Source: https://chowinslaw.com/resources/texas-business-laws/303-close-corporations-texas-business-organizations
Timestamp: 2019-04-23 03:57:43+00:00

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(1) "Close corporation" means a domestic corporation formed under this subchapter or governed by this subchapter because of § 21.705, 21.706, or 21.707.
(2) "Close corporation provision" means a provision in the certificate of formation of a close corporation or in a shareholders' agreement of a close corporation.
(3) "Ordinary corporation" means a domestic corporation that is not a close corporation.
(4) "Shareholders' agreement" means a written agreement regulating an aspect of the business and affairs of or the relationship among the shareholders of a close corporation that has been executed under this subchapter.
§ 21.702. APPLICABILITY OF SUBCHAPTER.
(a) This subchapter applies only to a close corporation.
(b) This chapter applies to a close corporation to the extent not inconsistent with this subchapter.
§ 21.703. FORMATION OF CLOSE CORPORATION.
A close corporation shall be formed in accordance with Chapter 3.
§ 21.704. BYLAWS OF CLOSE CORPORATION.
(a) A close corporation does not need to adopt bylaws if provisions required by law to be contained in the bylaws are contained in the certificate of formation or a shareholders' agreement.
(b) A close corporation that does not have bylaws when it terminates its status as a close corporation under § 21.708 shall immediately adopt bylaws that comply with § 21.057.
§ 21.705. ADOPTION OF AMENDMENT FOR CLOSE CORPORATION STATUS.
(a) An ordinary corporation may become a close corporation by amending its certificate of formation in accordance with Chapter 3 to conform with § 3.008.
(b) An amendment adopting close corporation status must be approved by the affirmative vote of the holders of all of the outstanding shares of each class established by the close corporation, regardless of whether a class is entitled to vote on the amendment by the certificate of formation of the ordinary corporation.
§ 21.706. ADOPTION OF CLOSE CORPORATION STATUS THROUGH MERGER, EXCHANGE, OR CONVERSION.
(a) A surviving or new corporation resulting from a merger or conversion or a corporation that acquires a corporation under an exchange under Chapter 10 may become a close corporation if, as part of the plan of merger, exchange, or conversion, the certificate of formation conforms with § 3.008.
(b) A plan of merger, exchange, or conversion adopting close corporation status must be approved by the affirmative vote of the holders of all of the outstanding ownership or membership interests, and of each class or series of ownership or membership interests, of each entity or non-code organization that is party to the merger, exchange, or conversion, regardless of whether a class or series of ownership or membership interests is entitled to vote on the plan by the certificate of formation of the corporation.
§ 21.707. EXISTING CLOSE CORPORATION.
(a) This § applies to an existing corporation that elected to become a close corporation before the mandatory application date of this code and has not terminated that status.
(b) A close corporation existing before the mandatory application date of this code is considered to be a close corporation under this code.
(c) A provision in the articles of incorporation of a close corporation authorized under former law is valid and enforceable if the corporation's status as a close corporation has not been terminated.
(d) An agreement among the shareholders of a close corporation in conformance with former law and §§ 21.714-21.725 before the mandatory application date of this code is considered to be a shareholders' agreement.
(e) A certificate representing the shares issued or delivered by the close corporation after the mandatory application date of this code, whether in connection with the original issue of shares or a transfer of shares, must conform with § 21.732.
(f) In this section, "mandatory application date" has the meaning assigned by § 401.001.
§ 21.708. TERMINATION OF CLOSE CORPORATION STATUS.
(4) instituting a judicial proceeding to enforce a close corporation provision providing for the termination.
§ 21.709. STATEMENT TERMINATING CLOSE CORPORATION STATUS; FILING; NOTICE.
(a) If a close corporation provision specifies a time or event requiring the termination of close corporation status, regardless of whether the provision is identifiable by a person dealing with the close corporation, the termination of the close corporation status takes effect on the occurrence of the specified time or event and the filing of a statement terminating close corporation status under this section.
(b) Promptly after the time or occurrence of an event requiring termination of close corporation status, a statement terminating close corporation status shall be signed by an officer on behalf of the close corporation. A copy of the applicable close corporation provision must be included in or attached to the statement. The statement and any attachment shall be filed with the secretary of state in accordance with Chapter 4.
(3) the time or event that caused the termination and, in the case of an event, the approximate date of the event.
(d) After a statement terminating close corporation status has been filed under this section, the certificate of formation of the close corporation is considered to be amended to delete from the certificate the statement that the corporation is a close corporation, and the corporation's status as a close corporation is terminated.
(e) The corporation shall personally deliver or mail a copy of the statement to each shareholder of the corporation. A copy of the statement is considered to have been delivered by mail under this § when the copy is deposited in the United States mail, with postage prepaid, addressed to the shareholder at the shareholder's address as it appears on the share transfer records of the corporation. The failure to deliver the copy of the statement does not affect the validity of the termination.
§ 21.710. EFFECT OF TERMINATION OF CLOSE CORPORATION STATUS.
(a) A close corporation that terminates its status as a close corporation and becomes an ordinary corporation is subject to this chapter as if the corporation had not elected close corporation status under this subchapter.
(b) The effect of termination of close corporation status on a shareholders' agreement is governed by § 21.724.
(2) if each party to a shareholders' agreement agrees to elect a board of directors at a shareholders' meeting.
§ 21.711. SHAREHOLDERS' MEETING TO ELECT DIRECTORS.
A shareholders' meeting required by § 21.710(c)(2) shall be promptly called after the termination of close corporation status takes effect. If a meeting is not called before the 31st day after the date the termination takes effect, a shareholder may call a shareholders' meeting on the provision of notice required by § 21.353, regardless of whether the shareholder is entitled to call a shareholders' meeting or vote at the meeting. At the meeting, the shareholders shall elect the number of directors specified in the certificate of formation or bylaws of the corporation or, in the absence of any specification, three directors.
§ 21.712. TERM OF OFFICE OF DIRECTORS.
A director succeeding to the management of the corporation under § 21.710(c) shall have a term of office as set forth in § 21.408. Until a board of directors is elected, the shareholders of the corporation shall act as the corporation's board of directors, and the business and affairs of the corporation shall be conducted under § 21.726.
(2) in the manner provided by the close corporation's certificate of formation or by a shareholders' agreement of the close corporation.
(a) The shareholders of a close corporation may enter into one or more shareholders' agreements.
(15) any provision required or permitted to be contained in the bylaws by this chapter.
§ 21.715. EXECUTION OF SHAREHOLDERS' AGREEMENT.
(3) in the case of a close corporation that is being formed under § 21.703, by each person who is a subscriber to the corporation's shares or agrees to become a holder of the corporation's shares under the shareholders' agreement of the close corporation.
§ 21.716. ADOPTION OF AMENDMENT OF SHAREHOLDERS' AGREEMENT.
Unless otherwise provided by a shareholders' agreement, an amendment to the shareholders' agreement of a close corporation may be adopted only by the written consent of each person who would be required to execute the shareholders' agreement if it were being executed originally at the time of adoption of the amendment, regardless of whether the person has voting power in the close corporation.
§ 21.717. DELIVERY OF SHAREHOLDERS' AGREEMENT.
(3) each person to whom a certificate representing shares is issued and who has not received a complete copy of the agreement.
(b) The failure to deliver a complete copy of a shareholders' agreement as required by this § does not affect the validity or enforceability of the shareholders' agreement.
§ 21.718. STATEMENT OF OPERATION AS CLOSE CORPORATION.
(a) On or after the formation of a close corporation or adoption of close corporation status, a close corporation that begins to conduct its business and affairs under a shareholders' agreement that has become effective shall promptly execute and file with the secretary of state a statement of operation as a close corporation in accordance with Chapter 4.
(3) contain the date the operation of the corporation began.
(c) A statement of operation as a close corporation shall be executed by an officer on behalf of the corporation.
(d) On the filing of the statement of operation as a close corporation, the fact that the close corporation is being operated and its business and affairs are being conducted under the terms of a shareholders' agreement becomes a matter of public record.
§ 21.719. VALIDITY AND ENFORCEABILITY OF SHAREHOLDERS' AGREEMENT.
(3) that the effect of the shareholders' agreement is to treat the business and affairs of the close corporation as if the close corporation were a partnership or in a manner that would otherwise be appropriate only among partners.
(b) A close corporation, a shareholder of the close corporation, or a party to a shareholders' agreement may initiate a proceeding to enforce the shareholders' agreement in accordance with § 21.756.
§ 21.720. PERSONS BOUND BY SHAREHOLDERS' AGREEMENT.
(B) the shareholder had actual knowledge of the existence of the shareholders' agreement at the time of acquiring shares.
(b) A transferee or assignee of shares of a close corporation in which there is a shareholders' agreement is bound by the agreement for all purposes, regardless of whether the transferee or assignee executed or was aware of the agreement.
§ 21.721. DELIVERY OF COPY OF SHAREHOLDERS' AGREEMENT TO TRANSFEREE.
(a) Before the transfer of shares of a close corporation in which there is a shareholders' agreement, the transferor shall deliver a complete copy of the shareholders' agreement to the transferee.
(3) the transferee is entitled to obtain on demand from the transferor or from the close corporation a complete copy of the shareholders' agreement at the transferor's expense.
§ 21.722. EFFECT OF REQUIRED STATEMENT ON SHARE CERTIFICATE AND DELIVERY OF SHAREHOLDERS' AGREEMENT.
If a certificate representing shares of a close corporation contains the statement required by § 21.732, and a complete copy of each shareholders' agreement has been delivered as required by § 21.717, each holder, transferee, or other person claiming an interest in the shares of the close corporation is conclusively presumed to have knowledge of a close corporation provision in effect at the time of the transfer.
§ 21.723. PARTY NOT BOUND BY SHAREHOLDERS' AGREEMENT ON CESSATION; LIABILITY.
(2) the shareholders' agreement provides to the contrary.
(b) Cessation as a party to a shareholders' agreement or as a shareholder does not relieve a person of liability the person may have incurred for breach of the shareholders' agreement.
§ 21.724. TERMINATION OF SHAREHOLDERS' AGREEMENT.
(a) Except as provided by Subsection (b), a shareholders' agreement terminates when the close corporation terminates its status as a close corporation.
(b) If provided by the shareholders' agreement, all or part of the agreement is valid and enforceable to the extent permitted for an ordinary corporation by this chapter or other law.
§ 21.725. CONSEQUENCES OF MANAGEMENT BY PERSONS OTHER THAN BOARD OF DIRECTORS.
Sections 21.726-21.729 apply only to a close corporation the business and affairs of which are managed wholly or partly by the shareholders of the close corporation or any other person as provided by a shareholders' agreement rather than solely by a board of directors.
§ 21.726. SHAREHOLDERS CONSIDERED DIRECTORS.
(a) When required by the context of this chapter, the shareholders of a close corporation described by § 21.725 are considered to be directors of the close corporation for purposes of applying a provision of this chapter, other than a provision relating to the election and removal of directors.
(2) the action was approved by the shareholders of the close corporation or the persons empowered to manage the business and affairs of the close corporation under a shareholders' agreement.
§ 21.727. LIABILITY OF SHAREHOLDERS.
The shareholders of a close corporation described by § 21.725 are subject to any liability imposed on a director of a corporation by this chapter or other law for a managerial act of or omission made by the shareholders or any other person empowered to manage the business and affairs of the close corporation under a shareholders' agreement and relating to the business and affairs of the close corporation, if the action is required by law to be undertaken by the board of directors.
§ 21.728. MODE AND EFFECT OF TAKING ACTION BY SHAREHOLDERS AND OTHERS.
(a) An action that shall or may be taken by the board of directors of an ordinary corporation as required or authorized by this chapter shall or may be taken by action of the shareholders of a close corporation described by § 21.725 at a meeting of the shareholders or, in the manner permitted by a shareholders' agreement, this subchapter, or this chapter, without a meeting.
(C) any other means reasonably evidencing the consent.
§ 21.729. LIMITATION OF SHAREHOLDER'S LIABILITY.
(a) A shareholder of a close corporation described by § 21.725 is not liable because of a shareholders' vote or shareholder action without a vote unless the shareholder had the right to vote or consent to the action.
(b) A shareholder of a close corporation, without regard to the right to vote or consent, may not be held liable for an action taken by the shareholders or a person empowered to manage the business and affairs of the close corporation under a shareholders' agreement if the shareholder dissents from and has not voted for or consented to the action.
(4) any other means reasonably evidencing the dissent.
§ 21.730. LACK OF FORMALITIES; TREATMENT AS PARTNERSHIP.
(3) affect the status of the close corporation as a corporation under this chapter or other law.
§ 21.731. OTHER AGREEMENTS AMONG SHAREHOLDERS PERMITTED.
Sections 21.713-21.730 do not prohibit or impair any other agreement between two or more shareholders of an ordinary corporation permitted by this chapter or other law.
§ 21.732. CLOSE CORPORATION SHARE CERTIFICATES.
(a) In addition to a matter required or authorized by law to be stated on a certificate representing shares, each certificate representing shares issued by a close corporation must conspicuously state on the front or back of the certificate: "These shares are issued by a close corporation as defined by the Texas Business Organizations Code. Under Chapter 21 of that code, a shareholders' agreement may provide for management of a close corporation by the shareholders or in other ways different from an ordinary corporation. This may subject the holder of this certificate to certain obligations and liabilities not otherwise imposed on shareholders of an ordinary corporation. On a sale or transfer of these shares, the transferor is required to deliver to the transferee a complete copy of any shareholders' agreement."
(b) Notwithstanding this chapter and § 3.202, the status of a corporation as a close corporation is not affected by the failure of a share certificate to contain the statement required by Subsection (a).
(1) "Court" means a district court in the county in which the principal office of the close corporation is located.
(2) "Custodian" means a person appointed by a court under § 21.761.
(3) "Provisional director" means a person appointed by a court under § 21.758.
(B) the personal representative, as defined by the Estates Code, of a record or beneficial owner.
(a) Notice of the institution of a proceeding shall be given to the close corporation, if the corporation is not a plaintiff, and to each shareholder who is not a plaintiff in the manner prescribed by law and consistent with due process of law as directed by the court.
(b) The close corporation or a shareholder of the close corporation may intervene in the proceeding.
Except as provided by § 21.755, the right of a close corporation or a shareholder to institute a proceeding under § 21.752 is in addition to another right or remedy the plaintiff is entitled to under law.
§ 21.755. UNAVAILABILITY OF JUDICIAL PROCEEDING.
(a) A shareholder may not institute a proceeding before exhausting any nonjudicial remedy contained in a close corporation provision for resolution of an issue that is in dispute unless the shareholder proves that the close corporation, the shareholders as a whole, or the shareholder will suffer irreparable harm before the nonjudicial remedy is exhausted.
(b) A shareholder may not institute a proceeding to seek damages or other monetary relief if the shareholder is entitled to dissent from a proposed action and receive the fair value of the shareholder's shares under this code or a shareholders' agreement.
§ 21.756. JUDICIAL PROCEEDING TO ENFORCE CLOSE CORPORATION PROVISION.
(a) In a judicial proceeding under this section, a court shall enforce a close corporation provision without regard to whether there is an adequate remedy at law.
(6) the termination of close corporation status.
(2) the size, the nature of the business, or the number of shareholders of the close corporation, or their relationship to one another or other similar factors, make it wholly impractical to continue close corporation status.
§ 21.757. LIQUIDATION; INVOLUNTARY WINDING UP AND TERMINATION; RECEIVERSHIP.
Except as provided by § 21.756, in a case in which a shareholder is entitled to wind up and terminate a close corporation under a shareholders' agreement, a court may not order liquidation, involuntary termination, or receivership under that § unless the court determines that any other remedy in law or equity, including appointment of a provisional director, custodian, or other type of receiver, is inadequate.
§ 21.758. APPOINTMENT OF PROVISIONAL DIRECTOR.
(a) In a judicial proceeding under this section, a court shall appoint a provisional director for a close corporation on presentation of proof that the directors or the persons empowered to manage the business and affairs of the close corporation under a shareholders' agreement are so divided with respect to the management of the business and affairs of the close corporation that the required votes or consent to take action on behalf of the close corporation cannot be obtained, resulting in the business and affairs being conducted in a manner that is not to the general advantage of the shareholders.
(b) The provisional director must be an impartial person who is not a shareholder, a party to a shareholders' agreement, a person empowered to manage the close corporation under a shareholders' agreement, or a creditor of the close corporation or of a subsidiary or affiliate of the close corporation. The court shall determine any further qualifications.
(c) A provisional director shall serve until removed by court order or by a vote of the majority of the directors or the holders of the majority of the shares with voting power, or by a vote of a different number, not fewer than the majority, of shareholders or directors if a close corporation provision requires the concurrence of a larger or different majority for action by the directors or shareholders.
§ 21.759. RIGHTS AND POWERS OF PROVISIONAL DIRECTOR.
A provisional director has all the rights and powers of an elected director of the close corporation, or the rights of vote or consent of a shareholder and other rights and powers of shareholders or other persons who have been empowered to manage the business and affairs of the close corporation under a shareholders' agreement with the voting power provided by court order, including the right to notice of, and to vote at, meetings of directors or shareholders.
§ 21.760. COMPENSATION OF PROVISIONAL DIRECTOR.
(a) The compensation of a provisional director shall be determined by an agreement between the provisional director and the close corporation, subject to court approval.
(b) The court may set the compensation in the absence of an agreement or in the event of a disagreement between the provisional director and the close corporation.
§ 21.761. APPOINTMENT OF CUSTODIAN.
(3) the plaintiff or intervenor has the right to wind up and terminate the close corporation under a shareholders' agreement as provided by § 21.714.
(b) To be eligible to serve as a custodian, a person must comply with all the qualifications required to serve as a receiver under § 11.406.
§ 21.762. POWERS AND DUTIES OF CUSTODIAN.
A person who qualifies as a custodian has all of the powers and duties and the title of a receiver appointed under §§ 11.404-11.406. The custodian shall continue the business of the close corporation and may not liquidate the affairs or distribute the assets of the close corporation, except as provided by court order or § 21.761(a)(3).
§ 21.763. TERMINATION OF CUSTODIANSHIP.
If the condition requiring the appointment of a custodian is remedied other than by liquidation or winding up and termination, the court shall terminate the custodianship immediately and management of the close corporation shall be restored to the directors or shareholders of the close corporation or to the persons empowered to manage the business and affairs of the close corporation under a shareholders' agreement.

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