Mortgage Business Ownership in California: Shareholder Approval?
California requires the approval of the outstanding shares of a California company and its board of directors when it sells, leases, transfers, exchanges, transfers or otherwise disposes of all or substantially all of its assets other than in the usual and regular course of its activities. Cal. Company Code § 1001 (a). The broad language of the law suggests that shareholder approval is also required when a company mortgages or pledges all or substantially all of its assets. A mortgage could be viewed as a “transfer” of an asset. US copyright law, for example, defines a “transfer of copyright ownership” to include a mortgage. 17 USC § 101.
Section 1000, however, negates this suggestion by providing that unless the articles of incorporation otherwise provide, no shareholder approval or any outstanding shares is required for any mortgage, trust deed, pledge. or other mortgage of all or part of company property, real or personal, for the purpose of securing payment or performance of any contract or obligation.
Although the foregoing demarcation may seem relatively clear, some transactions, such as sale-leasebacks, may occupy an “intermediate state isthmus” between sections 1000 and 1001. Additionally, all sales of all or almost all of a company’s assets are not subject to section 1000. See When an asset sale is not an “asset sale reorganization”.
Included in the list of secure transactions is the “tote or other mortgage”. Word mortgage is derived from two Greek words, ὑπό, meaning under, and τιθέναι, meaning to place under. Thus, to mortgage is to place property as a pledge or mortgage.
© 2010-2021 Allen Matkins Leck Gamble Mallory & Natsis LLP Revue nationale de droit, volume XI, number 263