirement equivalent to DGCL § 220.

Stock certificates default under § 416

California Corporations Code § 416 requires share certificates unless the corporation's articles or bylaws expressly authorize uncertificated shares. The certificate must contain the corporation's name, the holder's name, the class and number of shares, signatures of authorized officers, and any required legends. Many California-incorporated corporations issue uncertificated shares after amending the bylaws to permit them.

Section 25102(f) and federal compliance

California's blue-sky law (Corporate Securities Law of 1968) requires qualification of securities offerings unless exempt. Section 25102(f) is the most common exemption for private offerings to accredited investors; a notice filing on Form 25102(f) is required within 15 calendar days of the first sale. Federal Form D applies separately under SEC Regulation D. NSMIA pre-empts state qualification for Rule 506 offerings but not the notice filing.

Common mistakes

Common California-specific failure points in share issuance:

  • Treating Delaware practice as California practice (e.g. defaulting to uncertificated shares without bylaw authorization)
  • Missing the Section 25102(f) notice filing within 15 days of the first sale
  • Failing to assess § 2115 long-arm exposure for Delaware-incorporated corporations operating in California
  • Inadequate consideration recitals for founder grants relying on future services
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FAQ

Common questions in California

Three key differences: (1) California permits future services as consideration; Delaware does not. (2) California requires share certificates by default; Delaware permits uncertificated by board resolution. (3) California's inspection right under § 1601 is broader than Delaware's § 220 (no proper-purpose requirement). For founder issuances and early-stage governance, California's regime is more protective of minority shareholders.

Not at the issuance level, but the Section 25102(f) notice filing is required within 15 days of the first sale where the exemption is being claimed. The state also requires statements of information (SI-550) annually that include current capitalization details. Federal Form D is separate.

California Corporations Code § 2115 applies select provisions of California corporate law to corporations incorporated elsewhere (typically Delaware) if more than 50% of their property, payroll, and sales are in California and more than 50% of their shareholders reside in California. The provisions include CCC § 309 (director duties), § 708 (cumulative voting), and § 1601 (inspection rights). § 2115 is controversial and not always followed by Delaware-incorporated corporations operating in California; legal opinion varies.
Records that comply with CCC
Issue shares the right way in California.

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