California's Narrow Codification Of The Internal Affairs Doctrine

• Published date: 04 July 2023
• Subject Matter: Corporate/Commercial Law, Directors and Officers, Shareholders
• Law Firm: Allen Matkins Leck Gamble Mallory & Natsis LLP
• Author: Mr Keith P. Bishop

It is sometimes said that California Corporations Code section 2116 "codifies" the internal affairs doctrine. See, e.g.,Drulias v. 1st Century Bancshares, Inc., 30 Cal. App. 5th 696, 705, 241 Cal. Rptr. 3d 843, 851 (2018). However, that proposition is not entirely accurate. Section 2116 provides:

The directors of a foreign corporation transacting intrastate business are liable to the corporation, its shareholders, creditors, receiver, liquidator or trustee in bankruptcy for the making of unauthorized dividends, purchase of shares or distribution of assets or false certificates, reports or public notices or other violation of official duty according to any applicable laws of the state or place of incorporation or organization, whether committed or done in this state or elsewhere. Such liability may be enforced in the courts of this state.

As I have previously observed, the plain language of the statute is limited to directors and does not extend to officers See Court Of Appeal Finally Notices That Section 2116 Says Not A Word About Officers (discussing Colaco v. Cavotec SA, 25 Cal. App. 5th 1172, 1195, 236 Cal. Rptr. 3d 542, 563 (2018)).

More subtly perhaps is the...