2005 Texas Code - Business Corporation Act ARTICLE 2.01. PURPOSES


Business Corporation Act
Part 1.
Art. 1.01. Short Title, Captions, Parts, Articles, Sections, Subsections, and Paragraphs A. This Act shall be known and may be cited as the "Texas Business Corporation Act." B. The Division of this Act into Parts, Articles, Sections, Subsections and Paragraphs and the use of captions in connection therewith are solely for convenience and shall have no legal effect in construing the provisions of this Act. C. This Act has been organized and subdivided in the following manner: (1) The Act is divided into Parts, containing groups of related Articles. Parts are numbered consecutively with cardinal numbers. (2) The Act is also divided into Articles, numbered consecutively with Arabic numerals. (3) Articles are divided into Sections. The Sections within each Article are numbered consecutively with capital letters. (4) Sections are divided into subsections. The subsections within each Section are numbered consecutively with Arabic numerals enclosed in parentheses. (5) Subsections are divided into paragraphs. The paragraphs within each subsection are numbered consecutively with lower case letters enclosed in parentheses. Acts 1955, 54th Leg., p. 239, ch. 64, eff. Sept. 6, 1955. Art. 1.02. Definitions A. As used in this Act, unless the context otherwise requires, the term: (1) "Articles of incorporation" means the original or restated articles of incorporation and all amendments thereto. (2) "Associate," when used to indicate a relationship with a person, means: (a) a domestic or foreign corporation or other entity of which the person is an officer or partner or is the beneficial owner of 10 percent or more of a class of voting shares or similar securities of that corporation or other entity; (b) a trust or estate in which the person has a substantial beneficial interest or as to which the person serves as trustee or in a similar fiduciary capacity; or (c) a spouse of the person or a relative of the person, or of the person's spouse, who has the same home as the person or who is a director or officer of such person or any of its affiliates. (3) "Authorized shares" means the shares of all classes which the corporation is authorized to issue. (4) "Cancel" means to restore issued shares to the status of authorized but unissued shares. (5) "Certificated shares" means shares represented by instruments in bearer or registered form. (6) "Conspicuous" or "conspicuously," when prescribed for information appearing on a certificate for shares or other securities, means the location of such information or use of type of sufficient size, color, or character that a reasonable person against whom such information may operate should notice it. For example, a printed or typed statement in capitals, or boldface or underlined type, or in type that is larger than or that contrasts in color with that used for other statements on the same certificate, is "conspicuous." (7) "Consuming assets corporation" means a corporation which is engaged in the business of exploiting assets subject to depletion or amortization and which elects to state in its articles of incorporation that it is a consuming assets corporation and includes as a part of its official corporate name the phrase "a consuming assets corporation," giving such phrase equal prominence with the rest of the corporate name on its financial statements and certificates representing shares. All its certificates representing shares shall also contain a further sentence: "This corporation is permitted by law to pay dividends out of reserves which may impair its stated capital." (8) "Conversion" means: (a) the continuance of a domestic corporation as, and in the organizational form of, a foreign corporation or other entity; or (b) the continuance of a foreign corporation or other entity as, and in the organizational form of, a domestic corporation. (9) "Converted entity" means any domestic or foreign corporation or other entity to which a converting entity has converted or intends to convert as permitted by Article 5.17 of this Act. (10) "Converting entity" means any domestic or foreign corporation or other entity that has converted or intends to convert as permitted by Article 5.17 of this Act. (11) "Corporation" or "domestic corporation" means a corporation for profit subject to the provisions of this Act, except a foreign corporation. (12) "Disinterested," when used to indicate a director or other person is disinterested in a contract, transaction, or other matter for purposes of approval of a contract or transaction under Article 2.35-1 of this Act and for purposes of considering the disposition of a claim or challenge with respect to a particular contract or transaction or to particular conduct means the director or other person, or an associate of the director (other than the corporation and its associates) or other person, is not a party to the contract or transaction or is not materially involved in the conduct that is subject to the claim or challenge and does not otherwise have a material financial interest in the outcome of the contract or transaction or the disposition of the claim or challenge. A director or other person is not to be considered to be materially involved in conduct that is subject to a claim or challenge or to otherwise have a material financial interest in the outcome of a contract or transaction or the disposition of the claim or challenge solely by reason of the existence of one or more of the following circumstances: (a) the person was nominated or elected as a director by persons who are interested in the contract or transaction or who are alleged to have engaged in the conduct that is subject to the claim or challenge; (b) the person receives normal director's fees or similar customary compensation, expense reimbursement, and benefits as a director of the corporation; (c) the person has a direct or indirect equity interest in the corporation; (d) the corporation or its subsidiaries has an interest in the contract or transaction or was affected by the alleged conduct; (e) the person or an associate or affiliate of the person receives ordinary and reasonable compensation for services rendered to review, make recommendations, or decide on the disposition of the claim or challenge; or (f) in the case of a review by the person of alleged conduct that is subject to a claim or challenge: (i) the person is named as a defendant in the derivative proceeding with respect to such matter or as a person who engaged in the alleged conduct; or (ii) the person approved of, voted for, or acquiesced in, as a director, the act being challenged if the act resulted in no material personal or financial benefit to the person and the challenging party fails to allege with particularity facts that, if true, raise a significant prospect that the director would be adjudged liable to the corporation or its shareholders by reason of that conduct. (13) "Distribution" means a transfer of money or other property (except its own shares or rights to acquire its own shares), or issuance of indebtedness, by a corporation to its shareholders in the form of: (a) a dividend on any class or series of the corporation's outstanding shares; (b) a purchase, redemption, or other acquisition by the corporation, directly or indirectly, of any of its own shares; or (c) a payment by the corporation in liquidation of all or a portion of its assets. (14) "Foreign corporation" means a corporation for profit organized under laws other than the laws of this State. (15) "Independent," when used to indicate a director or other person is independent for purposes of considering the disposition of a claim or challenge with respect to a particular contract or transaction or to particular conduct or alleged conduct means: (a) the director or other person is disinterested; (b) the director or other person is not an associate (other than by reason of being a director of the corporation or one more of its subsidiaries or associates) or member of the immediate family of a party to the contract or transaction that is the subject of the claim or challenge or that is alleged to have engaged in the conduct that is subject to the claim or challenge; (c) the director or other person, or an associate or member of the immediate family of the director or other person, does not have a business, financial, or familial relationship with a party to the contract or transaction that is the subject of the claim or challenge or that is alleged to have engaged in conduct that is subject to the claim or challenge, which, in each case, could reasonably be expected to materially and adversely affect the director's or other person's judgment with respect to the consideration of the disposition of the matter subject to the claim or challenge in the interests of the corporation; and (d) the director or other person is not otherwise shown, by a preponderance of the evidence by the person challenging the independence of the director or other person, to be under the controlling influence of a party to the contract or transaction that is the subject of the claim or challenge or that is alleged to have engaged in conduct that is subject to the claim or challenge. A director or other person is not considered to have a relationship that could be expected to materially and adversely affect the director's or other person's judgment with respect to the consideration of the disposition of a matter subject to a claim or challenge or to otherwise be under the controlling influence of a party to a contract or transaction that is the subject of the claim or challenge or that is alleged to have engaged in conduct that is subject to a claim or challenge solely by reason of the existence of one or more of the following circumstances: (a) the person has been nominated or elected as a director by persons who are interested in the contract or transaction or who are alleged to have engaged in the conduct that is subject to the claim or challenge; (b) the person receives normal director's fees or similar customary compensation, expense reimbursement, and benefits as a director of the corporation; (c) the person has a direct or indirect equity interest in the corporation; (d) the corporation or its subsidiaries have an interest in the contract or transaction or were affected by the alleged conduct; (e) the person or an associate or affiliate of such person receives ordinary and reasonable compensation for services rendered to review, make recommendations, or decide on the disposition of the claim or challenge; or (f) the person or an associate (other than the corporation and its associates), immediate family, member or affiliate of the person has an ongoing business relationship with the corporation that is not material to that person, associate, family member, or affiliate. (16) "Insolvency" means inability of a corporation to pay its debts as they become due in the usual course of its business. (17) "Investment Company Act" means the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1 et seq.); (18) "Merger" means (a) the division of a domestic corporation into two or more new domestic corporations or into a surviving corporation and one or more new domestic or foreign corporations or other entities, or (b) the combination of one or more domestic corporations with one or more domestic or foreign corporations or other entities resulting in (i) one or more surviving domestic or foreign corporations or other entities, (ii) the creation of one or more new domestic or foreign corporations or other entities, or (iii) one or more surviving domestic or foreign corporations or other entities and the creation of one or more new domestic or foreign corporations or other entities. (19) "Net assets" means the amount by which the total assets of a corporation exceed the total debts of the corporation. (20) "Other entity" means any entity, whether organized for profit or not, that is a corporation (other than a domestic or foreign corporation), limited or general partnership, limited liability company, real estate investment trust, joint venture, joint stock company, cooperative, association, bank, trust, insurance company or other legal entity organized pursuant to the laws of this state or any other state or country. (21) "Share dividend" means a dividend by a corporation that is payable in its own authorized but unissued shares or in treasury shares. An amendment to a corporation's articles of incorporation to change the shares of any class or series, whether with or without par value, into the same or a different number of shares, either with or without par value, of the same class or series or another class or series does not constitute a share dividend. (22) "Shareholder" or "holder of shares" means the person in whose name shares issued by a corporation are registered at the relevant time in the share transfer records maintained by the corporation pursuant to Article 2.44 of this Act. (23) "Shares" means the units into which the proprietary interests in a corporation are divided, whether certificated or uncertificated shares. (24) "Stated capital" means, at any particular time, the sum of: (a) the par value of all shares of the corporation having a par value that have been issued; (b) the consideration fixed by the corporation in the manner provided by Article 2.15 of this Act for all shares of the corporation without par value that have been issued, except such part of the consideration that is actually received therefor (which part must be less than all of that consideration) that the board by resolution adopted no later than sixty (60) days after the issuance of those shares may have allocated to surplus; and (c) such amounts not included in paragraphs (a) and (b) of this subsection as have been transferred to stated capital of the corporation, whether upon the payment of a share dividend or upon adoption by the board of directors of a resolution directing that all or part of surplus be transferred to stated capital, minus all reductions from such sum as have been effected in a manner permitted by law. (25) "Subscriber" means the offeror in a subscription. (26) "Subscription" means a memorandum in writing, executed before or after incorporation, wherein an offer is made to purchase and pay for a specified number of theretofore unissued shares of a corporation. (27) "Surplus" means the excess of the net assets of a corporation over its stated capital. (28) "Treasury shares" means shares of a corporation which have been issued, have been subsequently acquired by and belong to the corporation, and have not been canceled and restored to the status of authorized but unissued shares. Treasury shares do not include shares held by a corporation, either directly or through a trust or similar arrangement, in a fiduciary capacity. Treasury shares shall be deemed to be "issued" shares but not "outstanding" shares, and shall not be included in the total assets of a corporation for purposes of determining its "net assets." (29) "Uncertificated shares" means shares not represented by instruments and the transfers of which are registered upon books maintained for that purpose by or on behalf of the issuing corporation. (30) "Electronic transmission" means a form of communication that: (a) does not directly involve the physical transmission of paper; (b) creates a record that may be retained, retrieved, and reviewed by the recipient; and (c) may be directly reproduced in paper form by the recipient through an automated process. B. Part Twelve of this Act provides definitions of terms used in the Texas Close Corporation Law. C. A reference in this Act to another statute is a reference to that statute as amended. Acts 1955, 54 Leg., p. 239, ch. 64, eff. Sept. 6, 1955. Amended by Acts 1967, 60th Leg., p. 1718, ch. 657, Sec. 1, eff. June 17, 1967; Acts 1973, 63rd Leg., p. 1486, ch. 545, Sec. 1, eff. Aug. 27, 1973; Acts 1975, 64th Leg., p. 305, ch. 134, Sec. 1, eff. Sept. 1, 1975; Acts 1981, 67th Leg., p. 3113, ch. 818, Sec. 2, eff. Aug. 31, 1981; Acts 1983, 68th Leg., p. 2564, ch. 442, Sec. 2, eff. Sept. 1, 1983; Acts 1987, 70th Leg., ch. 93, Sec. 1, eff. Aug. 31, 1987; Acts 1989, 71st Leg., ch. 801, Sec. 1, eff. Aug. 28, 1989; Acts 1993, 73rd Leg., ch. 215, Sec. 2.01, eff. Sept. 1, 1993; Acts 1997, 75th Leg., ch. 375, Sec. 1, eff. Sept. 1, 1997. Sec. A(30) added by Acts 2003, 78th Leg., ch. 238, Sec. 1, eff. Sept. 1, 2003.

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