2009 Texas Code
BUSINESS ORGANIZATIONS CODE
TITLE 2. CORPORATIONS
CHAPTER 21. FOR-PROFIT CORPORATIONS  

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 4, a copy of the

bylaw or agreement and a statement attached to the copy that:

(1) contains the name of the corporation;

(2) states that the attached copy of the bylaw or agreement is a

true and correct copy of the bylaw or agreement; and

(3) states that the filing has been authorized by the board of

directors or, in the case of a corporation that is managed in

some other manner under a shareholders' agreement, by the person

empowered by the agreement to manage the corporation's business

and affairs.

(b) After a statement described by Subsection (a) is filed with

the secretary of state, the bylaws or agreement restricting the

transfer of shares or other securities is a public record, and

the fact that the statement has been filed may be stated on a

certificate representing the restricted shares or securities if

required by Section 3.202.

(c) A corporation that is a party to an agreement restricting

the transfer of the shares or other securities of the corporation

may make the agreement part of the corporation's certificate of

formation without restating the provisions of the agreement in

the certificate of formation by amending the certificate of

formation. If the agreement alters any provision of the

certificate of formation, the certificate of amendment shall

identify the altered provision by reference or description. If

the agreement is an addition to the certificate of formation, the

certificate of amendment must state that fact.

(d) The certificate of amendment must:

(1) include a copy of the agreement restricting the transfer of

shares or other securities;

(2) state that the attached copy of the agreement is a true and

correct copy of the agreement; and

(3) state that inclusion of the certificate of amendment as part

of the certificate of formation has been authorized in the manner

required by this code to amend the certificate of formation.

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

Sec. 21.213. ENFORCEABILITY OF RESTRICTION ON TRANSFER OF

CERTAIN SECURITIES. (a) A restriction placed on the transfer or

registration of the transfer of a security of a corporation is

specifically enforceable against the holder, or a successor or

transferee of the holder, if:

(1) the restriction is reasonable and noted conspicuously on the

certificate or other instrument representing the security; or

(2) with respect to an uncertificated security, the restriction

is reasonable and a notation of the restriction is contained in

the notice sent with respect to the security under Section 3.205.

(b) Unless noted in the manner specified by Subsection (a) with

respect to a certificate or other instrument or an uncertificated

security, an otherwise enforceable restriction is ineffective

against a transferee for value without actual knowledge of the

restriction at the time of the transfer or against a subsequent

transferee, regardless of whether the transfer is for value. A

restriction is specifically enforceable against a person other

than a transferee for value from the time the person acquires

actual knowledge of the restriction's existence.

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

Sec. 21.214. JOINT OWNERSHIP OF SHARES. (a) If shares are

registered on the books of a corporation in the names of two or

more persons as joint owners with the right of survivorship and

one of the owners dies, the corporation may record on its books

and effect the transfer of the shares to a person, including the

surviving joint owner, and pay any distributions made with

respect to the shares, as if the surviving joint owner was the

absolute owner of the shares. The recording and distribution

authorized by this subsection must be made after the death of a

joint owner and before the corporation receives actual written

notice that a party other than a surviving joint owner is

claiming an interest in the shares or distribution.

(b) The discharge of a corporation from liability under Section

21.216 and the transfer of full legal and equitable title of the

shares does not affect, reduce, or limit any cause of action

existing in favor of an owner of an interest in the shares or

distributions against the surviving owner.

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

Sec. 21.215. LIABILITY FOR DESIGNATING OWNER OF SHARES. A

corporation or an officer, director, employee, or agent of the

corporation may not be held liable for considering the person who

is registered as the owner of a share in the share transfer

records of the corporation at a particular time to be the owner

of the share at that time for a purpose described by Section

21.201, regardless of whether the person possesses a certificate

for that share.

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

Sec. 21.216. LIABILITY REGARDING JOINT OWNERSHIP OF SHARES. A

corporation that transfers shares or makes a distribution to a

surviving joint owner under Section 21.214 before the corporation

has received a written claim for the shares or distribution from

another person is discharged from liability for the transfer or

payment.

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

Sec. 21.217. LIABILITY OF ASSIGNEE OR TRANSFEREE. An assignee

or transferee of certificated shares, uncertificated shares, or a

subscription for shares in good faith and without knowledge that

full consideration for the shares or subscription has not been

paid may not be held personally liable to the corporation or a

creditor of the corporation for an unpaid portion of the

consideration.

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

Sec. 21.218. EXAMINATION OF RECORDS. (a) In this section, a

holder of a beneficial interest in a voting trust entered into

under Section 6.251 is a holder of the shares represented by the

beneficial interest.

(b) Subject to the governing documents and on written demand

stating a proper purpose, a holder of shares of a corporation for

at least six months immediately preceding the holder's demand, or

a holder of at least five percent of all of the outstanding

shares of a corporation, is entitled to examine and copy, at a

reasonable time, the corporation's relevant books, records of

account, minutes, and share transfer records. The examination may

be conducted in person or through an agent, accountant, or

attorney.

(c) This section does not impair the power of a court, on the

presentation of proof of proper purpose by a beneficial or record

holder of shares, to compel the production for examination by the

holder of the books and records of accounts, minutes, and share

transfer records of a corporation, regardless of the period

during which the holder was a beneficial holder or record holder

and regardless of the number of shares held by the person.

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

Sec. 21.219. ANNUAL AND INTERIM STATEMENTS OF CORPORATION. (a)

On written request of a shareholder of the corporation, a

corporation shall mail to the shareholder:

(1) the annual statements of the corporation for the last fiscal

year that contain in reasonable detail the corporation's assets

and liabilities and the results of the corporation's operations;

and

(2) the most recent interim statements, if any, that have been

filed in a public record or other publication.

(b) The corporation shall be allowed a reasonable time to

prepare the annual statements.

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

Sec. 21.220. PENALTY FOR FAILURE TO PREPARE VOTING LIST. An

officer or agent of a corporation who is in charge of the

corporation's share transfer records and who does not prepare the

list of shareholders, keep the list on file for a 10-day period,

or produce and keep the list available for inspection at the

annual meeting as required by Sections 21.354 and 21.372 is

liable to a shareholder who suffers damages because of the

failure for the damage caused by the failure.

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

Amended by:

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

688, Sec. 72, eff. September 1, 2007.

Sec. 21.221. PENALTY FOR FAILURE TO PROVIDE NOTICE OF MEETING.

If an officer or agent of a corporation is unable to comply with

the duties prescribed by Sections 21.354 and 21.372 because the

officer or agent did not receive notice of a meeting of

shareholders within a sufficient time before the date of the

meeting, the corporation, rather than the officer or agent, is

liable to a shareholder who suffers damages because of the

failure for the extent of the damage caused by the failure.

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

Amended by:

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

688, Sec. 73, eff. September 1, 2007.

Sec. 21.222. PENALTY FOR REFUSAL TO PERMIT EXAMINATION OF

CERTAIN RECORDS. (a) A corporation that refuses to allow a

person to examine and make copies of account records, minutes,

and share transfer records under Section 21.218 is liable to the

shareholder for any cost or expense, including attorney's fees,

incurred in enforcing the shareholder's rights under Section

21.218. The liability imposed on a corporation under this

subsection is in addition to any other damages or remedy afforded

to the shareholder by law.

(b) It is a defense to an action brought under this section that

the person suing:

(1) has, within the two years preceding the date the action is

brought, sold or offered for sale a list of shareholders or of

holders of voting trust certificates in consideration for shares

of the corporation or any other corporation;

(2) has aided or abetted a person in procuring a list of

shareholders or of holders of voting trust certificates for the

purpose described by Subdivision (1);

(3) has improperly used information obtained through a prior

examination of the books and account records, minutes, or share

transfer records of the corporation or any other corporation; or

(4) was not acting in good faith or for a proper purpose in

making the person's request for examination.

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

Sec. 21.223. LIMITATION OF LIABILITY FOR OBLIGATIONS. (a) A

holder of shares, an owner of any beneficial interest in shares,

or a subscriber for shares whose subscription has been accepted,

or any affiliate of such a holder, owner, or subscriber or of the

corporation, may not be held liable to the corporation or its

obligees with respect to:

(1) the shares, other than the obligation to pay to the

corporation the full amount of consideration, fixed in compliance

with Sections 21.157-21.162, for which the shares were or are to

be issued;

(2) any contractual obligation of the corporation or any matter

relating to or arising from the obligation on the basis that the

holder, beneficial owner, subscriber, or affiliate is or was the

alter ego of the corporation or on the basis of actual or

constructive fraud, a sham to perpetrate a fraud, or other

similar theory; or

(3) any obligation of the corporation on the basis of the

failure of the corporation to observe any corporate formality,

including the failure to:

(A) comply with this code or the certificate of formation or

bylaws of the corporation; or

(B) observe any requirement prescribed by this code or the

certificate of formation or bylaws of the corporation for acts to

be taken by the corporation or its directors or shareholders.

(b) Subsection (a)(2) does not prevent or limit the liability of

a holder, beneficial owner, subscriber, or affiliate if the

obligee demonstrates that the holder, beneficial owner,

subscriber, or affiliate caused the corporation to be used for

the purpose of perpetrating and did perpetrate an actual fraud on

the obligee primarily for the direct personal benefit of the

holder, beneficial owner, subscriber, or affiliate.

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

Amended by:

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

688, Sec. 74, eff. September 1, 2007.

Sec. 21.224. PREEMPTION OF LIABILITY. The liability of a

holder, beneficial owner, or subscriber of shares of a

corporation, or any affiliate of such a holder, owner, or

subscriber or of the corporation, for an obligation that is

limited by Section 21.223 is exclusive and preempts any other

liability imposed for that obligation under common law or

otherwise.

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

Amended by:

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

84, Sec. 34, eff. September 1, 2009.

Sec. 21.225. EXCEPTIONS TO LIMITATIONS. Section 21.223 or

21.224 does not limit the obligation of a holder, beneficial

owner, subscriber, or affiliate to the obligee of the corporation

if that person:

(1) expressly assumes, guarantees, or agrees to be personally

liable to the obligee for the obligation; or

(2) is otherwise liable to the obligee for the obligation under

this code or other applicable statute.

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

Sec. 21.226. PLEDGEES AND TRUST ADMINISTRATORS. (a) A pledgee

or other holder of shares as collateral security is not

personally liable as a shareholder.

(b) An executor, administrator, conservator, guardian, trustee,

assignee for the benefit of creditors, or receiver is not

personally liable as a holder of or subscriber to shares of a

corporation.

(c) The estate and funds administered by an executor,

administrator, conservator, guardian, trustee, assignee for the

benefit of creditors, or receiver are liable for the full amount

of the consideration for which the shares were or are to be

issued.

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

SUBCHAPTER F. REDUCTIONS IN STATED CAPITAL; CANCELLATION OF

TREASURY SHARES

Sec. 21.251. REDUCTION OF STATED CAPITAL BY REDEMPTION OR

PURCHASE OF REDEEMABLE SHARES. (a) At the time a corporation

redeems or purchases the redeemable shares of the corporation,

the redemption or purchase has the effect of:

(1) canceling the shares; and

(2) restoring the shares to the status of authorized but

unissued shares, unless the corporation's certificate of

formation provides that shares may not be reissued after the

shares are redeemed or purchased by the corporation.

(b) If the corporation is prohibited from reissuing the shares

by the certificate of formation following a redemption or

purchase under Subsection (a), the number of shares of the class

that the corporation is authorized to issue is reduced by the

number of shares canceled.

(c) If shares redeemed or purchased by a corporation under

Subsection (a) constitute all of the outstanding shares of a

particular class of shares and the certificate of formation

provides that the shares of the class, when redeemed and

repurchased, may not be reissued, the corporation may not issue

any additional shares of the class of shares.

(d) Upon the redemption or purchase of redeemable shares under

this section, the stated capital of the corporation shall be

reduced by that part of the stated capital that was, at the time

of the redemption or purchase, represented by those redeemable

shares.

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

Sec. 21.252. CANCELLATION OF TREASURY SHARES. (a) A

corporation, by resolution of the board of directors of the

corporation, may cancel all or part of the corporation's treasury

shares at any time.

(b) Upon the cancellation of treasury shares, the stated capital

of the corporation shall be reduced by that part of the stated

capital that was, at the time of the cancellation, represented by

the canceled shares, and the canceled shares shall be restored to

the status of authorized but unissued shares.

(c) This section does not prohibit a cancellation of shares or a

reduction of stated capital in any other manner permitted by law.

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

Sec. 21.253. PROCEDURES FOR REDUCTION OF STATED CAPITAL BY BOARD

OF DIRECTORS. (a) If all or part of the stated capital of a

corporation is represented by shares without par value, the

stated capital of the corporation may be reduced in the manner

provided by this section.

(b) The board of directors shall adopt a resolution that:

(1) states the amount of the proposed reduction of the stated

capital and the manner in which the reduction will be effected;

and

(2) directs that the proposed reduction be submitted to a vote

of the shareholders at an annual or special meeting.

(c) Each shareholder of record entitled to vote on the reduction

of stated capital shall be given written notice stating that the

purpose or one of the purposes of the meeting is to consider the

matter of reducing the stated capital of the corporation in the

amount and manner proposed by the board of directors. The notice

shall be given in the time and manner provided by this code for

giving notice of shareholders' meetings.

(d) The affirmative vote of the holders of at least the majority

of the shares entitled to vote on the matter is required for

approval of the resolution proposing the reduction of stated

capital.

(e) Upon the approval of the resolution by the shareholders, the

stated capital of the corporation shall be reduced as provided in

the resolution.

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

Sec. 21.254. RESTRICTION ON REDUCTION OF STATED CAPITAL. The

stated capital of a corporation may not be reduced under this

subchapter if the amount of the aggregate stated capital of the

corporation would be reduced to an amount equal to or less than

the sum of the:

(1) aggregate preferential amounts payable on all issued shares

with a preferential right to the assets of the corporation in the

event of voluntary winding up and termination; and

(2) aggregate par value of all issued shares with par value but

no preferential right to the assets of the corporation in the

event of voluntary winding up and termination.

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

SUBCHAPTER G. DISTRIBUTIONS AND SHARE DIVIDENDS

Sec. 21.301. DEFINITIONS. In this subchapter:

(1) "Distribution limit," with respect to a distribution made by

a corporation, other than a distribution described by Subdivision

(2), means:

(A) the net assets of the corporation if the distribution:

(i) is a purchase or redemption of its own shares by a

corporation that:

(a) is eliminating fractional shares;

(b) is collecting or compromising indebtedness owed by or to the

corporation; or

(c) is paying dissenting shareholders entitled to payment for

their shares under this code; or

(ii) is not the purchase or redemption of its own shares by a

consuming assets corporation; or

(B) the surplus of the corporation for a distribution not

described by Paragraph (A).

(2) "Distribution limit," with respect to a distribution that is

a purchase or redemption of its own shares by an investment

company the certificate of formation of which provides that the

company may purchase the company's own shares out of stated

capital, means the net assets of the investment company rather

than the surplus of the investment company.

(3) "Investment company" means a corporation registered as an

open-end company under the Investment Company Act.

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

Sec. 21.302. AUTHORITY FOR DISTRIBUTIONS. The board of

directors of a corporation may authorize a distribution and the

corporation may make a distribution, subject to Section 21.303.

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

Sec. 21.303. LIMITATIONS ON DISTRIBUTIONS. (a) A corporation

may not make a distribution that violates the corporation's

certificate of formation.

(b) Unless the distribution is made in compliance with Chapter

11, a corporation may not make a distribution:

(1) if the corporation would be insolvent after the

distribution; or

(2) that exceeds the distribution limit.

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

Sec. 21.304. REDEMPTIONS. (a) A distribution by a corporation

that involves a redemption of outstanding redeemable shares of

the corporation subject to redemption may be related to any or

all of those shares.

(b) If less than all of the outstanding redeemable shares of a

corporation subject to redemption are to be redeemed, the shares

to be redeemed shall be selected for redemption:

(1) in accordance with the corporation's certificate of

formation; or

(2) ratably or by lot in the manner prescribed by resolution of

the corporation's board of directors, if the certificate of

formation does not specify how shares are to be selected for

redemption.

(c) A redemption of redeemable shares takes effect by call and

written notice of the redemption of the shares.

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

Sec. 21.305. NOTICE OF REDEMPTION. (a) A notice of redemption

of redeemable shares of a corporation must state:

(1) the class or series of shares or part of the class or series

of shares to be redeemed;

(2) the date set for redemption;

(3) the redemptive price; and

(4) the place at which the shareholders may obtain payment of

the redemptive price.

(b) The notice of redemption shall be sent to each holder of

redeemable shares being called not later than the 21st day or

earlier than the 60th day before the date set for redemption.

(c) A notice that is mailed is considered to have been sent when

the notice 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.

(d) A corporation may give the transfer agent described by

Section 21.306 irrevocable instructions to send or complete the

notice of redemption.

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

Sec. 21.306. DEPOSIT OF MONEY FOR REDEMPTION. (a) After the

date the notice of redemption required by Section 21.305 is sent

and before the day after the date set for redemption of

redeemable shares of the corporation, a corporation may deposit

with a bank or trust company in this or another state of the

United States appointed and acting as transfer agent for the

corporation an amount sufficient to redeem the shares called for

redemption. The amount must be deposited as a trust fund.

(b) Unless the corporation's certificate of formation provides

otherwise, if a corporation deposits money and gives payment

instructions in accordance with Subsection (a) and Section

21.307(b):

(1) the shares called for redemption are considered redeemed,

and distributions on those shares cease to accrue on and after

the date set for redemption; and

(2) the deposit constitutes full payment of the shares called

for redemption to the holders of the shares on and after the date

set for redemption.

(c) Unless the certificate of formation provides otherwise,

after the date a deposit is made and instructions are given under

this section and Section 21.307(b), the shares called for

redemption are not considered outstanding, and the holders of the

shares cease to be shareholders of the shares and have no right

with respect to the shares other than:

(1) the right to receive payment of the redemptive price of the

shares without interest from the bank or trust company; and

(2) any right to convert those shares.

(d) Unless the certificate of formation provides otherwise, a

bank or trust company receiving a deposit under this section

shall pay to the corporation on demand the balance of the amount

deposited if one or more holders of the shares called for

redemption do not claim for redemption the amount deposited on or

before the sixth anniversary of the date of the deposit. After

making a payment under this subsection, the bank or trust company

is relieved of all responsibility to the holders with respect to

the amount deposited.

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

Sec. 21.307. PAYMENT OF REDEEMED SHARES. (a) Payment of a

certificated share shall be made only on the surrender of the

respective share certificate.

(b) A corporation may give a transfer agent described by Section

21.306 irrevocable instructions to pay, on or after the date set

for redemption of redeemable shares, the redemptive price to the

respective holders of the shares as evidenced by a list of

shareholders certified by an officer of the corporation.

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

Sec. 21.308. PRIORITY OF DISTRIBUTIONS. (a) Except as provided

by Subsection (b) or (c), a corporation's indebtedness that

arises as a result of the declaration of a distribution and a

corporation's indebtedness issued in a distribution are at parity

with the corporation's indebtedness to its general, unsecured

creditors.

(b) The indebtedness described by Subsection (a) shall be

subordinated to the extent required by an agreement binding on

the corporation on the date the indebtedness arises or if agreed

to by the person to whom the indebtedness is owed or, with

respect to indebtedness issued in a distribution, as provided by

the corporation.

(c) The indebtedness described by Subsection (a) shall be

secured to the extent required by an agreement binding on the

corporation.

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

Sec. 21.309. RESERVES, DESIGNATIONS, AND ALLOCATIONS FROM

SURPLUS. (a) A corporation, by resolution of the board of

directors of the corporation, may:

(1) create a reserve out of the surplus of the corporation; or

(2) designate or allocate in any manner a part or all of the

corporation's surplus for a proper purpose.

(b) A corporation may increase, decrease, or abolish a reserve,

designation, or allocation in the manner provided by Subsection

(a).

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

Sec. 21.310. AUTHORITY FOR SHARE DIVIDENDS. The board of

directors of a corporation may authorize a share dividend and the

corporation may pay a share dividend subject to Section 21.311

and any restriction in its certificate of formation.

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

Sec. 21.311. LIMITATIONS ON SHARE DIVIDENDS. A corporation may

not pay a share dividend in authorized but unissued shares of any

class if:

(1) the surplus of the corporation is less than the amount

required by Section 21.313 to be transferred to stated capital at

the time the share dividend is made; or

(2) the share dividend will be made to a holder of shares of any

other class or series, unless:

(A) the corporation's certificate of formation provides for the

dividend; or

(B) the share dividend is authorized by the holders of at least

a majority of the outstanding shares of the class or series in

which the share dividend is to be made.

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

Sec. 21.312. VALUE OF SHARES ISSUED AS SHARE DIVIDENDS. (a) A

share dividend payable in authorized but unissued shares with par

value shall be issued at the par value of the respective share.

(b) A share dividend payable in authorized but unissued shares

without par value shall be issued at the value set by the board

of directors when the share dividend is authorized.

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

Sec. 21.313. TRANSFER OF SURPLUS FOR SHARE DIVIDENDS. (a) When

a share dividend payable in authorized but unissued shares with

par value is made by a corporation, an amount of surplus

designated by the corporation's board of directors that is not

less than the aggregate par value of the shares issued as a share

dividend shall be transferred to stated capital.

(b) When a share dividend payable in authorized but unissued

shares without par value is made by a corporation, an amount of

surplus equal to the aggregate value set by the corporation's

board of directors with respect to shares under Section 21.312(b)

shall be transferred to stated capital.

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

Sec. 21.314. DETERMINATION OF SOLVENCY, NET ASSETS, STATED

CAPITAL, AND SURPLUS. (a) For purposes of this subchapter, the

determination of whether a corporation is or would be insolvent

and the determination of the value of a corporation's net assets,

stated capital, or surplus and each of the components of net

assets, stated capital, or surplus may be based on:

(1) financial statements of the corporation, including financial

statements that:

(A) include subsidiary corporations or other corporations

accounted for on a consolidated basis or on the equity method of

accounting; or

(B) present the financial condition of the corporation in

accordance with generally accepted accounting principles;

(2) financial statements prepared using the method of accounting

used to file the corporation's federal income tax return or using

any other accounting practices and principles that are reasonable

under the circumstances;

(3) financial information, including condensed or summary

financial statements, that is prepared on the same basis as

financial statements described by Subdivision (1) or (2);

(4) projection, forecast, or other forward-looking information

relating to the future economic performance, financial condition,

or liquidity of the corporation that is reasonable under the

circumstances;

(5) a fair valuation or information from any other method that

is reasonable under the circumstances; or

(6) a combination of a statement, valuation, or information

authorized by this section.

(b) Subsection (a) does not apply to the computation of the

Texas franchise tax or any other tax imposed on a corporation

under the laws of this state.

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

Sec. 21.315. DATE OF DETERMINATION OF SOLVENCY, NET ASSETS,

STATED CAPITAL, AND SURPLUS. (a) For purposes of this

subchapter, a determination of whether a corporation is or would

be insolvent after a distribution or share dividend or a

determination of the value of a corporation's net assets, stated

capital, or surplus, or each component of net assets, stated

capital, or surplus, shall be made:

(1) on the date the distribution or share dividend is authorized

by the corporation's board of directors if the distribution or

share dividend is made not later than the 120th day after the

date of authorization; or

(2) if the distribution or share dividend is made more than 120

days after the date of authorization:

(A) on the date designated by the corporation's board of

directors if the date so designated is not earlier than 120 days

before the date the distribution or share dividend is made; or

(B) on the date the distribution or share dividend is made if

the corporation's board of directors does not designate a date as

described in Paragraph (A).

(b) For purposes of this section, a distribution that involves:

(1) the incurrence by a corporation of indebtedness or a

deferred payment obligation is considered to have been made on

the date the indebtedness or obligation is incurred; or

(2) a requirement in the corporation's certificate of formation

or other contract of the corporation to redeem, exchange, or

otherwise acquire any of its own shares is considered to have

been made either on the date when the provision or other contract

is made or takes effect or on the date when the shares to be

redeemed, exchanged, or acquired are redeemed, exchanged, or

acquired, at the option of the corporation.

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

Sec. 21.316. LIABILITY OF DIRECTORS FOR WRONGFUL DISTRIBUTIONS.

(a) Subject to Subsection (c), the directors of a corporation

who vote for or assent to a distribution by the corporation that

is prohibited by Section 21. 303 are jointly and severally liable

to the corporation for the amount by which the distribution

exceeds the amount permitted by that section to be distributed.

(b) A director is not liable for all or part of the excess

amount if a distribution of that amount would have been permitted

by Section 21.303 after the date the director authorized the

distribution.

(c) A director is not jointly and severally liable under

Subsection (a) if, in voting for or assenting to the

distribution, the director:

(1) relies in good faith and with ordinary care on:

(A) the statements, valuations, or information described by

Section 21.314; or

(B) other information, opinions, reports, or statements,

including financial statements and other financial data,

concerning the corporation or another person that are prepared or

presented by:

(i) one or more officers or employees of the corporation;

(ii) a legal counsel, public accountant, investment banker, or

other person relating to a matter the director reasonably

believes is within the person's professional or expert

competence; or

(iii) a committee of the board of directors of which the

director is not a member;

(2) acting in good faith and with ordinary care, considers the

assets of the corporation to be valued at least at their book

value; or

(3) in determining whether the corporation made adequate

provision for payment, satisfaction, or discharge of all of the

corporation's liabilities and obligations, as provided by

Sections 11.053 and 11.356, relies in good faith and with

ordinary care on financial statements of, or other information

concerning, a person who was or became contractually obligated to

pay, satisfy, or discharge some or all of the corporation's

liabilities or obligations.

(d) The liability imposed under Subsection (a) is the only

liability of a director to the corporation or its creditors for

authorizing a distribution that is prohibited by Section 21.303.

(e) This section and Sections 21.317 and 21.318 do not limit any

liability imposed under Chapter 24, Business & Commerce Code,

or the United States Bankruptcy Code.

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

Sec. 21.317. STATUTE OF LIMITATIONS ON ACTION FOR WRONGFUL

DISTRIBUTION. An action may not be brought against a director of

a corporation under Section 21.316 after the second anniversary

of the date the alleged act giving rise to the liability

occurred.

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

Sec. 21.318. CONTRIBUTION FROM CERTAIN SHAREHOLDERS AND

DIRECTORS. (a) A director who is held liable for a claim

asserted under Section 21.316 is entitled to receive

contributions from shareholders who accepted or received the

wrongful distribution knowing that it was prohibited by Section

21.303 in proportion to the amounts received by the shareholders.

(b) A director who is liable for a claim asserted under Section

21.316 is entitled to receive contributions from each of the

other directors who are liable with respect to that claim in an

amount appropriate to achieve equity.

(c) The liability provided by Subsection (a) is the only

liability of a shareholder to the corporation or a creditor of

the corporation for accepting or receiving a distribution by the

corporation that is prohibited by Section 21.303, except for any

liability under Chapter 24, Business & Commerce Code, or the

United States Bankruptcy Code.

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

SUBCHAPTER H. SHAREHOLDERS' MEETINGS; NOTICE TO SHAREHOLDERS;

VOTING AND QUORUM

Sec. 21.351. ANNUAL MEETING. (a) An annual meeting of the

SHAREHOLDERS of a corporation shall be held at a time that is

stated in or set in accordance with the corporation's bylaws.

(b) On the application of a shareholder who has previously

submitted a written request to the corporation that an annual

meeting be held, a court in the county in which the principal

executive office of the corporation is located may order a

meeting to be held if the annual meeting is not held or written

consent instead of the annual meeting is not executed within any

13-month period, unless the meeting is not required to be held

under Section 21.655.

(c) The failure to hold an annual meeting at the designated time

does not result in the winding up or termination of the

corporation.

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

Sec. 21.352. SPECIAL MEETINGS. (a) A special meeting of the

shareholders of a corporation may be called by:

(1) the president, the board of directors, or any other person

authorized to call special meetings by the certificate of

formation or bylaws of the corporation; or

(2) the holders of the percentage of shares specified in the

certificate of formation, not to exceed 50 percent of the shares

entitled to vote or, if no percentage is specified, at least 10

percent of all of the shares of the corporation entitled to vote

at the proposed special meeting.

(b) Unless stated in or set in accordance with the bylaws, the

record date for determining which shareholders of the corporation

are entitled to call a special meeting is the date the first

shareholder signs the notice of that meeting.

(c) Other than procedural matters, the only business that may be

conducted at a special meeting of the shareholders is business

that is within the purposes described in the notice required by

Section 21.353.

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

Sec. 21.353. NOTICE OF MEETING. (a) Except as provided by

Section 21.456 and subject to Section 21.3531, written notice of

a meeting in accordance with Section 6.051 shall be given to each

shareholder entitled to vote at the meeting not later than the

10th day and not earlier than the 60th day before the date of the

meeting. Notice shall be given at the direction of the

president, secretary, or other person calling the meeting.

(b) The notice of a special meeting must contain a statement

regarding the purpose or purposes of the meeting.

(c) If a meeting is held by means of remote communication, the

notice of the meeting must include information on how to access

the list of shareholders entitled to vote at the meeting required

by Section 21.372.

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

Amended by:

Acts 2005, 79th Leg., Ch.

64, Sec. 51, eff. January 1, 2006.

Sec. 21.3531. NOTICE BY ELECTRONIC TRANSMISSION. (a) On

consent of a shareholder, notice from a corporation under this

code, the certificate of formation, or the bylaws may be provided

to the shareholder by electronic transmission. The shareholder

may specify the form of electronic transmission to be used to

communicate notice.

(b) Notice is considered provided under this section when the

notice is:

(1) transmitted to a facsimile number provided by the

shareholder for the purpose of receiving notice;

(2) transmitted to an electronic mail address provided by the

shareholder for the purpose of receiving notice;

(3) posted on an electronic network and a message is sent to the

shareholder at the address provided by the shareholder for the

purpose of alerting the shareholder of a posting; or

(4) communicated to the shareholder by any other form of

electronic transmission consented to by the shareholder.

(c) A shareholder may revoke the shareholder's consent to

receive notice by electronic transmission by providing written

notice to the corporation. The shareholder's consent is

considered revoked for purposes of Subsection (a) if the

corporation is unable to deliver by electronic transmission two

consecutive notices, and the secretary, assistant secretary, or

transfer agent of the corporation, or another person responsible

for delivering notice on behalf of the corporation, knows that

delivery of those two electronic transmissions was unsuccessful.

Inadvertent failure to treat the unsuccessful transmissions as a

revocation of the shareholder's consent does not affect the

validity of a meeting or other action.

(d) An affidavit of the secretary, assistant secretary, transfer

agent, or other agent of a corporation stating that notice has

been provided to a shareholder of the corporation by electronic

transmission is, in the absence of fraud, prima facie evidence

that the notice was provided under this section.

Added by Acts 2005, 79th Leg., Ch.

64, Sec. 52, eff. January 1, 2006.

Sec. 21.354. INSPECTION OF VOTING LIST. (a) The list of

shareholders entitled to vote at the meeting prepared under

Section 21.372 shall be:

(1) subject to inspection by a shareholder during regular

business hours; and

(2) produced and kept open at the meeting.

(a-1) If a meeting of the shareholders is held by means of

remote communication, the list must be open to inspection by a

shareholder during the meeting on a reasonably accessible

electronic network.

(b) The original share transfer records are prima facie evidence

of which shareholders are entitled to inspect the list.

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

Amended by:

Acts 2005, 79th Leg., Ch.

64, Sec. 53, eff. January 1, 2006.

Sec. 21.355. CLOSING OF SHARE TRANSFER RECORDS. Share transfer

records that are closed in accordance with Section 6.101 for the

purpose of determining which shareholders are entitled to receive

notice of a meeting of shareholders shall remain closed for at

least 10 days immediately preceding the date of the meeting.

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

Sec. 21.356. RECORD DATE FOR WRITTEN CONSENT TO ACTION. The

record date provided in accordance with Section 6.102(a) may not

be more than 10 days after the date on which the board of

directors adopts the resolution setting the record date.

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

Sec. 21.357. RECORD DATE FOR PURPOSE OTHER THAN WRITTEN CONSENT

TO ACTION. The record date provided by the directors in

accordance with Section 6.101 must be at least 10 days before the

date on which the particular action requiring the determination

of shareholders is to be taken.

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

Sec. 21.358. QUORUM. (a) Subject to Subsection (b), the

holders of the majority of the shares entitled to vote at a

meeting of the shareholders of a corporation that are present or

represented by proxy at the meeting are a quorum for the

consideration of a matter to be presented at that meeting.

(b) The certificate of formation of a corporation may provide

that a quorum is present only if:

(1) the holders of a specified portion of the shares that is

greater than the majority of the shares entitled to vote are

represented at the meeting in person or by proxy; or

(2) the holders of a specified portion of the shares that is

less than the majority but not less than one-third of the shares

entitled to vote are represented at the meeting in person or by

proxy.

(c) Unless provided by the certificate of formation or bylaws of

the corporation, after a quorum is present at a meeting of

shareholders, the shareholders may conduct business properly

brought before the meeting until the meeting is adjourned. The

subsequent withdrawal from the meeting of a shareholder or the

refusal of a shareholder present at or represented by proxy at

the meeting to vote does not negate the presence of a quorum at

the meeting.

(d) Unless provided by the certificate of formation or bylaws,

the shareholders of the corporation at a meeting at which a

quorum is not present may adjourn the meeting until the time and

to the place as may be determined by a vote of the holders of the

majority of the shares who are present or represented by proxy at

the meeting.

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

Sec. 21.359. VOTING IN ELECTION OF DIRECTORS. (a) Subject to

Subsection (b), directors of a corporation shall be elected by a

plurality of the votes cast by the holders of shares entitled to

vote in the election of directors at a meeting of shareholders at

which a quorum is present.

(b) The certificate of formation or bylaws of a corporation may

provide that a director of a corporation shall be elected only if

the director receives:

(1) the vote of the holders of a specified portion, but not less

than the majority, of the shares entitled to vote in the election

of directors;

(2) the vote of the holders of a specified portion, but not less

than the majority, of the shares entitled to vote in the election

of directors and represented in person or by proxy at a meeting

of shareholders at which a quorum is present; or

(3) the vote of the holders of a specified portion, but not less

than the majority, of the votes cast by the holders of shares

entitled to vote in the election of directors at a meeting of

shareholders at which a quorum is present.

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

Sec. 21.360. NO CUMULATIVE VOTING RIGHT UNLESS AUTHORIZED.

Except as provided by Section 21.361 or 21.362, a shareholder

does not have the right to cumulate the shareholder's vote in the

election of directors.

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

Sec. 21.361. CUMULATIVE VOTING IN ELECTION OF DIRECTORS. (a)

At each election of directors of the corporation, each

shareholder entitled to vote at the election is entitled to:

(1) vote the number of shares owned by the shareholder for as

many candidates as there are directors to be elected and for

whose election the shareholder is entitled to vote; or

(2) if expressly authorized by a corporation's certificate of

formation in general or with respect to a specified class or

series of shares or group of classes or series of shares and

subject to Subsections (b) and (c), cumulate votes by:

(A) giving one candidate as many votes as the total of the

number of the directors to be elected multiplied by the

shareholder's shares; or

(B) distributing the votes among one or more candidates using

the same principle.

(b) Cumulative voting permitted by the certificate of formation

is permitted only in an election of directors in which a

shareholder who intends to cumulate votes has given written

notice of that intention to the secretary of the corporation on

or before the day preceding the date of the election at which the

shareholder intends to cumulate votes.

(c) All shareholders entitled to vote cumulatively may cumulate

their votes if a shareholder gives the notice required by

Subsection (b).

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

Amended by:

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

84, Sec. 35, eff. September 1, 2009.

Sec. 21.362. CUMULATIVE VOTING RIGHT IN CERTAIN CORPORATIONS.

Except as provided by the corporation's certificate of formation,

a shareholder of a corporation incorporated before September 1,

2003, has the right to cumulatively vote the number of shares the

shareholder owns in the election of directors to the extent

permitted and in the manner provided by Section 21.361. A

corporation may limit or deny a shareholder's right to

cumulatively vote shares at any time after September 1, 2003, by

amending its certificate of formation.

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

Amended by:

Acts 2005, 79th Leg., Ch.

64, Sec. 54, eff. January 1, 2006.

Sec. 21.363. VOTING ON MATTERS OTHER THAN ELECTION OF DIRECTORS.

(a) Subject to Subsection (b), with respect to a matter other

than the election of directors or a matter for which the

affirmative vote of the holders of a specified portion of the

shares entitled to vote is required by this code, the affirmative

vote of the holders of the majority of the shares entitled to

vote on, and who voted for, against, or expressly abstained with

respect to, the matter at a shareholders' meeting of a

corporation at which a quorum is present is the act of the

shareholders.

(b) With respect to a matter other than the election of

directors or a matter for which the affirmative vote of the

holders of a specified portion of the shares entitled to vote is

required by this code, the certificate of formation or bylaws of

a corporation may provide that the act of the shareholders of the

corporation is:

(1) the affirmative vote of the holders of a specified portion,

but not less than the majority, of the shares entitled to vote on

that matter;

(2) the affirmative vote of the holders of a specified portion,

but not less than the majority, of the shares entitled to vote on

that matter and represented in person or by proxy at a

shareholders' meeting at which a quorum is present;

(3) the affirmative vote of the holders of a specified portion,

but not less than the majority, of the shares entitled to vote

on, and who voted for or against, the matter at a shareholders'

meeting at which a quorum is present; or

(4) the affirmative vote of the holders of a specified portion,

but not less than the majority, of the shares entitled to vote

on, and who voted for, against, or expressly abstained with

respect to, the matter at a shareholders' meeting at which a

quorum is present.

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

Sec. 21.364. VOTE REQUIRED TO APPROVE FUNDAMENTAL ACTION. (a)

In this section, a "fundamental action" means:

(1) an amendment of a certificate of formation, including an

amendment required for cancellation of an event requiring winding

up in accordance with Section 11.152(b);

(2) a voluntary winding up under Chapter 11;

(3) a revocation of a voluntary decision to wind up under

Section 11.151;

(4) a cancellation of an event requiring winding up under

Section 11.152(a); or

(5) a reinstatement under Section 11.202.

(b) Except as otherwise provided by this code or the certificate

of formation of a corporation in accordance with Section 21.365,

the vote required for approval of a fundamental action by the

shareholders is the affirmative vote of the holders of at least

two-thirds of the outstanding shares entitled to vote on the

fundamental action.

(c) If a class or series of shares is entitled to vote as a

class or series on a fundamental action, the vote required for

approval of the action by the shareholders is the affirmative

vote of the holders of at least two-thirds of the outstanding

shares in each class or series of shares entitled to vote on the

action as a class or series and at least two-thirds of the

outstanding shares otherwise entitled to vote on the action.

Shares entitled to vote as a class or series shall be entitled to

vote only as a class or series unless otherwise entitled to vote

on each matter submitted to the shareholders generally or

otherwise provided by the certificate of formation.

(d) Unless an amendment to the certificate of formation is

undertaken by the board of directors under Section 21.155,

separate voting by a class or series of shares of a corporation

is required for approval of an amendment to the certificate of

formation that would result in:

(1) the increase or decrease of the aggregate number of

authorized shares of the class or series;

(2) the increase or decrease of the par value of the shares of

the class or series, including changing shares with par value

into shares without par value or changing shares without par

value into shares with par value;

(3) effecting an exchange, reclassification, or cancellation of

all or part of the shares of the class or series;

(4) effecting an exchange or creating a right of exchange of all

or part of the shares of another class or series into the shares

of the class or series;

(5) the change of the designations, preferences, limitations, or

relative rights of the shares of the class or series;

(6) the change of the shares of the class or series, with or

without par value, into the same or a different number of shares,

with or without par value, of the same class or series or another

class or series;

(7) the creation of a new class or series of shares with rights

and preferences equal, prior, or superior to the shares of the

class or series;

(8) increasing the rights and preferences of a class or series

with rights and preferences equal, prior, or superior to the

shares of the class or series;

(9) increasing the rights and preferences of a class or series

with rights or preferences later or inferior to the shares of the

class or series in such a manner that the rights or preferences

will be equal, prior, or superior to the shares of the class or

series;

(10) dividing the shares of the class into series and setting

and determining the designation of the series and the variations

in the relative rights and preferences between the shares of the

series;

(11) the limitation or denial of existing preemptive rights or

cumulative voting rights of the shares of the class or series;

(12) canceling or otherwise affecting the dividends on the

shares of the class or series that have accrued but have not been

declared; or

(13) the inclusion or deletion from the certificate of formation

of provisions required or permitted to be included in the

certificate of formation of a close corporation under Subchapter

O.

(e) The vote required under Subsection (d) by a class or series

of shares of a corporation is required notwithstanding that

shares of that class or series do not otherwise have a right to

vote under the certificate of formation.

(f) Unless otherwise provided by the certificate of formation,

if the holders of the outstanding shares of a class that is

divided into series are entitled to vote as a class on a proposed

amendment that would affect equally all series of the class,

other than a series in which no shares are outstanding or a

series that is not affected by the amendment, the holders of the

separate series are not entitled to separate class votes.

(g) Unless otherwise provided by the certificate of formation, a

proposed amendment to the certificate of formation that would

solely effect changes in the designations, preferences,

limitations, or relative rights, including voting rights, of one

or more series of shares of the corporation that have been

established under the authority granted to the board of directors

in the certificate of formation in accordance with Section 21.155

does not require the approval of the holders of the outstanding

shares of a class or series other than the affected series if,

after giving effect to the amendment:

(1) the preferences, limitations, or relative rights of the

affected series may be set and determined by the board of

directors with respect to the establishment of a new series of

shares under the authority granted to the board of directors in

the certificate of formation in accordance with Section 21.155;

or

(2) any new series established as a result of a reclassification

of the affected series are within the preferences, limitations,

and relative rights that are described by Subdivision (1).

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

Amended by:

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

688, Sec. 75, eff. September 1, 2007.

Sec. 21.365. CHANGES IN VOTE REQUIRED FOR CERTAIN MATTERS. (a)

With respect to a matter for which the affirmative vote of the

holders of a specified portion of the shares entitled to vote is

required by this code, the certificate of formation of a

corporation may provide that the affirmative vote of the holders

of a specified portion, but not less than the majority, of the

shares entitled to vote on that matter is required for

shareholder action on that matter.

(b) With respect to a matter for which the affirmative vote of

the holders of a specified portion of the shares of a class or

series is required by this code, the certificate of formation may

provide that the affirmative vote of the holders of a specified

portion, but not less than the majority, of the shares of that

class or series is required for action of the holders of shares

of that class or series on that matter.

(c) If a provision of the certificate of formation provides that

the affirmative vote of the holders of a specified portion that

is greater than the majority of the shares entitled to vote on a

matter is required for shareholder action on that matter, the

provision may not be amended, directly or indirectly, without the

same affirmative vote unless otherwise provided by the

certificate of formation.

(d) If a provision of the certificate of formation provides that

the affirmative vote of the holders of a specified portion that

is greater than the majority of the shares of a class or series

is required for shareholder action on a matter, the provision may

not be amended, directly or indirectly, without the same

affirmative vote unless otherwise provided by the certificate of

formation.

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

Sec. 21.366. NUMBER OF VOTES PER SHARE. (a) Except as provided

by the certificate of formation of a corporation or this code,

each outstanding share, regardless of class, shall be entitled to

one vote on each matter submitted to a vote at a shareholders'

meeting.

(b) If the certificate of formation provides for more or less

than one vote per share on a matter for all of the outstanding

shares or for the shares of a class or series, each reference in

this code or in the certificate of formation or bylaws, unless

expressly stated otherwise, to a specified portion of the shares

with respect to that matter refers to the portion of the votes

entitled to be cast with respect to those shares under the

certificate of formation.

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

Sec. 21.367. VOTING IN PERSON OR BY PROXY. (a) A shareholder

may vote in person or by proxy executed in writing by the

shareholder.

(b) A telegram, telex, cablegram, or other form of electronic

transmission, including telephonic transmission, by the

shareholder, or a photographic, photostatic, facsimile, or

similar reproduction of a writing executed by the shareholder, is

considered an execution in writing for purposes of this section.

Any electronic transmission must contain or be accompanied by

information from which it can be determined that the transmission

was authorized by the shareholder.

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

Sec. 21.368. TERM OF PROXY. A proxy is not valid after 11

months after the date the proxy is executed unless otherwise

provided by the proxy.

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

Sec. 21.369. REVOCABILITY OF PROXY. (a) In this section, a

"proxy coupled with an interest" includes the appointment as

proxy of:

(1) a pledgee;

(2) a person who purchased or agreed to purchase the shares

subject to the proxy;

(3) a person who owns or holds an option to purchase the shares

subject to the proxy;

(4) a creditor of the corporation who extended the corporation

credit under terms requiring the appointment;

(5) an employee of the corporation whose employment contract

requires the appointment; or

(6) a party to a voting agreement created under Section 6.252 or

a shareholders' agreement created under Section 21.101.

(b) A proxy is revocable unless:

(1) the proxy form conspicuously states that the proxy is

irrevocable; and

(2) the proxy is coupled with an interest.

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

Sec. 21.370. ENFORCEABILITY OF PROXY. (a) An irrevocable proxy

is specifically enforceable against the holder of shares or any

successor or transferee of the holder if:

(1) the proxy is noted conspicuously on the certificate

representing the shares subject to the proxy; or

(2) in the case of uncertificated shares, notation of the proxy

is contained in the notice sent under Section 3.205 with respect

to the shares subject to the proxy.

(b) An irrevocable proxy that is otherwise enforceable is

ineffective against a transferee for value without actual

knowledge of the existence of the irrevocable proxy at the time

of the transfer or against a subsequent transferee, regardless of

whether the transfer is for value, unless the proxy is:

(1) noted conspicuously on the certificate representing the

shares subject to the proxy; or

(2) in the case of uncertificated shares, notation of the proxy

is contained in the notice sent under Section 3.205 with respect

to the shares subject to the proxy.

(c) An irrevocable proxy shall be specifically enforceable

against a person who is not a transferee for value from the time

the person acquires actual knowledge of the existence of the

irrevocable proxy.

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

Sec. 21.371. PROCEDURES IN BYLAWS RELATING TO PROXIES. A

corporation may establish in the corporation's bylaws procedures

consistent with this code for determining the validity of proxies

and determining whether shares that are held of record by a bank,

broker, or other nominee are represented at a meeting of

shareholders. The procedures may incorporate rules of and

determinations made by a stock exchange or self-regulatory

organization regulating the corporation or that bank, broker, or

other nominee.

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

Sec. 21.372. SHAREHOLDER MEETING LIST. (a) Not later than the

11th day before the date of each meeting of the shareholders of a

corporation, an officer or agent of the corporation who is in

charge of the corporation's share transfer records shall prepare

an alphabetical list of the shareholders entitled to vote at the

meeting or at any adjournment of the meeting. The list of

shareholders must:

(1) state:

(A) the address of each shareholder;

(B) the type of shares held by each shareholder;

(C) the number of shares held by each shareholder; and

(D) the number of votes that each shareholder is entitled to if

the number of votes is different from the number of shares stated

under Paragraph (C); and

(2) be kept on file at the registered office or principal

executive office of the corporation for at least 10 days before

the date of the meeting.

(a-1) Instead of being kept on file, the list required by

Subsection (a) may be kept on a reasonably accessible electronic

network if the information required to gain access to the list is

provided with notice of the meeting. Section 21.353(c), Section

21.354(a-1), and this subsection may not be construed to require

a corporation to include any electronic contact information of a

shareholder on the list. A corporation that elects to make the

list available on an electronic network must take reasonable

measures to ensure the information is available only to

shareholders of the corporation.

(b) The original share transfer records of the corporation are

prima facie evidence of the shareholders of the corporation

entitled to vote at the meeting.

(c) Failure to comply with this section does not affect the

validity of any action taken at a meeting of the shareholders of

the corporation.

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

Amended by:

Acts 2005, 79th Leg., Ch.

64, Sec. 55, eff. January 1, 2006.

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

688, Sec. 76, eff. September 1, 2007.

SUBCHAPTER I. BOARD OF DIRECTORS

Sec. 21.401. MANAGEMENT BY BOARD OF DIRECTORS. (a) Except as

provided by Section 21.101 or Subchapter O, the board of

directors of a corporation shall:

(1) exercise or authorize the exercise of the powers of the

corporation; and

(2) direct the management of the business and affairs of the

corporation.

(b) In discharging the duties of director under this code or

otherwise and in considering the best interests of the

corporation, a director may consider the long-term and short-term

interests of the corporation and the shareholders of the

corporation, including the possibility that those interests may

be best served by the continued independence of the corporation.

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

Sec. 21.402. BOARD MEMBER ELIGIBILITY REQUIREMENTS. Unless the

certificate of formation or bylaws of a corporation provide

otherwise, a person is not required to be a resident of this

state or a shareholder of the corporation to serve as a director.

The certificate of formation or bylaws may prescribe other

qualifications for directors.

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

Sec. 21.403. NUMBER OF DIRECTORS. (a) The board of directors

of a corporation may consist of one or more directors.

(b) If the corporation is to be managed by a board of directors,

the number of directors shall be set by, or in the manner

provided by, the certificate of formation or bylaws of the

corporation, except that the number of directors on the initial

board of directors must be set by the certificate of formation.

(c) The number of directors may be increased or decreased by

amendment to, or as provided by, the certificate of formation or

bylaws. A decrease in the number of directors may not shorten the

term of an incumbent director.

(d) If the certificate of formation or bylaws do not set the

number constituting the board of directors or provide for the

manner in which the number of directors must be determined, the

number of directors is the same as the number constituting the

initial board of directors as set by the certificate of

formation.

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

Sec. 21.404. DESIGNATION OF INITIAL BOARD OF DIRECTORS. If the

corporation is to be managed by a board of directors, the

certificate of formation of a corporation must state the names

and addresses of the persons constituting the initial board of

directors of the corporation.

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

Sec. 21.405. ELECTION OF BOARD OF DIRECTORS. (a) At the first

annual meeting of shareholders of a corporation and at each

subsequent annual meeting of shareholders, the holders of shares

entitled to vote in the election of directors shall elect

directors for the term provided under Section 21.407, except as

provided by Section 21.408.

(b) A corporation's certificate of formation may provide that

the holders of a class or series of shares or a group of classes

or series of shares are entitled to elect one or more directors

of the corporation.

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

Sec. 21.406. SPECIAL VOTING RIGHTS OF DIRECTORS. (a) The

certificate of formation of a corporation may provide that

directors, regardless of whether elected by the holders of a

class or series of shares or by a group of classes or series of

shares, as provided by Section 21.405, are entitled to cast more

or less than one vote on all matters or on specified matters.

Such a provision also applies to directors voting in any

committee or subcommittee regarding all matters or the specified

matters, as applicable, unless otherwise provided by the

certificate of formation.

(b) Unless expressly stated otherwise, each reference in this

code or in a corporation's certificate of formation or bylaws to

a specified portion of the directors means the portion of the

votes entitled to be cast by the directors to which the reference

applies.

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

Amended by:

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

84, Sec. 36, eff. September 1, 2009.

Sec. 21.407. TERM OF OFFICE. Except as otherwise provided by

this subchapter, the term of office of a director extends from

the date the director is elected and qualified or named in the

corporation's certificate of formation until the next annual

meeting of shareholders and until the director's successor is

elected and qualified.

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

Amended by:

Acts 2005, 79th Leg., Ch.

64, Sec. 56, eff. January 1, 2006.

Sec. 21.408. SPECIAL TERMS OF OFFICE. (a) The certificate of

formation or bylaws of a corporation may provide that all or some

of the board of directors may be divided into two or three

classes that shall include the same or a similar number of

directors as each other class and that have staggered terms of

office.

(b) The terms of office of the initial directors constituting

the first class expire at the first annual meeting of

shareholders after the election of those directors. The terms of

office of the initial directors constituting the second class

expire at the second annual meeting of shareholders after

election of those directors. The terms of office of the initial

directors constituting the third class, if any, expire at the

third annual meeting of shareholders after election of those

directors. In each case, the term of office of an initial

director is extended until the director's successor is elected

and has qualified.

(c) If the certificate of formation or bylaws provide for

staggered terms of directors, the shareholders, at each annual

meeting, shall elect a number of directors equal to the number of

the class of directors whose terms expire at the time of the

meeting. The directors elected at an annual meeting shall hold

office until the second succeeding annual meeting, if there are

two classes, or until the third succeeding annual meeting, if

there are three classes.

(d) Unless provided by the certificate of formation or a bylaw

adopted by the shareholders, staggered terms for directors must

be effected at a meeting of shareholders at which directors are

elected. Staggered terms for directors may not be effected if any

shareholder has the right to cumulate votes for the election of

directors and the board of directors consists of fewer than nine

members.

(e) Directors elected by the holders of a class or series of

shares or a group of classes or series of shares in accordance

with the certificate of formation shall hold office for the terms

specified by the certificate of formation.

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

Amended by:

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

688, Sec. 77, eff. September 1, 2007.

Sec. 21.409. REMOVAL OF DIRECTORS. (a) Except as otherwise

provided by the certificate of formation or bylaws of a

corporation or this subchapter, the shareholders of the

corporation may remove a director or the entire board of

directors of the corporation, with or without cause, at a meeting

called for that purpose, by a vote of the holders of a majority

of the shares entitled to vote at an election of the director or

directors.

(b) If the certificate of formation entitles the holders of a

class or series of shares or a group of classes or series of

shares to elect one or more directors, only the holders of shares

of that class, series, or group may vote on the removal of a

director elected by the holders of shares of that class, series,

or group.

(c) If the certificate of formation permits cumulative voting

and less than the entire board is to be removed, a director may

not be removed if the votes cast against the removal would be

sufficient to elect the director if cumulatively voted at an

election of the entire board of directors, or if there are

classes of directors, at an election of the class of directors of

which the director is a part.

(d) In the case of a corporation the directors of which serve

staggered terms, a director may not be removed except for cause

unless the certificate of formation provides otherwise.

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

Amended by:

Acts 2005, 79th Leg., Ch.

64, Sec. 57, eff. January 1, 2006.

Sec. 21.4091. RESIGNATION OF DIRECTORS. (a) Except as otherwise

provided by the certificate of formation or bylaws, a director of

a corporation may resign at any time by providing written notice

to the corporation.

(b) The director's resignation takes effect on the date the

notice is received by the corporation, unless the notice

prescribes a later effective date or states that the resignation

takes effect on the occurrence of a future event, such as the

director's failure to receive a specified vote for reelection as

a director.

(c) If the director's resignation is to take effect on a later

date or on the occurrence of a future event, the resignation

takes effect on the later date or when the event occurs.

(d) The director's resignation is irrevocable when it takes

effect. The director's resignation is revocable before it takes

effect unless the notice of resignation expressly states it is

irrevocable.

Added by Acts 2005, 79th Leg., Ch.

64, Sec. 58, eff. January 1, 2006.

Amended by:

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

688, Sec. 78, eff. September 1, 2007.

Sec. 21.410. VACANCY. (a) A vacancy occurring in the initial

board of directors before the issuance of shares may be filled by

the affirmative vote or written consent of the majority of the

organizers or by the affirmative vote of the majority of the

remaining directors, even if the remaining directors constitute

less than a quorum of the board of directors.

(b) Except as provided by Subsection (e), a vacancy occurring in

the board of directors after the issuance of shares may be filled

by election at an annual or special meeting of shareholders

called for that purpose or by the affirmative vote of the

majority of the remaining directors, even if the remaining

directors constitute less than a quorum of the board of

directors.

(c) The term of a director elected to fill a vacancy occurring

in the board of directors, including the initial directors, is

the unexpired term of the director's predecessor in office.

(d) Except as provided by Subsection (e), a vacancy to be filled

because of an increase in the number of directors may be filled

by election at an annual or special meeting of shareholders

called for that purpose or by the board of directors for a term

of office continuing only until the next election of one or more

directors by the shareholders. During a period between two

successive annual meetings of shareholders, the board of

directors may not fill more than two vacancies created by an

increase in the number of directors.

(e) Unless otherwise authorized by a corporation's certificate

of formation, a vacancy or a newly created vacancy in a director

position that the certificate of formation entitles the holders

of a class or series of shares or group of classes or series of

shares to elect may be filled only:

(1) by the affirmative vote of the majority of the directors

then in office elected by the class, series, or group;

(2) by the sole remaining director elected in that manner; or

(3) by the affirmative vote of the holders of the outstanding

shares of the class, series, or group.

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

Amended by:

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

688, Sec. 79, eff. September 1, 2007.

Sec. 21.411. NOTICE OF MEETING. (a) Regular meetings of the

board of directors of a corporation may be held with or without

notice as prescribed by the corporation's bylaws.

(b) Special meetings of the board of directors shall be held

with notice as prescribed by the bylaws.

(c) A notice of a board meeting is not required to specify the

business to be transacted at the meeting or the purpose of the

meeting, unless required by the bylaws.

(d) Notice of the date, time, place, or purpose of a regular or

special meeting of the board of directors may be provided to a

director by electronic transmission on consent of the director.

The director may specify the form of electronic transmission to

be used to communicate notice.

(e) Notice is considered provided under Subsection (d) when the

notice is:

(1) transmitted to a facsimile number provided by the director

for the purpose of receiving notice;

(2) transmitted to an electronic mail address provided by the

director for the purpose of receiving notice;

(3) posted on an electronic network and a message is sent to the

director at the address provided by the director for the purpose

of alerting the director of a posting; or

(4) communicated to the director by any other form of electronic

transmission consented to by the director.

(f) A director may revoke the director's consent to receive

notice by electronic transmission by providing written notice to

the corporation. The director's consent is considered revoked

for purposes of Subsection (d) if the corporation is unable to

deliver by electronic transmission two consecutive notices, and

the secretary, assistant secretary, or transfer agent of the

corporation, or another person responsible for delivering notice

on behalf of the corporation, knows that delivery of those two

electronic transmissions was unsuccessful. Inadvertent failure

to treat the unsuccessful transmissions as a revocation of the

director's consent does not affect the validity of a meeting or

other action.

(g) An affidavit of the secretary, assistant secretary, transfer

agent, or other agent of a corporation stating that notice has

been provided to a director of the corporation by electronic

transmission is, in the absence of fraud, prima facie evidence

that notice was provided under Subsections (d) and (e).

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

Amended by:

Acts 2005, 79th Leg., Ch.

64, Sec. 59, eff. January 1, 2006.

Sec. 21.412. WAIVER OF NOTICE. (a) If the bylaws of a

corporation require notice of a meeting to be given to a

director, a written waiver of the notice signed by the director

entitled to the notice, before or after the meeting, is

equivalent to the giving of the notice.

(b) The attendance of a director at a board meeting constitutes

a waiver of notice of the meeting, unless the director attends

the meeting for the express purpose of objecting to the

transaction of business at the meeting because the meeting has

not been lawfully called or convened.

(c) A waiver of notice of a board meeting is not required to

specify the business to be transacted at the meeting or the

purpose of the meeting, unless required by the bylaws.

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

Sec. 21.413. QUORUM. (a) A quorum of the board of directors is

the majority of the number of directors set or established in the

manner provided by the certificate of formation or bylaws of a

corporation unless the laws of this state, the certificate of

formation, or the bylaws require a different number or portion.

(b) Neither the certificate of formation nor the bylaws may

provide that less than one-third of the number of directors

constitutes a quorum.

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

Sec. 21.414. DISSENT TO ACTION. (a) A director of a

corporation who is present at a meeting of the board of directors

at which action has been taken is presumed to have assented to

the action taken unless:

(1) the director's dissent has been entered in the minutes of

the meeting;

(2) the director has filed a written dissent to the action with

the person acting as the secretary of the meeting before the

meeting is adjourned; or

(3) the director has sent a written dissent by registered mail

to the secretary of the corporation immediately after the meeting

has been adjourned.

(b) A director who voted in favor of an action may not dissent

to the action.

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

Sec. 21.415. ACTION BY DIRECTORS. (a) The act of a majority of

the directors present at a meeting at which a quorum is present

is the act of the board of directors of a corporation, unless the

act of a greater number is required by the certificate of

formation or bylaws of the corporation or by this code.

(b) Unless otherwise provided by the certificate of formation or

bylaws, a written consent stating the action taken and signed by

all members of the board of directors is also an act of the board

of directors.

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

Sec. 21.416. COMMITTEES OF BOARD OF DIRECTORS. (a) If

authorized by the certificate of formation or bylaws of a

corporation, the board of directors of the corporation may

designate:

(1) committees composed of one or more directors; or

(2) directors as alternate members of committees to replace

absent or disqualified committee members at a committee meeting,

subject to any limitations imposed by the board of directors.

(b) To the extent provided by a resolution of the board of

directors designating a committee or by the certificate of

formation or bylaws and subject to Subsection (c), the committee

has the authority of the board of directors.

(c) A committee of the board of directors may not:

(1) amend the certificate of formation, except to:

(A) establish series of shares;

(B) increase or decrease the number of shares in a series; or

(C) eliminate a series of shares as authorized by Section

21.155;

(2) propose a reduction of stated capital under Sections 21.253

and 21.254;

(3) approve a plan of merger, share exchange, or conversion of

the corporation;

(4) recommend to shareholders the sale, lease, or exchange of

all or substantially all of the property and assets of the

corporation not made in the usual and regular course of its

business;

(5) recommend to the shareholders a voluntary winding up and

termination or a revocation of a voluntary winding up and

termination;

(6) amend, alter, or repeal the bylaws or adopt new bylaws;

(7) fill vacancies on the board of directors;

(8) fill vacancies on or designate alternate members of a

committee of the board of directors;

(9) fill a vacancy to be filled because of an increase in the

number of directors;

(10) elect or remove officers of the corporation or members or

alternate members of a committee of the board of directors;

(11) set the compensation of the members or alternate members of

a committee of the board of directors; or

(12) alter or repeal a resolution of the board of directors that

states that it may not be amended or repealed by a committee of

the board of directors.

(d) A committee of the board of directors may authorize a

distribution or the issuance of shares if authorized by the

resolution designating the committee or the certificate of

formation or bylaws.

(e) The board of directors may remove a member of a committee

appointed by the board if the board determines the removal is in

the best interests of the corporation. The removal of the member

is without prejudice to any contract rights of the person

removed. Appointment of a member of a committee does not create

contract rights.

(f) The designation and delegation of authority to a committee

of the board of directors does not relieve the board of directors

or a director of responsibility imposed by law.

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

Amended by:

Acts 2005, 79th Leg., Ch.

64, Sec. 60, eff. January 1, 2006.

Sec. 21.417. ELECTION OF OFFICERS. The board of directors of a

corporation shall elect a president and a secretary at the time

and in the manner prescribed by the corporation's bylaws. Other

officers, including assistant officers and agents as deemed

necessary, may be elected in accordance with Section 3.103.

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

Sec. 21.418. CONTRACTS OR TRANSACTIONS INVOLVING INTERESTED

DIRECTORS AND OFFICERS. (a) This section applies only to a

contract or transaction between a corporation and:

(1) one or more of the corporation's directors or officers; or

(2) an entity or other organization in which one or more of the

corporation's directors or officers:

(A) is a managerial official; or

(B) has a financial interest.

(b) An otherwise valid contract or transaction described by

Subsection (a) is valid notwithstanding that the director or

officer having the relationship or interest described by

Subsection (a) is present at or participates in the meeting of

the board of directors, or of a committee of the board that

authorizes the contract or transaction, or votes or signs, in the

person's capacity as a director or committee member, a unanimous

written consent of directors or committee members to authorize

the contract or transaction, if:

(1) the material facts as to the relationship or interest

described by Subsection (a) and as to the contract or transaction

are disclosed to or known by:

(A) the corporation's board of directors or a committee of the

board of directors and the board of directors or committee in

good faith authorizes the contract or transaction by the approval

of the majority of the disinterested directors or committee

members, regardless of whether the disinterested directors or

committee members constitute a quorum; or

(B) the shareholders entitled to vote on the authorization of

the contract or transaction, and the contract or transaction is

specifically approved in good faith by a vote of the

shareholders; or

(2) the contract or transaction is fair to the corporation when

the contract or transaction is authorized, approved, or ratified

by the board of directors, a committee of the board of directors,

or the shareholders.

(c) Common or interested directors of a corporation may be

included in determining the presence of a quorum at a meeting of

the corporation's board of directors, or a committee of the board

of directors, that authorizes the contract or transaction.

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

Amended by:

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

84, Sec. 37, eff. September 1, 2009.

SUBCHAPTER J. FUNDAMENTAL BUSINESS TRANSACTIONS

Sec. 21.451. DEFINITIONS. In this subchapter:

(1) "Participating shares" means shares that entitle the holders

of the shares to participate without limitation in distributions.

(2) "Sale of all or substantially all of the assets" means the

sale, lease, exchange, or other disposition, other than a pledge,

mortgage, deed of trust, or trust indenture unless otherwise

provided by the certificate of formation, of all or substantially

all of the property and assets of a domestic corporation that is

not made in the usual and regular course of the corporation's

business without regard to whether the disposition is made with

the goodwill of the business. The term does not include a

transaction that results in the corporation directly or

indirectly:

(A) continuing to engage in one or more businesses; or

(B) applying a portion of the consideration received in

connection with the transaction to the conduct of a business that

the corporation engages in after the transaction.

(3) "Shares" includes a receipt or other instrument issued by a

depository representing an interest in one or more shares or

fractions of shares of a domestic or foreign corporation that are

deposited with the depository.

(4) "Voting shares" means shares that entitle the holders of the

shares to vote unconditionally in elections of directors.

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

Sec. 21.452. APPROVAL OF MERGER. (a) A corporation that is a

party to the merger under Chapter 10 must approve the merger by

complying with this section.

(b) The board of directors of the corporation shall adopt a

resolution that:

(1) approves the plan of merger; and

(2) if shareholder approval of the merger is required by this

subchapter:

(A) recommends that the plan of merger be approved by the

shareholders of the corporation; or

(B) directs that the plan of merger be submitted to the

shareholders for approval without recommendation if the board of

directors determines for any reason not to recommend approval of

the plan of merger.

(c) Except as otherwise provided by this subchapter or Chapter

10, the plan of merger shall be submitted to the shareholders of

the corporation for approval as provided by this subchapter. The

board of directors may place conditions on the submission of the

plan of merger to the shareholders.

(d) If the board of directors approves a plan of merger required

to be approved by the shareholders of the corporation but does

not adopt a resolution recommending that the plan of merger be

approved by the shareholders, the board of directors shall

communicate to the shareholders the reason for the board's

determination to submit the plan of merger without a

recommendation.

(e) Except as provided by Chapter 10 or Sections 21.457 and

21.459, the shareholders of the corporation shall approve the

plan of merger as provided by this subchapter.

(f) If after adoption of a resolution under Subsection (b)(2)

the board of directors of the corporation determines that the

plan of merger is not advisable, the plan of merger may be

submitted to the shareholders of the corporation with a

recommendation that the shareholders not approve the plan of

merger.

(g) A plan of merger for a corporation may include a provision

requiring that the plan of merger be submitted to the

shareholders of the corporation regardless of whether the board

of directors determines, after adopting a resolution or making a

determination under this section, that the plan of merger is not

advisable and recommends that the shareholders not approve the

plan of merger.

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

Amended by:

Acts 2005, 79th Leg., Ch.

64, Sec. 61, eff. January 1, 2006.

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

688, Sec. 80, eff. September 1, 2007.

Sec. 21.453. APPROVAL OF CONVERSION. (a) A corporation must

approve a conversion under Chapter 10 by complying with this

section.

(b) The board of directors of the corporation shall adopt a

resolution that approves the plan of conversion and:

(1) recommends that the plan of conversion be approved by the

shareholders of the corporation; or

(2) directs that the plan of conversion be submitted to the

shareholders for approval without recommendation if the board of

directors determines for any reason not to recommend approval of

the plan of conversion.

(c) The plan of conversion shall be submitted to the

shareholders of the corporation for approval as provided by this

subchapter. The board of directors may place conditions on the

submission of the plan of conversion to the shareholders.

(d) If the board of directors approves a plan of conversion but

does not adopt a resolution recommending that the plan of

conversion be approved by the shareholders of the corporation,

the board of directors shall communicate to the shareholders the

reason for the board's determination to submit the plan of

conversion without a recommendation.

(e) Except as provided by Section 21.457, the shareholders of

the corporation shall approve the plan of conversion as provided

by this subchapter.

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

Amended by:

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

688, Sec. 81, eff. September 1, 2007.

Sec. 21.454. APPROVAL OF EXCHANGE. (a) A corporation the

shares of which are to be acquired in an exchange under Chapter

10 must approve the exchange by complying with this section.

(b) The board of directors shall adopt a resolution that

approves the plan of exchange and:

(1) recommends that the plan of exchange be approved by the

shareholders of the corporation; or

(2) directs that the plan of exchange be submitted to the

shareholders for approval without recommendation if the board of

directors determines for any reason not to recommend approval of

the plan of exchange.

(c) The plan of exchange shall be submitted to the shareholders

of the corporation for approval as provided by this subchapter.

The board of directors may place conditions on the submission of

the plan of exchange to the shareholders.

(d) If the board of directors approves a plan of exchange but

does not adopt a resolution recommending that the plan of

exchange be approved by the shareholders of the corporation, the

board of directors shall communicate to the shareholders the

reason for the board's determination to submit the plan of

exchange to shareholders without a recommendation.

(e) Except as provided by Section 21.457, the shareholders of

the corporation shall approve the plan of exchange as provided by

this subchapter.

(f) If after the adoption of a resolution under Subsection

(b)(2) the board of directors of the corporation determines that

the plan of exchange is not advisable, the plan of exchange may

be submitted to the shareholders of the corporation with a

recommendation that the shareholders not approve the plan of

exchange.

(g) A plan of exchange for a corporation may include a provision

requiring that the plan of exchange be submitted to the

shareholders of the corporation regardless of whether the board

of directors determines, after adopting a resolution or making a

determination under this section, that the plan of exchange is

not advisable and recommends that the shareholders not approve

the plan of exchange.

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

Amended by:

Acts 2005, 79th Leg., Ch.

64, Sec. 62, eff. January 1, 2006.

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

688, Sec. 82, eff. September 1, 2007.

Sec. 21.455. APPROVAL OF SALE OF ALL OR SUBSTANTIALLY ALL OF

ASSETS. (a) Except as provided by the certificate of formation

of a domestic corporation, a sale, lease, pledge, mortgage,

assignment, transfer, or other conveyance of an interest in real

property or other assets of the corporation does not require the

approval or consent of the shareholders of the corporation unless

the transaction constitutes a sale of all or substantially all of

the assets of the corporation.

(b) A corporation must approve the sale of all or substantially

all of its assets by complying with this section.

(c) The board of directors of the corporation shall adopt a

resolution that approves the sale of all or substantially all of

the assets of the corporation and:

(1) recommends that the sale of all or substantially all of the

assets of the corporation be approved by the shareholders of the

corporation; or

(2) directs that the sale of all or substantially all of the

assets of the corporation be submitted to the shareholders for

approval without recommendation if the board of directors

determines for any reason not to recommend approval of the sale.

(d) The resolution proposing the sale of all or substantially

all of the assets of the corporation shall be submitted to the

shareholders of the corporation for approval as provided by this

subchapter. The board of directors may place conditions on the

submission of the proposed sale to the shareholders.

(e) If the board of directors approves the sale of all or

substantially all of the assets of the corporation but does not

adopt a resolution recommending that the proposed sale be

approved by the shareholders of the corporation, the board of

directors shall communicate to the shareholders the reason for

the board's determination to submit the proposed sale to

shareholders without a recommendation.

(f) The shareholders of the corporation shall approve the sale

of all or substantially all of the assets of the corporation as

provided by this subchapter. After the approval of the sale by

the shareholders, the board of directors may abandon the sale of

all or substantially all of the assets of the corporation,

subject to the rights of a third party under a contract relating

to the assets, without further action or approval by the

shareholders.

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

Sec. 21.456. GENERAL PROCEDURE FOR SUBMISSION TO SHAREHOLDERS OF

FUNDAMENTAL BUSINESS TRANSACTION. (a) If a fundamental business

transaction involving a corporation is required to be submitted

to the shareholders of the corporation under this subchapter, the

corporation shall notify each shareholder of the corporation that

the fundamental business transaction is being submitted to the

shareholders for approval at a meeting of shareholders as

required by this subchapter, regardless of whether the

shareholder is entitled to vote on the matter.

(b) If the fundamental business transaction is a merger,

conversion, or interest exchange, the notice required by

Subsection (a) shall contain or be accompanied by a copy or

summary of the plan of merger, conversion, or interest exchange,

as appropriate, and the notice required by Section 10.355.

(c) The notice of the meeting must:

(1) be given not later than the 21st day before the date of the

meeting; and

(2) state that the purpose, or one of the purposes, of the

meeting is to consider the fundamental business transaction.

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

Sec. 21.457. GENERAL VOTE REQUIREMENT FOR APPROVAL OF

FUNDAMENTAL BUSINESS TRANSACTION. (a) Except as provided by

this code or the certificate of formation of a corporation in

accordance with Section 21.365, the affirmative vote of the

holders of at least two-thirds of the outstanding shares of the

corporation entitled to vote on a fundamental business

transaction is required to approve the transaction.

(b) Unless provided by the certificate of formation or Section

21.458, shares of a class or series that are not otherwise

entitled to vote on matters submitted to shareholders generally

are not entitled to vote for the approval of a fundamental

business transaction.

(c) Except as provided by this code, if a class or series of

shares of a corporation is entitled to vote on a fundamental

business transaction as a class or series, in addition to the

vote required under Subsection (a), the affirmative vote of the

holders of at least two-thirds of the outstanding shares in each

class or series of shares entitled to vote on the fundamental

business transaction as a class or series is required to approve

the transaction. Shares entitled to vote as a class or series

shall only be entitled to vote as a class or series on the

fundamental business transaction unless that class or series is

otherwise entitled to vote on each matter submitted to the

shareholders generally or is otherwise entitled to vote under the

certificate of formation.

(d) Unless required by the certificate of formation, approval of

a merger by shareholders is not required under this code for a

corporation that is a party to the plan of merger unless that

corporation is also a party to the merger.

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

Sec. 21.458. CLASS VOTING REQUIREMENTS FOR CERTAIN FUNDAMENTAL

BUSINESS TRANSACTIONS. (a) Separate voting by a class or series

of shares of a corporation is required for approval of a plan of

merger or conversion if:

(1) the plan of merger or conversion contains a provision that

would require approval by that class or series of shares under

Section 21.364 if the provision was contained in a proposed

amendment to the corporation's certificate of formation; or

(2) that class or series of shares is entitled under the

certificate of formation to vote as a class or series on the plan

of merger or conversion.

(b) Separate voting by a class or series of shares of a

corporation is required for approval of a plan of exchange if:

(1) shares of that class or series are to be exchanged under the

terms of the plan of exchange; or

(2) that class or series is entitled under the certificate of

formation to vote as a class or series on the plan of exchange.

(c) Separate voting by a class or series of shares of a

corporation is required for approval of a sale of all or

substantially all of the assets of a corporation if that class or

series of shares is entitled under the certificate of formation

to vote as a class or series on the sale of the corporation's

assets.

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

Sec. 21.459. NO SHAREHOLDER VOTE REQUIREMENT FOR CERTAIN

FUNDAMENTAL BUSINESS TRANSACTIONS. (a) Unless required by the

corporation's certificate of formation, a plan of merger is not

required to be approved by the shareholders of a corporation if:

(1) the corporation is the sole surviving corporation in the

merger;

(2) the certificate of formation of the corporation following

the merger will not differ from the corporation's certificate of

formation before the merger;

(3) immediately after the effective date of the merger, each

shareholder of the corporation whose shares were outstanding

immediately before the effective date of the merger will hold the

same number of shares, with identical designations, preferences,

limitations, and relative rights;

(4) the sum of the voting power of the number of voting shares

outstanding immediately after the merger and the voting power of

securities that may be acquired on the conversion or exercise of

securities issued under the merger does not exceed by more than

20 percent the voting power of the total number of voting shares

of the corporation that are outstanding immediately before the

merger; and

(5) the sum of the number of participating shares that are

outstanding immediately after the merger and the number of

participating shares that may be acquired on the conversion or

exercise of securities issued under the merger does not exceed by

more than 20 percent the total number of participating shares of

the corporation that are outstanding immediately before the

merger.

(b) Unless required by the certificate of formation, a plan of

merger effected under Section 10.005 or 10.006 does not require

the approval of the shareholders of the corporation.

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

Sec. 21.460. RIGHTS OF DISSENT AND APPRAISAL. A shareholder of

a domestic corporation has the rights of dissent and appraisal

under Subchapter H, Chapter 10, with respect to a fundamental

business transaction.

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

Sec. 21.461. PLEDGE, MORTGAGE, DEED OF TRUST, OR TRUST

INDENTURE. Except as provided by the corporation's certificate

of formation:

(1) the board of directors of a corporation may authorize a

pledge, mortgage, deed of trust, or trust indenture; and

(2) an authorization or consent of shareholders is not required

for the validity of the transaction or for any sale under the

terms of the transaction.

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

Sec. 21.462. CONVEYANCE BY CORPORATION. A corporation may

convey real property of the corporation when authorized by

appropriate resolution of the board of directors.

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

SUBCHAPTER K. WINDING UP AND TERMINATION

Sec. 21.501. APPROVAL OF VOLUNTARY WINDING UP, REINSTATEMENT, OR

REVOCATION OF VOLUNTARY WINDING UP. A corporation must approve a

voluntary winding up in accordance with Chapter 11, a

reinstatement in accordance with Section 11.202, a cancellation

of an event requiring winding up under Section 11.152(a), or

revocation of a voluntary decision to wind up in accordance with

Section 11.151 by complying with one of the procedures prescribed

by this subchapter.

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

Amended by:

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

688, Sec. 83, eff. September 1, 2007.

Sec. 21.502. CERTAIN PROCEDURES RELATING TO WINDING UP. To

approve a voluntary winding up, a reinstatement, a cancellation

of an event requiring winding up, or a revocation of a voluntary

decision to wind up, a corporation must follow one of the

following procedures:

(1) all shareholders of the corporation must consent in writing

to the winding up, the reinstatement, the cancellation of an

event requiring winding up, or the revocation of a voluntary

decision to wind up the corporation;

(2) if the corporation has not commenced business and has not

issued any shares, a majority of the organizers or the board of

directors of the corporation must adopt a resolution to wind up,

to reinstate, to cancel an event requiring winding up, or to

revoke a voluntary decision to wind up; or

(3)(A) the board of directors of the corporation must adopt a

resolution:

(i) recommending the winding up, reinstatement, cancellation of

an event requiring winding up, or revocation of a voluntary

decision to wind up the corporation; and

(ii) directing that the winding up, reinstatement, cancellation

of an event requiring winding up, or revocation of a voluntary

decision to wind up the corporation be submitted to the

shareholders for approval at an annual or special meeting of

shareholders; and

(B) the shareholders must approve the action described by

Paragraph (A) in accordance with Section 21.503.

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

Sec. 21.503. MEETING OF SHAREHOLDERS; NOTICE. (a) Each

shareholder of record entitled to vote at a meeting described by

Section 21.502(3)(A)(ii) must be given written notice stating

that the purpose or one of the purposes of the meeting is to

consider the winding up, reinstatement, cancellation of the event

requiring winding up, or revocation of the voluntary decision to

wind up the corporation. The notice must be given in the time and

manner provided by Chapter 6 and this chapter for the giving of

notice of shareholders' meetings.

(b) A vote of shareholders entitled to vote at the meeting shall

be taken on the resolution to wind up, reinstate, cancel the

event requiring winding up, or revoke the voluntary decision to

wind up the corporation. The shareholders must approve the

resolution by the affirmative vote required by Section 21.364.

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

Sec. 21.504. RESPONSIBILITY FOR WINDING UP. If a corporation

determines or is required to wind up, the directors of the

corporation shall manage the process of winding up the business

or affairs of the corporation.

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

SUBCHAPTER L. DERIVATIVE PROCEEDINGS

Sec. 21.551. DEFINITIONS. In this subchapter:

(1) "Derivative proceeding" means a civil suit in the right of a

domestic corporation or, to the extent provided by Section

21.562, in the right of a foreign corporation.

(2) "Shareholder" includes a beneficial owner whose shares are

held in a voting trust or by a nominee on the beneficial owner's

behalf.

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

Sec. 21.552. STANDING TO BRING PROCEEDING. (a) A shareholder

may not institute or maintain a derivative proceeding unless:

(1) the shareholder:

(A) was a shareholder of the corporation at the time of the act

or omission complained of; or

(B) became a shareholder by operation of law from a person that

was a shareholder at the time of the act or omission complained

of; and

(2) the shareholder fairly and adequately represents the

interests of the corporation in enforcing the right of the

corporation.

(b) To the extent a shareholder of a corporation has standing to

institute or maintain a derivative proceeding on behalf of the

corporation immediately before a merger, Subchapter J or Chapter

10 may not be construed to limit or terminate the shareholder's

standing after the merger.

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

Amended by:

Acts 2005, 79th Leg., Ch.

64, Sec. 63, eff. January 1, 2006.

Sec. 21.553. DEMAND. (a) A shareholder may not institute a

derivative proceeding until the 91st day after the date a written

demand is filed with the corporation stating with particularity

the act, omission, or other matter that is the subject of the

claim or challenge and requesting that the corporation take

suitable action.

(b) The waiting period required by Subsection (a) before a

derivative proceeding may be instituted is not required if:

(1) the shareholder has been previously notified that the demand

has been rejected by the corporation;

(2) the corporation is suffering irreparable injury; or

(3) irreparable injury to the corporation would result by

waiting for the expiration of the 90-day period.

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

Sec. 21.554. DETERMINATION BY DIRECTORS OR INDEPENDENT PERSONS.

(a) A determination of how to proceed on allegations made in a

demand or petition relating to a derivative proceeding must be

made by an affirmative vote of the majority of:

(1) the independent and disinterested directors of the

corporation present at a meeting of the board of directors of the

corporation at which interested directors are not present at the

time of the vote if the independent and disinterested directors

constitute a quorum of the board of directors;

(2) a committee consisting of two or more independent and

disinterested directors appointed by an affirmative vote of the

majority of one or more independent and disinterested directors

present at a meeting of the board of directors, regardless of

whether the independent and disinterested directors constitute a

quorum of the board of directors; or

(3) a panel of one or more independent and disinterested persons

appointed by the court on a motion by the corporation listing the

names of the persons to be appointed and stating that, to the

best of the corporation's knowledge, the persons to be appointed

are disinterested and qualified to make the determinations

contemplated by Section 21.558.

(b) The court shall appoint a panel under Subsection (a)(3) if

the court finds that the persons recommended by the corporation

are independent and disinterested and are otherwise qualified

with respect to expertise, experience, independent judgment, and

other factors considered appropriate by the court under the

circumstances to make the determinations. A person appointed by

the court to a panel under this section may not be held liable to

the corporation or the corporation's shareholders for an action

taken or omission made by the person in that capacity, except for

an act or omission constituting fraud or wilful misconduct.

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

Sec. 21.555. STAY OF PROCEEDING. (a) If the domestic or

foreign corporation that is the subject of a derivative

proceeding commences an inquiry into the allegations made in a

demand or petition and the person or group of persons described

by Section 21.554 is conducting an active review of the

allegations in good faith, the court shall stay a derivative

proceeding until the review is completed and a determination is

made by the person or group regarding what further action, if

any, should be taken.

(b) To obtain a stay, the domestic or foreign corporation shall

provide the court with a written statement agreeing to advise the

court and the shareholder making the demand of the determination

promptly on the completion of the review of the matter. A stay,

on application, may be reviewed every 60 days for the continued

necessity of the stay.

(c) If the review and determination made by the person or group

is not completed before the 61st day after the stay is ordered by

the court, the stay may be renewed for one or more additional

60-day periods if the domestic or foreign corporation provides

the court and the shareholder with a written statement of the

status of the review and the reasons why a continued extension of

the stay is necessary.

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

Sec. 21.556. DISCOVERY. (a) If a domestic or foreign

corporation proposes to dismiss a derivative proceeding under

Section 21.558, discovery by a shareholder after the filing of

the derivative proceeding in accordance with this subchapter

shall be limited to:

(1) facts relating to whether the person or group of persons

described by Section 21.558 is independent and disinterested;

(2) the good faith of the inquiry and review by the person or

group; and

(3) the reasonableness of the procedures followed by the person

or group in conducting the review.

(b) Discovery described by Subsection (a) may not be expanded to

include a fact or substantive matter regarding the act, omission,

or other matter that is the subject matter of the derivative

proceeding. The scope of discovery may be expanded if the court

determines after notice and hearing that a good faith review of

the allegations for purposes of Section 21.558 has not been made

by an independent and disinterested person or group in accordance

with that section.

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

Sec. 21.557. TOLLING OF STATUTE OF LIMITATIONS. A written

demand filed with the corporation under Section 21.553 tolls the

statute of limitations on the claim on which demand is made until

the earlier of:

(1) the 91st day after the date of the demand; or

(2) the 31st day after the date the corporation advises the

shareholder that the demand has been rejected or the review has

been completed.

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

Sec. 21.558. DISMISSAL OF DERIVATIVE PROCEEDING. (a) A court

shall dismiss a derivative proceeding on a motion by the

corporation if the person or group of persons described by

Section 21.554 determines in good faith, after conducting a

reasonable inquiry and based on factors the person or group

considers appropriate under the circumstances, that continuation

of the derivative proceeding is not in the best interests of the

corporation.

(b) In determining whether the requirements of Subsection (a)

have been met, the burden of proof shall be on:

(1) the plaintiff shareholder if:

(A) the majority of the board of directors consists of

independent and disinterested directors at the time the

determination is made;

(B) the determination is made by a panel of one or more

independent and disinterested persons appointed under Section

21.554(a)(3); or

(C) the corporation presents prima facie evidence that

demonstrates that the directors appointed under Section

21.554(a)(2) are independent and disinterested; or

(2) the corporation in any other circumstance.

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

Sec. 21.559. PROCEEDING INSTITUTED AFTER DEMAND REJECTED. If a

derivative proceeding is instituted after a demand is rejected,

the petition must allege with particularity facts that establish

that the rejection was not made in accordance with the

requirements of Sections 21.554 and 21.558.

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

Sec. 21.560. DISCONTINUANCE OR SETTLEMENT. (a) A derivative

proceeding may not be discontinued or settled without court

approval.

(b) The court shall direct that notice be given to the affected

shareholders if the court determines that a proposed

discontinuance or settlement may substantially affect the

interests of other shareholders.

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

Sec. 21.561. PAYMENT OF EXPENSES. (a) In this section,

"expenses" means reasonable expenses incurred by a party in a

derivative proceeding, including:

(1) attorney's fees;

(2) costs in pursuing an investigation of the matter that was

the subject of the derivative proceeding; or

(3) expenses for which the domestic or foreign corporation or a

corporate defendant may be required to indemnify another person.

(b) On termination of a derivative proceeding, the court may

order:

(1) the domestic or foreign corporation to pay the expenses the

plaintiff incurred in the proceeding if the court finds the

proceeding has resulted in a substantial benefit to the domestic

or foreign corporation;

(2) the plaintiff to pay the expenses the domestic or foreign

corporation or other defendant incurred in investigating and

defending the proceeding if the court finds the proceeding has

been instituted or maintained without reasonable cause or for an

improper purpose; or

(3) a party to pay the expenses incurred by another party

relating to the filing of a pleading, motion, or other paper if

the court finds the pleading, motion, or other paper:

(A) was not well grounded in fact after reasonable inquiry;

(B) was not warranted by existing law or a good faith argument

for the extension, modification, or reversal of existing law; or

(C) was interposed for an improper purpose, such as to harass,

cause unnecessary delay, or cause a needless increase in the cost

of litigation.

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

Sec. 21.562. APPLICATION TO FOREIGN CORPORATIONS. (a) In a

derivative proceeding brought in the right of a foreign

corporation, the matters covered by this subchapter are governed

by the laws of the jurisdiction of incorporation of the foreign

corporation, except for Sections 21.555, 21.560, and 21.561,

which are procedural provisions and do not relate to the internal

affairs of the foreign corporation.

(b) In the case of matters relating to a foreign corporation

under Section 21.554, a reference to a person or group of persons

described by that section refers to a person or group entitled

under the laws of the jurisdiction of incorporation of the

foreign corporation to review and dispose of a derivative

proceeding. The standard of review of a decision made by the

person or group to dismiss the derivative proceeding shall be

governed by the laws of the jurisdiction of incorporation of the

foreign corporation.

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

Sec. 21.563. CLOSELY HELD CORPORATION. (a) In this section,

"closely held corporation" means a corporation that has:

(1) fewer than 35 shareholders; and

(2) no shares listed on a national securities exchange or

regularly quoted in an over-the-counter market by one or more

members of a national securities association.

(b) Sections 21.552-21.559 do not apply to a closely held

corporation.

(c) If justice requires:

(1) a derivative proceeding brought by a shareholder of a

closely held corporation may be treated by a court as a direct

action brought by the shareholder for the shareholder's own

benefit; and

(2) a recovery in a direct or derivative proceeding by a

shareholder may be paid directly to the plaintiff or to the

corporation if necessary to protect the interests of creditors or

other shareholders of the corporation.

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

Amended by:

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

688, Sec. 84, eff. September 1, 2007.

SUBCHAPTER M. AFFILIATED BUSINESS COMBINATIONS

Sec. 21.601. DEFINITIONS. In this subchapter:

(1) "Issuing public corporation" means a domestic corporation

that has:

(A) 100 or more shareholders of record as shown by the share

transfer records of the corporation;

(B) a class or series of the corporation's voting shares

registered under the Securities Exchange Act of 1934 (15 U.S.C.

Section 77b et seq.), as amended; or

(C) a class or series of the corporation's voting shares

qualified for trading in a national market system.

(2) "Person" includes two or more persons acting as a

partnership, limited partnership, syndicate, or other group under

an agreement, arrangement, or understanding, regardless of

whether in writing, to acquire, hold, vote, or dispose of a

corporation's shares.

(3) "Share acquisition date" means the date a person initially

becomes an affiliated shareholder of an issuing public

corporation.

(4) "Subsidiary" means a domestic or foreign corporation or

other entity of which a majority of the outstanding voting shares

are owned, directly or indirectly, by an issuing public

corporation.

(5) "Voting share" means a share of capital stock of a

corporation that entitles the holder of the share to vote

generally in the election of directors.

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

Sec. 21.602. AFFILIATED SHAREHOLDER. (a) For purposes of this

subchapter, a person, other than the issuing public corporation

or a wholly owned subsidiary of the issuing public corporation,

is an affiliated shareholder if the person:

(1) is the beneficial owner of 20 percent or more of the

outstanding voting shares of the issuing public corporation; or

(2) during the preceding three-year period, was the beneficial

owner of 20 percent or more of the outstanding voting shares of

the issuing public corporation.

(b) To determine whether a person is an affiliated shareholder,

the number of voting shares of the issuing public corporation

considered outstanding includes shares considered beneficially

owned by that person under Section 21.603, but does not include

other unissued voting shares of the issuing public corporation

that may be issuable under an agreement, arrangement, or

understanding, or on exercise of conversion rights, warrants, or

options.

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

Sec. 21.603. BENEFICIAL OWNER OF SHARES OR SIMILAR SECURITIES.

(a) For purposes of this chapter, a person is a beneficial owner

of shares or similar securities if the person individually, or

through an affiliate or associate, beneficially owns, directly or

indirectly, shares or similar securities.

(b) A beneficial owner of shares or similar securities is

entitled, individually or through an affiliate or associate, to:

(1) acquire shares or similar securities that may be exercised

immediately or after the passage of a certain amount of time

according to an oral or written agreement, arrangement, or

understanding, or on the exercise of conversion rights, exchange

rights, warrants, or options;

(2) vote the shares or similar securities according to an oral

or written agreement, arrangement, or understanding; or

(3) subject to Subsection (c), acquire, hold or dispose of, or

vote shares or similar securities with another person who

individually, or through an affiliate or associate, beneficially

owns, directly or indirectly, the shares or similar securities.

(c) A person is not considered a beneficial owner of shares or

similar securities if:

(1) the shares or similar securities are:

(A) tendered under a tender or exchange offer made by the person

or an affiliate or associate of the person before the tendered

shares or securities are accepted for purchase or exchange; or

(B) subject to an agreement, arrangement, or understanding that

expressly conditions the acquisition or purchase of shares or

securities on the approval of the acquisition or purchase under

Section 21.606 if the person has no direct or indirect rights of

ownership or voting with respect to the shares or securities

until the time the approval is obtained; or

(2) the agreement, arrangement, or understanding to vote the

shares:

(A) arises solely from an immediately revocable proxy that

authorizes the person named in the proxy to vote at a meeting of

the shareholders that has been called when the proxy is delivered

or at an adjournment of the meeting; and

(B) is not reportable on a Schedule 13D under the Securities

Exchange Act of 1934 (15 U.S.C. Section 77b et seq.), as amended,

or a comparable or successor report.

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

Sec. 21.604. BUSINESS COMBINATION. A business combination is:

(1) a merger, share exchange, or conversion of an issuing public

corporation or a subsidiary with:

(A) an affiliated shareholder;

(B) a foreign or domestic corporation or other entity that is,

or after the merger, share exchange, or conversion would be, an

affiliate or associate of the affiliated shareholder; or

(C) another domestic or foreign corporation or other entity, if

the merger, share exchange, or conversion is caused by an

affiliated shareholder, or an affiliate or associate of an

affiliated shareholder, and as a result of the merger, share

exchange, or conversion this subchapter does not apply to the

surviving corporation or other entity;

(2) a sale, lease, exchange, mortgage, pledge, transfer, or

other disposition, in one transaction or a series of

transactions, including an allocation of assets under a merger,

to or with the affiliated shareholder, or an affiliate or

associate of the affiliated shareholder, of assets of the issuing

public corporation or a subsidiary that:

(A) has an aggregate market value equal to 10 percent or more of

the aggregate market value of all of the assets, determined on a

consolidated basis, of the issuing public corporation;

(B) has an aggregate market value equal to 10 percent or more of

the aggregate market value of all of the outstanding voting

shares of the issuing public corporation; or

(C) represents 10 percent or more of the earning power or net

income, determined on a consolidated basis, of the issuing public

corporation;

(3) the issuance or transfer by an issuing public corporation or

a subsidiary to an affiliated shareholder or an affiliate or

associate of the affiliated shareholder, in one transaction or a

series of transactions, of shares of the issuing public

corporation or a subsidiary, except by the exercise of warrants

or rights to purchase shares of the issuing public corporation

offered, or a share dividend paid, pro rata to all shareholders

of the issuing public corporation after the affiliated

shareholder's share acquisition date;

(4) the adoption of a plan or proposal for the liquidation,

winding up, or dissolution of an issuing public corporation

proposed by or under any agreement, arrangement, or

understanding, regardless of whether in writing, with an

affiliated shareholder or an affiliate or associate of the

affiliated shareholder;

(5) a reclassification of securities, including a reverse share

split or a share split-up, share dividend, or other distribution

of shares, a recapitalization of the issuing public corporation,

a merger of the issuing public corporation with a subsidiary or

pursuant to which the assets and liabilities of the issuing

public corporation are allocated among two or more surviving or

new domestic or foreign corporations or other entities, or any

other transaction proposed by or under an agreement, arrangement,

or understanding, regardless of whether in writing, with an

affiliated shareholder or an affiliate or associate of the

affiliated shareholder that has the effect, directly or

indirectly, of increasing the proportionate ownership percentage

of the outstanding shares of a class or series of voting shares

or securities convertible into voting shares of the issuing

public corporation that is beneficially owned by the affiliated

shareholder or an affiliate or associate of the affiliated

shareholder, except as a result of immaterial changes due to

fractional share adjustments; or

(6) the direct or indirect receipt by an affiliated shareholder

or an affiliate or associate of the affiliated shareholder of the

benefit of a loan, advance, guarantee, pledge, or other financial

assistance or a tax credit or other tax advantage provided by or

through the issuing public corporation, except proportionately as

a shareholder of the issuing public corporation.

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

Amended by:

Acts 2005, 79th Leg., Ch.

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

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

688, Sec. 85, eff. September 1, 2007.

Sec. 21.605. CONTROL. (a) For purposes of this subchapter, a

person has control of another person if the person has

possession, directly or indirectly, of the power to direct or

cause the direction of the management and policies of the other

person, through the ownership of equity securities, by contract,

or in another manner.

(b) A person's beneficial ownership of 10 percent or more of a

person's outstanding voting shares or similar interests creates a

presumption that the person has control of the other person, but

a person is not considered to have control of another person who

holds the voting shares or similar interests in good faith and

not to circumvent this part, as an agent, bank, broker, nominee,

custodian, or trustee for one or more beneficial owners who do

not individually or as a group have control of the person.

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

Sec. 21.606. THREE-YEAR MORATORIUM ON CERTAIN BUSINESS

COMBINATIONS. An issuing public corporation may not, directly or

indirectly, enter into or engage in a business combination with

an affiliated shareholder, or any affiliate or associate of the

affiliated shareholder, during the three-year period immediately

following the affiliated shareholder's share acquisition date

unless:

(1) the business combination or the purchase or acquisition of

shares made by the affiliated shareholder on the affiliated

shareholder's share acquisition date is approved by the board of

directors of the issuing public corporation before the affiliated

shareholder's share acquisition date; or

(2) the business combination is approved, by the affirmative

vote of the holders of at least two-thirds of the outstanding

voting shares of the issuing public corporation not beneficially

owned by the affiliated shareholder or an affiliate or associate

of the affiliated shareholder, at a meeting of shareholders

called for that purpose not less than six months after the

affiliated shareholder's share acquisition date. Approval may not

be by written consent.

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

Sec. 21.607. APPLICATION OF MORATORIUM. Section 21.606 does not

apply to:

(1) a business combination of an issuing public corporation if:

(A) the original articles of incorporation or original bylaws of

the corporation contain a provision expressly electing not to be

governed by this subchapter;

(B) before December 31, 1997, the corporation adopted an

amendment to the articles of incorporation or bylaws of the

corporation expressly electing not to be governed by this

subchapter; or

(C) after December 31, 1997, the corporation adopts an amendment

to the articles of incorporation or bylaws of the corporation,

approved by the affirmative vote of the holders, other than an

affiliated shareholder or an affiliate or associate of the

affiliated shareholder, of at least two-thirds of the outstanding

voting shares of the issuing public corporation, expressly

electing not to be governed by this subchapter, except that the

amendment to the articles of incorporation or bylaws takes effect

18 months after the date of the vote and does not apply to a

business combination of the issuing public corporation with an

affiliated shareholder whose share acquisition date is on or

before the effective date of the amendment;

(2) a business combination of an issuing public corporation with

an affiliated shareholder who became an affiliated shareholder

inadvertently, if the affiliated shareholder:

(A) as soon as practicable divests itself of a sufficient number

of the voting shares of the issuing public corporation so that

the affiliated shareholder no longer is the beneficial owner,

directly or indirectly, of 20 percent or more of the outstanding

voting shares of the issuing public corporation; and

(B) would not at any time within the three-year period preceding

the announcement date of the business combination have been an

affiliated shareholder except for the inadvertent acquisition;

(3) a business combination with an affiliated shareholder who

was the beneficial owner of 20 percent or more of the outstanding

voting shares of the issuing public corporation on December 31,

1996, and continuously until the announcement date of the

business combination;

(4) a business combination with an affiliated shareholder who

became an affiliated shareholder through a transfer of shares of

the issuing public corporation by will or intestate succession

and continuously was an affiliated shareholder until the

announcement date of the business combination; or

(5) a business combination of an issuing public corporation with

a domestic wholly owned subsidiary if the domestic subsidiary is

not an affiliate or associate of the affiliated shareholder for a

reason other than the affiliated shareholder's beneficial

ownership of voting shares in the issuing public corporation.

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

Sec. 21.608. EFFECT ON OTHER ACTIONS. (a) This subchapter does

not affect, directly or indirectly, the validity of another

action by the board of directors of an issuing public

corporation.

(b) This subchapter does not preclude the board of directors of

an issuing public corporation from taking other action in

accordance with law.

(c) The board of directors of an issuing public corporation does

not incur liability for an election made or not made under this

subchapter.

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

Sec. 21.609. CONFLICTING PROVISIONS. If this subchapter

conflicts with another provision of this code, this subchapter

controls.

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

Sec. 21.610. CHANGE IN VOTING REQUIREMENTS. The affirmative

vote or concurrence of shareholders required for approval of an

action that is required to be submitted to a vote of the

shareholders under this subchapter may be increased but not

decreased under Section 21.365.

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

SUBCHAPTER N. PROVISIONS RELATING TO INVESTMENT COMPANIES

Sec. 21.651. DEFINITION. In this subchapter, "investment

company" means a corporation registered as an open-end company

under the Investment Company Act.

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

Sec. 21.652. ESTABLISHING CLASS OR SERIES OF SHARES; CHANGE IN

NUMBER OF SHARES. (a) In addition to the actions the board may

undertake under Subchapters D, E, and F, the board of directors

of an investment company may:

(1) establish classes of shares and series of unissued shares of

a class by setting and determining the designations, preferences,

limitations, and relative rights, including voting rights, of the

shares of the class or series established under this subdivision

to the same extent that the designations, preferences,

limitations, and relative rights could be stated if fully stated

in the certificate of formation; and

(2) increase or decrease the aggregate number of shares or the

number of shares of, or delete from the investment company's

certificate of formation, a class or series of shares the

corporation has authority to issue, unless a provision has been

included in the certificate of formation of the corporation after

September 1, 1993, expressly prohibiting those actions by the

board of directors.

(b) The board of directors of an investment company may not:

(1) decrease the number of shares in a class or series to a

number that is less than the number of shares of that class or

series that are outstanding at the time; or

(2) delete from the certificate of formation a reference to a

class or series that has shares outstanding at the time.

(c) To establish a class or series under this section, the board

of directors must adopt a resolution stating the designation of

the class or series and setting and determining the designations,

preferences, limitations, and relative rights, including voting

rights, of the class or series.

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

series of shares or to delete from the certificate of formation a

reference to a class or series of shares, the board of directors

of an investment company must adopt a resolution setting and

determining the new number of shares of each class or series in

which the number of shares is increased or decreased or deleting

the class or series and any reference to the class or series from

the certificate of formation. The shares of a series removed from

the certificate of formation shall resume the status of

authorized but unissued shares of the class of shares from which

the series was established unless otherwise provided by the

resolution or the certificate of formation of the investment

company.

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

Sec. 21.653. REQUIRED STATEMENT RELATING TO SHARES. (a) Before

the first issuance of shares of a class or series established or

increased or decreased by resolution adopted by the board of

directors of an investment company under Section 21.652, and to

delete from the investment company's certificate of formation a

class or series of shares and all references to the class or

series contained in the certificate of formation, the investment

company shall file with the secretary of state a statement that

contains:

(1) the name of the investment company;

(2) if the statement relates to the establishment of a class or

series of shares, a copy of the resolution establishing and

designating the class or series or establishing and designating

the class or series and setting and determining the preferences,

limitations, and relative rights of the class or series;

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

number of shares of a class or series, a copy of the resolution

setting and determining the new number of shares of each class or

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

(4) if the statement relates to the deletion of a class or

series of shares and all references to the class or series from

the certificate of formation, a copy of the resolution deleting

the class or series and all references to the class or series

from the certificate of formation;

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

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

action on the part of the investment company.

(b) After the statement described by Subsection (a) is filed, a

resolution adopted under Section 21.652 becomes an amendment of

the certificate of formation. An amendment of the certificate of

formation described 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. 21.654. TERM OF OFFICE OF DIRECTORS. Unless the director

resigns or is removed in accordance with the certificate of

formation or bylaws of the investment company, a director of an

investment company shall serve as director for the term for which

the director is elected and holds office until a successor is

elected and qualifies.

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

Amended by:

Acts 2005, 79th Leg., Ch.

64, Sec. 65, eff. January 1, 2006.

Sec. 21.655. MEETINGS OF SHAREHOLDERS. (a) If provided by the

certificate of formation or bylaws of an investment company, the

investment company is not required to hold an annual meeting of

shareholders or elect directors in a year in which an election of

directors is not required under the Investment Company Act.

(b) If an investment company is required to hold a meeting of

shareholders to elect directors under the Investment Company Act,

the meeting shall be designated as the annual meeting of

shareholders for that year.

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

SUBCHAPTER O. CLOSE CORPORATION

Sec. 21.701. DEFINITIONS. In this subchapter:

(1) "Close corporation" means a domestic corporation formed

under this subchapter.

(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.

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

Sec. 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.

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

Sec. 21.703. FORMATION OF CLOSE CORPORATION. A close

corporation shall be formed in accordance with Chapter 3.

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

Sec. 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 Section 21.708

shall immediately adopt bylaws that comply with Section 21.057.

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

Sec. 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 Section 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.

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

Sec. 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 Section 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.

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

Sec. 21.707. EXISTING CLOSE CORPORATION. (a) This section

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 Sections 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 Section 21.732.

(f) In this section, "mandatory application date" has the

meaning assigned by Section 401.001.

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

Amended by:

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

688, Sec. 86, eff. September 1, 2007.

Sec. 21.708. TERMINATION OF CLOSE CORPORATION STATUS. A close

corporation may terminate its status as a close corporation by:

(1) filing a statement terminating close corporation status

under Section 21.709;

(2) amending the close corporation's certificate of formation

under Chapter 3 by deleting from the certificate of formation the

statement that it is a close corporation;

(3) engaging in a merger, interest exchange, or conversion under

Chapter 10, unless the plan of merger, exchange, or conversion

provides that the surviving or new corporation will continue as

or become a close corporation and the plan has been approved by

the affirmative vote or consent of the holders of all of the

outstanding shares, and of each class and series of shares, of

the close corporation, regardless of whether a class or series of

shares is entitled to vote on the plan by the certificate of

formation; or

(4) instituting a judicial proceeding to enforce a close

corporation provision providing for the termination.

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

Sec. 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.

(c) The statement terminating close corporation status must

contain:

(1) the name of the corporation;

(2) a statement that the corporation has terminated its status

as a close corporation in accordance with the included or

attached close corporation provision; and

(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 section 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.

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

Sec. 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 Section 21.724.

(c) When the termination of close corporation status takes

effect, if the close corporation's business and affairs have been

managed by an entity other than a board of directors as provided

by Section 21.725, governance by a board of directors is

instituted or reinstated:

(1) if provided by a shareholders' agreement, in the manner

stated in the agreement or by the persons named in the agreement

to serve as the interim board of directors; or

(2) if each party to a shareholders' agreement agrees to elect a

board of directors at a shareholders' meeting.

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

Sec. 21.711. SHAREHOLDERS' MEETING TO ELECT DIRECTORS. A

shareholders' meeting required by Section 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 Section 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.

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

Sec. 21.712. TERM OF OFFICE OF DIRECTORS. A director succeeding

to the management of the corporation under Section 21.710(c)

shall have a term of office as set forth in Section 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 Section 21.726.

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

Sec. 21.713. MANAGEMENT. A close corporation shall be managed:

(1) by a board of directors in the same manner an ordinary

corporation would be managed under this chapter; or

(2) in the manner provided by the close corporation's

certificate of formation or by a shareholders' agreement of the

close corporation.

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

Sec. 21.714. SHAREHOLDERS' AGREEMENT. (a) The shareholders of

a close corporation may enter into one or more shareholders'

agreements.

(b) The business and affairs of a close corporation or the

relationships among the shareholders that may be regulated by a

shareholders' agreement include:

(1) the management of the business and affairs of the close

corporation by its shareholders, with or without a board of

directors;

(2) the management of the business and affairs of the close

corporation wholly or partly by one or more of its shareholders

or other persons;

(3) buy-sell, first option, first refusal, or similar

arrangements with respect to the close corporation's shares or

other securities, and restrictions on the transfer of the shares

or other securities, including more restrictions than those

permitted by Section 21.211;

(4) the declaration and payment of dividends or other

distributions in amounts authorized by Subchapter G, regardless

of whether the distribution is in proportion to ownership of

shares;

(5) the manner in which profits or losses shall be apportioned;

(6) restrictions placed on the rights of a transferee or

assignee of shares to participate in the management or

administration of the close corporation's business and affairs

during the term of the shareholders' agreement;

(7) the right of one or more shareholders to cause the winding

up and termination of the close corporation at will or on the

occurrence of a specified event or contingency, in which case the

winding up and termination of the close corporation shall proceed

as if all of the shareholders of the close corporation had

consented in writing to winding up and termination as provided by

Chapter 11;

(8) the exercise or division of voting power either in general

or with regard to specified matters by or among the shareholders

of the close corporation or other persons, including:

(A) voting agreements and voting trusts that do not conform with

Section 6.251 or 6.252;

(B) requiring the vote or consent of the holders of a larger or

smaller number of shares than is otherwise required by this

chapter or other law, including an action for termination of

close corporation status;

(C) granting one or some other specified number of votes for

each shareholder; and

(D) permitting an action for which this chapter requires

approval by the vote of the board of directors or the

shareholders of an ordinary corporation, or both, to be taken

without a vote, in the manner provided by the shareholders'

agreement;

(9) the terms and conditions of employment of a shareholder,

director, officer, or other employee of the close corporation,

regardless of the length of the period of employment;

(10) the individuals who will serve as directors, if any, and

officers of the close corporation;

(11) the arbitration or mediation of issues about which the

shareholders may become deadlocked in voting or about which the

directors or those empowered to manage the close corporation may

become deadlocked and the shareholders are unable to break the

deadlock;

(12) the termination of close corporation status, including a

right of dissent or other rights that may be granted to

shareholders who object to the termination;

(13) qualifications of persons who are or are not entitled to be

shareholders of the close corporation;

(14) amendments to or termination of the shareholders'

agreement; and

(15) any provision required or permitted to be contained in the

bylaws by this chapter.

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

Sec. 21.715. EXECUTION OF SHAREHOLDERS' AGREEMENT. A

shareholders' agreement shall be executed:

(1) in the case of an existing close corporation, by each

shareholder at the time of execution, regardless of whether the

shareholder has voting power;

(2) in the case of an existing ordinary corporation that will

adopt close corporation status under Section 21.705, by each

shareholder at the time of execution, regardless of whether the

shareholder has voting power; or

(3) in the case of a close corporation that is being formed

under Section 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.

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

Sec. 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.

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

Sec. 21.717. DELIVERY OF SHAREHOLDERS' AGREEMENT. (a) The

close corporation shall deliver a complete copy of a

shareholders' agreement to:

(1) each person who is bound by the shareholders' agreement;

(2) each person who is or will become a shareholder in the close

corporation as provided by Section 21.715 when a certificate

representing shares in the close corporation is delivered to the

person; and

(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 section does not affect the

validity or enforceability of the shareholders' agreement.

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

Sec. 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.

(b) The statement required by Subsection (a) must:

(1) contain the name of the close corporation;

(2) state that the close corporation is being operated and its

business and affairs are being conducted under the terms of a

shareholders' agreement under this subchapter; and

(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.

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

Sec. 21.719. VALIDITY AND ENFORCEABILITY OF SHAREHOLDERS'

AGREEMENT. (a) A shareholders' agreement executed in

accordance with Section 21.715 is valid and enforceable

notwithstanding:

(1) the elimination of a board of directors;

(2) any restriction imposed on the discretion or powers of the

board of directors or other person empowered to manage the close

corporation; and

(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 Section

21.756.

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

Sec. 21.720. PERSONS BOUND BY SHAREHOLDERS' AGREEMENT. (a) A

shareholders' agreement executed in accordance with Section

21.715 is:

(1) considered to be an agreement among all of the shareholders

of the close corporation; and

(2) binding on and enforceable against each shareholder of the

close corporation, regardless of whether:

(A) a particular shareholder acquired shares in the close

corporation by purchase, gift, bequest, or otherwise; or

(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.

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

Sec. 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.

(b) If the transferor fails to deliver a complete copy of the

shareholders' agreement:

(1) the validity and enforceability of the shareholders'

agreement against each shareholder of the corporation, including

the transferee, is not affected;

(2) the right, title, or interest of the transferee in the

transferred shares is not adversely affected; and

(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.

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

Sec. 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 Section 21.732, and a complete copy of each

shareholders' agreement has been delivered as required by Section

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.

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

Sec. 21.723. PARTY NOT BOUND BY SHAREHOLDERS' AGREEMENT ON

CESSATION; LIABILITY. (a) Notwithstanding the person's

signature, a person ceases to be a party to, and bound by, a

shareholders' agreement when the person ceases to be a

shareholder of the close corporation unless:

(1) the person's attempted cessation was in violation of Section

21.721 or the shareholders' agreement; or

(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.

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

Sec. 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.

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

Sec. 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.

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

Sec. 21.726. SHAREHOLDERS CONSIDERED DIRECTORS. (a) When

required by the context of this chapter, the shareholders of a

close corporation described by Section 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.

(b) A requirement that an instrument filed with a governmental

agency contain a statement that a specified action has been taken

by the board of directors is satisfied by a statement that:

(1) the corporation is a close corporation with no board of

directors; and

(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.

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

Sec. 21.727. LIABILITY OF SHAREHOLDERS. The shareholders of a

close corporation described by Section 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.

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

Sec. 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 Section 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.

(b) Unless otherwise provided by the certificate of formation of

the close corporation or a shareholders' agreement of the close

corporation, an action is binding on a close corporation if the

action is taken after:

(1) the affirmative vote of the holders of the majority of all

outstanding shares entitled to vote on the action; or

(2) the consent of all of the shareholders of the close

corporation, which may be proven by:

(A) the full knowledge of the action by all of the shareholders

and the shareholders' failure to object to the action in a timely

manner;

(B) written consent to the action in accordance with Section

6.201 or this chapter or any other writing executed by or on

behalf of all of the shareholders reasonably evidencing the

consent; or

(C) any other means reasonably evidencing the consent.

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

Sec. 21.729. LIMITATION OF SHAREHOLDER'S LIABILITY. (a) A

shareholder of a close corporation described by Section 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.

(c) The dissent of a shareholder may be proven by:

(1) an entry in the minutes of the meeting of shareholders;

(2) a written dissent filed with the secretary of the meeting

before the adjournment of the meeting;

(3) a written dissent sent by registered mail to the secretary

of the close corporation promptly after the meeting or after a

written consent was obtained from the other shareholders; or

(4) any other means reasonably evidencing the dissent.

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

Sec. 21.730. LACK OF FORMALITIES; TREATMENT AS PARTNERSHIP. The

failure of a close corporation under this subchapter to observe a

usual formality or requirement prescribed for an ordinary

corporation by this chapter relating to the exercise of corporate

powers or the management of a corporation's business and affairs

and the performance of a shareholders' agreement that treats the

close corporation as if the corporation were a partnership or in

a manner that otherwise is appropriate only among partners may

not:

(1) be a factor in determining whether to impose personal

liability on the shareholders for the close corporation's

obligations by disregarding the separate entity of the close

corporation or otherwise;

(2) be grounds for invalidating an otherwise valid shareholders'

agreement; or

(3) affect the status of the close corporation as a corporation

under this chapter or other law.

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

Sec. 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.

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

Sec. 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 Section 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).

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

SUBCHAPTER P. JUDICIAL PROCEEDINGS RELATING TO CLOSE CORPORATION

Sec. 21.751. DEFINITIONS. In this subchapter:

(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

Section 21.761.

(3) "Provisional director" means a person appointed by a court

under Section 21.758.

(4) "Shareholder" means a record or beneficial owner of shares

in a close corporation, including:

(A) a person holding a beneficial interest in the shares under

an inter vivos, testamentary, or voting trust; or

(B) the personal representative, as defined by the Texas Probate

Code, of a record or beneficial owner.

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

Sec. 21.752. PROCEEDINGS AUTHORIZED. In addition to any other

judicial proceeding pertaining to an ordinary corporation

provided for by this chapter or other law, a close corporation or

shareholder may institute a proceeding in a district court in the

county in which the principal office of the close corporation is

located to:

(1) enforce a close corporation provision;

(2) appoint a provisional director; or

(3) appoint a custodian.

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

Sec. 21.753. NOTICE; INTERVENTION. (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.

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

Sec. 21.754. PROCEEDING NONEXCLUSIVE. Except as provided by

Section 21.755, the right of a close corporation or a shareholder

to institute a proceeding under Section 21.752 is in addition to

another right or remedy the plaintiff is entitled to under law.

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

Sec. 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.

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

Sec. 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.

(b) The court may enforce a close corporation provision by

injunction, specific performance, or other relief the court

determines to be fair and equitable under the circumstances,

including:

(1) damages instead of or in addition to specific enforcement;

(2) the appointment of a provisional director or custodian;

(3) the appointment of a receiver for specific assets of the

close corporation in accordance with Section 11.403;

(4) the appointment of a receiver to rehabilitate the close

corporation in accordance with Section 11.404;

(5) subject to Section 21.757, the liquidation of the assets and

business and involuntary termination of the close corporation and

appointment of a receiver to effect the liquidation in accordance

with Section 11.405; and

(6) the termination of close corporation status.

(c) The court may not order termination of close corporation

status under Subsection (b)(6) unless the court determines that:

(1) any other remedy in law or equity, including appointment of

a provisional director, custodian, or other type of receiver, is

inadequate; and

(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.

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

Sec. 21.757. LIQUIDATION; INVOLUNTARY WINDING UP AND

TERMINATION; RECEIVERSHIP. Except as provided by Section 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 section 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.

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

Sec. 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.

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

Sec. 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.

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

Sec. 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.

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

Sec. 21.761. APPOINTMENT OF CUSTODIAN. (a) In a judicial

proceeding under this section, a court shall appoint a custodian

for a close corporation on presentation of proof that:

(1) at a meeting held for the election of directors, the

shareholders are so divided that the shareholders have failed to

elect successors to directors whose terms have expired or would

have expired on qualification of a successor;

(2) the business of the close corporation is suffering or is

threatened with irreparable injury because the directors, or the

shareholders 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 vote or

consent to take action on behalf of the close corporation cannot

be obtained and a remedy with respect to the deadlock in a close

corporation provision has failed; or

(3) the plaintiff or intervenor has the right to wind up and

terminate the close corporation under a shareholders' agreement

as provided by Section 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

Section 11.406.

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

Sec. 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 Sections 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 Section

21.761(a)(3).

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

Sec. 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.

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

SUBCHAPTER Q. MISCELLANEOUS PROVISIONS

Sec. 21.801. SHARES AND OTHER SECURITIES ARE PERSONAL PROPERTY.

Except as otherwise provided by this code, the shares and other

securities of a corporation are personal property.

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

Sec. 21.802. PENALTIES FOR LATE FILING OF CERTAIN INSTRUMENTS.

(a) A person required under Title 1 or this title to file a

change of registered office or agent, a certificate of voluntary

withdrawal, or a certificate of termination for a corporation

commits an offense if the person does not file the required

filing with the secretary of state before the earlier of:

(1) the 30th day after the date of the change, withdrawal, or

termination; or

(2) the date the filing is otherwise required by law.

(b) A person who violates Subsection (a) is liable to the state

for a civil penalty in an amount not to exceed $2,500 for each

violation. In determining the amount of a penalty under this

subsection, the court shall consider all the circumstances giving

rise to the offense. The attorney general or the prosecuting

attorney in the county in which the violation occurs may bring

suit to recover the civil penalty imposed under this section.

(c) The attorney general may bring an action in the name of the

state to restrain or enjoin a person from violating this section.

(d) In an action or proceeding brought against a person who has

not complied with this section, the plaintiff or other party

bringing the suit or proceeding may recover, at the court's

discretion, reasonable costs and attorney's fees incurred by

locating and effecting service of process on the person. Any

damages recovered must be in conjunction with a pending action or

proceeding and shall be awarded as costs under the Texas Rules of

Civil Procedure. This section does not create a private

independent cause of action for failure to comply with this

section.

(e) A person who is entitled to recover damages under Subsection

(d) may request from the attorney general nonconfidential

information on the other person for the purpose of effecting

service of process. The attorney general shall comply with a

request made under this subsection to the extent practicable.

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

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