Association law

What is a joint stock company under California law?

Section 22003 of the California Corporations Code considers directors to be omniscient:

For the purposes of this Part, every director of a joint-stock association is deemed to have knowledge of the affairs of his association enabling him to determine whether an act, procedure or omission of its directors constitutes a violation of this Part.

Notably, deemed managerial omniscience is limited to “that part”, which is Part 3 of Title 3 of the California Corporations Code. Title 3 concerns unincorporated associations and Part 3 is titled “Associations by shares”. For the purposes of Title 3, a “director” is “a natural person serving as a member of the board of directors or other governing body of the association without legal personality”. Cal. Corp. Code § 18003. Thus, the directors referred to in article 22003 are not directors of companies.

This leaves the question of what is a “joint stock company”? The Corporations Code does not say so. In my four decades of practice, I have yet to come across a joint-stock association identified as such. However, I was able to find this century-old explanation:

At common law, however, a corporation was a group of individuals organized for certain purposes into an association similar to a partnership, but, unlike a partnership, having a share capital divided into shares transferable by the owner . The partners, according to the courts, could associate in a joint-stock company with transferable shares. At first, a joint-stock association was really just a large partnership with some of the characteristics and powers of a private corporation.

I. Maurice Wormser, The legal status of joint-stock associations3 Fordham L. Rev. 1 (1916) (footnotes omitted).

Part 3, Title 3 of the Companies Code consists of only 4 statutes, including Section 22003. The other three impose criminal penalties. It seems that all these laws have fallen into disuse. I found no reported cases applying any of these laws (I found a handful of laws from the early 20th century citing earlier laws)

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