§ 7-1.2-1701 - Close corporations. - Rhode Island Statutes

SECTION 7-1.2-1701

   § 7-1.2-1701  Close corporations. –(a) Provisions of the articles of incorporation or bylaws of a corporationorganized under this chapter, or provisions of an agreement relating to acorporation, which would otherwise be invalid because they:

   (1) Restrict, or assign to one or more shareholders or otherindividuals, any or all of the powers normally vested in the board of directorsor provide that there is no board of directors; or

   (2) Grant the right to one or more shareholders to dissolvethe corporation at will or on the occurrence of a specified contingency; or

   (3) Impose too great a restraint on the transfer of shares ofthe corporation; are nevertheless valid if the provisions have been approved byall the shareholders of the corporation and if the corporation's original oramended articles of incorporation contain a heading immediately after the nameof the corporation stating that it is a close corporation pursuant to §7-1.2-1701. This subsection does not invalidate any provision in articles ofincorporation, bylaws, or agreements that would otherwise be valid.

   (b) The provisions of § 7-1.2-709 limiting the durationof a voting trust or shareholders' agreement to ten (10) years is not beapplicable to a close corporation that complies with subsection (a). If closecorporation status is terminated pursuant to subsection (d), the effective termof voting trust or shareholders' agreement is ten (10) years from thetermination or the term provided therein, whichever is shorter.

   (c) The effect of any provision authorized by subdivision(a)(1) is to relieve the directors and to impose on the individual orindividuals undertaking to exercise responsibility the liability for managerialacts or omissions that would otherwise be imposed on directors to the extentthat and so long as the discretion or powers of the board in its management ofcorporate affairs is controlled by any such provision. Action which is validpursuant to subdivision (a)(1) is deemed to be action by the board of directorsfor purposes of compliance with any provision of this chapter providing foraction by the board of directors.

   (d) If a close corporation's original or amended articles ofincorporation so provide, the corporation need not hold an annual meeting ofshareholders unless one or more shareholders deliver written notice to thecorporation requesting a meeting at least thirty (30) days before the meetingdate stated or fixed in accordance with the bylaws of the corporation.

   (e) The articles of incorporation must be amended toterminate close corporation status pursuant to this section if:

   (i) All of the shareholders, or such lessor number as may bespecified in the articles of incorporation, the bylaws, or an agreementrelating to the corporation, approve the termination; or

   (ii) There are more than thirty (30) shareholders of recordand any shareholder, after thirty (30) days' notice to the corporation of hisor her intention to do so during which time the number is not reduced to thirty(30) or less, demands termination; or

   (iii) Any individual who acquires of record shares of thecorporation without notice or knowledge of its close corporation status demandstermination; provided, that notice shall be conclusively presumed ifcertificates representing the shares so acquired state on their face, under thename of the corporation, that it is a close corporation pursuant to thissection.

   (2) If the directors and shareholders fail to effect theamendment promptly, the superior court shall have jurisdiction to enterwhatever order is necessary to effect the amendment. The termination shall notaffect the validity of any provision relating to the corporation or itsmanagement which would be valid, notwithstanding the provisions of this section.