One or more natural persons may form a corporation under the California General Corporation Law “by executing and filing articles of incorporation”. Cal. Corp. Code § 200(a). A corporation’s existence begins upon the second of these acts – the filing of the articles. Cal. Corp. Code § 200(b). What happens if a natural person executes articles of incorpration but cashes in her chips before the articles are filed? Has the corporation been formed?
This may seem to be a particularly arcane question but, like some movies, it is inspired by actual events. Burnham v. Cal. Public Employees’ Retirement System, 2012 Cal. App. LEXIS 942 (Aug. 31, 2012) involved two individuals, James and Kathleen, who wanted to form a California domestic partnership. One Saturday morning, they completed and signed a declaration of domestic partnership and had their signatures acknowledged by a notary public. Sadly, James, who suffered from bone-metastasized prostate cancer, died that same afternoon. Kathleen hand delivered the declaration of domestic partnership to the Secretary of State’s office in Fresno the following Monday morning. The clerk filed the declaration and a certificate of registered domestic partnership was issued bearing Monday’s date.
Kathleen’s status as a domestic partner became an issue when she applied for James’ survivor benefits from the California Public Employees’ Retirement System. Initially, Kathleen’s application was rejected. She appealed, but the Administrative Law Judge sided with the staff. The CalPERS Board of Administration, however, did not adopt the ALJ’s proposed decision and decided that Kathleen was entitled to benefits after all. At this point, two of John’s children filed a petition for a write of administrative mandamus. The trial court ruled in the children’s favor and Kathleen appealed.
The Court of Appeal examined the statutory language which provides: “A domestic partnership shall be established in California when both persons file a Declaration of Domestic Partnership with the Secretary of State . . . and, at the time of filing . . . [b]oth persons are capable of consenting to the domestic partnership.” Cal. Fam. Code § 297. The Court, in an opinion written by Justice Ronald Robie, reasoned that because the legislature requires that both partners be able to consent at the time of filing, each must be alive at the time of filing. The Court then went on to explain that despite the statutory reference to the parties filing the declaration, it is the clerk who actually files the declaration. Thus, “filing” refers to the act of relinquishing control of the document to the clerk so that it may be filed. The operative act, according to the Court, is the relinquishment of control because that symbolizes the parties’ decision to proceed and is the point of no return.
So where does that leave us under the General Corporation Law? On the one hand, Section 200 doesn’t include a requriement that the incorporator(s) be capable of consent. However, simply signing the articles is not the point of no return. Indeed, there can be many a slip between the cup and the lip (“Multa cadunt inter calicem supremaque labra“). Until there is a relinquishment of to the Secretary of State’s office, the articles of incorporation may still be recalled (at least if the incorporator is still among the living). The good news is that it is unlikely that the problem of the deceased incorporator will ever arise.