2005 Texas Code - Business Corporation Act ARTICLE 2.01. PURPOSES

Business Corporation Act

Part 1. 






Art. 1.01. Short Title, Captions, Parts, Articles, Sections, 
Subsections, and Paragraphs

A. This Act shall be known and may be cited as the "Texas Business 
Corporation Act."

B. The Division of this Act into Parts, Articles, Sections, 
Subsections and Paragraphs and the use of captions in connection 
therewith are solely for convenience and shall have no legal effect 
in construing the provisions of this Act.

C. This Act has been organized and subdivided in the following 
manner:      

(1) The Act is divided into Parts, containing groups of related 
Articles.  Parts are numbered consecutively with cardinal numbers.

(2) The Act is also divided into Articles, numbered consecutively 
with Arabic numerals.

(3) Articles are divided into Sections.  The Sections within each 
Article are numbered consecutively with capital letters.

(4) Sections are divided into subsections.  The subsections within 
each Section are numbered consecutively with Arabic numerals 
enclosed in parentheses.

(5) Subsections are divided into paragraphs.  The paragraphs within 
each subsection are numbered consecutively with lower case letters 
enclosed in parentheses.

Acts 1955, 54th Leg., p. 239, ch. 64, eff. Sept. 6, 1955.                     






Art. 1.02. Definitions                                                        

A. As used in this Act, unless the context otherwise requires, the 
term:    

(1) "Articles of incorporation" means the original or restated 
articles of incorporation and all amendments thereto.

(2) "Associate," when used to indicate a relationship with a 
person, means: 

(a) a domestic or foreign corporation or other entity of which the 
person is an officer or partner or is the beneficial owner of 10 
percent or more of a class of voting shares or similar securities of 
that corporation or other entity;

(b) a trust or estate in which the person has a substantial 
beneficial interest or as to which the person serves as trustee or 
in a similar fiduciary capacity;  or

(c) a spouse of the person or a relative of the person, or of the 
person's spouse, who has the same home as the person or who is a 
director or officer of such person or any of its affiliates.

(3) "Authorized shares" means the shares of all classes which the 
corporation is authorized to issue.

(4) "Cancel" means to restore issued shares to the status of 
authorized but unissued shares.

(5) "Certificated shares" means shares represented by instruments 
in bearer or registered form.

(6) "Conspicuous" or "conspicuously," when prescribed for 
information appearing on a certificate for shares or other 
securities, means the location of such information or use of type of 
sufficient size, color, or character that a reasonable person 
against whom such information may operate should notice it.  For 
example, a printed or typed statement in capitals, or boldface or 
underlined type, or in type that is larger than or that contrasts in 
color with that used for other statements on the same certificate, 
is "conspicuous."

(7) "Consuming assets corporation" means a corporation which is 
engaged in the business of exploiting assets subject to depletion 
or amortization and which elects to state in its articles of 
incorporation that it is a consuming assets corporation and 
includes as a part of its official corporate name the phrase "a 
consuming assets corporation," giving such phrase equal prominence 
with the rest of the corporate name on its financial statements and 
certificates representing shares.  All its certificates 
representing shares shall also contain a further sentence:  "This 
corporation is permitted by law to pay dividends out of reserves 
which may impair its stated capital."

(8) "Conversion" means:                                                       

(a) the continuance of a domestic corporation as, and in the 
organizational form of, a foreign corporation or other entity;  or

(b) the continuance of a foreign corporation or other entity as, and 
in the organizational form of, a domestic corporation.

(9) "Converted entity" means any domestic or foreign corporation or 
other entity to which a converting entity has converted or intends 
to convert as permitted by Article 5.17 of this Act.

(10) "Converting entity" means any domestic or foreign corporation 
or other entity that has converted or intends to convert as 
permitted by Article 5.17 of this Act.

(11) "Corporation" or "domestic corporation" means a corporation 
for profit subject to the provisions of this Act, except a foreign 
corporation.

(12) "Disinterested," when used to indicate a director or other 
person is disinterested in a contract, transaction, or other matter 
for purposes of approval of a contract or transaction under Article 
2.35-1 of this Act and for purposes of considering the disposition 
of a claim or challenge with respect to a particular contract or 
transaction or to particular conduct means the director or other 
person, or an associate of the director (other than the corporation 
and its associates) or other person, is not a party to the contract 
or transaction or is not materially involved in the conduct that is 
subject to the claim or challenge and does not otherwise have a 
material financial interest in the outcome of the contract or 
transaction or the disposition of the claim or challenge.  A 
director or other person is not to be considered to be materially 
involved in conduct that is subject to a claim or challenge or to 
otherwise have a material financial interest in the outcome of a 
contract or transaction or the disposition of the claim or 
challenge solely by reason of the existence of one or more of the 
following circumstances:

(a) the person was nominated or elected as a director by persons who 
are interested in the contract or transaction or who are alleged to 
have engaged in the conduct that is subject to the claim or 
challenge;

(b) the person receives normal director's fees or similar customary 
compensation, expense reimbursement, and benefits as a director of 
the corporation;

(c) the person has a direct or indirect equity interest in the 
corporation; 

(d) the corporation or its subsidiaries has an interest in the 
contract or transaction or was affected by the alleged conduct;

(e) the person or an associate or affiliate of the person receives 
ordinary and reasonable compensation for services rendered to 
review, make recommendations, or decide on the disposition of the 
claim or challenge;  or

(f) in the case of a review by the person of alleged conduct that is 
subject to a claim or challenge:

(i) the person is named as a defendant in the derivative proceeding 
with respect to such matter or as a person who engaged in the 
alleged conduct;  or

(ii) the person approved of, voted for, or acquiesced in, as a 
director, the act being challenged if the act resulted in no 
material personal or financial benefit to the person and the 
challenging party fails to allege with particularity facts that, if 
true, raise a significant prospect that the director would be 
adjudged liable to the corporation or its shareholders by reason of 
that conduct.

(13) "Distribution" means a transfer of money or other property 
(except its own shares or rights to acquire its own shares), or 
issuance of indebtedness, by a corporation to its shareholders in 
the form of:

(a) a dividend on any class or series of the corporation's 
outstanding shares;

(b) a purchase, redemption, or other acquisition by the 
corporation, directly or indirectly, of any of its own shares;  or

(c) a payment by the corporation in liquidation of all or a portion 
of its assets.

(14) "Foreign corporation" means a corporation for profit organized 
under laws other than the laws of this State.

(15) "Independent," when used to indicate a director or other 
person is independent for purposes of considering the disposition 
of a claim or challenge with respect to a particular contract or 
transaction or to particular conduct or alleged conduct means:

(a) the director or other person is disinterested;                            

(b) the director or other person is not an associate (other than by 
reason of being a director of the corporation or one more of its 
subsidiaries or associates) or member of the immediate family of a 
party to the contract or transaction that is the subject of the 
claim or challenge or that is alleged to have engaged in the conduct 
that is subject to the claim or challenge;

(c) the director or other person, or an associate or member of the 
immediate family of the director or other person, does not have a 
business, financial, or familial relationship with a party to the 
contract or transaction that is the subject of the claim or 
challenge or that is alleged to have engaged in conduct that is 
subject to the claim or challenge, which, in each case, could 
reasonably be expected to materially and adversely affect the 
director's or other person's judgment with respect to the 
consideration of the disposition of the matter subject to the claim 
or challenge in the interests of the corporation;  and

(d) the director or other person is not otherwise shown, by a 
preponderance of the evidence by the person challenging the 
independence of the director or other person, to be under the 
controlling influence of a party to the contract or transaction 
that is the subject of the claim or challenge or that is alleged to 
have engaged in conduct that is subject to the claim or challenge.

A director or other person is not considered to have a relationship 
that could be expected to materially and adversely affect the 
director's or other person's judgment with respect to the 
consideration of the disposition of a matter subject to a claim or 
challenge or to otherwise be under the controlling influence of a 
party to a contract or transaction that is the subject of the claim 
or challenge or that is alleged to have engaged in conduct that is 
subject to a claim or challenge solely by reason of the existence of 
one or more of the following circumstances:

(a) the person has been nominated or elected as a director by 
persons who are interested in the contract or transaction or who are 
alleged to have engaged in the conduct that is subject to the claim 
or challenge;

(b) the person receives normal director's fees or similar customary 
compensation, expense reimbursement, and benefits as a director of 
the corporation;

(c) the person has a direct or indirect equity interest in the 
corporation; 

(d) the corporation or its subsidiaries have an interest in the 
contract or transaction or were affected by the alleged conduct;

(e) the person or an associate or affiliate of such person receives 
ordinary and reasonable compensation for services rendered to 
review, make recommendations, or decide on the disposition of the 
claim or challenge;  or

(f) the person or an associate (other than the corporation and its 
associates), immediate family, member or affiliate of the person 
has an ongoing business relationship with the corporation that is 
not material to that person, associate, family member, or 
affiliate.

(16) "Insolvency" means inability of a corporation to pay its debts 
as they become due in the usual course of its business.

(17) "Investment Company Act" means the Investment Company Act of 
1940 (15 U.S.C. Sec. 80a-1 et seq.);

(18) "Merger" means (a) the division of a domestic corporation into 
two or more new domestic corporations or into a surviving 
corporation and one or more new domestic or foreign corporations or 
other entities, or (b) the combination of one or more domestic 
corporations with one or more domestic or foreign corporations or 
other entities resulting in (i) one or more surviving domestic or 
foreign corporations or other entities, (ii) the creation of one or 
more new domestic or foreign corporations or other entities, or 
(iii) one or more surviving domestic or foreign corporations or 
other entities and the creation of one or more new domestic or 
foreign corporations or other entities.

(19) "Net assets" means the amount by which the total assets of a 
corporation exceed the total debts of the corporation.

(20) "Other entity" means any entity, whether organized for profit 
or not, that is a corporation (other than a domestic or foreign 
corporation), limited or general partnership, limited liability 
company, real estate investment trust, joint venture, joint stock 
company, cooperative, association, bank, trust, insurance company 
or other legal entity organized pursuant to the laws of this state 
or any other state or country.

(21) "Share dividend" means a dividend by a corporation that is 
payable in its own authorized but unissued shares or in treasury 
shares.  An amendment to a corporation's articles of incorporation 
to change the shares of any class or series, whether with or without 
par value, into the same or a different number of shares, either 
with or without par value, of the same class or series or another 
class or series does not constitute a share dividend.

(22) "Shareholder" or "holder of shares" means the person in whose 
name shares issued by a corporation are registered at the relevant 
time in the share transfer records maintained by the corporation 
pursuant to Article 2.44 of this Act.

(23) "Shares" means the units into which the proprietary interests 
in a corporation are divided, whether certificated or 
uncertificated shares.

(24) "Stated capital" means, at any particular time, the sum of:              

(a) the par value of all shares of the corporation having a par 
value that have been issued;

(b) the consideration fixed by the corporation in the manner 
provided by Article 2.15 of this Act for all shares of the 
corporation without par value that have been issued, except such 
part of the consideration that is actually received therefor (which 
part must be less than all of that consideration) that the board by 
resolution adopted no later than sixty (60) days after the issuance 
of those shares may have allocated to surplus;  and

(c) such amounts not included in paragraphs (a) and (b) of this 
subsection as have been transferred to stated capital of the 
corporation, whether upon the payment of a share dividend or upon 
adoption by the board of directors of a resolution directing that 
all or part of surplus be transferred to stated capital, minus all 
reductions from such sum as have been effected in a manner permitted 
by law.

(25) "Subscriber" means the offeror in a subscription.                        

(26) "Subscription" means a memorandum in writing, executed before 
or after incorporation, wherein an offer is made to purchase and pay 
for a specified number of theretofore unissued shares of a 
corporation.

(27) "Surplus" means the excess of the net assets of a corporation 
over its stated capital.

(28) "Treasury shares" means shares of a corporation which have 
been issued, have been subsequently acquired by and belong to the 
corporation, and have not been canceled and restored to the status 
of authorized but unissued shares.  Treasury shares do not include 
shares held by a corporation, either directly or through a trust or 
similar arrangement, in a fiduciary capacity.  Treasury shares 
shall be deemed to be "issued" shares but not "outstanding" shares, 
and shall not be included in the total assets of a corporation for 
purposes of determining its "net assets."

(29) "Uncertificated shares" means shares not represented by 
instruments and the transfers of which are registered upon books 
maintained for that purpose by or on behalf of the issuing 
corporation.

(30) "Electronic transmission" means a form of communication that:            

(a) does not directly involve the physical transmission of paper;             

(b) creates a record that may be retained, retrieved, and reviewed 
by the recipient;  and

(c) may be directly reproduced in paper form by the recipient 
through an automated process.

B. Part Twelve of this Act provides definitions of terms used in the 
Texas Close Corporation Law.

C. A reference in this Act to another statute is a reference to that 
statute as amended.

Acts 1955, 54 Leg., p. 239, ch. 64, eff. Sept. 6, 1955.  Amended by 
Acts 1967, 60th Leg., p. 1718, ch. 657, Sec. 1, eff. June 17, 1967;  
Acts 1973, 63rd Leg., p. 1486, ch. 545, Sec. 1, eff. Aug. 27, 1973;  
Acts 1975, 64th Leg., p. 305, ch. 134, Sec. 1, eff. Sept. 1, 1975;  
Acts 1981, 67th Leg., p. 3113, ch. 818, Sec. 2, eff. Aug. 31, 1981;  
Acts 1983, 68th Leg., p. 2564, ch. 442, Sec. 2, eff. Sept. 1, 1983;  
Acts 1987, 70th Leg., ch. 93, Sec. 1, eff. Aug. 31, 1987;  Acts 1989, 
71st Leg., ch. 801, Sec. 1, eff. Aug. 28, 1989;  Acts 1993, 73rd 
Leg., ch. 215, Sec. 2.01, eff. Sept. 1, 1993;  Acts 1997, 75th Leg., 
ch. 375, Sec. 1, eff. Sept. 1, 1997.

Sec. A(30) added by Acts 2003, 78th Leg., ch. 238, Sec. 1, eff. 
Sept. 1, 2003.