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2005 Texas Code - Business Corporation Act ARTICLE 13.01. SHORT TITLE
Business Corporation Act Part 12. Art. 12.01. Short Title A. Citation. This part may be cited as the "Texas Close Corporation Law." Added by Acts 1981, 67th Leg., p. 3102, ch. 818, Sec. 1, eff. Aug. 31, 1981. Art. 12.02. Definitions A. In General. In this part, unless the context otherwise requires: (1) "Close corporation" means a domestic corporation formed in conformance with the requirements of this part. (2) "Ordinary corporation" means a domestic corporation that is not a close corporation. (3) "Shareholders' agreement" means a written agreement regulating any aspect of the business and affairs of a close corporation or the relations among its shareholders that has been executed in conformance with Article 12.33 of this Act. (4) "Close corporation provision" means a provision in the articles of incorporation of a close corporation or in a shareholders' agreement. B. Cross-Reference. Article 12.51 of this Act provides definitions of terms that pertain to judicial proceedings concerning a close corporation. Added by Acts 1981, 67th Leg., p. 3102, ch. 818, Sec. 1, eff. Aug. 31, 1981. Art. 12.03. Applicability A. Part Twelve. This part applies only to a close corporation. B. Other Parts. To the extent not inconsistent with this part, all other parts of this Act apply to a close corporation. Added by Acts 1981, 67th Leg., p. 3102, ch. 818, Sec. 1, eff. Aug. 31, 1981. Art. 12.11. Articles of Incorporation A. In General. In addition to any provision required or permitted to be set forth in the articles by Article 3.02 of this Act the articles of incorporation of a close corporation, whether original, amended, or restated, must include the following statement: "This corporation is a close corporation." Added by Acts 1981, 67th Leg., p. 3102, ch. 818, Sec. 1, eff. Aug. 31, 1981. Art. 12.12. Formation of a Close Corporation A. In General. A close corporation shall be formed in conformance with Part Three and Article 12.11 of this Act. Added by Acts 1981, 67th Leg., p. 3102, ch. 818, Sec. 1, eff. Aug. 31, 1981. Art. 12.13. Adoption of Close Corporation Status A. By Amendment of Articles of Incorporation. An ordinary corporation may become a close corporation by amending its articles of incorporation in conformance with Part Four and Article 12.11 of this Act. An amendment adopting close corporation status must be approved by the affirmative vote of the holders of all the outstanding shares of each class, whether or not entitled to vote on the amendment by the articles of incorporation of the ordinary corporation. B. Through Merger, Conversion, or Share Exchange. A surviving or new corporation resulting from a merger, a corporation incorporated as part of a conversion, or a corporation that acquires a corporation pursuant to a share exchange in conformance with Part Five of this Act may become a close corporation if as part of the plan of merger, conversion, or exchange its articles of incorporation conform with Article 12.11 of this Act. Any plan of merger, conversion, or exchange adopting close corporation status must be approved by the affirmative vote of the holders of all the outstanding shares, and of each class or series of shares, of each corporation that is party to the merger, conversion, or share exchange, whether or not entitled to vote on the plan by the articles of incorporation of the corporation. Added by Acts 1981, 67th Leg., p. 3102, ch. 818, Sec. 1, eff. Aug. 31, 1981. Amended by Acts 1991, 72nd Leg., ch. 901, Sec. 42, eff. Aug. 26, 1991; Acts 1997, 75th Leg., ch. 375, Sec. 45, eff. Sept. 1, 1997. Art. 12.14. Existing Close Corporation A. In General. If an existing corporation that elected to become a close corporation in conformance with former Article 2.30-1 of this Act has not terminated that status before the effective date of this part: (1) the corporation is considered to be a close corporation under this part; (2) a provision in its articles of incorporation authorized by Section G or H of former Article 2.30-1 of this Act or by former Article 2.30-5 of this Act continues to be valid and enforceable so long as its status as a close corporation has not been terminated; (3) an agreement among its shareholders in conformance with former Article 2.30-2 of this Act is considered to be a shareholders' agreement, if the agreement conforms with Articles 12.32 through 12.37 of this Act; and (4) any certificate representing its shares issued or delivered after the effective date of this part, whether in connection with an original issue of shares, a transfer of shares, or otherwise, must conform with Article 12.39 of this Act. Added by Acts 1981, 67th Leg., p. 3102, ch. 818, Sec. 1, eff. Aug. 31, 1981. Art. 12.15. Bylaws of Close Corporation A. A close corporation need not adopt bylaws if provisions required by law to be contained in the bylaws are contained in either the articles of incorporation or a shareholders' agreement. B. If a close corporation does not have bylaws when it terminates its status as a close corporation under Article 12.21 of this Act, the corporation shall immediately adopt bylaws in conformance with Article 2.23 of this Act. Added by Acts 1987, 70th Leg., ch. 93, Sec. 33, eff. Aug. 31, 1987. Art. 12.21. Termination of Close Corporation Status A. In General. A close corporation terminates its status as a close corporation: (1) on filing a statement of termination in conformance with Article 12.22 of this Act; (2) by amending its articles of incorporation in conformance with Part Four of this Act to delete from its articles the statement that it is a close corporation; (3) through a merger, conversion, or share exchange in conformance with Part Five of this Act unless the plan of merger, conversion, or exchange 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 the outstanding shares, and of each class and series of shares, of the close corporation, whether or not entitled to vote on the plan by the articles of incorporation; or (4) when termination is decreed in a judicial proceeding to enforce a close corporation provision providing for the termination. Added by Acts 1981, 67th Leg., p. 3102, ch. 818, Sec. 1, eff. Aug. 31, 1981. Amended by Acts 1991, 72nd Leg., ch. 901, Sec. 43, eff. Aug. 26, 1991; Acts 1997, 75th Leg., ch. 375, Sec. 46, eff. Sept. 1, 1997. Art. 12.22. Statement of Termination; Filing; Notice A. In General. If a close corporation provision specifies a time or event, whether or not identifiable by persons dealing with the close corporation, that will terminate close corporation status, the termination becomes effective on the occurrence of the specified time or event and the filing of a statement of termination of close corporation status in conformance with this article. B. Execution, Delivery and Form. Promptly after the time or event specified in a close corporation provision for termination of close corporation status has occurred, a statement of termination of close corporation status shall be signed on behalf of the close corporation by an officer. A copy of the applicable close corporation provision must be included in or attached to the statement. The original and a copy of the statement and the inclusion or attachment shall be delivered to the Secretary of State. The statement must set forth: (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. C. Filing. If the Secretary of State finds that the statement of termination of close corporation status conforms to law, the Secretary of State shall, when all fees and franchise taxes have been paid as required by law: (1) endorse on the original and the copy the word "Filed" and the month, day, and year of the filing of the statement; (2) file the original in the office of the Secretary of State; and (3) return the copy to the corporation or its representative. D. Effect of Filing. On the filing of the statement of termination of close corporation status, the articles of incorporation of the close corporation are considered to be amended to delete from the articles the statement that it is a close corporation and the corporation's status as a close corporation terminates. E. Notice to Shareholders. On receipt of the filed copy of the statement of termination from the Secretary of State as provided by Section C of this article, the corporation shall deliver a copy of the statement to each shareholder of the corporation, either personally or by mail. If mailed, the copy is considered to be delivered when deposited in the United States mail, postage prepaid, addressed to the shareholder at his address as it appears on the stock transfer books of the corporation. Failure to deliver the notice does not affect the validity of termination of close corporation status. Added by Acts 1981, 67th Leg., p. 3102, ch. 818, Sec. 1, eff. Aug. 31, 1981. Sec. B amended by Acts 1987, 70th Leg., ch. 93, Sec. 34, eff. Aug. 31, 1987. Art. 12.23. Effect of Termination of Close Corporation Status A. In General. A close corporation that terminates its status as a close corporation and becomes an ordinary corporation is subject to the provisions of this Act as if it had not elected close corporation status under this part. B. Effect on Shareholders' Agreement. The effect of termination of close corporation status on a shareholders' agreement is governed by Section E, Article 12.36 of this Act. C. Reinstatement of Governance by Board of Directors. If, at the time termination of close corporation status has become effective, the close corporation's business and affairs have been managed other than by a board of directors, as permitted by Article 12.31 of this Act, governance by a board of directors is instituted or reinstated: (1) if a shareholders' agreement so provides, in the manner stated therein or by the persons named in the agreement to serve as the interim board of directors; or (2) regardless of whether or not a shareholders' agreement contains a governing provision if all the parties to the agreement so agree, by a shareholders' meeting, to elect a board of directors. D. Shareholders' Meeting. A shareholders' meeting required by Section C of this article shall be promptly called after termination of close corporation status has become effective. If a meeting is not called before the 31st day after the day on which termination becomes effective, any shareholder, whether or not entitled to call a shareholders' meeting or vote at such a meeting, has the power to call the meeting on the notice required by Article 2.25 of this Act. At the meeting there shall be elected the number of directors specified in the articles of incorporation or bylaws, or in the absence of such a specification, three directors. E. Term of Service. The directors succeeding to the management of the corporation as provided in Section C of this article shall serve until the next annual meeting of shareholders and until their successors shall have been elected and qualified. Until directors are elected, the shareholders of the corporation shall act as the board of directors and the business and affairs of the corporation shall be conducted in conformance with Article 12.37 of this Act. Added by Acts 1981, 67th Leg., p. 3102, ch. 818, Sec. 1, eff. Aug. 31, 1981. Art. 12.31. Governance of Close Corporation Affairs A. Management. A close corporation shall be managed: (1) by a board of directors in the same manner an ordinary corporation is managed by its board of directors under this Act; or (2) in the manner provided for in its articles of incorporation or in a shareholders' agreement. Added by Acts 1981, 67th Leg., p. 3102, ch. 818, Sec. 1, eff. Aug. 31, 1981. Art. 12.32. Shareholders' Agreement--In General A. Close Corporation Provisions. All shareholders of a close corporation may make one or more shareholders' agreements. The business and affairs of a close corporation or the relations among the shareholders that may be regulated by a shareholders' agreement include without limitation: (1) management of the business and affairs of the close corporation with or without a board of directors, by its shareholders, or in whole or part by one or more of its shareholders or by one or more persons not shareholders; (2) buy-sell, first option, first refusal, or similar arrangements with respect to the close corporation's shares or other securities, and restrictions on their transfer, including restrictions beyond those permitted to be imposed by Article 2.22 of this Act; (3) declaration and payment of dividends and other distributions, whether or not in proportion to ownership of shares, in amounts permitted by this Act or the manner in which profits or losses shall be apportioned; (4) restrictions on the rights of a transferee of shares or assignee to participate in the management or administration of the close corporation's business and affairs during the term of the shareholders' agreement; (5) rights of one or more shareholders to dissolve the close corporation at will or on the occurrence of a specified event or contingency in which case the dissolution of the close corporation shall proceed as if all of its shareholders had consented in writing to dissolution of the close corporation as provided by Article 6.02 of this Act; (6) exercise or division of voting power either in general or in regard to specified matters by or among the shareholders of the close corporation or other persons, including without limitation: (a) voting agreements and voting trusts that need not conform with Article 2.30 of this Act; (b) requiring the vote or consent of the holders of a greater or lesser number of shares than is otherwise required by this Act or other law, including any action for termination of close corporation status; (c) granting one or some other specified number of votes for each shareholder; and (d) permitting any action for which this Act requires approval by the vote of the board of directors or by a vote of the shareholders of an ordinary corporation or by both, to be taken without such a vote, in the manner provided in the shareholders' agreement; (7) terms and conditions of employment of any shareholder, director, officer, or other employee of the close corporation, regardless of the length of the period of employment; (8) the natural persons who shall be directors, if any, and officers of the close corporation; (9) arbitration 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; (10) termination of close corporation status, including any right of dissent or other rights that shareholders who object to the termination may be granted; (11) qualifications of persons who are or are not entitled to be shareholders of the close corporation; (12) amendments to or termination of the shareholders' agreement; and (13) any provision required or permitted by this Act to be set forth in the bylaws. Added by Acts 1981, 67th Leg., p. 3102, ch. 818, Sec. 1, eff. Aug. 31, 1981. Art. 12.33. Shareholders' Agreements--Procedures Required A. Execution. A shareholders' agreement shall be executed: (1) in the case of an existing close corporation, by each person who is then a shareholder, whether or not the shareholder has voting power; (2) in the case of an existing ordinary corporation that pursuant to the agreement will adopt close corporation status in conformance with Article 12.13 of this Act, by each person who is then a shareholder, whether or not the shareholder has voting power; or (3) in the case of a close corporation that is being formed in conformance with Article 12.12 of this Act, by each person who either is a subscriber to its shares or by the shareholders' agreement agrees to become a holder of its shares. B. Amendment of Agreement. Unless otherwise provided in a shareholders' agreement, an amendment to the shareholders' agreement 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, whether or not the person has voting power in the close corporation. C. Delivery of Shareholders' Agreement. The close corporation shall deliver a complete copy of any shareholders' agreement to each person who is bound by the shareholders' agreement and who is or will become a shareholder in the close corporation as provided in Section A of this article when a certificate or certificates representing shares in the close corporation are delivered to the person. The close corporation shall also deliver a complete copy of any shareholders' agreement to each person to whom a certificate representing shares is issued and who has not received a complete copy of the agreement. 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. Added by Acts 1981, 67th Leg., p. 3102, ch. 818, Sec. 1, eff. Aug. 31, 1981. Art. 12.34. Statement of Operation as a Close Corporation A. In General. If on or after the formation of a close corporation or adoption of close corporation status, a close corporation begins to conduct its business and affairs pursuant to a shareholders' agreement that has become effective, the close corporation shall promptly execute and file a statement of operation as a close corporation with the Secretary of State. B. Execution and Delivery. A statement of operation as a close corporation shall be signed on behalf of the close corporation by an officer. The close corporation shall deliver the original and a copy of the statement to the Secretary of State. The statement must set forth: (1) the name of the close corporation; (2) a statement that the close corporation is being operated and its business and affairs are being conducted under the terms of a shareholders' agreement made pursuant to the Texas Close Corporation Law; and (3) the date when the operation of the corporation began. C. Filing. If the Secretary of State finds that the statement of operation as a close corporation conforms to law, the Secretary of State shall, when all fees and franchise taxes have been paid as required by law: (1) endorse on the original and the copy the word "Filed" and the month, day, and year of the filing of the statement; (2) file the original in the office of the Secretary of State; and (3) return the copy to the close corporation or its representative. D. Effect of Filing. 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. Added by Acts 1981, 67th Leg., p. 3102, ch. 818, Sec. 1, eff. Aug. 31, 1981. Sec. B amended by Acts 1987, 70th Leg., ch. 93, Sec. 35, eff. Aug. 31, 1987. Art. 12.35. Validity and Enforceability of Shareholders' Agreement A. In General. A shareholders' agreement, if executed in conformance with Article 12.33 of this Act, is valid and enforceable in accordance with its terms notwithstanding the elimination of a board of directors, notwithstanding any restriction imposed on the discretion or powers of the board of directors or those empowered to manage the close corporation, and notwithstanding that the effect of the shareholders' agreement is to treat the business and affairs of the close corporation as if it were a partnership or in a manner that would otherwise be appropriate only among partners. B. Enforcement. The close corporation, any of its shareholders, or any person who is a party to a shareholders' agreement may initiate a proceeding to enforce the shareholders' agreement in conformance with Article 12.52 of this Act. Added by Acts 1981, 67th Leg., p. 3102, ch. 818, Sec. 1, eff. Aug. 31, 1981. Art. 12.36. Binding Effect of Shareholders' Agreement A. Persons Bound. A shareholders' agreement, if executed in conformance with Article 12.33 of this Act, is considered to be an agreement among all the shareholders of the close corporation and is binding and enforceable in accordance with its terms on all shareholders of the close corporation regardless of whether a particular shareholder acquired shares in the close corporation by purchase, gift, bequest, or otherwise, or whether the shareholder had actual knowledge of the existence of the shareholders' agreement at the time of acquiring shares. A transferee or assignee of shares of a close corporation with respect to which there is a shareholders' agreement is bound by the shareholders' agreement for all purposes whether or not the transferee or assignee executed or was aware of the agreement. B. Delivery of Copy to Transferee. Before the transfer of any shares of a close corporation as to which there is a shareholders' agreement, the transferor shall deliver a complete copy of the shareholders' agreement to the transferee. If the transferor fails to do so: (1) the validity and enforceability of the shareholders' agreement against all shareholders of the corporation, including the transferee, is not affected; (2) the right, title, or interest of the transferee in the shares transferred is not adversely affected; and (3) the transferee is entitled to obtain on demand a complete copy of the shareholders' agreement from the transferor or from the close corporation at the expense of the transferor. C. Effect of Statement on Share Certificate and Delivery of Shareholders' Agreement. If the certificates representing shares of a close corporation contain the statements required by Section A, Article 12.39 of this Act, and a complete copy of each shareholders' agreement has been delivered as required by Section C, Article 12.33 of this Act, each holder, transferee, or other person claiming an interest in the shares of the close corporation is conclusively presumed to have knowledge of any close corporation provision in effect at the time of the transfer. D. When Party No Longer Bound. A person ceases to be a party to, and bound by, a shareholders' agreement, notwithstanding the person's signature to the agreement, when the person ceases to be a shareholder of the close corporation unless the person's attempted cessation as a shareholder was in violation of Section B of this article or the shareholders' agreement or unless the shareholders' agreement provides to the contrary. Cessation as a party to a shareholders' agreement or as a shareholder does not relieve a person of any liability the person may have incurred for breach of the shareholders' agreement. E. Termination of Agreement. A shareholders' agreement terminates when the close corporation terminates its status as a close corporation except that if the shareholders' agreement so provides, the agreement or any provision of the agreement continues to be valid and enforceable to the extent permitted for an ordinary corporation by this Act or other law. Added by Acts 1981, 67th Leg., p. 3102, ch. 818, Sec. 1, eff. Aug. 31, 1981. Art. 12.37. Responsibility of Shareholders for Managerial Acts A. In General. This article applies only to a close corporation whose business and affairs, pursuant to a shareholders' agreement, are managed in whole or in part by its shareholders or any other person or persons rather than solely by a board of directors. B. Shareholders Deemed Directors. Whenever the context of this Act requires, the shareholders of the close corporation are considered to be directors of the close corporation for purposes of applying any provision of this Act other than with respect to the election and removal of directors. Any requirement that an instrument filed with any governmental agency contain a statement that a specified action has been taken by the board of directors is satisfied by a statement that the corporation is a close corporation having no board of directors and that the action was approved by the shareholders of the close corporation, or by the persons empowered to manage the business and affairs of the close corporation, pursuant to a shareholders' agreement. C. Liabilities. The shareholders of the close corporation are subject to the liabilities imposed on directors by this Act or other law for any managerial acts or omissions, relating to any aspect of the business and affairs of the close corporation, taken by the shareholders or by any other persons empowered to manage the business and affairs of the close corporation pursuant to a shareholders' agreement if the action is required by this Act or other law to be taken by the board of directors. D. Mode of Taking Action. Any action that this Act requires or permits to be taken by the board of directors of an ordinary corporation shall be taken, if required, or may be taken, if permitted, by action of the shareholders of the close corporation at a meeting of the shareholders or in the manner permitted by a shareholders' agreement, this article, or this Act, without a meeting. Unless otherwise provided in the articles of incorporation of the close corporation or a shareholders' agreement, such an action is binding on the close corporation if taken on the basis of: (1) the affirmative vote of the holders of a majority of all outstanding shares entitled to vote on the action; or (2) consent by all the shareholders of the close corporation, which may be proven by: (a) the full knowledge of the action by all the shareholders and their failure to object to the action in a timely manner; (b) a consent in writing to the action in conformance with Article 9.10 of this Act or any other writing executed by or on behalf of all the shareholders reasonably evidencing the consent; or (c) any other means reasonably evidencing the consent. E. Limitation of Liability. A shareholder of a close corporation is not liable by virtue of a shareholders' vote or shareholder action without a vote unless the shareholder had the right to vote or consent to the action. A shareholder of a close corporation, whether with or without right to vote or consent, is not liable for any action taken by the shareholders, or by the persons empowered to manage the business and affairs of the close corporation pursuant to a shareholders' agreement if the shareholder dissents from, and has not voted for or consented to, the action. The dissent may be proven by: (1) an entry in the minutes of the meeting of shareholders; (2) a written dissent filed with the person acting as 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 consent in writing was obtained from the other shareholders; or (4) any other means reasonably evidencing the dissent. F. Lack of Formalities; Treatment as Partnership. Neither the failure of a close corporation to observe usual formalities or requirements prescribed for an ordinary corporation by this Act relating to the exercise of corporate powers or the management of a corporation's business and affairs nor the performance of a shareholders' agreement that treats the close corporation as if it were a partnership or in a manner that otherwise is appropriate only among partners: (1) shall 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) is grounds for invalidating an otherwise valid shareholders' agreement; or (3) shall affect the status of the close corporation as a corporation under this Act or in law. Added by Acts 1981, 67th Leg., p. 3102, ch. 818, Sec. 1, eff. Aug. 31, 1981. Art. 12.38. Other Agreements Among Shareholders Permitted A. In General. Articles 12.31 through 12.37 of this Act do not prohibit or impair any other agreement among two or more shareholders of an ordinary corporation permitted by this Act or by other law. Added by Acts 1981, 67th Leg., p. 3102, ch. 818, Sec. 1, eff. Aug. 31, 1981. Art. 12.39. Close Corporation Share Certificates A. Required Statements. In addition to any matter required or permitted to be stated on a certificate representing shares by this Act or other law, each certificate representing shares issued by a close corporation must state conspicuously on its face or the back: "These shares are issued by a close corporation as defined by the Texas Business Corporation Act. Under that Act, 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 any sale or transfer of these shares, the transferor is obligated to deliver to the transferee a complete copy of any shareholders' agreement." B. Failure to Contain Statements. Notwithstanding any provision of this Act, including Article 2.19, to the contrary, the status of a corporation as a close corporation is not affected by the failure of any share certificate to contain the statements required by Section A of this article. Added by Acts 1981, 67th Leg., p. 3102, ch. 818, Sec. 1, eff. Aug. 31, 1981. Art. 12.51. Judicial Proceedings Relating to a Close Corporation A. Definitions. As used in this article and the succeeding articles of this part, unless the context otherwise requires: (1) "Court of competent jurisdiction" means a district court in the county in which the close corporation has its principal office. (2) "Provisional director" means a person appointed by a court of competent jurisdiction in conformance with Article 12.53 of this Act. (3) "Custodian" means a person appointed by a court of competent jurisdiction in conformance with Article 12.54 of this Act. (4) "Shareholder" means any person who is a record or beneficial owner of shares in a close corporation, including any person holding a beneficial interest in the shares under an inter vivos, testamentary, or voting trust, or any person who is the personal representative, as that term is defined in the Texas Probate Code, of a record or beneficial owner. B. Proceedings Authorized. In addition to any other judicial proceeding pertaining to an ordinary corporation provided for in this Act or by law, a proceeding may be brought in a court of competent jurisdiction by a close corporation or a shareholder to: (1) enforce a close corporation provision; (2) appoint a provisional director; or (3) appoint a custodian. C. Notice; Intervention. Notice of the commencement of a proceeding must be given in the manner prescribed by this Act or other law and otherwise in a manner consistent with due process of law as directed by the court, to the close corporation, if not a plaintiff, and to each shareholder that is not a plaintiff. The close corporation or any shareholder may intervene in the proceeding. D. Proceeding Nonexclusive. Except as otherwise provided in Section E of this article, the right of the close corporation or a shareholder to commence a proceeding permitted by Section B of this article is in addition to any other right or remedy the plaintiff may have under this Act or other law. E. Unavailability of Proceeding. A shareholder may not commence a proceeding before any nonjudicial remedy in a close corporation provision, such as arbitration, for resolution of the issues that are in dispute has been exhausted 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. A shareholder may not commence a proceeding to seek damages or other monetary relief if the shareholder has the right to dissent from any proposed action and to receive the fair value of his shares under this Act or a shareholders' agreement. Added by Acts 1981, 67th Leg., p. 3102, ch. 818, Sec. 1, eff. Aug. 31, 1981. Art. 12.52. Judicial Proceedings to Enforce Close Corporation Provision A. In General. A court of competent jurisdiction, in a judicial proceeding brought under this article, shall enforce a close corporation provision without regard to whether or not there is an adequate remedy at law. The enforcement may be by injunction, specific performance, or other relief that the court determines is fair and equitable under the circumstances, including without limitation: (1) damages instead of or in addition to specific enforcement; (2) appointment of a provisional director or custodian; (3) appointment of a receiver for specific assets of the close corporation in conformance with Article 7.04 of this Act; (4) appointment of a receiver to rehabilitate the close corporation in conformance with Article 7.05 of this Act; (5) subject to Section B of this article, liquidation of the assets and business and involuntary dissolution of the close corporation and appointment of a receiver to effect the liquidation in conformance with Article 7.06 of this Act; and (6) termination of close corporation status, but termination may not be decreed unless the court determines that all other remedies in law or in equity, including appointment of a provisional director, custodian, or other type of receiver, are inadequate and that the size of the close corporation, the nature of its business, the number of its shareholders, or their relationship to one another or other similar factors make it wholly impractical to continue close corporation status. B. Liquidation; Involuntary Dissolution; Receivership. Except where a shareholder seeking relief had the right to dissolve the close corporation under a shareholders' agreement, liquidation, involuntary dissolution, and receivership may not be decreed unless the court determines that all other remedies in law or in equity, including appointment of a provisional director, custodian, or other type of receiver, are inadequate. Added by Acts 1981, 67th Leg., p. 3102, ch. 818, Sec. 1, eff. Aug. 31, 1981. Art. 12.53. Judicial Proceeding to Appoint Provisional Director for Close Corporation A. In General. A court of competent jurisdiction, in a proceeding brought under this article, shall appoint a provisional director for a close corporation on proof that the directors or the persons empowered to manage the business and affairs of the close corporation pursuant to a shareholders' agreement are so divided respecting the management of its affairs that the votes or consents required to take action on behalf of the close corporation cannot be obtained with the consequence that its business and affairs can no longer be conducted to the general advantage of the shareholders. B. Status of Provisional Director. The appointment of a provisional director is subject to the following provisions: (1) a 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 pursuant to a shareholders' agreement, or a creditor of the close corporation or of any of its subsidiaries or affiliates and whose further qualifications, if any, are determined by the court; (2) a provisional director has all the rights and powers of an elected director of the close corporation, or the rights and powers of vote or consent of a shareholder or other persons who have been empowered to manage the business and affairs of the close corporation pursuant to a shareholders' agreement (with the voting power provided by order of the court), including the right to notice of, and to vote at, meetings of directors or shareholders, as the case may be; (3) a provisional director shall serve until removed by order of the court or by a vote of a majority of the directors or the holders of a majority of the shares having voting power, as the case may be, or if a close corporation provision requires the concurrence of a greater or different majority for action by the directors or the shareholders, as the case may be, then by that majority; and (4) the compensation of a provisional director shall be determined by an agreement between the provisional director and the close corporation subject to the approval of the court, which may fix the compensation in the absence of an agreement or in the event of a disagreement between the provisional director and the close corporation. Added by Acts 1981, 67th Leg., p. 3102, ch. 818, Sec. 1, eff. Aug. 31, 1981. Art. 12.54. Judicial Proceeding to Appoint Custodian for Close Corporation A. In General. A court of competent jurisdiction in a judicial proceeding brought under this article shall appoint a custodian for a close corporation on proof that: (1) at any meeting held for the election of directors, the shareholders are so divided that they have failed to elect successors to directors whose terms have expired or would have expired on qualification of their successors; (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 pursuant to a shareholders' agreement or otherwise, are so divided respecting the management of the affairs of the close corporation that the required vote or consent to take action on behalf of the close corporation cannot be obtained and any remedy with respect to the deadlock in a close corporation provision has failed; or (3) the plaintiff or intervenor has the right to dissolve the close corporation under a shareholders' agreement as permitted by Article 12.32 of this Act. B. Status of Custodian. To be eligible to serve as a custodian, a person must comply with all the qualifications required of a receiver under Article 7.07 of this Act. A person who qualifies as a custodian has all of the powers and duties and the title of a receiver appointed under Articles 7.05 through 7.07 of this Act but the authority of the custodian is to continue the business of the close corporation and not to liquidate its affairs and distribute its assets, except when the court otherwise orders or as provided by Subsection A(3) of this article. If the condition necessitating the appointment of a custodian is remedied, other than by liquidation or dissolution, the custodianship is to be terminated immediately and the management of the close corporation shall be restored to the directors or to the shareholders of the close corporation or to the persons empowered to manage the business and affairs of the close corporation pursuant to a shareholders' agreement, as the case may be. Added by Acts 1981, 67th Leg., p. 3102, ch. 818, Sec. 1, eff. Aug. 31, 1981.
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