CHAPTER 21. FOR-PROFIT CORPORATIONS - Texas Statutes

BUSINESS ORGANIZATIONS CODE

TITLE 2. CORPORATIONS

CHAPTER 21. FOR-PROFIT CORPORATIONS

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 21.001. APPLICABILITY OF CHAPTER. This chapter applies

only to a:

(1) domestic for-profit corporation formed under this code; and

(2) foreign for-profit corporation that is transacting business

in this state, regardless of whether the foreign corporation is

registered to transact business in this state.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Sec. 21.002. DEFINITIONS. In this chapter:

(1) "Authorized share" means a share of any class the

corporation is authorized to issue.

(2) "Board of directors" includes each person who is authorized

to perform the functions of the board of directors under a

shareholders' agreement as authorized by this chapter.

(3) "Cancel," with respect to an authorized share of a

corporation, means the restoration of an issued share to the

status of an authorized but unissued share.

(4) "Consuming assets corporation" means a corporation that:

(A) is engaged in the business of exploiting assets subject to

depletion or amortization;

(B) states in its certificate of formation that it is a

consuming assets corporation;

(C) includes the phrase "a consuming assets corporation" as part

of its official corporate name and gives the phrase equal

prominence with the rest of the corporate name on the financial

statements and certificates of ownership of the corporation; and

(D) includes in each of the certificates of ownership of the

corporation the sentence, "This corporation is permitted by law

to pay dividends out of reserves that may impair its stated

capital."

(5) "Corporation" or "domestic corporation" means a domestic

for-profit corporation subject to this chapter.

(6)(A) "Distribution" means a transfer of property, including

cash, or issuance of debt, by a corporation to its shareholders

in the form of:

(i) a dividend on any class or series of its outstanding shares;

(ii) a purchase or redemption, directly or indirectly, of any of

its own shares; or

(iii) a payment by the corporation in liquidation of all or a

portion of its assets.

(B) The term does not include:

(i) a split-up or division of the issued shares of a class of a

corporation into a larger number of shares within the same class

that does not increase the stated capital of the corporation; or

(ii) a transfer of the corporation's own shares or rights to

acquire its own shares.

(7) "Foreign corporation" means a for-profit corporation formed

under the laws of a jurisdiction other than this state.

(8) "Investment Company Act" means the Investment Company Act of

1940 (15 U.S.C. Section 80a-1 et seq.), as amended.

(9) "Net assets" means the amount by which the total assets of a

corporation exceed the total debts of the corporation.

(10) "Share dividend" means a dividend by a corporation that is

payable in authorized but unissued shares or treasury shares of

the corporation. The term does not include:

(A) an amendment to the corporation's certificate of formation

to change the shares of a class or series, with or without par

value, into the same or a different number of shares of the same

or a different class or series, with or without par value; or

(B) a split-up or division of the issued shares of a class of a

corporation into a larger number of shares within the same class

that does not increase the stated capital of the corporation.

(11) "Stated capital" means the sum of:

(A) the par value of all shares of the corporation with par

value that have been issued;

(B) the consideration, as expressed in terms of United States

dollars, determined by the corporation in the manner provided by

Section 21.160 for all shares of the corporation without par

value that have been issued, except that part, but not all, of

the consideration that:

(i) has been actually received; and

(ii) the board, by resolution adopted not later than the 60th

day after the date of issuance of those shares, has allocated to

surplus; and

(C) an amount not included in Paragraphs (A) and (B) that has

been transferred to stated capital of the corporation, on the

payment of a share dividend or on adoption by the board of

directors of a resolution directing that all or part of surplus

be transferred to stated capital, minus each reduction made as

permitted by law.

(12) "Surplus" means the amount by which the net assets of a

corporation exceed the stated capital of the corporation.

(13) "Treasury shares" means shares of a corporation that have

been issued, and subsequently acquired by the corporation, that

belong to the corporation and that have not been canceled. The

term does not include shares held by a corporation in a fiduciary

capacity, whether directly or through a trust or similar

arrangement.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

SUBCHAPTER B. FORMATION AND GOVERNING DOCUMENTS

Sec. 21.051. NO PROPERTY RIGHT IN CERTIFICATE OF FORMATION. A

shareholder of a corporation does not have a vested property

right resulting from the certificate of formation, including a

provision in the certificate of formation relating to the

management, control, capital structure, dividend entitlement,

purpose, or duration of the corporation.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Sec. 21.052. PROCEDURES TO ADOPT AMENDMENT TO CERTIFICATE OF

FORMATION. (a) To adopt an amendment to the certificate of

formation of a corporation as provided by Subchapter B, Chapter

3, the board of directors of the corporation shall:

(1) adopt a resolution stating the proposed amendment; and

(2) follow the procedures prescribed by Sections 21.053-21.055.

(b) The resolution may incorporate the proposed amendment in a

restated certificate of formation that complies with Section

3.059.

(b-1) The resolution may provide that at any time before the

filing of a certificate of amendment takes effect as provided by

Subchapter B, Chapter 3, the board of directors may abandon the

proposed amendment to the certificate of formation without

further action by the shareholders of the corporation,

notwithstanding authorization of the proposed amendment by the

shareholders.

(c) The certificate of amendment must be filed in accordance

with Chapter 4 and takes effect as provided by Subchapter B,

Chapter 3.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Amended by:

Acts 2005, 79th Leg., Ch.

64, Sec. 43, eff. January 1, 2006.

Sec. 21.053. ADOPTION OF AMENDMENT BY BOARD OF DIRECTORS. (a)

If a corporation does not have any issued and outstanding shares,

the board of directors may adopt a proposed amendment to the

corporation's certificate of formation by resolution without

shareholder approval.

(b) Notwithstanding Section 21.054, the board of directors may

adopt a proposed amendment without shareholder approval in the

manner provided by Section 21.155 if the amendment to the

corporation's certificate of formation relates to a series of

shares established by the board under authority granted to the

board in the certificate of formation as provided by Section

21.155.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Amended by:

Acts 2005, 79th Leg., Ch.

64, Sec. 44, eff. January 1, 2006.

Sec. 21.054. ADOPTION OF AMENDMENT BY SHAREHOLDERS. If a

corporation has issued and outstanding shares:

(1) a resolution described by Section 21.052 must also direct

that the proposed amendment be submitted to a vote of the

shareholders at a meeting; and

(2) the shareholders must approve the proposed amendment in the

manner provided by Section 21.055.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Sec. 21.055. NOTICE OF AND MEETING TO CONSIDER PROPOSED

AMENDMENT. (a) Each shareholder of record entitled to vote

shall be given written notice containing the proposed amendment

or a summary of the changes to be effected within the time and in

the manner provided by this code for giving notice of meetings to

shareholders. The proposed amendment or summary may be included

in the notice required to be provided for an annual meeting.

(b) At the meeting, the proposed amendment shall be adopted only

on receiving the affirmative vote of shareholders entitled to

vote required by Section 21.364.

(c) An unlimited number of amendments may be submitted for

adoption by the shareholders at a meeting.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Sec. 21.056. RESTATED CERTIFICATE OF FORMATION. (a) A

corporation may adopt a restated certificate of formation as

provided by Subchapter B, Chapter 3, by following the same

procedures to amend its certificate of formation under Sections

21.052-21.055, except that shareholder approval is not required

if an amendment is not adopted.

(b) The restated certificate of formation shall be filed in

accordance with Chapter 4 and takes effect as provided by

Subchapter B, Chapter 3.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Sec. 21.057. BYLAWS. (a) The board of directors of a

corporation shall adopt initial bylaws.

(b) The bylaws may contain provisions for the regulation and

management of the affairs of the corporation that are consistent

with law and the corporation's certificate of formation.

(c) A corporation's board of directors may amend or repeal

bylaws or adopt new bylaws unless:

(1) the corporation's certificate of formation or this code

wholly or partly reserves the power exclusively to the

corporation's shareholders; or

(2) in amending, repealing, or adopting a bylaw, the

shareholders expressly provide that the board of directors may

not amend, repeal, or readopt that bylaw.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Sec. 21.058. DUAL AUTHORITY. Unless the certificate of

formation or a bylaw adopted by the shareholders provides

otherwise as to all or a part of a corporation's bylaws, a

corporation's shareholders may amend, repeal, or adopt the

corporation's bylaws regardless of whether the bylaws may also be

amended, repealed, or adopted by the corporation's board of

directors.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Sec. 21.059. ORGANIZATION MEETING. (a) This section does not

apply to a corporation created as a result of a conversion or

merger the plan of which states the bylaws and names the officers

of the corporation.

(b) After the filing of a certificate of formation takes effect,

an organization meeting shall be held at the call of the majority

of the initial board of directors or the persons named in the

certificate of formation under Section 3.007(a)(4) for the

purpose of adopting bylaws, electing officers, and transacting

other business.

(c) Not later than the third day before the date of the meeting,

the directors or other persons calling the meeting shall send

notice of the time and place of the meeting to each other

director or person named in the certificate of formation.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

SUBCHAPTER C. SHAREHOLDERS' AGREEMENTS

Sec. 21.101. SHAREHOLDERS' AGREEMENT. (a) The shareholders of

a corporation may enter into an agreement that:

(1) restricts the discretion or powers of the board of

directors;

(2) eliminates the board of directors and authorizes the

business and affairs of the corporation to be managed, wholly or

partly, by one or more of its shareholders or other persons;

(3) establishes the individuals who shall serve as directors or

officers of the corporation;

(4) determines the term of office, manner of selection or

removal, or terms or conditions of employment of a director,

officer, or other employee of the corporation, regardless of the

length of employment;

(5) governs the authorization or making of distributions whether

in proportion to ownership of shares, subject to Section 21.303;

(6) determines the manner in which profits and losses will be

apportioned;

(7) governs, in general or with regard to specific matters, the

exercise or division of voting power by and between the

shareholders, directors, or other persons, including use of

disproportionate voting rights or director proxies;

(8) establishes the terms of an agreement for the transfer or

use of property or for the provision of services between the

corporation and another person, including a shareholder,

director, officer, or employee of the corporation;

(9) authorizes arbitration or grants authority to a shareholder

or other person to resolve any issue about which there is a

deadlock among the directors, shareholders, or other persons

authorized to manage the corporation;

(10) requires winding up and termination of the corporation at

the request of one or more shareholders or on the occurrence of a

specified event or contingency, in which case the winding up and

termination of the corporation will proceed as if all of the

SHAREHOLDERS had consented in writing to the winding up and

termination as provided by Subchapter K; or

(11) otherwise governs the exercise of corporate powers, the

management of the business and affairs of the corporation, or the

relationship among the shareholders, the directors, and the

corporation as if the corporation were a partnership or in a

manner that would otherwise be appropriate only among partners

and not contrary to public policy.

(b) A shareholders' agreement authorized by this section must

be:

(1) contained in:

(A) the certificate of formation or bylaws if approved by all of

the shareholders at the time of the agreement; or

(B) a written agreement that is:

(i) signed by all of the shareholders at the time of the

agreement; and

(ii) made known to the corporation; and

(2) amended only by all of the shareholders at the time of the

amendment, unless the agreement provides otherwise.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Sec. 21.102. TERM OF AGREEMENT. A shareholders' agreement under

this subchapter is valid for 10 years, unless the agreement

provides otherwise.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Sec. 21.103. DISCLOSURE OF AGREEMENT; RECALL OF CERTAIN

CERTIFICATES. (a) The existence of an agreement authorized by

this subchapter shall be noted conspicuously on the front or back

of each certificate for outstanding shares or on the information

statement required for uncertificated shares by Section 3.205.

(b) The disclosure required by this section must include the

sentence, "These shares are subject to the provisions of a

shareholders' agreement that may provide for management of the

corporation in a manner different than in other corporations and

may subject a shareholder to certain obligations or liabilities

not otherwise imposed on shareholders in other corporations."

(c) A corporation that has outstanding shares represented by

certificates at the time the shareholders of the corporation

enter into an agreement under this subchapter shall recall the

outstanding certificates and issue substitute certificates that

comply with this subchapter.

(d) The failure to note the existence of the agreement on the

certificate or information statement does not affect the validity

of the agreement or an action taken pursuant to the agreement.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Sec. 21.104. EFFECT OF SHAREHOLDERS' AGREEMENT. A shareholders'

agreement that complies with this subchapter is effective among

the shareholders and between the shareholders and the corporation

even if the terms of the agreement are inconsistent with this

code.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Sec. 21.105. RIGHT OF RESCISSION; KNOWLEDGE OF PURCHASER OF

SHARES. (a) A purchaser of shares who does not have knowledge

at the time of purchase of the existence of a shareholders'

agreement authorized by this subchapter is entitled to rescind

the purchase.

(b) A purchaser is considered to have knowledge of the existence

of the shareholders' agreement for purposes of this section if:

(1) the existence of the agreement is noted on the certificate

or information statement for the shares as required by Section

21.103; and

(2) with respect to shares that are not represented by a

certificate, the information statement noting existence of the

agreement is delivered to the purchaser not later than the time

the shares are purchased.

(c) An action to enforce the right of rescission authorized by

this section must be commenced not later than the earlier of:

(1) the 90th day after the date the existence of the shareholder

agreement is discovered; or

(2) the second anniversary of the purchase date of the shares.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Sec. 21.106. AGREEMENT LIMITING AUTHORITY OF AND SUPPLANTING

BOARD OF DIRECTORS; LIABILITY. (a) A shareholders' agreement

authorized by this subchapter that limits the discretion or

powers of the board of directors or supplants the board of

directors relieves the directors of, and imposes on a person in

whom the discretion or powers of the board of directors or the

management of the business and affairs of the corporation is

vested, liability for an act or omission of the person in

accordance with Subsection (b).

(b) A person on whom liability for an act or omission is imposed

under this section is liable in the same manner and to the same

extent as a director on whom liability for an act or omission is

imposed by this code or other law.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Sec. 21.107. LIABILITY OF SHAREHOLDER. The existence of or a

performance under a shareholders' agreement authorized by this

subchapter is not a ground for imposing personal liability on a

shareholder for an act or obligation of the corporation by

disregarding the separate existence of the corporation or

otherwise, even if the agreement or a performance under the

agreement:

(1) treats the corporation as if the corporation were a

partnership or in a manner that otherwise is appropriate only

among partners;

(2) results in the corporation being considered a partnership

for purposes of taxation; or

(3) results in failure to observe the corporate formalities

otherwise applicable to the matters governed by the agreement.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Sec. 21.108. PERSONS ACTING IN PLACE OF SHAREHOLDERS. An

organizer or a subscriber for shares may act as a shareholder

with respect to a shareholders' agreement authorized by this

subchapter if no shares have been issued when the agreement is

signed.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Sec. 21.109. AGREEMENT NOT EFFECTIVE. (a) A shareholders'

agreement authorized by this subchapter ceases to be effective

when shares of the corporation are:

(1) listed on a national securities exchange or similar system;

(2) quoted on an interdealer quotation system of a national

securities association or successor system; or

(3) regularly traded in a market maintained by one or more

members of a national or affiliated securities association.

(b) If a corporation does not have a board of directors and an

agreement of the shareholders of the corporation entered into

under this subchapter ceases to be effective, a board of

directors shall be instituted or reinstated to govern the

corporation in the manner provided by Section 21.710(c).

(c) If a shareholders' agreement that ceases to be effective is

contained in or referred to by the certificate of formation or

bylaws of a corporation, the board of directors of the

corporation may adopt an amendment to the certificate of

formation or bylaws, without shareholder action, to delete the

agreement and any references to the agreement.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

SUBCHAPTER D. SHARES, OPTIONS, AND CONVERTIBLE SECURITIES

Sec. 21.151. NUMBER OF AUTHORIZED SHARES. A corporation may

issue the number of authorized shares stated in the corporation's

certificate of formation.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Sec. 21.152. CLASSES AND SERIES OF SHARES. (a) A corporation's

certificate of formation may divide the corporation's authorized

shares into one or more classes and may divide one or more

classes into one or more series. If more than one class or

series of shares is authorized, the certificate of formation must

designate each class and series of authorized shares to

distinguish that class and series from any other class or series.

(b) Shares of the same class must be of the same par value or be

without par value, as stated in the certificate of formation.

(c) Shares of the same class must be identical in all respects

unless the shares have been divided into one or more series. If

the shares of a class have been divided into one or more series,

the shares may vary between series, but all shares of the same

series must be identical in all respects.

(d) A corporation's certificate of formation must authorize:

(1) one or more classes or series of shares that together have

unlimited voting rights; and

(2) one or more classes or series of shares, which may be the

same class or series of shares as those with voting rights, that

together are entitled to receive the net assets of the

corporation on winding up and termination.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Amended by:

Acts 2009, 81st Leg., R.S., Ch.

84, Sec. 27, eff. September 1, 2009.

Sec. 21.153. DESIGNATIONS, PREFERENCES, LIMITATIONS, AND RIGHTS

OF A CLASS OR SERIES. (a) If more than one class or series of

shares is authorized under Section 21.152(d), the certificate of

formation must state the designations, preferences, limitations,

and relative rights, including voting rights, of each class or

series.

(b) The certificate of formation may limit or deny the voting

rights of, or provide special voting rights for, the shares of a

class or series or the shares of a class or series held by a

person or class of persons to the extent the limitation, denial,

or provision is not inconsistent with this code.

(c) A designation, preference, limitation, or relative right,

including a voting right, of a class or series of shares of a

corporation may be made dependent on facts not contained in the

certificate of formation, including future acts of the

corporation, if the manner in which those facts will operate on

the designation, preference, limitation, or right is clearly and

expressly stated in the certificate of formation.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Amended by:

Acts 2009, 81st Leg., R.S., Ch.

84, Sec. 28, eff. September 1, 2009.

Sec. 21.154. CERTAIN OPTIONAL CHARACTERISTICS OF SHARES. (a)

Subject to Sections 21.152 and 21.153, if authorized by the

corporation's certificate of formation, a corporation may issue

shares that:

(1) are redeemable, at the option of the corporation,

shareholder, or other person or on the occurrence of a designated

event, subject to Sections 21.303 and 21.304;

(2) entitle the holders of the shares to cumulative,

noncumulative, or partially cumulative distributions;

(3) have preferences over any or all other classes or series of

shares with respect to payment of distributions;

(4) have preferences over any or all other classes or series of

shares with respect to the assets of the corporation on the

voluntary or involuntary winding up and termination of the

corporation;

(5) are exchangeable, at the option of the corporation,

shareholder, or other person or on the occurrence of a designated

event, for shares, obligations, indebtedness, evidence of

ownership, rights to purchase securities of the corporation or

one or more other entities, or other property or for a

combination of those rights, assets, or obligations, subject to

Section 21.303; and

(6) are convertible into shares of any other class or series, at

the option of the corporation, shareholder, or other person or on

the occurrence of a designated event.

(b) Shares without par value may not be converted into shares

with par value unless:

(1) at the time of conversion, the part of the corporation's

stated capital represented by the shares without par value is at

least equal to the aggregate par value of the shares to be

converted; or

(2) the amount of any deficiency computed under Subdivision (1)

is transferred from surplus to stated capital.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Amended by:

Acts 2009, 81st Leg., R.S., Ch.

84, Sec. 29, eff. September 1, 2009.

Sec. 21.155. SERIES OF SHARES ESTABLISHED BY BOARD OF DIRECTORS.

(a) If expressly authorized by the corporation's certificate of

formation and subject to the certificate of formation, the board

of directors of a corporation may establish series of unissued

shares of any class by setting and determining the designations,

preferences, limitations, and relative rights, including voting

rights, of the shares of the series to be established to the same

extent that the designations, preferences, limitations, or

relative rights could be stated if fully specified in the

certificate of formation.

(b) To establish a series if authorized by the certificate of

formation, the board of directors must adopt a resolution

specifying the designations, preferences, limitations, and

relative rights, including voting rights, of the series to be

established or specifying any designation, preference,

limitation, or relative right that is not set and determined by

the certificate of formation.

(c) If the certificate of formation does not expressly restrict

the board of directors from increasing or decreasing the number

of unissued shares of a series to be established under Subsection

(a), the board of directors may increase or decrease the number

of shares in each series to be established, except that the board

of directors may not decrease the number of shares in a

particular series to a number that is less than the number of

shares in that series that are issued at the time of the

decrease.

(d) To increase or decrease the number of shares of a series

under Subsection (c), the board of directors must adopt a

resolution setting and determining the new number of shares of

each series in which the number of shares is increased or

decreased. If the number of shares of a series is decreased, the

shares by which the series is decreased will resume the status of

authorized but unissued shares of the class of shares from which

the series was established, unless otherwise provided by the

certificate of formation or the terms of the class or series.

(e) If no shares of a series established by board resolution

under Subsection (b) are outstanding because no shares of that

series have been issued or no issued shares of that series remain

outstanding, the board of directors by resolution may delete the

series from the certificate of formation and delete any reference

to the series contained in the certificate of formation. Unless

otherwise provided by the certificate of formation, the shares of

any series deleted from the certificate of formation under this

section shall resume the status of authorized but unissued shares

of the class of shares from which the series was established.

(f) If no shares of a series established by resolution of the

board of directors under Subsection (b) are outstanding because

no shares of that series have been issued, the board of directors

may amend the designations, preferences, limitations, and

relative rights, including voting rights, of the series or amend

any designation, preference, limitation, or relative right that

is not set and determined by the certificate of formation.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Sec. 21.156. ACTIONS WITH RESPECT TO SERIES OF SHARES. (a) To

effect an action authorized under Section 21.155, the corporation

must file with the secretary of state a statement that contains:

(1) the name of the corporation;

(2) if the statement relates to the establishment of a series of

shares, a copy of the resolution establishing and designating the

series and setting and determining the designations, preferences,

limitations, and relative rights of the series;

(3) if the statement relates to an increase or decrease in the

number of shares of a series, a copy of the resolution setting

and determining the new number of shares of each series in which

the number of shares is increased or decreased;

(4) if the statement relates to the deletion of a series of

shares and all references to the series from the certificate of

formation, a copy of the resolution deleting the series and all

references to the series from the certificate of formation;

(5) if the statement relates to the amendment of designations,

preferences, limitations, or relative rights of shares of a

series that was previously established by resolution of the board

of directors, a copy of the resolution in which the amendment is

specified;

(6) the date of the adoption of the resolution; and

(7) a statement that the resolution was adopted by all necessary

action on the part of the corporation.

(b) On the filing of a statement described by Subsection (a),

the following resolutions will become an amendment of the

certificate of formation, as appropriate:

(1) the resolution establishing and designating the series and

setting and determining the designations, preferences,

limitations, and relative rights of the series;

(2) the resolution setting the new number of shares of each

series in which the number of shares is increased or decreased;

(3) the resolution deleting a series and all references to the

series from the certificate of formation; or

(4) the resolution amending the designations, preferences,

limitations, and relative rights of a series.

(c) An amendment of the certificate of formation under this

section is not subject to the procedure to amend the certificate

of formation contained in Subchapter B.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Sec. 21.157. ISSUANCE OF SHARES. (a) Except as provided by

Section 21.158, a corporation may issue shares for consideration

if authorized by the board of directors of the corporation.

(b) Shares may not be issued until the consideration, determined

in accordance with this subchapter, has been paid or delivered as

required in connection with the authorization of the shares. When

the consideration is paid or delivered:

(1) the shares are considered to be issued;

(2) the subscriber or other person entitled to receive the

shares is a shareholder with respect to the shares; and

(3) the shares are considered fully paid and nonassessable.

(c) This subsection applies only to shares issued in accordance

with Subsections (a) and (b) and Sections 21.160 and 21.161 for

consideration consisting, wholly or partly, of a contract for

future services or benefits or a promissory note. A corporation

may place the shares, although fully paid and nonassessable, in

escrow, or make other arrangements to restrict the transfer of

the shares, and may credit distributions made with respect to the

shares against their purchase price, until the services are

performed, the note is paid, or the benefits are received. If

the services are not performed, the note is not paid, or the

benefits are not received, the corporation may pursue remedies

provided or afforded under law or in the contract or note,

including causing the shares that are placed in escrow or

restricted to be forfeited or returned to or reacquired by the

corporation and the distributions that have been credited to be

wholly or partly returned to the corporation.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Amended by:

Acts 2009, 81st Leg., R.S., Ch.

84, Sec. 30, eff. September 1, 2009.

Sec. 21.158. ISSUANCE OF SHARES UNDER PLAN OF MERGER OR

CONVERSION. (a) A converted corporation under a plan of

conversion or a corporation created by a plan of merger may issue

shares for consideration if authorized by the plan of conversion

or plan of merger, as appropriate.

(b) A corporation may issue shares in the manner provided by and

for consideration specified under a plan of merger or plan of

conversion.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Sec. 21.159. TYPES OF CONSIDERATION FOR SHARES. Shares with or

without par value may be issued for the following types of

consideration:

(1) a tangible or intangible benefit to the corporation;

(2) cash;

(3) a promissory note;

(4) services performed or a contract for services to be

performed;

(5) a security of the corporation or any other organization; and

(6) any other property of any kind or nature.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Sec. 21.160. DETERMINATION OF CONSIDERATION FOR SHARES. (a)

Subject to Subsection (b), consideration to be received for

shares must be determined:

(1) by the board of directors;

(2) by a plan of conversion, if the shares are to be issued by a

converted corporation under the plan; or

(3) by a plan of merger, if the shares are to be issued under

the plan by a corporation created under the plan.

(b) If the corporation's certificate of formation reserves to

the shareholders the right to determine the consideration to be

received for shares without par value, the shareholders shall

determine the consideration for those shares before the shares

are issued. The board of directors may not determine the

consideration for shares under this subsection.

(c) A corporation may dispose of treasury shares for

consideration that may be determined by the board of directors.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Sec. 21.161. AMOUNT OF CONSIDERATION FOR ISSUANCE OF CERTAIN

SHARES. (a) Consideration to be received by a corporation for

the issuance of shares with par value may not be less than the

par value of the shares.

(b) The part of the surplus of a corporation that is transferred

to stated capital on the issuance of shares as a share

distribution is considered to be the consideration for the

issuance of those shares.

(c) The consideration received by a corporation for the issuance

of shares on the conversion or exchange of its indebtedness or

shares is:

(1) the principal of, and accrued interest on, the indebtedness

exchanged or converted, or the stated capital on the issuance of

the shares;

(2) the part of surplus, if any, transferred to stated capital

on the issuance of the shares; and

(3) any additional consideration paid to the corporation on the

issuance of the shares.

(d) The consideration received by a corporation for the issuance

of shares on the exercise of rights or options is:

(1) any consideration received by the corporation for the rights

or options; and

(2) any consideration received by the corporation for the

issuance of shares on the exercise of the rights or options.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Sec. 21.162. VALUE AND SUFFICIENCY OF CONSIDERATION. In the

absence of fraud in the transaction, the judgment of the board of

directors, the shareholders, or the party approving the plan of

conversion or the plan of merger, as appropriate, is conclusive

in determining the value and sufficiency of the consideration

received for the shares.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Sec. 21.163. ISSUANCE AND DISPOSITION OF FRACTIONAL SHARES OR

SCRIP. (a) A corporation may:

(1) issue fractions of a share, either certificated or

uncertificated;

(2) arrange for the disposition of fractional interests by

persons entitled to the interests;

(3) pay cash for the fair value of fractions of a share

determined when the shareholders entitled to receive the

fractions are determined; or

(4) subject to Subsection (b), issue scrip in registered form

that entitles the holder to receive a certificate for a full

share or an uncertificated full share on the surrender of the

scrip aggregating a full share.

(b) The board of directors may issue scrip:

(1) on the condition that the scrip will become void if not

exchanged for certificated or uncertificated full shares before a

specified date;

(2) on the condition that the shares for which the scrip is

exchangeable may be sold by the corporation and the proceeds from

the sale of the shares may be distributed to the holders of

scrip; or

(3) subject to any other condition the board of directors may

determine advisable.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Amended by:

Acts 2009, 81st Leg., R.S., Ch.

84, Sec. 31, eff. September 1, 2009.

Sec. 21.164. RIGHTS OF HOLDERS OF FRACTIONAL SHARES OR SCRIP.

(a) A holder of a certificated or uncertificated fractional

share is entitled to exercise voting rights, receive

distributions, and make a claim with respect to the assets of the

corporation in the event of winding up and termination.

(b) A holder of a certificate for scrip is not entitled to

exercise voting rights, receive distributions, or make a claim

with respect to the assets of the corporation in the event of

winding up and termination unless the scrip provides for those

rights.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Sec. 21.165. SUBSCRIPTIONS. (a) A corporation may accept a

subscription by notifying the subscriber in writing.

(b) A subscription to purchase shares in a corporation in the

process of being formed is irrevocable for six months if the

subscription is in writing and signed by the subscriber, unless

the subscription provides for a longer or shorter period or all

of the other subscribers agree to the revocation of the

subscription.

(c) A written subscription entered into after the corporation is

formed is a contract between the subscriber and the corporation.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Sec. 21.166. PREFORMATION SUBSCRIPTION. (a) The corporation

may determine the payment terms of a preformation subscription

unless the payment terms are specified by the subscription. The

payment terms may authorize payment in full on acceptance or by

installments.

(b) Unless the subscription provides otherwise, a corporation

shall make calls placed to all subscribers of similar interests

for payment on preformation subscriptions uniform as far as

practicable.

(c) After the corporation is formed, if a subscriber fails to

pay any installment or call when due, a corporation may:

(1) collect in the same manner as any other debt the amount due

on any unpaid preformation subscription; or

(2) forfeit the subscription if the installment or call remains

unpaid for 20 days after written notice to the subscriber.

(d) Although the forfeiture of a subscription terminates all the

rights and obligations of the subscriber, the corporation may

retain any amount previously paid on the subscription.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Sec. 21.167. COMMITMENT TO PURCHASE SHARES. (a) A person who

contemplates the acquisition of shares in a corporation may

commit to act in a specified manner with respect to the shares

after the acquisition, including the voting of the shares or the

retention or disposition of the shares. To be binding, the

commitment must be in writing and be signed by the person

acquiring the shares.

(b) A written commitment entered into under Subsection (a) is a

contract between the shareholder and the corporation.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Sec. 21.168. STOCK RIGHTS, OPTIONS, AND CONVERTIBLE

INDEBTEDNESS. (a) Except as provided by the corporation's

certificate of formation and regardless of whether done in

connection with the issuance and sale of any other share or

security of the corporation, a corporation may create and issue:

(1) rights or options that entitle the holders to purchase or

receive from the corporation shares of any class or series or

other securities; and

(2) indebtedness convertible into shares of any class or series

of the corporation or other securities of the corporation.

(b) A right, option, or indebtedness described by this section

shall be evidenced in the manner approved by the board of

directors.

(c) Subject to the certificate of formation, a right or option

described by this section must state the terms on which, the time

within which, and any consideration, including a formula by which

the consideration may be determined, for which the shares may be

purchased or received from the corporation on the exercise of the

right or option.

(d) Subject to the certificate of formation, convertible

indebtedness described by this section must state the terms and

conditions on which, the time within which, and the conversion

ratio at which the indebtedness may be converted into shares.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Amended by:

Acts 2005, 79th Leg., Ch.

64, Sec. 45, eff. January 1, 2006.

Sec. 21.169. TERMS AND CONDITIONS OF RIGHTS AND OPTIONS. (a)

The terms and conditions of rights or options may include

restrictions or conditions that:

(1) prohibit or limit the exercise, transfer, or receipt of the

rights or options by certain persons or classes of persons,

including:

(A) a person who beneficially owns or offers to acquire a

specified number or percentage of the outstanding common shares,

voting power, or other securities of the corporation; or

(B) a transferee of a person described by Paragraph (A); or

(2) invalidate or void the rights or options held by a person or

transferee described by Subdivision (1).

(b) Rights or options created or issued before the effective

date of this code that comply with this section and are not in

conflict with other provisions of this code are ratified.

(c) Unless otherwise provided under the terms of rights or

options or the agreement or plan under which the rights or

options are issued, the authority to grant, amend, redeem,

extend, or replace the rights or options on behalf of a

corporation is vested exclusively in the board of directors of

the corporation. A bylaw may not require the board to grant,

amend, redeem, extend, or replace the rights or options.

(d) The terms of rights or options or the agreement or plan

under which the rights or options are issued may provide that the

board of directors by resolution may authorize one or more

officers of the corporation to:

(1) designate officers and employees of the corporation or of

any subsidiary of the corporation to receive rights or options

created by the corporation; or

(2) determine the number of rights or options to be received

under Subdivision (1).

(e) A resolution adopted under Subsection (d)(1) must specify

the total number of rights or options the authorized officer or

officers may award. An officer may not be designated as a

recipient of any rights or options that the officer is authorized

to award under Subsection (d)(1).

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Amended by:

Acts 2005, 79th Leg., Ch.

64, Sec. 46, eff. January 1, 2006.

Sec. 21.170. CONSIDERATION FOR RIGHTS, OPTIONS, AND CONVERTIBLE

INDEBTEDNESS. (a) In the absence of fraud in the transaction,

the judgment of the board of directors of a corporation as to the

adequacy of the consideration received for rights, options, or

convertible indebtedness is conclusive.

(b) A corporation may issue rights or options to its

shareholders, officers, consultants, independent contractors,

employees, or directors without consideration if, in the judgment

of the board of directors, the issuance of the rights or options

is in the interests of the corporation.

(c) The consideration for shares having a par value, other than

treasury shares, and issued on the exercise of the rights or

options may not be less than the par value of the shares.

(d) A privilege of conversion may not be conferred on, or

altered with respect to, any indebtedness that would result in

the corporation receiving less than the minimum consideration

required to be received on issuance of the shares.

(e) The consideration for shares issued on the exercise of

rights, options, or convertible indebtedness shall be determined

as provided by Section 21.161.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Sec. 21.171. OUTSTANDING OR TREASURY SHARES. (a) Shares that

are issued are outstanding shares unless the shares are treasury

shares or are canceled.

(b) If there are outstanding shares, one or more shares that

together have unlimited voting rights and one or more shares that

together are entitled to receive the net assets of the

corporation on the winding up and termination of the corporation

must be outstanding shares.

(c) Treasury shares are considered to be issued shares and not

outstanding shares.

(d) Treasury shares may not be included in the total assets of a

corporation for purposes of determining the net assets of a

corporation.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Amended by:

Acts 2009, 81st Leg., R.S., Ch.

84, Sec. 32, eff. September 1, 2009.

Sec. 21.172. EXPENSES OF ORGANIZATION, REORGANIZATION, AND

FINANCING OF CORPORATION. A corporation may pay or authorize to

be paid from the consideration received by the corporation as

payment for the corporation's shares the reasonable charges and

expenses of the organization or reorganization of the corporation

and the sale or underwriting of the shares without rendering the

shares not fully paid and nonassessable.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Sec. 21.173. SUPPLEMENTAL REQUIRED RECORDS. In addition to the

books and records required to be kept under Section 3.151, a

corporation shall keep at its registered office or principal

place of business, or at the office of its transfer agent or

registrar, a record of:

(1) the original issuance of shares issued by the corporation;

(2) each transfer of those shares that have been presented to

the corporation for registration of transfer;

(3) the names and addresses of all past shareholders of the

corporation; and

(4) the number and class or series of shares issued by the

corporation held by each current and past shareholder.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

SUBCHAPTER E. SHAREHOLDER RIGHTS AND RESTRICTIONS

Sec. 21.201. REGISTERED HOLDERS AS OWNERS; SHARES HELD BY

NOMINEES. (a) Except as otherwise provided by this code and

subject to Chapter 8, Business & Commerce Code, a corporation

may consider the person registered as the owner of a share in the

share transfer records of the corporation at a particular time,

including a record date set under Section 6.101 or 6.102 or

Subchapter H, as the owner of that share at that time for

purposes of:

(1) voting the share;

(2) receiving distributions on the share;

(3) transferring the share;

(4) receiving notice, exercising rights of dissent, exercising

or waiving a preemptive right, or giving proxies with respect to

that share;

(5) entering into agreements with respect to that share in

accordance with Section 6.251, 6.252, or 21.210; or

(6) any other shareholder action.

(b) A corporation may establish a procedure by which the

corporation recognizes as a shareholder the beneficial owner of

shares registered in the name of a nominee.

(c) A procedure established under Subsection (b) must:

(1) determine the extent of the corporation's recognition of the

beneficial owner as a shareholder; and

(2) include the nominee's filing of a statement with the

corporation that contains information regarding the beneficial

owner.

(d) A procedure established under Subsection (b) may set forth:

(1) the types of nominees to which the procedure applies;

(2) the rights or privileges that the corporation will recognize

in a beneficial owner, to the extent that the rights or

privileges are not inconsistent with Section 10.361(g);

(3) the manner in which the procedure is selected by the

nominee;

(4) the information that must be provided when the procedure is

selected;

(5) the period for which the selection of the procedure is

effective; and

(6) any other aspect of the rights and duties to be established

under the procedure.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Amended by:

Acts 2009, 81st Leg., R.S., Ch.

84, Sec. 33, eff. September 1, 2009.

Sec. 21.202. DEFINITION OF SHARES. In Sections 21.203-21.208,

"shares" includes a security:

(1) that is convertible into shares; or

(2) that carries a right to subscribe for or acquire shares.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Sec. 21.203. NO STATUTORY PREEMPTIVE RIGHT UNLESS PROVIDED BY

CERTIFICATE OF FORMATION. (a) Except as provided by Section

21.208, a shareholder of a corporation does not have a preemptive

right under this subchapter to acquire the corporation's unissued

or treasury shares except to the extent provided by the

corporation's certificate of formation.

(b) If the certificate of formation includes a statement that

the corporation "elects to have a preemptive right" or a similar

statement, Section 21.204 applies to a shareholder except to the

extent the certificate of formation expressly provides otherwise.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Sec. 21.204. STATUTORY PREEMPTIVE RIGHTS. (a) If the

shareholders of a corporation have a preemptive right under this

subchapter, the shareholders have a preemptive right to acquire

proportional amounts of the corporation's unissued or treasury

shares on the decision of the corporation's board of directors to

issue the shares. The preemptive right granted under this

subsection is subject to uniform terms and conditions prescribed

by the board of directors to provide a fair and reasonable

opportunity to exercise the preemptive right.

(b) No preemptive right exists with respect to:

(1) shares issued or granted as compensation to a director,

officer, agent, or employee of the corporation or a subsidiary or

affiliate of the corporation;

(2) shares issued or granted to satisfy conversion or option

rights created to provide compensation to a director, officer,

agent, or employee of the corporation or a subsidiary or

affiliate of the corporation;

(3) shares authorized in the corporation's certificate of

formation that are issued not later than the 180th day after the

effective date of the corporation's formation; or

(4) shares sold, issued, or granted by the corporation for

consideration other than money.

(c) A holder of a share of a class without general voting rights

but with a preferential right to distributions of profits,

income, or assets does not have a preemptive right with respect

to shares of any class.

(d) A holder of a share of a class with general voting rights

but without preferential rights to distributions of profits,

income, or assets does not have a preemptive right with respect

to shares of any class with preferential rights to distributions

of profits, income, or assets unless the shares with preferential

rights are convertible into or carry a right to subscribe for or

acquire shares without preferential rights.

(e) For a one-year period after the date the shares have been

offered to shareholders, shares subject to preemptive rights that

are not acquired by a shareholder may be issued to a person at a

consideration set by the corporation's board of directors that is

not lower than the consideration set for the exercise of

preemptive rights. An offer at a lower consideration or after the

expiration of the period prescribed by this subsection is subject

to the shareholder's preemptive rights.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Sec. 21.205. WAIVER OF PREEMPTIVE RIGHT. (a) A shareholder may

waive a preemptive right granted to the shareholder.

(b) A written waiver of a preemptive right is irrevocable

regardless of whether the waiver is supported by consideration.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Sec. 21.206. LIMITATION ON ACTION TO ENFORCE PREEMPTIVE RIGHT.

(a) An action brought against a corporation, the board of

directors or an officer, shareholder, or agent of the

corporation, or an owner of a beneficial interest in shares of

the corporation for the violation of a preemptive right of a

shareholder must be brought not later than the earlier of:

(1) the first anniversary of the date written notice is given to

each shareholder whose preemptive right was violated; or

(2) the fourth anniversary of the latest of:

(A) the date the corporation issued the shares, securities, or

rights;

(B) the date the corporation sold the shares, securities, or

rights; or

(C) the date the corporation otherwise distributed the shares,

securities, or rights.

(b) The notice required by Subsection (a)(1) must:

(1) be sent to the holder at the address for the holder as shown

on the appropriate records of the corporation; and

(2) inform the holder that the issuance, sale, or other

distribution of shares, securities, or rights violated the

holder's preemptive right.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Sec. 21.207. DISPOSITION OF SHARES HAVING PREEMPTIVE RIGHTS.

The transferee or successor of a share that has been transferred

or otherwise disposed of by a shareholder of a corporation whose

preemptive right to acquire shares in the corporation has been

violated does not acquire the preemptive right, or any right or

claim based on the violation, unless the previous shareholder has

assigned the preemptive right to the transferee or successor.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Sec. 21.208. PREEMPTIVE RIGHT IN EXISTING CORPORATION. Subject

to the certificate of formation, a shareholder of a corporation

incorporated before September 1, 2003, has a preemptive right to

acquire unissued or treasury shares of the corporation to the

extent provided by Sections 21.204, 21.206, and 21.207. After

September 1, 2003, a corporation may limit or deny the preemptive

right of the shareholders of the corporation by amending the

corporation's certificate of formation.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Amended by:

Acts 2005, 79th Leg., Ch.

64, Sec. 47, eff. January 1, 2006.

Sec. 21.209. TRANSFER OF SHARES AND OTHER SECURITIES. Except as

otherwise provided by this code, the shares and other securities

of a corporation are transferable in accordance with Chapter 8,

Business & Commerce Code.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Sec. 21.210. RESTRICTION ON TRANSFER OF SHARES AND OTHER

SECURITIES. (a) A restriction on the transfer or registration

of transfer of a security, or on the amount of a corporation's

securities that may be owned by a person or group of persons, may

be imposed by:

(1) the corporation's certificate of formation;

(2) the corporation's bylaws;

(3) a written agreement among two or more holders of the

securities; or

(4) a written agreement among one or more holders of the

securities and the corporation if:

(A) the corporation files a copy of the agreement at the

principal place of business or registered office of the

corporation; and

(B) the copy of the agreement is subject to the same right of

examination by a shareholder of the corporation, in person or by

agent, attorney, or accountant, as the books and records of the

corporation.

(b) A restriction imposed under Subsection (a) is not valid with

respect to a security issued before the restriction has been

adopted, unless the holder of the security voted in favor of the

restriction or is a party to the agreement imposing the

restriction.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Amended by:

Acts 2005, 79th Leg., Ch.

64, Sec. 48, eff. January 1, 2006.

Sec. 21.211. VALID RESTRICTIONS ON TRANSFER. (a) Without

limiting the general powers granted by Sections 21.210 and 21.213

to impose and enforce reasonable restrictions, a restriction

placed on the transfer or registration of transfer of a security

of a corporation is valid if the restriction reasonably:

(1) obligates the holder of the restricted security to offer a

person, including the corporation or other holders of securities

of the corporation, an opportunity to acquire the restricted

security within a reasonable time before the transfer;

(2) obligates the corporation, to the extent provided by this

code, or another person to purchase securities that are the

subject of an agreement relating to the purchase and sale of the

restricted security;

(3) requires the corporation or the holders of a class of the

corporation's securities to consent to a proposed transfer of the

restricted security or to approve the proposed transferee of the

restricted security for the purpose of preventing a violation of

law;

(4) prohibits the transfer of the restricted security to a

designated person or group of persons and the designation is not

manifestly unreasonable;

(5) maintains the status of the corporation as an electing small

business corporation under Subchapter S of the Internal Revenue

Code;

(6) maintains a tax advantage to the corporation;

(7) maintains the status of the corporation as a close

corporation under Subchapter O;

(8) obligates the holder of the restricted securities to sell or

transfer an amount of restricted securities to a person or group

of persons, including the corporation or other holders of

securities of the corporation; or

(9) causes or results in the automatic sale or transfer of an

amount of restricted securities to a person or group of persons,

including the corporation or other holders of securities of the

corporation.

(b) A restriction placed on the transfer or registration of

transfer of a security of a corporation, on the amount of the

corporation's securities, or on the amount of the corporation's

securities that may be owned by a person or group of persons is

conclusively presumed to be for a reasonable purpose if the

restriction:

(1) maintains a local, state, federal, or foreign tax advantage

to the corporation or its shareholders, including:

(A) maintaining the corporation's status as an electing small

business corporation under Subchapter S of the Internal Revenue

Code;

(B) maintaining or preserving any tax attribute, including net

operating losses; or

(C) qualifying or maintaining the qualification of the

corporation as a real estate investment trust under the Internal

Revenue Code or regulations adopted under the Internal Revenue

Code; or

(2) maintains a statutory or regulatory advantage or complies

with a statutory or regulatory requirement under applicable

local, state, federal, or foreign law.

Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.

Amended by:

Acts 2005, 79th Leg., Ch.

64, Sec. 49, eff. January 1, 2006.

Acts 2007, 80th Leg., R.S., Ch.

688, Sec. 71, eff. September 1, 2007.

Sec. 21.212. BYLAW OR AGREEMENT RESTRICTING TRANSFER OF SHARES

OR OTHER SECURITIES. (a) A corporation that has adopted a bylaw

or is a party to an agreement that restricts the transfer of the

shares or other securities of the corporation may file with the

secretary of state, in accordance with Chapter