Securities

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Securities

Chapter 1
Securities

Part 1
Tennessee Securities Act of 1980

48-1-101. Short title.

This part shall be known as the “Tennessee Securities Act of 1980.”

Acts 1980, ch. 866, § 1; T.C.A., § 48-16-101; T.C.A., § 48-2-101.

Code Commission Notes.

The section containing the statement of legislative intent on the Tennessee Securities Act of 1980 was not codified, but is still valid, and can be found at Acts 1980, ch. 866, § 25.

Former title 48, chapter 2, §§ 48-2-10148-2-126, was transferred to title 48, chapter 1, §§ 48-1-10148-1-126, by the code commission in 2012.

Former § 48-2-101 was transferred to § 48-1-101 by the code commission in 2012.

Compiler's Notes. The Securities Law of 1955, formerly codified as §§ 48-1601 — 48-1653, was repealed by Acts 1980, ch. 886, § 27. However, the section also contained a savings provision referring to former §§ 48-1601 — 48-1653 which read:

“(b)  Prior law exclusively governs all suits, actions, prosecutions, or proceedings which are pending or may be initiated on the basis of facts or circumstances occurring before the effective date of this Act, except that no civil suit or action may be maintained to enforce any liability under prior law unless brought within any period of limitation which applied when the cause of action accrued and in any event within two years after the effective date of this Act.

“(c)  All effective registrations under prior law, all administrative orders relating to such registrations, and all conditions imposed upon such registrations remain in effect so long as they would have remained in effect if this Act had not been passed. They are considered to have been filed, entered, or imposed under this Act, but are governed by prior law.

“(d)  Prior law applies in respect of any sale made within one year after the effective date of this Act pursuant to an offering exempt under prior law which offering was begun in good faith before such effective date.

“(e)  Judicial review of all administrative orders as to which review proceedings have not been instituted by the effective date of this Act are governed by Section 20, except that no review proceeding may be instituted unless the petition is filed within any period of limitation which applied to a review proceeding when the order was entered and in any event within 60 days after the effective date of this Act.”

The effective date of the Act was July 2, 1980.

Cross-References. Occupation tax on broker-dealers, agents and advisors, title 67, ch. 4, part 17.

Tennessee Control Share Acquisition Act, title 48, ch. 103, part 3.

Tennessee Greenmail Act, title 48, ch. 103, part 5.

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, §§ 2, 42.

Law Reviews.

19th Annual Institute for Law and Economic Policy Conference: The Economics of Aggregate Litigation: Setting Attorneys' Fees in Securities Class Actions: An Empirical Assessment, 66 Vand. L. Rev. 1677 (2013).

19th Annual Institute for Law and Economic Policy Conference: The Economics of Aggregate Litigation: Understanding Causation in Private Securities Lawsuits: Building on Amgen, 66 Vand. L. Rev. 1719 (2013).

19th Annual Institute for Law and Economic Policy Conference: The Economics of Aggregate Litigation: The Fraud-on-the-Market Tort, 66 Vand. L. Rev. 1755 (2013).

Constitutionalizing Corporate Law, 69 Vand. L. Rev. 639 (2016).

Human Equity? Regulating the New Income Share Agreements, 68 Vand. L. Rev. 681   (2015).

Is FINRA a State Actor? A Question that Exposes the Flaws of the State Action Doctrine and Suggests a Way to Redeem It, 67 Vand. L. Rev. 1173 (2014).

SEC Injunctions, 68 Tenn. L. Rev. 427 (2001).

Securities Issuer Liability for Third Party Misstatements: Refining the Entanglement Standard, 53 Vand. L. Rev. 947 (2000).

The Court in Action: A summary of key cases from the U.S. Supreme Court 2000-2001 (Perry A. Craft and Arshad (Paku) Khan), 37 Tenn. B.J. 18 (2001).

The Curious Case of the Secondary Market with Respect to Investor Protection, 82 Tenn. L. Rev. 83 (2014).

The Supreme Court and the Definition of “Security”: The “Context” Clause, “Investment Contract” Analysis, and Their Ramifications (Marc I. Steinberg and William E. Kaulbach), 40 Vand. L. Rev. 489 (1987).

“Uniform” Standards for Securities Class Actions, 80 Tenn. L. Rev. 167 (2012).

NOTES TO DECISIONS

1. Arising in a Securities Context.

Trustees of retirement plans governed by ERISA, 29 U.S.C. § 1001 et seq., possess standing under the Tennessee Securities Act (TSA), T.C.A. § 48-2-101 et seq. (now T.C.A. § 48-1-101 et seq.), to pursue TSA claims. As You Sow v. AIG Fin. Advisors, Inc., 584 F. Supp. 2d 1034, 2008 U.S. Dist. LEXIS 29365 (M.D. Tenn. Mar. 26, 2008).

48-1-102. Part definitions.

As used in this part, unless the context otherwise requires:

  1. “Accredited investor” means accredited investor, as that term is defined in Rule 501 of Regulation D under the Securities Act of 1933 (17 CFR 230.501), as amended;
  2. “Affiliate” means a person who directly, or indirectly through one (1) or more intermediaries, controls, or is controlled by, or is under common control with, another person;
  3. “Agent” means any individual, other than a broker-dealer, who represents a broker-dealer in effecting or attempting to effect purchases or sales of securities from, in, or into this state. A partner, officer, director, or manager of a broker-dealer, or a person occupying similar status or performing similar functions, is an agent only if such person otherwise comes within this definition or receives compensation specifically related to purchases or sales of securities from, in, or into this state. “Agent” does not include such other persons not within the intent of this subdivision (3) as the commissioner may, by rule, exempt from this definition as not in the public interest and necessary for the protection of investors;
  4. “Broker-dealer” means any person engaged in the business of effecting transactions in securities for the account of others, or any person engaged in the business of buying or selling securities issued by one (1) or more other persons for such person's own account and as part of a regular business rather than in connection with such person's investment activities. “Broker-dealer” does not include:
    1. Issuers, except to the extent provided in § 48-1-110(f);
    2. An agent;
    3. An institutional investor;
    4. A person who has no place of business in this state and who is registered as a broker-dealer with the securities and exchange commission or the Financial Industry Regulatory Authority (FINRA) or any successor regulatory entity if:
      1. The person effects transactions in this state exclusively with or through:
  1. The issuers of the securities involved in the transactions;
  2. Other broker-dealers; or
  3. Institutional investors; or

During any period of twelve (12) consecutive months, the person does not effect more than fifteen (15) transactions in securities from, in, or into this state (other than to persons specified in subdivision (4)(D)(i)); or

Such other persons not within the intent of this subdivision (4) as the commissioner may by rule exempt from this definition as not in the public interest and necessary for the protection of investors;

“Canadian retirement account” means a trust or other arrangement, including, but not limited to, a “registered retirement savings plan” or “registered retirement income fund” administered under Canadian law, that is managed by the natural person who contributes to, or is or will be entitled to receive the income and assets from such account;

“Commissioner” means the commissioner of commerce and insurance;

“Control,” including “controlling,” “controlled by,” and “under common control with,” means the possession, directly or indirectly, of the power to direct or compel the direction of the management or policies of a person, whether through the ownership of voting securities, by contract, or otherwise;

“Covered security” means a security that is, or upon completion of a transaction will be, a covered security under § 18(b) of the Securities Act of 1933 (15 U.S.C. § 77r(b)), as amended, or rules or regulations adopted pursuant to that provision;

“Designated adult” means:

An individual sixty-five (65) years of age or older; or

An individual who is eighteen (18) years of age or older and who, because of mental or physical dysfunction, is unable to manage such person's own resources, carry out activities of daily living, or protect against neglect or hazardous or abusive situations, without assistance from others;

“Financial exploitation” means:

The wrongful or unauthorized taking, withholding, appropriation, or use of money, assets, or property of a designated adult; or

Any act or omission by a person, including through the use of a power of attorney, guardianship, or conservatorship of a designated adult, to:

Obtain control, through deception, intimidation, or undue influence, over the designated adult's money, assets, or property to deprive the designated adult of the ownership, use, benefit, or possession of his or her money, assets, or property; or

Convert money, assets, or property of the designated adult to deprive such designated adult of the ownership, use, benefit, or possession of his or her money, assets, or property;

“Institutional investor” means a bank (unless the bank is acting as a broker-dealer as such term is defined in § 48-1-109(a)), trust company, insurance company, investment company registered under the Investment Company Act of 1940 (15 U.S.C. § 80a-1 et seq.), as amended, a holding company which controls any of the foregoing, a trust or fund over which any of the foregoing has or shares investment discretion, a pension or profit-sharing plan, an institutional buyer (as the commissioner may further define by rule), or any other person engaged as a substantial part of its business in investing in securities unless such other person is within the definition of a broker-dealer in the first sentence of subdivision (4) (in which case such other person is not an institutional investor), in each case having a net worth in excess of one million dollars ($1,000,000);

“Investment adviser” means any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, buying, or selling securities, or who for compensation and as a part of a regular business issues or promulgates analyses or reports concerning securities. “Investment adviser” does not include:

A bank (unless it is acting as an investment adviser for a registered investment company), savings institution, or trust company;

A lawyer, accountant, engineer, or teacher whose performance of investment advisory services is solely incidental to the practice of such lawyer's, accountant's, engineer's, or teacher's profession;

A broker-dealer whose performance of investment advisory services is solely incidental to the conduct of such person's business as a broker-dealer and who receives no special compensation for such services;

A publisher of any bona fide newspaper, news magazine, or business or financial publication of general, regular, and paid circulation;

A person who has no place of business in this state if:

The person's only clients in this state are other investment advisers, broker-dealers, or institutional investors; or

During any period of twelve (12) consecutive months, the person does not direct business communications into this state in any manner to more than five (5) clients (other than those specified in subdivision (12)(E)(i)), whether or not such person or any of the persons to whom the communications are directed are then present in this state; or

Such other persons not within the intent of this subdivision (12) as the commissioner may by rule exempt from this definition as not in the public interest and necessary for the protection of investors;

(A)  “Investment adviser representative” means any partner, officer, or director of (or person occupying a similar status or performing similar functions) an investment adviser, or other individual, except clerical or ministerial personnel, who is employed by or associated with an investment adviser and does any of the following:

Makes any recommendation or otherwise renders advice regarding securities;

Manages accounts or portfolios of clients;

Determines which recommendation or advice regarding securities should be given;

Solicits, offers, or negotiates for sale of or sells investment advisory services; or

Supervises employees who perform any such actions;

“Investment adviser representative” does not include such other persons not within the intent of this subdivision (13) as the commissioner may, by rule, exempt from this definition as not in the public interest and necessary for the protection of investors;

“Investment-related” means any activities connected to any of the following business areas:

Securities;

Commodities;

Banking;

Insurance; or

Real estate;

(A)  “Issuer” means every person who issues any security, except that:

With respect to certificates of deposit, voting-trust certificates, collateral-trust certificates, certificates of interest or shares in an unincorporated investment trust which is of the fixed, restricted management or unit type or which does not have either a board of directors or persons performing similar functions, “issuer” means the person or persons performing the acts and assuming the duties of depositor or manager pursuant to the trust or other agreement under which such securities are issued;

With respect to equipment-trust certificates or like securities, “issuer” means the person by whom the property is or is to be used; and

With respect to a fractional undivided interest in oil, gas, or other mineral rights, “issuer” means the owner of such right or of an interest in such right (whether whole or fractional) who creates fractional interests therein for the purpose of sale;

Any person who acts as a promoter for or on behalf of a corporation, trust, or unincorporated association or partnership of any kind to be formed shall be deemed to be an issuer of preincorporation subscriptions or certificates;

“Person” means a natural person, a sole proprietorship, a corporation, a partnership, an association, a limited liability company, a joint-stock company, a trust, a governmental entity or agency, or any other unincorporated organization;

“Promoter” means:

Any person who, acting alone or in conjunction with one (1) or more persons, directly or indirectly takes the initiative in founding and organizing the business or enterprise of an issuer; or

Any person who, in connection with the founding or organizing of the business or enterprise of an issuer, directly or indirectly receives in consideration of services or property, or both services and property, ten percent (10%) or more of any class of securities of the issuer or ten percent (10%) or more of the proceeds from the sale of any class of securities; provided, that a person who receives such securities or proceeds either solely as underwriting commissions or solely in consideration of property shall not be deemed a promoter within the meaning of this subdivision (17) if such person does not otherwise take part in founding and organizing the enterprise;

“Qualified individual” means any agent, investment adviser representative, or person who serves in a supervisory, compliance, or legal capacity for a broker-dealer or investment adviser;

(A)  “Sale” or “sell” includes every contract of sale of, contract to sell, or disposition of, a security or interest in a security for value;

“Offer” or “offer to sell” includes every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security for value;

Any security given or delivered with, or as a bonus on account of, any purchase of securities or any other property is considered to constitute part of the subject of the purchase and to have been offered and sold for value;

A purported gift of an assessable security is considered to involve an offer and sale;

Every sale or offer of a warrant or right to purchase or subscribe to another security of the same or another issuer, as well as every sale or offer of a security which gives the holder a present or future right or privilege to convert such security into another security of the same or another issuer, is considered to include an offer of the other security;

The terms defined in this subdivision (19) do not include any bona fide:

Gift other than as set forth in subdivision (19)(D);

Transfer by death;

Transfer by termination of a trust;

Pledge or security loan;

Stock split or reverse stock split;

Security dividend, whether the security is issued by the same or another company, if nothing of value is surrendered by security holders for the security dividend other than the right to a cash or property dividend where each security holder may elect to take the dividend in cash or property or in stock;

Act incident to a class vote by stockholders, pursuant to the charter or the applicable corporation statute, on a merger, consolidation, recapitalization, or sale of assets in exchange for securities of another corporation; or

Act incident to a judicially approved transaction in which a security is issued in exchange for one (1) or more outstanding securities, claims, or property interests, or part in such exchange and partly for cash;

(A)  “Security” means any note, stock, treasury stock, bond, debenture, evidence of indebtedness, a life settlement investment or any fractional or pooled interest in a life insurance policy or life settlement investment, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, certificate of interest or participation in an oil, gas, or mining title or lease or in payments out of production under such a title or lease; or, in general, any interest or instrument commonly known as a “security,” or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing;

For the purposes of this subdivision (20), “life settlement investment” means the contractual right to receive any portion of the death benefit or ownership of a life insurance policy or certificate, for consideration that is less than the expected death benefit of the life insurance policy or certificate. “Life settlement investment” also includes written agreements commonly referred to as viatical settlement investments. “Life settlement investment” does not include:

A viatical settlement contract, between a viator and a viatical settlement provider, as such terms are defined in § 56-50-102;

Any transfer of ownership or beneficial interest in a life insurance policy from a viatical settlement provider to another viatical settlement provider, as defined in § 56-50-102, or to any legal entity formed solely for the purpose of holding ownership or beneficial interest in a life insurance policy or policies;

Any agreement for the original issuance of an insurance policy or certificate of insurance from the insured or policy owner to any provider of a life insurance policy;

An assignment, transfer, sale, devise, or bequest of a death benefit under or ownership of either an insurance policy or certificate of insurance by the original owner or a person who has an insurable interest in the insured;

An assignment of an insurance policy or certificate of insurance to any bank, savings bank, savings and loan association, credit union, or other licensed lending institution as collateral for a loan; or

The exercise of accelerated benefits pursuant to a life insurance policy; and

“Security” does not include:

Currency;

A check, whether or not certified; draft; bill of exchange; or bank letter of credit;

A note or other evidence of indebtedness issued in a mercantile or consumer, rather than an investment, transaction;

An interest in a deposit account with a bank or a savings and loan association; or

An insurance or endowment policy or annuity contract under which an insurance company promises to pay money either in a lump sum or periodically for life or for some other specified period;

“Senior security” means any bond, debenture, note, or similar obligation or instrument constituting a security and evidencing indebtedness, and any stock of a class having priority over any other class as to distribution of assets or payment of dividends; and

“Underwriter” means any person who has purchased from an issuer or an affiliate of an issuer with a view to, or who sells for an issuer or an affiliate of an issuer in connection with, the distribution of any security, or participates or has a direct or indirect participation in any such undertaking, or participates or has a participation in the direct or indirect underwriting of any such undertaking; provided, that a person shall be presumed not to be an underwriter of a security which such person has owned beneficially for two (2) years or more; and provided further, that a broker-dealer shall be presumed not to be an underwriter with respect to any security which does not represent part of an unsold allotment to or subscription by the broker-dealer as a participant in the distribution of such security; and provided further, that in the case of any security acquired on the conversion of another security without payment of additional consideration, the length of time such convertible security has been beneficially owned by such person shall include the period during which such convertible security was beneficially owned and the period during which the security acquired on conversion was beneficially owned.

Acts 1980, ch. 866, § 2; 1983, ch. 312, § 2; T.C.A., § 48-16-102; Acts 1985, ch. 26, § 1; 1994, ch. 868, § 13; 1995, ch. 477, § 2; 1996, ch. 1072, § 10; 1997, ch. 164, §§ 1, 2; 1999, ch. 74, § 1; 2000, ch. 699, § 2; 2001, ch. 80, §§ 1, 2; 2001, ch. 278, § 1; 2002, ch. 550, § 1; 2002, ch. 700, §§ 1-3; 2010, ch. 697, § 1; 2010, ch. 829, § 1; T.C.A., § 48-2-102; Acts 2017, ch. 424, § 1.

Code Commission Notes.

Former § 48-2-102 was transferred to § 48-1-101 by the code commission in 2012.

Compiler's Notes. The Securities Law of 1955, formerly codified as §§ 48-1601 — 48-1653, was repealed by Acts 1980, ch. 886, § 27. However, the section also contained a savings provision referring to former §§ 48-1601 — 48-1653 which read:

“(b)  Prior law exclusively governs all suits, actions, prosecutions, or proceedings which are pending or may be initiated on the basis of facts or circumstances occurring before the effective date of this Act, except that no civil suit or action may be maintained to enforce any liability under prior law unless brought within any period of limitation which applied when the cause of action accrued and in any event within two years after the effective date of this Act.

“(c)  All effective registrations under prior law, all administrative orders relating to such registrations, and all conditions imposed upon such registrations remain in effect so long as they would have remained in effect if this Act had not been passed. They are considered to have been filed, entered, or imposed under this Act, but are governed by prior law.

“(d)  Prior law applies in respect of any sale made within one year after the effective date of this Act pursuant to an offering exempt under prior law which offering was begun in good faith before such effective date.

“(e)  Judicial review of all administrative orders as to which review proceedings have not been instituted by the effective date of this Act are governed by Section 20, except that no review proceeding may be instituted unless the petition is filed within any period of limitation which applied to a review proceeding when the order was entered and in any event within 60 days after the effective date of this Act.”

The effective date of the Act was July 2, 1980.

Acts 1999, ch. 455, § 33 provided that any limited liability company or limited liability partnership created under title 48 shall be considered a person for the purpose of § 2-10-102(9) and (13) [now 2-10-102(10) and (1)].

Acts 2000, ch. 699, § 1 provided that that act shall be known as “The Life Settlements Act.”

Acts 2002, ch. 700, § 8 provided that the commissioner of commerce and insurance may promulgate rules and regulations, including public necessity rules (now emergency rules) and regulations, to administer the provisions of this part. Such rules and regulations shall be promulgated in accordance with the Uniform Administrative Procedures Act, compiled in title 4, chapter 5.

Provisions regarding life settlement contracts, referred to in this section, formerly compiled in title 56, ch. 50, were repealed by Acts 2009, ch. 604, § 1, effective August 17, 2009.

Cross-References. Industrial loan and thrift companies — Definitions, § 45-5-102.

Limited liability companies, title 48, chapters 201-249.

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, §§  42, 88, 97.

Law Reviews.

Bluer Skies in Tennessee—The Recent Broadening of the Definition of Investment Contract as a Security and an Argument for a Unified Federal-State Definition of Investment Contract (Gregory J. Pease), 35 U. Mem. L. Rev. 109 (2004).

NOTES TO DECISIONS

1. Jury Instructions.

Where no evidence was offered to the effect that the defendants were issuing “notes” or “evidences of indebtedness,” much less that they were issuing either “in a mercantile or consumer transaction,” the trial court had no obligation to instruct the jury concerning issues not fairly raised by the evidence presented at trial. State v. Brewer, 932 S.W.2d 1, 1996 Tenn. Crim. App. LEXIS 96 (Tenn. Crim. App. 1996).

2. Classification of Notes as Securities.

Inclusion of stock purchase warrants along with a promissory note given in consideration of a loan rendered the transaction subject to federal and Tennessee securities laws. Bass v. Janney Montgomery Scott, Inc., 210 F.3d 577, 2000 FED App. 135P, 2000 U.S. App. LEXIS 6853 (6th Cir. Tenn. 2000).

3. —Investment Contract.

Supreme court applied the Hawaii Market Test in determining that a telephone sale-leaseback program was, in actuality, the selling of securities, which were unregistered, in violation of state securities laws. King v. Pope, 91 S.W.3d 314, 2002 Tenn. LEXIS 638 (Tenn. 2002).

4. Secondary Liability.

Because a complaint filed by plaintiff receivers for two failed entities alleged defendant attorney was a well-connected “bag man” in the entities securities fraud scheme, drafted relevant documents, communicated with investors, diverted funds, and told employees of the entities how to do their jobs, general involvement and control was indicated such that an aiding and assisted claim under T.C.A. §§ 48-2-102(3), 48-2-122(g)  (now T.C.A. §§ 48-1-102(3), 48-1-122(g)), had been sufficiently pleaded. Cumberland & Ohio Co. v. Coffman, 719 F. Supp. 2d 884, 2010 U.S. Dist. LEXIS 50316 (M.D. Tenn. May 21, 2010).

5. Security Definition.

There was no error in dismissing a claim for violations of the Tennessee Securities Act of 1980 because an investment was excluded from the registration requirements since it involved exchanging cash in return for obtaining a portion of cash or currency located somewhere in England. There was no investment contract shown based on the fact that reasonable reliance was not shown. Estate of Lambert v. Fitzgerald, 497 S.W.3d 425, 2016 Tenn. App. LEXIS 298 (Tenn. Ct. App. Apr. 28, 2016), appeal denied, — S.W.3d —, 2016 Tenn. LEXIS 546 (Tenn. Aug. 18, 2016).

Decisions Under Prior Law

1. Sales.

The general assembly intended that the former statute apply to all sales of securities in Tennessee unless otherwise exempt whether such securities were sold by private sale or public offering. Tucker v. McDell's, Inc., 50 Tenn. App. 62, 359 S.W.2d 597, 1961 Tenn. App. LEXIS 140 (Tenn. Ct. App. 1961).

48-1-103. Exemptions.

  1. The following securities are exempted from § 48-1-104 and, except as the commissioner may otherwise require by rule, §§ 48-1-113 and 48-1-124(e):
    1. Any security (including a revenue obligation) issued or guaranteed by the United States, any state, any political subdivision of a state, or any agency or corporate or other instrumentality of one (1) or more of the foregoing, or any certificate of deposit for any of the foregoing;
    2. Any security issued or guaranteed by Canada, any Canadian province, any political subdivision of any such province, any agency or corporate or other instrumentality of one (1) or more of the foregoing, any international bank of which the United States is a member, or any other foreign government with which the United States currently maintains diplomatic relations, if the security is recognized as a valid obligation by the issuer or guarantor;
    3. Any security issued by and representing an interest in or a debt of, or guaranteed by, any bank organized under the laws of the United States, or any bank, savings institution, or trust company organized and supervised under the laws of any state; or any interest or participation in any common trust fund or similar fund maintained by a bank exclusively for the collective investment or reinvestment of assets contributed thereto by such bank in its capacity as trustee, executor, administrator, guardian, or in a similar fiduciary capacity;
    4. Any security issued by and representing an interest in or a debt of, or guaranteed by, any federal savings and loan association, any federally insured savings and loan or similar association organized under the laws of any state and authorized to do business in this state, or any thrift certificates which are issued and sold by an industrial bank organized and supervised under the laws of this state which is insured pursuant to the Federal Deposit Insurance Act (12 U.S.C. § 1811 et seq.), as that act may be amended from time to time;
    5. Any security issued or guaranteed by any federal credit union or any credit union supervised under the laws of this state;
    6. Any security issued or guaranteed by any railroad, other common carrier, public utility, or holding company which is:
      1. Subject to the jurisdiction of the interstate commerce commission;
      2. A registered holding company under the Public Utility Holding Company Act of 1935 [repealed], as amended, or a subsidiary of such a company within the meaning of that act;
      3. Regulated in respect of its rates and charges by a governmental authority of the United States or any state; or
      4. Regulated in respect of the issuance or guarantee of the security by a governmental authority of the United States, any state, Canada, or any Canadian province;
    7. Any security issued by any person organized and operated not for private profit but exclusively for religious, educational, benevolent, charitable, fraternal, social, athletic, or reformatory purposes, or as a chamber of commerce or trade or professional association; provided, that at least ten (10) days prior to any sale of a security pursuant to an exemption under this subdivision (a)(7), such person has filed with the commissioner all information as the commissioner may by rule require and paid a fee of one hundred dollars ($100), and that the commissioner does not by order disallow the exemption under this subdivision (a)(7) and no sales are made until expiration of that ten (10) days; provided further, that the commissioner may restrict the availability of this exemption to any class or subclass of securities of such issuer;
    8. Any security which meets all of the following conditions:
      1. If the issuer is not organized under the laws of the United States or a state, it has appointed a duly authorized agent in this state for service of process and has set forth the name and address of such agent in its prospectus or offering circular;
      2. A class of the issuer's securities is registered under § 12 of the Securities Exchange Act of 1934 (15 U.S.C. § 78l), as amended, and has been so registered for the three (3) years preceding the offering date, and the issuer has filed all reports required to be filed by § 13 or § 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. § 78m and 15 U.S.C. § 78o(d)), respectively, as amended, during the preceding twelve (12) months;
      3. Neither the issuer nor a significant subsidiary has had a material default (which was not cured within ten (10) days) during the last five (5) years in the payment of:
        1. Principal, interest, dividend or sinking fund installment on preferred stock or indebtedness for borrowed money; or
        2. Rentals under material leases with terms of three (3) years or more;
      4. The issuer has had consolidated net income (before extraordinary items and the cumulative effect of accounting changes) of at least one million dollars ($1,000,000) in four (4) of its last five (5) fiscal years including its last fiscal year and, if the offering is of interest-bearing securities, has had for its last fiscal year, such net income, but before deduction for income taxes and depreciation, of at least one and one-half (1½) times the issuer's annual interest expense, giving effect to the proposed offering and the intended use of the proceeds. “Last fiscal year” means the most recent year for which audited financial statements are available; provided, that such statements cover a fiscal period ended not more than fifteen (15) months from the commencement of the offering;
      5. If the offering is of stock or shares, other than preferred stock or shares, such securities have voting rights and such rights include:
        1. The right to have at least as many votes per share; and
        2. The right to vote on at least as many general corporate decisions, as each of the issuer's outstanding classes of stock or shares, except as otherwise required by law;
      6. If the offering is of stock or shares, other than preferred stock or shares, outstanding stock or shares of the same class are owned beneficially or of record, on any date within six (6) months prior to the commencement of the offering, by at least one thousand two hundred (1,200) persons, and on such date there are at least seven hundred fifty thousand (750,000) such shares outstanding with an aggregate market value, based on the closing bid price for that day, of at least three million seven hundred fifty thousand dollars ($3,750,000). In connection with the determination of the number of persons who are beneficial owners of the stock or shares of an issuer, the issuer or broker-dealer may rely in good faith, for the purposes of this subdivision (a)(8), upon written information furnished by the record owners; and
      7. If the offering is of interest-bearing securities of a finance company with liquid assets of at least one hundred five percent (105%) of its liabilities (other than deferred income taxes, deferred investment tax credits, capital stock and surplus) at the end of each of its last five (5) fiscal years, the applicable net income requirement of subdivision (a)(8)(D), but before deduction for interest expense, shall be one hundred twenty-five percent (125%) of the issuer's annual interest expense. “Finance company” means a company engaged, directly or through consolidated subsidiaries, primarily in the business of wholesale, retail, installment, mortgage, commercial, industrial or consumer financing, banking, or factoring. “Liquid assets” means cash receivables payable on demand or not more than twelve (12) years following the close of the company's last fiscal year, and readily marketable securities, in each case less applicable reserves and unearned income;
      1. Any class of securities currently listed or approved for listing upon notice of issuance on the New York Stock Exchange, the American Stock Exchange, or any other exchange which the commissioner may by order designate;
      2. Any other security of the same issuer which is of senior or substantially equal rank;
      3. Any security called for by subscription rights or warrants so listed or approved; or
      4. Any warrant or right to purchase or subscribe to any of the foregoing;
    9. Any security exchanged by the issuer exclusively with its existing securities holders where no commission or other remuneration is paid or given directly or indirectly for soliciting such exchange;
    10. Securities, stocks, and bonds of corporations organized pursuant to the Cooperative Marketing Law, as compiled in title 43, chapter 16, and domiciled within the state of Tennessee;
    11. Any security issued by a bank holding company or a savings and loan holding company if:
      1. Such bank holding company or savings and loan holding company is registered with the federal reserve board; and
      2. At least ten (10) days prior to any sale of a security in this state pursuant to an exemption under this subdivision (a)(12), such bank holding company or savings and loan holding company has filed with the commissioner all information as the commissioner may by rule require and paid a fee of one hundred dollars ($100), and the commissioner does not by order disallow the exemption under this subdivision (a)(12) and no sales are made until expiration of that ten (10) days. The commissioner may restrict the availability of the exemption under this subdivision (a)(12) to any class or subclass of securities of such issuer; and
      1. Any security issued by a person that meets the following requirements:
        1. The sale of the security shall meet the requirements of the federal exemption for intrastate offerings in §  3(a)(11), Securities Act of 1933 (15 U.S.C. § 77c(a)(11)), and 17 C.F.R. 230.147;
        2. The sum of all cash and other consideration to be received for all sales of the security in reliance upon this subdivision (a)(13)(A) shall not exceed one million dollars ($1,000,000) less the aggregate amount received for all sales of securities by the issuer within the twelve (12) months before the first offer;
        3. The issuer shall not accept more than ten thousand dollars ($10,000) from an investor unless the investor is an accredited investor pursuant to 17 C.F.R. 230.501;
        4. All funds received from the sale of a security in reliance upon this subdivision (a)(13)(A) shall be deposited in a bank or depository institution authorized to do business in this state, and all funds received from buyers of a security in reliance upon this subdivision (a)(13)(A) shall be used consistent with written representations made by the issuer to investors;
        5. Before offering to sell any security, the issuer shall provide a notice to the commissioner in writing or in electronic form; the notice shall specify that the issuer will offer or has sold the security in reliance upon this subdivision (a)(13)(A) and shall include the names and addresses of the following:
          1. The issuer;
          2. All persons who will sell or offer to sell the security on behalf of the issuer; and
          3. The bank or depository institution in which proceeds from the sale of the security will be deposited;
        6. The issuer shall not be, either before or as a result of the offering, an investment company as defined in § 3, Investment Company Act of 1940 (15 U.S.C. § 80a-3) or subject to the reporting requirements of § 13, Securities Exchange Act of 1934 (15 U.S.C. § 78m) or § 15(d), Securities Exchange Act of 1934 (15 U.S.C. § 78o(d)); and
        7. The issuer shall inform all buyers prior to the sale of a security that falls within this subdivision (a)(13)(A) that the security has not been registered under this part and the security is subject to the limitation on resales contained in 17 C.F.R. 230.147(e);
        1. Subdivision (a)(13)(A) shall not be used with any other exemption under this part unless the offer or sale is to any of the following:
          1. An officer, director, partner, or trustee of the entity offering the sale of the security, or an individual occupying similar status or performing similar functions for the entity offering the sale of the security; or
          2. A person owning ten percent (10%) or more of the outstanding shares of any class or classes of securities issued by the entity offering the sale of the security; and
        2. Offers or sales to persons listed in subdivisions (a)(13)(B)(i)(a ) and (b ) shall not count toward the monetary limit of sales set out in subdivision (a)(13)(A)(ii); and
      2. Subdivision (a)(13)(A) shall not be available to the issuer:
        1. If the person selling or offering to sell the security is subject to a disqualifying event specified in § 48-1-112(a)(2)(A)-(H);
        2. If the offering does not qualify for the exemption provided in 17 C.F.R. 230.147. The burden of proof of qualification for the exemption is on the issuer claiming the exemption. Failure to qualify for the exemption will result in any offers or sales of the security to be unregistered offers to sell or sales in violation of § 48-1-104; or
        3. If the issuer, any of the issuer's predecessors, any affiliate of the issuer, any of the issuer's directors, officers, general partners, or beneficial owners of ten percent (10%) or more of any class of its equity securities, any of the issuer's promoters presently connected with the issuer in any capacity, any underwriter of the securities to be offered, or any partner, director, or officer of such underwriter:
          1. Within the past five (5) years, has filed a registration statement that is the subject of a currently effective registration stop order entered by any state securities administrator or the securities and exchange commission;
          2. Within the past five (5) years, has been convicted of any criminal offense in connection with the offer, purchase, or sale of any security, or involving fraud or deceit;
          3. Is currently subject to any state or federal administrative enforcement order or judgment, entered within the past five (5) years, finding fraud or deceit in connection with the purchase or sale of any security; or
          4. Is currently subject to any order, judgment, or decree of any court of competent jurisdiction, entered within the past five (5) years, that temporarily, preliminarily, or permanently restrains or enjoins the party from engaging in or continuing to engage in any conduct or practice involving fraud or deceit in connection with the purchase or sale of any security.
            1. Any transaction by a person acting as an executor, administrator, sheriff, marshal, receiver, trustee in bankruptcy, guardian, or conservator;
            2. Any bona fide pledge transaction;
            3. Any sale to an institutional investor or to a broker-dealer;
            4. Any transaction involving the sale of securities of an issuer by or on behalf of such issuer or an affiliate of such issuer if all of the following conditions are met:
      3. The aggregate number of persons in this state purchasing such securities from the issuer and all affiliates of the issuer pursuant to this subdivision (b)(4) during the twelve-month period ending on the date of such sale shall not exceed fifteen (15) persons, exclusive of persons who acquire such securities in transactions which are not subject to this part or which are otherwise exempt from registration under this section or which have been registered pursuant to § 48-1-105 or § 48-1-106;
      4. Such securities are not offered for sale by means of publicly disseminated advertisements or sales literature; and
      5. All purchasers in this state have purchased such securities with the intent of holding such securities for investment for their own accounts and without the intent of participating directly or indirectly in a distribution of such securities. Any person who holds such securities for a period of two (2) years or more from the date such securities have been fully paid for by such person shall be presumed to have purchased such securities for investment;

        Any transaction in the outstanding securities of an issuer by an affiliate of such issuer; provided, that:

      6. Such affiliate is not acting as an underwriter with respect to the sale of such securities;
      7. Such securities are sold by the affiliate, through a broker-dealer registered under § 48-1-109, in “broker's transactions” as defined by Rule 144 of the securities and exchange commission (17 C.F.R. § 230.144);
      8. There is no solicitation, directly or indirectly, of orders to purchase any of such securities by the issuer or the affiliate; and
      9. Neither the issuer nor the affiliate makes any payments directly or indirectly in connection with the execution of such transactions other than to the broker-dealer who executes the order to sell the securities;

        Any transaction in the outstanding securities of an issuer by or on behalf of a person who is neither the issuer of such securities nor an affiliate of such issuer, at a price reasonably related to the market price and:

        Any offering of securities by or on behalf of an issuer organized under the laws of or domiciled in this state in which the aggregate amount sold in this state does not exceed two hundred fifty thousand dollars ($250,000) during any twelve-month period, if no commission or other remuneration is paid or given directly or indirectly for soliciting any purchaser in this state, exclusive of any amount of securities sold in exempt transactions pursuant to subdivision (b)(3); provided, that this exemption shall not be available for any offering of certificates of interest or participation in an oil, gas or mining title or lease or in payments out of production under such a title or lease;

      10. If the issuer is required to file reports with the securities and exchange commission pursuant to § 13 or § 15 of the Securities Exchange Act of 1934 (15 U.S.C. §§ 78m and 78o) respectively, as amended, the issuer is not delinquent in the filing of any such reports at the date of sale;
      11. In the case of issuers which are not required to file such reports, if there is publicly available the information concerning the issuer specified in Rule 15c2-11 (17 CFR 240.15c2-11),  promulgated under the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.); or
      12. The issuer is an investment company registered under the Investment Company Act of 1940 (15 U.S.C. § 80a-1 et seq.), as amended, and is not delinquent in filing any reports required pursuant to such act;

        (A)  Any transaction involving the issuance of a security:

        Any isolated transaction in securities not involving the issuer of such securities, an underwriter of such securities, or an affiliate of the issuer of such securities;

        1. In connection with a stock bonus plan requiring payment of no consideration other than services;
        2. In connection with a stock bonus, pension, profit sharing, savings, thrift, or retirement plan for employees or self-employed individuals qualified under § 401 of the Internal Revenue Code of 1954 (26 U.S.C. § 401), as amended, or individual retirement accounts qualified under § 408 of the Internal Revenue Code of 1954 (26 U.S.C. § 408), as amended; or
        3. In connection with a transaction that meets the following requirements:
          1. The offering meets the requirements of Rule 701 of the regulations under the Securities Act of 1933 (17 CFR 230.701), as amended;
          2. The offering is exempt from § 5 of the Securities Act of 1933 (15 U.S.C. § 77e), as amended; and
          3. The issuer files with the commissioner no later than fifteen (15) days after the first sale in this state a notice of transaction, on a form adopted by the commissioner, accompanied by a consent to service of process, and a nonrefundable filing fee of five hundred dollars ($500);
      13. No commission, discount, or other remuneration is paid or given in connection with any transaction in this state under this subdivision (b)(9) unless paid or given to a broker-dealer or agent registered under this part; and
      14. The issuance of any security representing an interest in a collective investment fund is exempt only if such security is issued pursuant to a plan established and administered by a bank organized under the laws of the United States or any bank or trust company organized and supervised under the laws of any state of the United States or sponsored by any investment company registered under the Investment Company Act of 1940 (15 U.S.C. § 80a-1 et seq.), as amended, or sponsored by any insurance company licensed to do business in this state;

        (A)  Any offer or sale of a security by an issuer in a transaction that meets the following requirements:

        Any transaction pursuant to an offer to existing security holders of the issuer, including the persons who at the time of the transaction are holders of convertible securities, nontransferable warrants, or transferable warrants exercisable within not more than ninety (90) days of their issuance if no commission or other remuneration (other than a standby commission) is paid or given directly or indirectly for soliciting any security holder in this state;

        Any transaction which the commissioner by rule or order exempts as not being in the public interest or necessary for the protection of investors. Any rule under this section may require a notice filing, and may require the payment of a filing fee not in excess of that required by § 48-1-107(b). In the event of withdrawal of a notice filing, no funds shall be returned to the applicant;

        Any issuance and delivery of securities of a bank holding company, as defined in § 45-2-1402, to a bank or another bank holding company or to the security holders thereof in exchange for all or substantially all of the assets or the voting securities of the bank or other bank holding company, or in connection with a consolidation or merger of the bank holding company and a bank or other bank holding company; provided, that such exchanges, consolidations or mergers are made in accordance with the applicable statutory requirements;

        1. Sales of securities are made only to persons who are, or who the issuer reasonably believes are, accredited investors. An issuer's belief under this subdivision (b)(13) shall be deemed reasonable if the issuer:
          1. Obtains from such a person a written certification certifying that the person has reviewed the definition of “accredited investor” in § 48-1-102, and certifying that such person meets the definition of “accredited investor” in § 48-1-102;
          2. Obtains from such person such other information as the commissioner may by rule require; and
          3. Maintains, for a period of not less than three (3) years from the date of sale, the written certification and other information required by the commissioner;
        2. The issuer reasonably believes that all purchasers are purchasing for investment and not with a view to or for resale in connection with a distribution of the security. Any resale of a security sold in reliance on this exemption within twelve (12) months of sale shall be presumed to be with a view to distribution and not for investment, except a resale to which any of the following applies:
      15. The exemption under this subdivision (b)(13) is not available to an issuer that is in the development stage and that either has no specific business plan or purpose or has indicated that its business plan is to engage in a merger or acquisition with an unidentified company or companies, or other entities or persons;
        1. The exemption under this subdivision (b)(13) is not available to an issuer if the issuer, any of the issuer's predecessors, any affiliate of the issuer, any of the issuer's directors, officers, general partners, or beneficial owners of ten percent (10%) or more of any class of its equity securities, any of the issuer's promoters presently connected with the issuer in any capacity, any underwriter of the securities to be offered, or any partner, director, or officer of such underwriter:
          1. The resale is pursuant to a registration statement effective under § 48-1-105 or § 48-1-106;
          2. The resale is to an accredited investor; or
          3. The resale is to an institutional investor in an exempt transaction pursuant to subdivision (b)(3);
          4. Within the past five (5) years, has filed a registration statement that is the subject of a currently effective registration stop order entered by any state securities administrator or the securities and exchange commission;
          5. Within the past five (5) years, has been convicted of any criminal offense in connection with the offer, purchase, or sale of any security, or involving fraud or deceit;
          6. Is currently subject to any state or federal administrative enforcement order or judgment, entered within the past five (5) years, finding fraud or deceit in connection with the purchase or sale of any security; or
          7. Is currently subject to any order, judgment, or decree of any court of competent jurisdiction, entered within the past five (5) years, that temporarily, preliminarily, or permanently restrains or enjoins the party from engaging in or continuing to engage in any conduct or practice involving fraud or deceit in connection with the purchase or sale of any security;
        2. Subdivision (b)(13)(C)(i) is inapplicable if any of the following applies:
          1. The party subject to the disqualification is licensed or registered to conduct securities business in the state in which the order, judgment, or decree creating the disqualification was entered against the party described in subdivision (b)(13)(C)(i);
          2. Before the first offer is made under this exemption, the state securities administrator, the court, or regulatory authority that entered that order, judgment, or decree, waives the disqualification; or
          3. The issuer did not know and, in the exercise of reasonable care based on reasonable investigation, could not have known that a disqualification from the exemption existed under subdivision (b)(13)(C)(i);
      16. A general announcement of the proposed offering may be made by any means; provided, the general announcement shall include only the following information, unless additional information is specifically permitted by the commissioner:
        1. The name, address, and telephone number of the issuer of the securities;
        2. The name, a brief description, and price of any security to be issued;
        3. A brief description of the business of the issuer;
        4. The type, number, and aggregate amount of securities being offered;
        5. The name, address, and telephone number of the person to contact for additional information; and
        6. A statement that:
          1. Sales will be made only to accredited investors;
          2. No money or other consideration is being solicited or will be accepted by way of this general announcement; and
          3. The securities have not been registered with or approved by any state securities administrator or the securities and exchange commission and are being offered and sold pursuant to an exemption from registration;
      17. The issuer, in connection with an offer, may provide information in addition to the general announcement described in subdivision (b)(13)(D); provided, that either of the following applies:
        1. The information is delivered through an electronic database that is restricted to persons who are accredited investors; or
        2. The information is delivered after the issuer reasonably believes that the prospective purchaser is an accredited investor;
      18. No telephone solicitation shall be conducted, unless prior to placing the telephone call, the issuer reasonably believes that the prospective purchaser to be solicited is an accredited investor;
      19. Dissemination of the general announcement described in subdivision (13)(D) to persons who are not accredited investors does not disqualify the issuer from claiming an exemption under this subdivision (b)(13); and
      20. No later than fifteen (15) days after the first sale in this state, the issuer shall file with the commissioner a notice of transaction, on a form adopted by the commissioner, accompanied by a consent to service of process, a copy of the general announcement, if one is made regarding the proposed offering, and a nonrefundable filing fee of five hundred dollars ($500);
    12. Any offer or sale of a charitable gift annuity as that term is defined in § 56-52-102;
    13. An offer or sale of a security effected by a Canadian broker-dealer and its agents if, at the time of the offer or sale, the Canadian broker-dealer and its agents have qualified for exemption from registration with the commissioner of commerce and insurance pursuant to § 48-1-109;
    14. A nonissuer transaction by or through a broker-dealer registered or exempt from registration under this part in a security that:
      1. Is rated at the time of the transaction by a nationally recognized statistical rating organization in one (1) of its four (4) highest rating categories; or
      2. Has a fixed maturity or a fixed interest or dividend, if:
        1. A default has not occurred during the current fiscal year or within the three (3) previous fiscal years or during the existence of the issuer and any predecessor if less than three (3) fiscal years, in the payment of principal, interest, or dividends on the security; and
        2. The issuer is engaged in business, is not in the organizational stage or in bankruptcy or receivership, and is not and has not been within the previous twelve (12) months a blank check, blind pool, or shell company that has no specific business plan or purpose or has indicated that its primary business plan is to engage in a merger or combination of the business with, or an acquisition of, an unidentified person;
    15. A nonissuer transaction by or through a broker-dealer registered or exempt from registration under this part in a security of a foreign issuer:
      1. That is a margin security defined in regulations or rules adopted by the board of governors of the federal reserve system; or
      2. That relates to securities, including american depository receipts (ADRs) representing such securities, that are exempted from § 12(g) of the Securities Exchange Act of 1934 (15 U.S.C. § 78l (g)), pursuant to § 12(g)(3) (15 U.S.C. § 78l (g)(3)). This subdivision (b)(17)(B) shall apply if the foreign issuer of the securities is in compliance with the conditions of Rule 12g3-2(b) (17 CFR 240.12g3-2(b)), promulgated under the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.), and the primary trading market of the foreign issuer:
        1. Qualifies as a primary trading market as that term is defined in Rule 12g3-2(b), note 1 to paragraph (b)(1);
        2. Maintains listing requirements;
        3. Has delisting authority; and
        4. Has disclosure requirements; or
      3. If, at the time of the transaction, the foreign issuer maintains a listing that:
        1. Includes the following:
          1. A description of the business and operations of the foreign issuer;
          2. The names of the executive officers and directors (or their corporate equivalents in the foreign issuer's country of domicile), if any;
          3. An audited balance sheet of the foreign issuer as of a date within eighteen (18) months before the date of the transaction or, in the case of a reorganization or merger, either an audited balance sheet of each party to the reorganization or merger or a pro forma balance sheet of the combined organization, in each case as of a date within eighteen (18) months before the date of the transaction; and
          4. An audited income statement for each of the foreign issuer's immediately preceding two (2) fiscal years or for the period of existence of the issuer, whichever is shorter, or, in the case of a reorganization or merger either an audited income statement of each party to the reorganization or merger or a pro forma income statement of the combined organization, in each case as of a date within eighteen (18) months before the date of the transaction; and
        2. Is published in a securities manual designated by the commissioner through rule promulgated in accordance with § 48-1-116;
    16. A nonissuer transaction by an investment adviser registered pursuant to § 203 of the federal Investment Advisers Act of 1940 (15 U.S.C. § 80b-3), with investments under management in excess of one hundred million dollars ($100,000,000) acting in the exercise of discretionary authority in a signed record for the account of others; and
    17. Any nonissuer transaction by or through a broker-dealer, registered or exempt from registration under this chapter, effecting an unsolicited order or offer to purchase; provided, that the broker-dealer acts solely as an agent for the purchaser, has no direct or indirect interest in the sale or distribution of the security ordered, and receives no commission, profit, or other compensation from any source other than the purchaser; and provided further, that the commissioner may by rule require that the customer acknowledge upon a specified form that the sale was unsolicited, and that a signed copy of each such form be preserved by the broker-dealer for a specified period.

The following transactions are exempted from § 48-1-104 and, except as the commissioner may otherwise require by rule, §§ 48-1-113 and 48-1-124(e):

Acts 1980, ch. 866, § 3; 1982, ch. 686, § 1; 1983, ch. 274, § 21; 1983, ch. 312, § 1; T.C.A., § 48-16-103; Acts 1986, ch. 596, § 1; 1989, ch. 207, §§ 1, 2; 1993, ch. 98, §§ 1-3; 1996, ch. 768, § 35; 2001, ch. 278, §§ 2-4; 2002, ch. 517, § 1; 2002, ch. 700, §§ 4-6; 2007, ch. 417, § 1; 2010, ch. 829, § 2; 2011, ch. 79, § 1; T.C.A., § 48-2-103; Acts 2013, ch. 261, § 1; 2014, ch. 943, § 1; 2017, ch. 424, §§ 2-10.

Code Commission Notes.

Former § 48-2-103 was transferred to § 48-1-103 by the code commission in 2012.

Compiler's Notes. The Public Utility Holding Company Act of 1935 referred to in this section, formerly compiled in 15 U.S.C. § 79 et seq., was repealed effective August 8, 2005.

The Securities Law of 1955, formerly codified as §§ 48-1601 — 48-1653, was repealed by Acts 1980, ch. 886, § 27. However, the section also contained a savings provision referring to former §§ 48-1601 — 48-1653 which read:

“(b)  Prior law exclusively governs all suits, actions, prosecutions, or proceedings which are pending or may be initiated on the basis of facts or circumstances occurring before the effective date of this Act, except that no civil suit or action may be maintained to enforce any liability under prior law unless brought within any period of limitation which applied when the cause of action accrued and in any event within two years after the effective date of this Act.

“(c)  All effective registrations under prior law, all administrative orders relating to such registrations, and all conditions imposed upon such registrations remain in effect so long as they would have remained in effect if this Act had not been passed. They are considered to have been filed, entered, or imposed under this Act, but are governed by prior law.

“(d)  Prior law applies in respect of any sale made within one year after the effective date of this Act pursuant to an offering exempt under prior law which offering was begun in good faith before such effective date.

“(e)  Judicial review of all administrative orders as to which review proceedings have not been instituted by the effective date of this Act are governed by Section 20, except that no review proceeding may be instituted unless the petition is filed within any period of limitation which applied to a review proceeding when the order was entered and in any event within 60 days after the effective date of this Act.”

The effective date of the Act was July 2, 1980.

Acts 1996, ch. 768, which amended this section, is known and may be cited as the Bank Reform Act of 1996.

Acts 2002, ch. 700, § 8 provided that the commissioner of commerce and insurance may promulgate rules and regulations, including public necessity rules (now emergency rules) and regulations, to administer the provisions of this part. Such rules and regulations shall be promulgated in accordance with the Uniform Administrative Procedures Act, compiled in title 4, chapter 5.

Acts 2014, ch. 943, § 2 provided that the exemption created by § 48-1-103(a)(13) shall be known and may be cited as the “Invest Tennessee Exemption.”

Cross-References. Public billing authorities, Tax exemption — Statute under securities law, § 12-10-113.

Share insurance corporation, Exemption from taxation, § 45-4-1114.

Solid waste disposal, Exemption from taxation, § 68-211-914.

Textbooks. Pritchard on Wills and Administration of Estates (4th ed., Phillips and Robinson), § 612.

Law Reviews.

Selected Tennessee Legislation of 1983 (N. L. Resener, J. A. Whitson, K. J. Miller), 50 Tenn. L. Rev. 785 (1983).

48-1-104. Securities registration requirement — Civil penalty.

  1. It is unlawful for any person to sell any security in this state unless:
    1. It is registered under this part;
    2. The security or transaction is exempted under § 48-1-103; or
    3. The security is a covered security.
  2. The commissioner may, after notice and opportunity for a hearing under the Uniform Administrative Procedures Act, compiled in title 4, chapter 5, impose a civil penalty against any person found to be in violation of this section, or any rule or order adopted or issued under this section, in an amount not to exceed ten thousand dollars ($10,000) per violation, or in an amount not to exceed twenty thousand dollars ($20,000) per violation if an individual who is a designated adult is a victim.

Acts 1980, ch. 866, § 4; T.C.A., § 48-16-104; Acts 1997, ch. 164, § 3; 2001, ch. 61, § 2; T.C.A., § 48-2-104; Acts 2017, ch. 424, § 11.

Code Commission Notes.

Former § 48-2-104 was transferred to § 48-1-104 by the code commission in 2012.

Compiler's Notes. The Securities Law of 1955, formerly codified as §§ 48-1601 — 48-1653, was repealed by Acts 1980, ch. 886, § 27. However, the section also contained a savings provision referring to former §§ 48-1601 — 48-1653 which read:

“(b)  Prior law exclusively governs all suits, actions, prosecutions, or proceedings which are pending or may be initiated on the basis of facts or circumstances occurring before the effective date of this Act, except that no civil suit or action may be maintained to enforce any liability under prior law unless brought within any period of limitation which applied when the cause of action accrued and in any event within two years after the effective date of this Act.

“(c)  All effective registrations under prior law, all administrative orders relating to such registrations, and all conditions imposed upon such registrations remain in effect so long as they would have remained in effect if this Act had not been passed. They are considered to have been filed, entered, or imposed under this Act, but are governed by prior law.

“(d)  Prior law applies in respect of any sale made within one year after the effective date of this Act pursuant to an offering exempt under prior law which offering was begun in good faith before such effective date.

“(e)  Judicial review of all administrative orders as to which review proceedings have not been instituted by the effective date of this Act are governed by Section 20, except that no review proceeding may be instituted unless the petition is filed within any period of limitation which applied to a review proceeding when the order was entered and in any event within 60 days after the effective date of this Act.”

The effective date of the Act was July 2, 1980.

Acts 2001, ch. 61, § 1 provided that the act shall be cited as “The Securities Omnibus Act of 2001.”

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 42.

NOTES TO DECISIONS

1. Cease and Desist Order.

Where the commissioner issued a cease and desist order requiring plaintiff to refrain from engaging in business as an unregistered broker-dealer or selling unregistered securities, which purported to restrain only unlawful conduct and was accompanied by notice of opportunity for a full hearing, and there was no allegation or evidence that the commissioner had or was about to seek judicial enforcement of the cease and desist order, the issuance of the cease and desist order by an administrative official without prior notice and hearing was not so extreme and confiscatory as to invoke extraordinary judicial powers to vacate it. Wolcotts Financial Services, Inc. v. McReynolds, 807 S.W.2d 708, 1990 Tenn. App. LEXIS 908 (Tenn. Ct. App. 1990).

2. Exemptions.

Because the requirements of T.C.A. §§ 48-2-109(a) and 48-2-104(a) (now T.C.A. §§ 48-1-109(a) and 48-1-104(a)) are distinct, an exemption under one does not guarantee, or even suggest, an exemption under the other. An individual selling a security that is exempt from the registration requirements of § 48-2-104(a) (now T.C.A. § 48-1-104(a)) need not register as a broker-dealer or broker-dealer agent pursuant to T.C.A. § 48-2-109(a) (now T.C.A. § 48-1-109(a)). State v. Casper, 297 S.W.3d 676, 2009 Tenn. LEXIS 719 (Tenn. Nov. 6, 2009).

There was no error in dismissing a claim for violations of the Tennessee Securities Act of 1980 because an investment was excluded from the registration requirements since it involved exchanging cash in return for obtaining a portion of cash or currency located somewhere in England. There was no investment contract shown based on the fact that reasonable reliance was not shown. Estate of Lambert v. Fitzgerald, 497 S.W.3d 425, 2016 Tenn. App. LEXIS 298 (Tenn. Ct. App. Apr. 28, 2016), appeal denied, — S.W.3d —, 2016 Tenn. LEXIS 546 (Tenn. Aug. 18, 2016).

48-1-105. Registration by coordination.

  1. Any security for which a registration statement under the Securities Act of 1933 (15 U.S.C. § 77a et seq.), as amended, or a notification under Tier 1 of Regulation A of the Securities Act of 1933 (17 CFR 230.251 et seq.), as amended, has been filed in connection with the same offering may be registered by coordination as provided in this section.
  2. A registration statement under this section shall contain the following information and be accompanied by the following documents in addition to the consent to service of process required by § 48-1-124(e):
    1. If not included in the registration statement, one (1) copy of the latest form of prospectus or offering circular filed under the Securities Act of 1933 as amended, or Regulation A thereunder as amended, in a format approved by the commissioner;
    2. If the commissioner by rule requires, a copy of the charter and bylaws (or their substantial equivalents) of the issuer, as then in effect, a copy of any agreements with or among underwriters, a copy of any indenture or other instrument governing the issuance of the security to be registered, and a specimen or copy of the security;
    3. If the commissioner by rule requires, copies of any other documents filed under the Securities Act of 1933, as amended, or Regulation A, as amended, thereof;
    4. An undertaking to forward promptly to the commissioner all amendments to the prospectus or offering circular; and
    5. If the commissioner by rule or order requires, such other information as is necessary to determine that the registration statement does not include any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.
    1. A registration statement under this section which has been filed with the securities and exchange commission (SEC) automatically becomes effective with the commissioner when it is declared effective by the SEC if all the following conditions are satisfied:
      1. No stop order is in effect and no proceeding is pending under § 48-1-108;
      2. The registration statement has been on file with the commissioner for at least twenty (20) days; and
      3. A statement of the maximum and minimum proposed offering prices and the maximum underwriting discounts and commissions has been on file for two (2) full business days or such shorter period as the commissioner permits by rule or order and the offering is made within those limitations.
    2. The registrant shall promptly notify the commissioner, by telephone or other electronic means, of the date and time when the registration statement or notification filed with the SEC is declared effective by the SEC and the contents of the price amendment, if any, and shall promptly file a post-effective amendment containing the information and documents in the price amendment. “Price amendment” means the final amendment filed with the SEC, which includes a statement of the offering price, underwriting and selling discounts or commissions, amount of proceeds, conversion rates, call prices, and other matters dependent upon the offering price.
    3. The commissioner may by rule or order waive either or both of the conditions specified in subdivisions (c)(1)(B) and (C). If the registration statement or notification filed with the SEC is declared effective by the SEC before all the conditions in this subsection (c) are satisfied and they are not waived, the registration statement automatically becomes effective with the commissioner as soon as all the conditions are satisfied.
    4. If the registrant advises the commissioner of the date when the registration statement or notification filed with the SEC is expected to be declared effective, the commissioner shall promptly advise the registrant, by telephone or other electronic means, at the registrant's expense, whether or not all the conditions are satisfied and whether or not the commissioner then contemplates the institution of a proceeding under § 48-1-108. This notice by the commissioner does not preclude the institution of such a proceeding at any time.

Acts 1980, ch. 866, § 5; T.C.A., § 48-16-105; Acts 1986, ch. 596, § 2; 2001, ch. 61, § 3; T.C.A., § 48-2-105; Acts 2017, ch. 424, §§ 12-18.

Code Commission Notes.

Former § 48-2-105 was transferred to § 48-1-105 by the code commission in 2012.

Compiler's Notes. The Securities Law of 1955, formerly codified as §§ 48-1601 — 48-1653, was repealed by Acts 1980, ch. 886, § 27. However, the section also contained a savings provision referring to former §§ 48-1601 — 48-1653 which read:

“(b)  Prior law exclusively governs all suits, actions, prosecutions, or proceedings which are pending or may be initiated on the basis of facts or circumstances occurring before the effective date of this Act, except that no civil suit or action may be maintained to enforce any liability under prior law unless brought within any period of limitation which applied when the cause of action accrued and in any event within two years after the effective date of this Act.

“(c)  All effective registrations under prior law, all administrative orders relating to such registrations, and all conditions imposed upon such registrations remain in effect so long as they would have remained in effect if this Act had not been passed. They are considered to have been filed, entered, or imposed under this Act, but are governed by prior law.

“(d)  Prior law applies in respect of any sale made within one year after the effective date of this Act pursuant to an offering exempt under prior law which offering was begun in good faith before such effective date.

“(e)  Judicial review of all administrative orders as to which review proceedings have not been instituted by the effective date of this Act are governed by Section 20, except that no review proceeding may be instituted unless the petition is filed within any period of limitation which applied to a review proceeding when the order was entered and in any event within 60 days after the effective date of this Act.”

The effective date of the Act was July 2, 1980.

Acts 2001, ch. 61, § 1 provided that the act shall be cited as “The Securities Omnibus Act of 2001.”

48-1-106. Registration by qualification.

  1. Any security may be registered by qualifications as provided in this section.
  2. A registration statement under this section shall contain the following information and be accompanied by the following documents, in addition to the consent to service of process required by § 48-1-124(e):
    1. If not included in the registration statement, one (1) copy of an offering circular or prospectus in a format approved by the commissioner, containing such financial statements and such information, including information concerning the securities offered, the offering, the issuer, the issuer's promoters, directors, officers, security holders and personnel, material contracts, litigation, transactions, and remuneration, as the commissioner shall specify by rule;
    2. A specimen or copy of the security being registered, a copy of the issuer's charter and bylaws (or their substantial equivalents), as then in effect, and a copy of any indenture or other instrument defining the rights of the holders of the security to be registered;
    3. A signed copy of an opinion of counsel as to the legality of the security being registered, and to the effect that the security, when sold, shall be legally issued, fully paid, nonassessable and, if a debt security, a binding obligation of the issuer;
    4. The written consent of any accountant, attorney, engineer, appraiser, or other person whose profession gives authority to a statement made by the accountant, attorney, engineer, appraiser, or other person, if any such person is named as having prepared or certified a report or valuation (other than a public and official document or statement) which is used in connection with the registration statement;
    5. A copy of any notice, circular, advertisement, sales literature, or communication, which is to be used in connection with the offering, containing such information as the commissioner may require by rule and subject to such terms and conditions as may be prescribed therein; and
    6. If the commissioner by rule or order requires such additional information or documents as are necessary to determine that the registration statement does not include any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.
  3. A registration statement under this section shall become effective twenty (20) days following filing unless the commissioner by order specifies an earlier effective date, or the commissioner may by order defer the effective date for any reason shown to be in the public interest and necessary for the protection of investors.
  4. A prospectus which is part of a registration statement effective under this section shall be delivered to any purchaser at or prior to the execution by the purchaser of a written agreement to purchase, the delivery of a confirmation of sale, or the payment for securities offered by means of such prospectus, whichever occurs first.

Acts 1980, ch. 866, § 6; T.C.A., § 48-16-106; Acts 2001, ch. 61, § 4; T.C.A., § 48-2-106; Acts 2017, ch. 424, § 19.

Code Commission Notes.

Former § 48-2-106 was transferred to § 48-1-106 by the code commission in 2012.

Compiler's Notes. The Securities Law of 1955, formerly codified as §§ 48-1601 — 48-1653, was repealed by Acts 1980, ch. 886, § 27. However, the section also contained a savings provision referring to former §§ 48-1601 — 48-1653 which read:

“(b)  Prior law exclusively governs all suits, actions, prosecutions, or proceedings which are pending or may be initiated on the basis of facts or circumstances occurring before the effective date of this Act, except that no civil suit or action may be maintained to enforce any liability under prior law unless brought within any period of limitation which applied when the cause of action accrued and in any event within two years after the effective date of this Act.

“(c)  All effective registrations under prior law, all administrative orders relating to such registrations, and all conditions imposed upon such registrations remain in effect so long as they would have remained in effect if this Act had not been passed. They are considered to have been filed, entered, or imposed under this Act, but are governed by prior law.

“(d)  Prior law applies in respect of any sale made within one year after the effective date of this Act pursuant to an offering exempt under prior law which offering was begun in good faith before such effective date.

“(e)  Judicial review of all administrative orders as to which review proceedings have not been instituted by the effective date of this Act are governed by Section 20, except that no review proceeding may be instituted unless the petition is filed within any period of limitation which applied to a review proceeding when the order was entered and in any event within 60 days after the effective date of this Act.”

The effective date of the Act was July 2, 1980.

Acts 2001, ch. 61, § 1 provided that the act shall be cited as “The Securities Omnibus Act of 2001.”

48-1-107. Provisions applicable to registration generally.

  1. A registration statement with respect to a security may be filed by the issuer or a broker-dealer registered under this part.
  2. Every person filing a registration statement under §§ 48-1-105 and 48-1-106 shall pay a filing fee of one tenth of one percent (0.1%) of the maximum aggregate offering price at which the registered securities are to be offered in this state, but the fee shall in no case be more than one thousand dollars ($1,000) nor less than an amount which the commissioner shall by rule establish. When a registration statement is withdrawn before the effective date or before a preeffective stop order is entered under § 48-1-108, the commissioner shall retain the minimum filing fee established pursuant to this subsection (b) and return the remainder of the fee, if any, to the applicant.
  3. Every registration statement shall specify:
    1. The amount of securities to be offered in this state;
    2. The states in which a registration statement or similar document in connection with the offering has been or is to be filed; and
    3. Any adverse order, judgment, or decree entered in connection with the offering by the regulatory authorities in any state or by any court or by the securities and exchange commission.
  4. The commissioner may by order permit the omission of any item of information or document from any registration statement if the commissioner finds that the omission of such information or document is in the public interest and inclusion of such information or document is not necessary for the protection of investors.
  5. The commissioner may by rule declare standards of fairness and reasonableness concerning securities offerings generally and may by rule or order require as a condition of registration that:
    1. Any security issued to a promoter within the past three (3) years or to be issued to a promoter for a consideration substantially different from the public offering price, or to any person for a consideration other than cash, be deposited in escrow for a reasonable period; and
    2. The proceeds from the sale of the security registered in this state be held in escrow until the issuer receives a specified amount from the sale of the security either in this state or elsewhere;

      provided, that any such order be clearly shown to be in the public interest and necessary for the protection of investors. The commissioner may by rule determine the conditions of any escrow required hereunder, but the commissioner may not reject a depository solely because of its location in another state.

  6. Every registration statement is effective for one (1) year from its effective date, unless the commissioner is sooner notified of the completion of the offering, or unless such registration is sooner terminated by order of the commissioner. Notwithstanding the foregoing, when a prospectus is used more than nine (9) months after the effective date of the registration statement, the information contained therein shall be as of a date not more than sixteen (16) months prior to such use.
  7. Renewal registration for the succeeding one-year period may be issued upon written application and upon payment of fees as provided by this section for original registration, even though the maximum fee was paid in the preceding period, without the filing of further statements or furnishing of any further information except as the commissioner by rule requires. All applications for renewal received after the expiration of the previous registration shall be treated as original applications.
  8. So long as a registration statement is effective, the person who filed the registration statement shall file such reports as the commissioner shall by rule require, keep reasonably current the information contained in the registration statement, and disclose the progress of the offering. For the purpose of avoiding unnecessary duplication, the commissioner, insofar as the commissioner deems it practicable in administering this subsection (h), may cooperate with the securities administrators of other jurisdictions, the securities and exchange commission, any national securities exchange or national securities association registered under the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.), as amended, and any association of securities administrators.
  9. Any prospectus shall contain such other information as the commissioner may by rule require as being in the public interest and necessary for the protection of investors.
  10. In the exercise of the commissioner's power under this section, § 48-1-105 or § 48-1-106, the commissioner shall have authority by rule to classify prospectuses according to the nature and circumstances of their use or the nature of the security, issue, issuer, or otherwise, and, subject to such terms and conditions as the commissioner shall specify therein, to prescribe as to each class the form and contents which the commissioner may find to be in the public interest and necessary for the protection of investors.
  11. A registration statement may be withdrawn prior to its effectiveness or the issuance of a preeffective stop order under § 48-1-108. An effective registration statement may be withdrawn otherwise only in the discretion of the commissioner.
  12. A registration statement relating to a security may be amended after its effective date so as to increase the securities specified as proposed to be offered. As to securities not yet sold, such an amendment becomes effective when the commissioner so orders. In the case of securities which are sold in an amount in excess of the amount or number of securities specified in an effective registration statement, as proposed to be offered, the person or persons who filed the registration statement may, in accordance with rules the commissioner shall promulgate as in the public interest and necessary for the protection of investors, elect to have the registration of those securities deemed effective as of the time of their sale, upon payment to the commissioner, within six (6) months after the sale, of a registration fee equal to the difference between the registration fee previously paid and the amount of the fee which would have otherwise been applicable to those additional securities had they been included in the registration statement, if any, plus a late registration fee of twenty-five dollars ($25.00). Upon such an election and payment, the registration statement shall be considered to have been in effect with respect to those shares. Every person filing an amendment under this subsection (m) shall pay a filing fee, calculated in the manner specified in subsection (b), with respect to the additional securities.
  13. Any amendment to a registration statement which changes the name of the offering of securities shall pay a processing fee of fifty dollars ($50.00) payable upon the amendment's filing with the commissioner.

Acts 1980, ch. 866, § 7; 1981, ch. 459, § 1; T.C.A., § 48-16-107; Acts 1988, ch. 663, § 1; 1993, ch. 98, §§ 4-8; 1996, ch. 1072, §§ 1, 2; 2001, ch. 61, §§ 5-7; T.C.A., § 48-2-107; Acts 2017, ch. 424, §§ 20-22.

Code Commission Notes.

Former § 48-2-107 was transferred to § 48-1-107 by the code commission in 2012.

Compiler's Notes. The Securities Law of 1955, formerly codified as §§ 48-1601 — 48-1653, was repealed by Acts 1980, ch. 886, § 27. However, the section also contained a savings provision referring to former §§ 48-1601 — 48-1653 which read:

“(b)  Prior law exclusively governs all suits, actions, prosecutions, or proceedings which are pending or may be initiated on the basis of facts or circumstances occurring before the effective date of this Act, except that no civil suit or action may be maintained to enforce any liability under prior law unless brought within any period of limitation which applied when the cause of action accrued and in any event within two years after the effective date of this Act.

“(c)  All effective registrations under prior law, all administrative orders relating to such registrations, and all conditions imposed upon such registrations remain in effect so long as they would have remained in effect if this Act had not been passed. They are considered to have been filed, entered, or imposed under this Act, but are governed by prior law.

“(d)  Prior law applies in respect of any sale made within one year after the effective date of this Act pursuant to an offering exempt under prior law which offering was begun in good faith before such effective date.

“(e)  Judicial review of all administrative orders as to which review proceedings have not been instituted by the effective date of this Act are governed by Section 20, except that no review proceeding may be instituted unless the petition is filed within any period of limitation which applied to a review proceeding when the order was entered and in any event within 60 days after the effective date of this Act.”

The effective date of the Act was July 2, 1980.

Acts 2001, ch. 61, § 1 provided that the act shall be cited as “The Securities Omnibus Act of 2001.”

Law Reviews.

Federal State Relations Under the Federal Securities Code (Jeffery B. Bartell), 32 Vand. L. Rev. 457.

48-1-108. Stop order denying, suspending, or revoking registration.

  1. The commissioner may issue a stop order denying effectiveness to, or suspending or revoking the effectiveness of, any registration statement if the commissioner finds that:
    1. The order is in the public interest; and
      1. The registration statement, or any amendment under § 48-1-107 (as of its effective date or as of the date of an order denying effectiveness), or any report under § 48-1-107(h) includes any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading;
      2. Any provision of this part or any rule, order or condition lawfully imposed under this part has been willfully violated in connection with the offering by:
        1. The person filing the registration statement;
        2. The issuer, any partner, officer, or director of the issuer, any person occupying a similar status or performing similar functions, or any person directly or indirectly controlling, controlled by, or under common control with the issuer, but only if the person filing the registration statement is directly or indirectly controlled by or acting for the issuer; or
        3. Any underwriter;
      3. The security registered or sought to be registered is the subject of an administrative stop order or similar order or a permanent or temporary injunction of any court of competent jurisdiction entered under any other federal or state act applicable to the offering; provided, that the commissioner may not:
        1. Institute a proceeding against an effective registration statement under this subdivision (a)(2)(C) more than one (1) year from the date of the order or injunction relied on; or
        2. Enter an order under this subdivision (a)(2)(C) on the basis of an order or injunction entered under any other state act, unless that order or injunction was based on facts which would currently constitute a ground for a stop order under this section;
      4. The issuer's enterprise or method of business includes or would include activities which are illegal where performed;
      5. The offering has worked or tended to work a fraud upon purchasers or would so operate;
      6. When a security is sought to be registered by coordination, there has been a failure to comply with the undertaking required by § 48-1-105(b)(4); or
      7. The applicant or registrant has failed to pay the proper filing fee; provided, that the commissioner may enter only a denial order under this subdivision (a)(2)(G) and the commissioner shall vacate any such order when the deficiency has been corrected.
  2. No order may be entered under any part of this section without full compliance with § 48-1-116. Upon issuance of an order under this section, the commissioner shall give notice of the issuance of such order and of the reasons therefor and opportunity for hearing by personal service or by certified mail, return receipt requested, to the addressee's last known business mailing address. The commissioner shall vacate or modify the order at any time for good cause or if such registration statement or prospectus has been filed or amended in accordance with such order.
  3. The commissioner may not institute a stop order proceeding against an effective registration statement on the basis of a fact or transaction known to the commissioner when the registration statement became effective, unless the proceeding is instituted within the thirty (30) days immediately following the date the registration statement became effective.
  4. In any case in which the commissioner is authorized to issue a stop order denying, suspending or revoking the effective registration of the securities of an issuer, the commissioner may impose a fine of five thousand dollars ($5,000) upon the issuer of such securities for all violations arising from any single transaction.

Acts 1980, ch. 866, § 8; T.C.A., § 48-16-108; Acts 1996, ch. 1072, §§ 6, 8; T.C.A., § 48-2-108; Acts 2017, ch. 424, § 23.

Code Commission Notes.

Former § 48-2-108 was transferred to § 48-1-108 by the code commission in 2012.

Compiler's Notes. The Securities Law of 1955, formerly codified as §§ 48-1601 — 48-1653, was repealed by Acts 1980, ch. 886, § 27. However, the section also contained a savings provision referring to former §§ 48-1601 — 48-1653 which read:

“(b)  Prior law exclusively governs all suits, actions, prosecutions, or proceedings which are pending or may be initiated on the basis of facts or circumstances occurring before the effective date of this Act, except that no civil suit or action may be maintained to enforce any liability under prior law unless brought within any period of limitation which applied when the cause of action accrued and in any event within two years after the effective date of this Act.

“(c)  All effective registrations under prior law, all administrative orders relating to such registrations, and all conditions imposed upon such registrations remain in effect so long as they would have remained in effect if this Act had not been passed. They are considered to have been filed, entered, or imposed under this Act, but are governed by prior law.

“(d)  Prior law applies in respect of any sale made within one year after the effective date of this Act pursuant to an offering exempt under prior law which offering was begun in good faith before such effective date.

“(e)  Judicial review of all administrative orders as to which review proceedings have not been instituted by the effective date of this Act are governed by Section 20, except that no review proceeding may be instituted unless the petition is filed within any period of limitation which applied to a review proceeding when the order was entered and in any event within 60 days after the effective date of this Act.”

The effective date of the Act was July 2, 1980.

Acts 2001, ch. 61, § 1 provided that the act shall be cited as “The Securities Omnibus Act of 2001.”

Law Reviews.

SEC Injunctions, 68 Tenn. L. Rev. 427 (2001).

48-1-109. Registration as broker-dealers, agents, investment advisers, and investment adviser representatives.

  1. It is unlawful for any person to transact business from, in, or into this state as a broker-dealer or agent unless such person is registered as a broker-dealer or agent under this part, except that:
    1. A bank shall be exempt from registration as a broker-dealer to the extent its activities are excepted under either the definition of “broker” in § 3(a)(4)(B) of the Securities Exchange Act of 1934 (15 U.S.C. § 78c(a)(4)(B)), or the definition of “dealer” in § 3(a)(5)(C) of the Securities Exchange Act of 1934 (15 U.S.C. § 78c(a)(5)(C));
    2. A person who limits such person's activity as a broker-dealer to acting solely as a broker-dealer with regard to charitable gift annuities, as that term is defined by § 56-52-102, shall be exempt from registration as a broker-dealer;
    3. A person who limits such person's activity as an agent to acting solely as an agent on behalf of a person who is eligible for the exemption from broker-dealer registration in subdivision (a)(2) shall be exempt from registration as an agent.
  2. It is unlawful for any broker-dealer to employ an agent to transact business as an agent unless the agent is registered under this part. The registration of an agent is not effective during any period when the agent is not associated with a particular broker-dealer registered under this part. When an agent begins or terminates a connection with a broker-dealer, or begins or terminates those activities which make such person an agent, both the agent and the broker-dealer shall promptly notify the commissioner.
  3. It is unlawful for any person to transact business from, in, or into this state as an investment adviser or investment adviser representative unless:
    1. The person is registered as an investment adviser or investment adviser representative under this part;
    2. The person is required to register as an investment adviser pursuant to § 203 of the Investment Advisers Act of 1940 (15 U.S.C. § 80b-3); provided, however, that an initial notice filing, consisting of any documents filed with the securities and exchange commission, a consent to service of process, and a nonrefundable fee of one hundred dollars ($100) shall be filed with the commissioner or the commissioner's designee, with payment of any reasonable costs charged by the designee for processing such filings, ten (10) days prior to the person acting as an investment adviser; and a renewal notice filing containing such information as the commissioner by rule requires and a nonrefundable fee of one hundred dollars ($100) shall be filed with the commissioner or the commissioner's designee, with payment of any reasonable costs charged by the designee for processing such filing for each successive year in which such person acts as such investment adviser; every notice filing of an investment adviser expires annually, unless timely renewed, on December 31 of each year; or
    3. The person's only clients in this state are insurance companies.
    1. Every registration of a broker-dealer or investment adviser expires annually, unless timely renewed, on December 31 of each year.
    2. Every registration of an agent or investment adviser representative expires annually, unless timely renewed, on December 31 of each year.
    3. Every notice filing of an investment adviser expires annually, unless timely renewed, on December 31 of each year.
    4. A registration or notice filing is timely renewed if the renewal application, all required exhibits, and fees are on file with the commissioner by December 31 of each year.
  4. The commissioner may, after notice and an opportunity for a hearing under the Uniform Administrative Procedures Act, compiled in title 4, chapter 5, impose a civil penalty against any person found to be in violation of this section, or any rule or order adopted or issued under this section, in an amount not to exceed ten thousand dollars ($10,000) per violation, or in an amount not to exceed twenty thousand dollars ($20,000) per violation if an individual who is a designated adult is a victim.
  5. It is unlawful for any investment adviser to employ an investment adviser representative unless the investment adviser representative is registered under this part. The registration of an investment adviser representative is not effective during any period when the investment adviser representative is not associated with a particular investment adviser. When an investment adviser representative begins or terminates a connection with an investment adviser, or begins or terminates those activities which make that person an investment adviser representative, both the investment adviser representative and the investment adviser shall promptly notify the commissioner.
  6. Notwithstanding subsection (a), a Canadian broker-dealer that is resident in Canada and has no office or other physical presence in the United States and is not an office of, branch of, or a natural person associated with, a broker-dealer otherwise registered in the United States may transact business in this state without registering with the commissioner of commerce and insurance as a broker-dealer under the following conditions:
    1. The business transacted in this state by the Canadian broker-dealer must be limited to the effecting of or attempt to effect transactions in securities:
      1. With or for a natural person who regularly resides in Canada and who is temporarily present in this state and with whom the Canadian broker-dealer had a bona fide customer relationship before the natural person entered the United States; or
      2. With or for a natural person who is a resident of this state, or is temporarily present in this state, and who contributes to, or is or will be entitled to receive the income and assets from, a Canadian retirement account;
    2. The Canadian broker-dealer files the following with the commissioner of commerce and insurance:
      1. An annual notice in the form prescribed by the commissioner of commerce and insurance;
      2. A consent to service of process; and
      3. An annual fee of two hundred dollars ($200);
    3. The Canadian broker-dealer is a member of a self-regulatory organization or stock exchange in Canada;
    4. The Canadian broker-dealer maintains its provincial or territorial registration and its membership in a self-regulatory organization or stock exchange in good standing;
    5. The Canadian broker-dealer discloses to its customers in this state that the Canadian broker-dealer is not subject to the full regulatory requirements of this part; and
    6. The Canadian broker-dealer is not in violation of § 48-1-121 and all rules promulgated thereunder.
  7. Notwithstanding subsection (a), a Canadian agent representing a Canadian broker-dealer transacting business in this state pursuant to this section need not register with the commissioner of commerce and insurance as an agent; provided, that such agent is registered in good standing in the appropriate Canadian jurisdiction.

Acts 1980, ch. 866, § 9; T.C.A., § 48-16-109; Acts 1985, ch. 26, § 2; 1997, ch. 164, § 4; 2001, ch. 61, §§ 8-10; 2001, ch. 80, § 3; 2002, ch. 517, §§ 2, 3; 2002, ch. 550, §§ 2-5; 2002, ch. 700, § 7; T.C.A., § 48-2-109; Acts 2017, ch. 424, §§ 24-29.

Code Commission Notes.

Former § 48-2-109 was transferred to § 48-1-109 by the code commission in 2012.

Compiler's Notes. The Securities Law of 1955, formerly codified as §§ 48-1601 — 48-1653, was repealed by Acts 1980, ch. 886, § 27. However, the section also contained a savings provision referring to former §§ 48-1601 — 48-1653 which read:

“(b)  Prior law exclusively governs all suits, actions, prosecutions, or proceedings which are pending or may be initiated on the basis of facts or circumstances occurring before the effective date of this Act, except that no civil suit or action may be maintained to enforce any liability under prior law unless brought within any period of limitation which applied when the cause of action accrued and in any event within two years after the effective date of this Act.

“(c)  All effective registrations under prior law, all administrative orders relating to such registrations, and all conditions imposed upon such registrations remain in effect so long as they would have remained in effect if this Act had not been passed. They are considered to have been filed, entered, or imposed under this Act, but are governed by prior law.

“(d)  Prior law applies in respect of any sale made within one year after the effective date of this Act pursuant to an offering exempt under prior law which offering was begun in good faith before such effective date.

“(e)  Judicial review of all administrative orders as to which review proceedings have not been instituted by the effective date of this Act are governed by Section 20, except that no review proceeding may be instituted unless the petition is filed within any period of limitation which applied to a review proceeding when the order was entered and in any event within 60 days after the effective date of this Act.”

The effective date of the Act was July 2, 1980.

Acts 2001, ch. 61, § 1 provided that the act shall be cited as “The Securities Omnibus Act of 2001.”

Acts 2002, ch. 700, § 8 provided that the commissioner of commerce and insurance may promulgate rules and regulations, including public necessity rules (now emergency rules) and regulations, to administer the provisions of this part. Such rules and regulations shall be promulgated in accordance with the Uniform Administrative Procedures Act, compiled in title 4, chapter 5.

Cross-References. Occupation tax on broker-dealers, agents and advisors, title 67, ch. 4, part 17.

NOTES TO DECISIONS

1. Statute of Limitations.

Plaintiffs' claims against the defendants under the Tennessee Blue Sky Law, for investments made more than two years before the action was filed, were barred under the two year provision of T.C.A. § 48-2-122(h)  (now T.C.A. 48-1-122(h)). Joyner v. Triple Check Financial Service, 782 F. Supp. 364, 1991 U.S. Dist. LEXIS 19144 (W.D. Tenn. 1991).

2. Registration.

Where trustees of retirement plans alleged that securities brokers were liable for their registered agent's theft of the plans'  funds which were entrusted to the agent for investment, the agent could only deal in securities based on registration with the brokers under T.C.A. § 48-2-109(a), (b) (now T.C.A. 48-1-109(a), (b)), and thus the brokers could be liable for the agent's theft even though the brokers only controlled the agent indirectly. As You Sow v. AIG Fin. Advisors, Inc., 584 F. Supp. 2d 1034, 2008 U.S. Dist. LEXIS 29365 (M.D. Tenn. Mar. 26, 2008).

3. Willfulness.

Defendant's convictions for willfully selling securities without registering with the state as a broker-dealer or agent in violation of T.C.A. § 48-2-109 (now T.C.A. 48-1-109) were reinstated because the term willfully in T.C.A. § 48-2-123(a) (now T.C.A. 48-1-123(a)) required only that defendant acted deliberately and was fully aware of his conduct and defendant was aware he was selling securities and knew that he was not registered as a broker-dealer or agent. State v. Casper, 297 S.W.3d 676, 2009 Tenn. LEXIS 719 (Tenn. Nov. 6, 2009).

4. Exemptions.

Because the requirements of T.C.A. §§ 48-2-109(a) and 48-2-104(a) (now T.C.A. 48-1-109(a) and 48-1-104(a)) are distinct, an exemption under one does not guarantee, or even suggest, an exemption under the other. An individual selling a security that is exempt from the registration requirements of § 48-2-104(a) (now T.C.A. 48-1-104(a)) must be properly registered as a broker-dealer or broker-dealer agent pursuant to § 48-2-109(a) (now T.C.A. 48-1-109(a)).  State v. Casper, 297 S.W.3d 676, 2009 Tenn. LEXIS 719 (Tenn. Nov. 6, 2009).

48-1-110. Registration procedure.

    1. A broker-dealer, agent, investment adviser, or investment adviser representative may obtain an initial or renewal registration by filing with the commissioner or the commissioner's designee an application, together with a consent to service of process pursuant to § 48-1-124(e), and by paying any reasonable costs charged by the designee for processing such filings.
    2. The application shall be on such form and contain such information as the commissioner by rule requires concerning such matters as:
      1. The applicant's form and place of organization;
      2. The applicant's proposed method of doing business;
      3. The qualifications and business history of the applicant and, if appropriate, the qualifications and business history of any affiliate, partner, officer, director, or any person occupying a similar status or performing similar functions for the applicant;
      4. Any injunction or administrative order or conviction of a misdemeanor involving a security or any aspect of the securities business and any conviction of a felony; and
      5. The applicant's financial condition and history.
    3. The commissioner may by rule require an applicant for initial registration to publish an announcement of the application in one (1) or more specified newspapers published in this state.
    4. If no denial order is in effect and no proceeding is pending under § 48-1-112, such registration becomes effective at twelve o'clock (12:00) noon, central time, of the thirtieth day after a completed application is filed. The commissioner may by rule or order specify an earlier effective date, and may by order defer the effective date until twelve o'clock (12:00) noon, central time, of the thirtieth day after the filing of any amendment.
    5. Registration of a broker-dealer automatically constitutes registration of any partner, officer, or director of the broker-dealer, or a person occupying a similar status or performing similar functions.
  1. Every applicant for initial or renewal registration shall pay a nonrefundable filing fee of two hundred dollars ($200) in the case of a broker-dealer, fifty dollars ($50.00) in the case of an agent, two hundred dollars ($200) in the case of an investment adviser, and fifty dollars ($50.00) in the case of an investment adviser representative.
  2. A registered broker-dealer or investment adviser may file an application for registration of a successor, whether or not the successor is then in existence, for the unexpired portion of the year. There shall be no filing fee for the registration of any successor.
  3. The commissioner may by rule require a minimum net capital for registered broker-dealers and investment advisers.
  4. The commissioner may by rule require registered broker-dealers, agents, investment advisers, and investment adviser representatives to post surety bonds in amounts up to ten thousand dollars ($10,000), or reasonable fidelity bonds, and may determine their conditions. Any appropriate deposit of cash or securities shall be accepted in lieu of any surety bond so required. No surety bond may be required of any registrant whose net capital, which may be defined by rule, exceeds one hundred thousand dollars ($100,000). Every surety bond shall provide coverage of any suit thereon by any person who has a cause of action under § 48-1-122 and, if the commissioner by rule requires, by any person who has a cause of action not arising under this part. No suit may be maintained to enforce any liability on any bond unless brought within two (2) years after the sale or other act upon which such suit is based.
    1. Any person who is included in the definition of “issuer” by virtue of § 48-1-102(15)(A)(iii) shall register as an issuer-dealer unless either:
      1. Such person sells less than one hundred thousand dollars ($100,000) per year in undivided fractional interests in oil, gas, or other mineral interests in any twelve-month period; or
      2. Such person contributes money or services for lease acquisition and drilling or mining activities on property covered by the undivided fractional interests in proportion to the person's interest in the proceeds from such activities on the same basis as all purchasers of undivided fractional interests. For purposes of this subdivision (f)(1)(B), services shall be valued at the fair market value of similar services and at competitive rates, and such value shall be established prior to the sale of any interests.
    2. An issuer-dealer is not deemed to be a “broker-dealer” and is not subject to regulation other than as provided by this subsection (f) and rules permitted hereby so long as its securities business is restricted to the sale of undivided fractional interests.
    3. The commissioner shall by rule provide the forms for application and renewal as an issuer-dealer, the term of the registration, and fees for initial application and renewal which shall not exceed those provided by subsection (b) for broker-dealers.
    4. Registration as an issuer-dealer shall be effective thirty (30) days after receipt of a completed application and the appropriate fee, if any, unless denial proceedings are instituted or unless an earlier effective date is granted by order of the commissioner. The registration may be denied, revoked, or suspended if such action is in the public interest and if the applicant or any affiliate, partner, officer, director, or any person occupying a similar status or performing similar functions:
      1. Has filed an application for registration which included any untrue statement of a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading;
      2. Has been convicted within the past ten (10) years of any misdemeanor involving any aspect of the securities business or an investment-related business, or any felony;
      3. Is permanently or temporarily enjoined by any court of competent jurisdiction from engaging in or continuing any conduct or practice involving any aspect of the securities business or any investment-related business; or
      4. Is the subject of any order entered within the past ten (10) years by any agency of any jurisdiction having regulatory authority with respect to the securities business or any investment-related business, denying, revoking, or suspending a registration as a broker-dealer, agent, investment adviser, or the substantial equivalent of those terms as defined in this part, or ordering such person to cease and desist from continuing any conduct or practice involving any investment-related transaction based on fraud, deceit, or misrepresentation, or applicable law similar to § 48-1-121(a) and (b).

Acts 1980, ch. 866, § 10; 1983, ch. 312, § 3; T.C.A., § 48-16-110; Acts 1985, ch. 26, § 3; 1989, ch. 15, §§ 1, 2; 2001, ch. 61, § 11; 2002, ch. 550, §§ 6-8; T.C.A., § 48-2-110; Acts 2017, ch. 424, §§ 30-32.

Code Commission Notes.

Former § 48-2-110 was transferred to § 48-1-110 by the code commission in 2012.

Compiler's Notes. The Securities Law of 1955, formerly codified as §§ 48-1601 — 48-1653, was repealed by Acts 1980, ch. 886, § 27. However, the section also contained a savings provision referring to former §§ 48-1601 — 48-1653 which read:

“(b)  Prior law exclusively governs all suits, actions, prosecutions, or proceedings which are pending or may be initiated on the basis of facts or circumstances occurring before the effective date of this Act, except that no civil suit or action may be maintained to enforce any liability under prior law unless brought within any period of limitation which applied when the cause of action accrued and in any event within two years after the effective date of this Act.

“(c)  All effective registrations under prior law, all administrative orders relating to such registrations, and all conditions imposed upon such registrations remain in effect so long as they would have remained in effect if this Act had not been passed. They are considered to have been filed, entered, or imposed under this Act, but are governed by prior law.

“(d)  Prior law applies in respect of any sale made within one year after the effective date of this Act pursuant to an offering exempt under prior law which offering was begun in good faith before such effective date.

“(e)  Judicial review of all administrative orders as to which review proceedings have not been instituted by the effective date of this Act are governed by Section 20, except that no review proceeding may be instituted unless the petition is filed within any period of limitation which applied to a review proceeding when the order was entered and in any event within 60 days after the effective date of this Act.”

The effective date of the Act was July 2, 1980.

Acts 2001, ch. 61, § 1 provided that the act shall be cited as “The Securities Omnibus Act of 2001.”

Law Reviews.

Selected Tennessee Legislation of 1983 (N.L. Resener, J. A. Whitson, K. J. Miller), 50 Tenn. L. Rev. 785 (1983).

NOTES TO DECISIONS

Decisions Under Prior Law

1. Commissioner's Discretion.

A discretionary power vested in the commissioner to issue a permit to investment company could not be considered in a collateral proceeding upon a note given for stock of a corporation holding such permit. Dixie Rubber Co. v. McBee, 148 Tenn. 168, 253 S.W. 353, 1923 Tenn. LEXIS 5 (1923), aff'd, State v. Adams, 262 S.W. 62 (Mo. Ct. App. 1924); Dixie Rubber Co. V. McBee, 150 Tenn. 53, 262 S.W. 32, 1923 Tenn. LEXIS 62 (1923).

2. Filing of Documents and Issuance of Permit.

Commissioner's issuance of a permit was conclusive that investment corporation had in all respects complied with Acts 1913 (1st .S.), ch. 31 in an action involving the validity of the contract made by the corporation, provided that the documents had been filed for the commissioner's examination, as required, but the permit is not conclusive where such documents have not been filed. Dixie Rubber Co. V. McBee, 150 Tenn. 53, 262 S.W. 32, 1923 Tenn. LEXIS 62 (1923).

3. Agent's Noncompliance.

Where the corporation complied with the provisions of Acts 1913 (1st Ex. Sess.), ch. 31, the failure of an agent to register as required did not render a note to the corporation unenforceable. McCallum v. McIsaac, 159 Tenn. 655, 21 S.W.2d 392, 1929 Tenn. LEXIS 26 (1929).

48-1-111. Records and reports — Examinations.

  1. Every registered broker-dealer and investment adviser shall make and keep such accounts, correspondence, memoranda, papers, books, and other records as the commissioner by rule prescribes. All records so required shall be preserved for three (3) years unless the commissioner by rule prescribes otherwise for particular types of records.
  2. Every registered broker-dealer and investment adviser shall file such financial reports and other documents as the commissioner by rule prescribes.
  3. If the information contained in any document filed with the commissioner is or becomes inaccurate or incomplete in any material respect, the registrant shall promptly file a correcting amendment.
    1. All the records referred to in subsection (a) are subject at any time and from time to time to such reasonable periodic, special, or other examinations, within or outside of this state, by representatives of the commissioner, as the commissioner deems necessary or appropriate in the public interest or for the protection of investors.
    2. The cost of such examination shall be borne by the person examined and shall include the expenses of the commissioner or the commissioner's deputy and the expenses and compensation of the commissioner's assistants employed in the examination; provided, that not more than two (2) such examinations shall be charged to such person in any twelve-month period.
    3. For the purpose of avoiding unnecessary duplication of examinations, the commissioner, insofar as the commissioner deems it practicable in administering this subsection (d), may cooperate with the securities administrators of other states, the securities and exchange commission, any national securities exchange or national securities association registered under the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.), as amended, or any securities administrators' association.

Acts 1980, ch. 866, § 11; T.C.A., § 48-16-111; T.C.A., § 48-2-111; Acts 2017, ch. 424, §§ 33, 34.

Code Commission Notes.

Former § 48-2-111 was transferred to § 48-1-111 by the code commission in 2012.

Compiler's Notes. The Securities Law of 1955, formerly codified as §§ 48-1601 — 48-1653, was repealed by Acts 1980, ch. 886, § 27. However, the section also contained a savings provision referring to former §§ 48-1601 — 48-1653 which read:

“(b)  Prior law exclusively governs all suits, actions, prosecutions, or proceedings which are pending or may be initiated on the basis of facts or circumstances occurring before the effective date of this Act, except that no civil suit or action may be maintained to enforce any liability under prior law unless brought within any period of limitation which applied when the cause of action accrued and in any event within two years after the effective date of this Act.

“(c)  All effective registrations under prior law, all administrative orders relating to such registrations, and all conditions imposed upon such registrations remain in effect so long as they would have remained in effect if this Act had not been passed. They are considered to have been filed, entered, or imposed under this Act, but are governed by prior law.

“(d)  Prior law applies in respect of any sale made within one year after the effective date of this Act pursuant to an offering exempt under prior law which offering was begun in good faith before such effective date.

“(e)  Judicial review of all administrative orders as to which review proceedings have not been instituted by the effective date of this Act are governed by Section 20, except that no review proceeding may be instituted unless the petition is filed within any period of limitation which applied to a review proceeding when the order was entered and in any event within 60 days after the effective date of this Act.”

The effective date of the Act was July 2, 1980.

48-1-112. Denial, revocation, suspension, cancellation, or withdrawal of registration.

  1. The commissioner may by order deny, suspend, or revoke any registration under this part if the commissioner finds that:
    1. The order is in the public interest and necessary for the protection of investors; and
    2. The applicant or registrant or, in the case of a broker-dealer or investment adviser, any affiliate, partner, officer, director, or any person occupying a similar status or performing similar functions:
      1. Has filed an application for registration which as of its effective date, or as of any date after filing in the case of an order denying effectiveness, includes any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading;
      2. Has willfully violated or willfully failed to comply with any provision of this part or a predecessor chapter or any rule or order under this part or a predecessor chapter, including, without limitation, any net capital requirements;
      3. Has been convicted of any felony, or within the previous ten (10) years has been convicted of a misdemeanor involving a security or any aspect of the securities business or any investment-related business;
      4. Is permanently or temporarily enjoined by any court of competent jurisdiction from engaging in or continuing any conduct or practice involving any aspect of the securities business or any investment-related business;
      5. Is the subject of an order of the commissioner denying, suspending, or revoking any registration as a broker-dealer, agent, investment adviser, or investment adviser representative, or ordering any person to cease and desist from violating any provision of this part;
        1. (a)  Is the subject of any order entered within the past ten (10) years by the securities administrator of any other jurisdiction or by the securities and exchange commission or any other federal or state agency having jurisdiction over investment-related businesses:

        Denying or revoking any registration as a broker-dealer, agent, investment adviser, or investment adviser representative, or the substantial equivalent of those terms as defined in this part; or

  2. Is the subject of an order suspending or expelling such person from a national securities exchange or national securities association registered under the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.), as amended, or is the subject of a United States post office fraud order;
  3. The following provisions govern the application of subdivision (a)(2)(I):
    1. The commissioner may not enter an order against a broker-dealer on the basis of the lack of qualification of any person other than:
      1. The broker-dealer personally if the broker-dealer is an individual;
      2. A general partner, officer, director, or controlling person of such broker-dealer; or
      3. An agent of such broker-dealer;
    2. The commissioner may not enter an order against an investment adviser on the basis of the lack of qualification of any person other than:
      1. The investment adviser personally if the investment adviser is an individual;
      2. A general partner, officer, director, or controlling person of such investment adviser; or
      3. An investment adviser representative;
    3. The commissioner may not enter an order solely on the basis of lack of experience if the applicant or registrant is qualified by training or knowledge or both;
    4. The commissioner shall consider that an agent who will work under the supervision of a registered broker-dealer need not have the same qualifications as such broker-dealer;
    5. The commissioner shall consider that an investment adviser is not necessarily qualified solely on the basis of experience as a broker-dealer or agent. When the commissioner finds that an applicant for registration (including a renewal of an effective registration) as a broker-dealer is not qualified as an investment adviser, the commissioner may by order condition the applicant's registration as a broker-dealer upon the registrant's not transacting business in this state as an investment adviser;
    6. The commissioner may by rule provide for an examination, which may be written or oral or both, to be taken by any class of or all applicants for registration as a broker-dealer or investment adviser, as well as persons who represent or will represent a broker-dealer or an investment adviser in doing any broker-dealer or investment adviser activities;
    7. The commissioner shall consider that an investment adviser representative who will work under the supervision of a registered investment adviser need not have the same qualification as such investment adviser;
  4. In any case in which the commissioner is authorized to deny, revoke, or suspend the registration of a broker-dealer, agent, investment adviser, investment adviser representative, or applicant for broker-dealer, agent, investment adviser, or investment adviser representative registration, the commissioner may, in lieu of or in addition to such disciplinary action, impose a civil penalty in an amount not to exceed five thousand dollars ($5,000) for all violations for any single transaction, or in an amount not to exceed ten thousand dollars ($10,000) per violation if an individual who is a designated adult is a victim.
  5. Pending final determination whether or not any registration under this section shall be revoked, the commissioner may by order suspend such registration, if after notice and opportunity for hearing, the commissioner finds such suspension to be in the public interest and necessary for the protection of investors.
    1. Upon such terms and conditions as the commissioner deems in the public interest and necessary for the protection of investors, any registered broker-dealer, agent, investment adviser, or investment adviser representative may withdraw from registration by filing a written notice of withdrawal with the commissioner or by filing a notice of withdrawal through a designated filing depository.
    2. Withdrawal from registration as a broker-dealer, agent, investment adviser, or investment adviser representative becomes effective thirty (30) days after receipt of an application to withdraw or within such shorter period of time as the commissioner by rule or order may permit.
  6. If the commissioner finds that any registered broker-dealer, agent, investment adviser, or investment adviser representative is no longer in existence or has ceased to do business as a broker-dealer, agent, investment adviser, or investment adviser representative, the commissioner shall by order cancel the registration of such broker-dealer, agent, investment adviser, or investment adviser representative.

Ordering such person to cease and desist from any conduct or practice involving any aspect of the securities business or any investment-related business based on findings of fraud, deceit, or misrepresentation or violations of laws similar to § 48-1-121(a) or (b); or

The commissioner may not either:

Institute a revocation or suspension proceeding under this subdivision (a)(2)(F) more than one (1) year from the date of the order relied on as long as the registrant notified the commissioner within thirty (30) days of the date of the order; or

Enter an order under this subdivision (a)(2)(F) on the basis of an order under another jurisdiction's act unless that order was based on facts which would currently constitute a ground for an order denying or revoking registration under this part, or is based on findings of fraud, deceit, misrepresentation or violations of law similar to § 48-1-121(a) and (b);

Has engaged in dishonest or unethical practices in the securities business;

Is insolvent, either in the sense that the applicant's liabilities exceed its assets or in the sense that it cannot meet its obligations as they mature; provided, that the commissioner may not enter an order against a broker-dealer or investment adviser under this subdivision (a)(2)(H) without a specific finding that the broker-dealer or investment adviser is insolvent;

Is not qualified on the basis of such factors as training, experience, and knowledge of the securities business, except as otherwise provided in subsection (c);

Has failed reasonably to supervise such person's agents if the person is a broker-dealer, or such person's investment adviser representatives if the person is an investment adviser; or

Has failed to pay any required fee; provided, that the commissioner shall vacate any such order when the deficiency has been corrected.

The commissioner may not institute a revocation or suspension proceeding under subsection (a) based solely on material facts actually known by the commissioner unless an investigation or the revocation or suspension proceeding is instituted within one (1) year after the commissioner actually acquires knowledge of the material facts.

Acts 1980, ch. 866, § 12; 1983, ch. 312, §§ 4, 5; T.C.A., § 48-16-112; Acts 1986, ch. 596, § 3; 2001, ch. 61, §§ 12, 13; 2002, ch. 550, §§ 9-17; 2007, ch. 272, §§ 1, 2; 2010, ch. 697, § 2; 2010, ch. 829, § 3; T.C.A., § 48-2-112; Acts 2017, ch. 424, §§ 35, 36.

Code Commission Notes.

Former § 48-2-112 was transferred to § 48-1-112 by the code commission in 2012.

Compiler's Notes. The Securities Law of 1955, formerly codified as §§ 48-1601 — 48-1653, was repealed by Acts 1980, ch. 886, § 27. However, the section also contained a savings provision referring to former §§ 48-1601 — 48-1653 which read:

“(b)  Prior law exclusively governs all suits, actions, prosecutions, or proceedings which are pending or may be initiated on the basis of facts or circumstances occurring before the effective date of this Act, except that no civil suit or action may be maintained to enforce any liability under prior law unless brought within any period of limitation which applied when the cause of action accrued and in any event within two years after the effective date of this Act.

“(c)  All effective registrations under prior law, all administrative orders relating to such registrations, and all conditions imposed upon such registrations remain in effect so long as they would have remained in effect if this Act had not been passed. They are considered to have been filed, entered, or imposed under this Act, but are governed by prior law.

“(d)  Prior law applies in respect of any sale made within one year after the effective date of this Act pursuant to an offering exempt under prior law which offering was begun in good faith before such effective date.

“(e)  Judicial review of all administrative orders as to which review proceedings have not been instituted by the effective date of this Act are governed by Section 20, except that no review proceeding may be instituted unless the petition is filed within any period of limitation which applied to a review proceeding when the order was entered and in any event within 60 days after the effective date of this Act.”

The effective date of the Act was July 2, 1980.

Acts 2001, ch. 61, § 1 provided that the act shall be cited as “The Securities Omnibus Act of 2001.”

Law Reviews.

Selected Tennessee Legislation of 1983 (N. L. Resener, J. A. Whitson, K. J. Miller), 50 Tenn. L. Rev. 785 (1983).

SEC Injunctions, 68 Tenn. L. Rev. 427 (2001).

48-1-113. Filing of sales and advertising literature.

The commissioner may by rule require the filing of any prospectus, pamphlet, circular, form letter, advertisement, or other sales literature or advertising communication addressed or intended for distribution to prospective investors, including clients or prospective clients of an investment adviser.

Acts 1980, ch. 866, § 13; T.C.A., § 48-16-113; T.C.A. § 48-2-113; Acts 2017, ch. 424, § 37.

Code Commission Notes.

Former § 48-2-113 was transferred to § 48-1-113 by the code commission in 2012.

Compiler's Notes. The Securities Law of 1955, formerly codified as §§ 48-1601 — 48-1653, was repealed by Acts 1980, ch. 886, § 27. However, the section also contained a savings provision referring to former §§ 48-1601 — 48-1653 which read:

“(b)  Prior law exclusively governs all suits, actions, prosecutions, or proceedings which are pending or may be initiated on the basis of facts or circumstances occurring before the effective date of this Act, except that no civil suit or action may be maintained to enforce any liability under prior law unless brought within any period of limitation which applied when the cause of action accrued and in any event within two years after the effective date of this Act.

“(c)  All effective registrations under prior law, all administrative orders relating to such registrations, and all conditions imposed upon such registrations remain in effect so long as they would have remained in effect if this Act had not been passed. They are considered to have been filed, entered, or imposed under this Act, but are governed by prior law.

“(d)  Prior law applies in respect of any sale made within one year after the effective date of this Act pursuant to an offering exempt under prior law which offering was begun in good faith before such effective date.

“(e)  Judicial review of all administrative orders as to which review proceedings have not been instituted by the effective date of this Act are governed by Section 20, except that no review proceeding may be instituted unless the petition is filed within any period of limitation which applied to a review proceeding when the order was entered and in any event within 60 days after the effective date of this Act.”

The effective date of the Act was July 2, 1980.

48-1-114. Unlawful representation concerning registration or exemption.

  1. Neither the fact that an application for registration or notice filing under §§ 48-1-109 - 48-1-112 or a registration statement or notice filing under §§ 48-1-104 - 48-1-108 or §  48-1-125 has been filed, nor the fact that a person or security is effectively registered, constitutes a finding by the commissioner that any document filed under this part is true, complete, and not misleading.
  2. Neither any such fact nor the fact that an exemption or exception is available for a security or transaction means that the commissioner has passed in any way upon the merits or qualifications of, or that the commissioner has recommended or given approval to, any person, security, or transaction.
  3. Any representation to the contrary is unlawful.

Acts 1980, ch. 866, § 14; T.C.A., § 48-16-114; Acts 1997, ch. 164, § 5; T.C.A. § 48-2-114; Acts 2017, ch. 424, § 38.

Code Commission Notes.

Former § 48-2-114 was transferred to § 48-1-114 by the code commission in 2012.

Compiler's Notes. The Securities Law of 1955, formerly codified as §§ 48-1601 — 48-1653, was repealed by Acts 1980, ch. 886, § 27. However, the section also contained a savings provision referring to former §§ 48-1601 — 48-1653 which read:

“(b)  Prior law exclusively governs all suits, actions, prosecutions, or proceedings which are pending or may be initiated on the basis of facts or circumstances occurring before the effective date of this Act, except that no civil suit or action may be maintained to enforce any liability under prior law unless brought within any period of limitation which applied when the cause of action accrued and in any event within two years after the effective date of this Act.

“(c)  All effective registrations under prior law, all administrative orders relating to such registrations, and all conditions imposed upon such registrations remain in effect so long as they would have remained in effect if this Act had not been passed. They are considered to have been filed, entered, or imposed under this Act, but are governed by prior law.

“(d)  Prior law applies in respect of any sale made within one year after the effective date of this Act pursuant to an offering exempt under prior law which offering was begun in good faith before such effective date.

“(e)  Judicial review of all administrative orders as to which review proceedings have not been instituted by the effective date of this Act are governed by Section 20, except that no review proceeding may be instituted unless the petition is filed within any period of limitation which applied to a review proceeding when the order was entered and in any event within 60 days after the effective date of this Act.”

The effective date of the Act was July 2, 1980.

Acts 2001, ch. 61, § 1 provided that the act shall be cited as “The Securities Omnibus Act of 2001.”

48-1-115. Administration.

  1. The administration of this part shall be vested in the commissioner. The commissioner, as authorized by the governor, shall appoint a director or assistant commissioner of securities and may delegate to such director or assistant commissioner of securities, by rule, such of the commissioner's powers and duties hereunder as are appropriate for the protection of investors and the efficient administration of this part.
  2. The commissioner has the authority to employ attorneys, auditors, examiners, investigative agents, clerks and stenographers and other professional and clerical employees as the proper administration of this part may require.
  3. The commissioner, or any persons employed by the commissioner, shall be paid, in addition to their regular compensation, the transportation fare, board, lodging, and other traveling expenses necessary and actually incurred by each of them in the performance of their duties under this part.
  4. The revenues collected by the commissioner under this part are for the purpose of defraying a portion of the expenses incurred by the commissioner in the administration of this part. Such fees shall be payable in addition to other fees and taxes now required by law and shall be expendable receipts for the use of the commissioner in defraying a portion of the cost of the administration of this part.
    1. It is unlawful for the commissioner or any of the commissioner's officers or employees to use for personal benefit any information which is filed with or obtained by the commissioner and which is not made public. No provision of this part authorizes the commissioner or any of the commissioner's officers or employees to disclose any such information except among themselves or when necessary or appropriate in a proceeding or investigation under this part.
    2. No provision of this part either creates or derogates from any privilege which exists at common law or otherwise when documentary or other evidence is sought under a subpoena directed to the commissioner or any of the commissioner's officers or employees.
    1. The commissioner may designate filing depositories for all records required to be filed and maintained under this part. These records may be maintained in original form or by means of microfilm, microfiche, microphotographic reproduction, photographic reproduction, word processing, computerization, or other acceptable reproductive methods.
    2. The commissioner is further authorized to participate, in whole or in part, in the Central Registration Depository systems Web Central Registration Depository (Web CRD) and Web Investment Advisers Registration Depository (IARD), in cooperation with the Financial Industry Regulatory Authority (FINRA) or any successor regulatory entity, the North American Securities Administrators Association (NASAA), other states, the United States, and other entities, to the extent the commissioner deems participation as being in the public interest and necessary for the protection of investors.
    3. The commissioner is further authorized to participate, in whole or in part, in securities registration depository systems, in cooperation with NASAA, other states, the United States, and other entities, to the extent the commissioner deems participation as being in the public interest and necessary for the protection of investors.

Acts 1980, ch. 866, § 15; T.C.A., § 48-16-115; Acts 1985, ch. 26, § 4; 1996, ch. 1072, § 7; 2001, ch. 61, § 14; 2010, ch. 697, §§ 1, 3; T.C.A. § 48-2-115; Acts 2017, ch. 424, § 39.

Code Commission Notes.

Former § 48-2-115 was transferred to § 48-1-115 by the code commission in 2012.

Compiler's Notes. The Securities Law of 1955, formerly codified as §§ 48-1601 — 48-1653, was repealed by Acts 1980, ch. 886, § 27. However, the section also contained a savings provision referring to former §§ 48-1601 — 48-1653 which read:

“(b)  Prior law exclusively governs all suits, actions, prosecutions, or proceedings which are pending or may be initiated on the basis of facts or circumstances occurring before the effective date of this Act, except that no civil suit or action may be maintained to enforce any liability under prior law unless brought within any period of limitation which applied when the cause of action accrued and in any event within two years after the effective date of this Act.

“(c)  All effective registrations under prior law, all administrative orders relating to such registrations, and all conditions imposed upon such registrations remain in effect so long as they would have remained in effect if this Act had not been passed. They are considered to have been filed, entered, or imposed under this Act, but are governed by prior law.

“(d)  Prior law applies in respect of any sale made within one year after the effective date of this Act pursuant to an offering exempt under prior law which offering was begun in good faith before such effective date.

“(e)  Judicial review of all administrative orders as to which review proceedings have not been instituted by the effective date of this Act are governed by Section 20, except that no review proceeding may be instituted unless the petition is filed within any period of limitation which applied to a review proceeding when the order was entered and in any event within 60 days after the effective date of this Act.”

The effective date of the Act was July 2, 1980.

Acts 2001, ch. 61, § 1 provided that the act shall be cited as “The Securities Omnibus Act of 2001.”

Cross-References. Appointment of personnel by commissioner, § 4-4-106.

Reorganization of divisions, § 4-4-101.

48-1-116. Rules, forms, orders, and hearings.

  1. The commissioner may from time to time make, promulgate, amend, and rescind such rules, forms, and orders as are necessary to carry out this part, including rules, forms, and orders governing registration statements, applications, reports, and filing fees, and defining any terms, whether or not used in this part, insofar as the definitions are not inconsistent with this part. For the purpose of rules and forms, the commissioner may classify securities, persons, and matters within the commissioner's jurisdiction, and prescribe different requirements for different classes.
  2. No rule, form, or order may be made, promulgated, amended, or rescinded unless the commissioner finds that the action is in the public interest, necessary for the protection of investors and consistent with the purposes fairly intended by the policy and provisions of this part. In prescribing rules and forms, the commissioner may cooperate with the securities administrators of other jurisdictions, the securities and exchange commission, or any national securities exchange or national securities association registered under the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.), as amended, with a view to effectuating the policy of this part to achieve maximum uniformity in the form and content of registration statements, applications, and reports wherever practicable.
    1. The commissioner may by rule prescribe:
      1. The form and content of financial statements required under this part;
      2. The circumstances under which consolidated financial statements shall be filed; and
      3. Whether or not any required financial statements shall be certified by independent or certified public accountants.
    2. All financial statements shall be prepared in accordance with generally accepted accounting principles or the rules adopted by the securities and exchange commission.
  3. No provision of this part imposing any liability applies to any act done or omitted in good faith in conformity with any rule, form, order, or interpretive opinion under § 48-1-117(e), of the commissioner, notwithstanding that the rule, form, or order may later be amended or rescinded or be determined by judicial or other authority to be invalid for any reason.
    1. All rules and forms provided for in this part shall be adopted, promulgated, and contested as provided in the Uniform Administrative Procedures Act, compiled in title 4, chapter 5.
    2. No order may be entered under this part (except routine orders of effective registration, registration termination by operation of law, or registration abandonment) without:
      1. Notice to the affected parties (which shall be prior notice unless the commissioner determines that prior notice would not be in the public interest and would be detrimental to the protection of investors);
      2. Opportunity for a hearing before the commissioner; and
      3. Written findings of fact and conclusions of law.
    3. Every investigation, hearing or other proceeding (other than private investigations under § 48-1-118(a)) held under this part which determines or affects the legal rights, duties, or privileges of particular specified parties shall be deemed to be a “contested case” under the Uniform Administrative Procedures Act, and shall be conducted as required by that act.

Acts 1980, ch. 866, § 16; T.C.A., § 48-16-116; T.C.A. § 48-2-116; Acts 2017, ch. 424, § 40.

Code Commission Notes.

Former § 48-2-116 was transferred to § 48-1-116 by the code commission in 2012.

Compiler's Notes. The Securities Law of 1955, formerly codified as §§ 48-1601 — 48-1653, was repealed by Acts 1980, ch. 886, § 27. However, the section also contained a savings provision referring to former §§ 48-1601 — 48-1653 which read:

“(b)  Prior law exclusively governs all suits, actions, prosecutions, or proceedings which are pending or may be initiated on the basis of facts or circumstances occurring before the effective date of this Act, except that no civil suit or action may be maintained to enforce any liability under prior law unless brought within any period of limitation which applied when the cause of action accrued and in any event within two years after the effective date of this Act.

“(c)  All effective registrations under prior law, all administrative orders relating to such registrations, and all conditions imposed upon such registrations remain in effect so long as they would have remained in effect if this Act had not been passed. They are considered to have been filed, entered, or imposed under this Act, but are governed by prior law.

“(d)  Prior law applies in respect of any sale made within one year after the effective date of this Act pursuant to an offering exempt under prior law which offering was begun in good faith before such effective date.

“(e)  Judicial review of all administrative orders as to which review proceedings have not been instituted by the effective date of this Act are governed by Section 20, except that no review proceeding may be instituted unless the petition is filed within any period of limitation which applied to a review proceeding when the order was entered and in any event within 60 days after the effective date of this Act.”

The effective date of the Act was July 2, 1980.

Acts 2001, ch. 61, § 1 provided that the act shall be cited as “The Securities Omnibus Act of 2001.”

NOTES TO DECISIONS

1. Cease and Desist Order.

Where the commissioner issued a cease and desist order, requiring plaintiff to refrain from engaging in business as an unregistered broker-dealer or selling unregistered securities, which purported to restrain only unlawful conduct and was accompanied by notice of opportunity for a full hearing, and there was no allegation or evidence that the commissioner had or was about to seek judicial enforcement of the cease and desist order, the issuance of the cease and desist order by an administrative official without prior notice and hearing was not so extreme and confiscatory as to invoke extraordinary judicial powers to vacate it. Wolcotts Financial Services, Inc. v. McReynolds, 807 S.W.2d 708, 1990 Tenn. App. LEXIS 908 (Tenn. Ct. App. 1990).

48-1-117. Administrative files and opinions.

  1. A document is filed when it is received by the commissioner.
  2. The commissioner shall keep a register of all applications for registration and registration statements which are or have ever been declared effective under this part and all denial, suspension, or revocation orders which have ever been entered under this part. The register shall be open for public inspection during the commissioner's normal business hours.
  3. The information contained in or filed with any registration statement, application, notice filing, or report may be made available to the public under such rules as the commissioner prescribes.
  4. Upon request and upon payment of such reasonable charges as the commissioner by rule prescribes, the commissioner shall furnish to any person copies (certified under the commissioner's seal of office if requested) of any entry in the register or any document which is a matter of public record. In any proceeding or prosecution under this part, any copy so certified is prima facie evidence of the contents of the entry or document certified.
  5. The commissioner, in the commissioner's discretion, may honor requests from interested persons for interpretative opinions pertaining to this part.

Acts 1980, ch. 866, § 17; T.C.A., § 48-16-117; Acts 1997, ch. 164, § 6; T.C.A., § 48-2-117; Acts 2017, ch. 424, § 41.

Code Commission Notes.

Former § 48-2-117 was transferred to § 48-1-117 by the code commission in 2012.

Compiler's Notes. The Securities Law of 1955, formerly codified as §§ 48-1601 — 48-1653, was repealed by Acts 1980, ch. 886, § 27. However, the section also contained a savings provision referring to former §§ 48-1601 — 48-1653 which read:

“(b)  Prior law exclusively governs all suits, actions, prosecutions, or proceedings which are pending or may be initiated on the basis of facts or circumstances occurring before the effective date of this Act, except that no civil suit or action may be maintained to enforce any liability under prior law unless brought within any period of limitation which applied when the cause of action accrued and in any event within two years after the effective date of this Act.

“(c)  All effective registrations under prior law, all administrative orders relating to such registrations, and all conditions imposed upon such registrations remain in effect so long as they would have remained in effect if this Act had not been passed. They are considered to have been filed, entered, or imposed under this Act, but are governed by prior law.

“(d)  Prior law applies in respect of any sale made within one year after the effective date of this Act pursuant to an offering exempt under prior law which offering was begun in good faith before such effective date.

“(e)  Judicial review of all administrative orders as to which review proceedings have not been instituted by the effective date of this Act are governed by Section 20, except that no review proceeding may be instituted unless the petition is filed within any period of limitation which applied to a review proceeding when the order was entered and in any event within 60 days after the effective date of this Act.”

The effective date of the Act was July 2, 1980.

48-1-118. Investigations and subpoenas.

    1. The commissioner, in the commissioner's discretion, may:
      1. Make such public or private investigations within or outside of this state as the commissioner deems necessary to determine whether or not any person has violated or is about to violate any provision of this part or any rule, regulation, or order hereunder, or to aid in the enforcement of this part, or in the prescribing of rules hereunder;
      2. Require or permit any person to file a statement in writing, under oath or otherwise as the commissioner determines, as to all the facts and circumstances concerning the matter to be investigated; and
      3. Publish information concerning any violation of this part or any rule or order hereunder.
    2. All investigations conducted under this subsection (a) shall be commenced by an order of the commissioner, specifying the specific provision or provisions of this part which may have been or may be about to be violated and the basis for such investigation. Upon request, such order shall be made available to any person named in such order as being investigated.
    1. For the purpose of conducting any investigation as provided in this section, the commissioner has the power to administer oaths, to call any party to testify under oath at such investigations, to require the attendance of witnesses, the production of books, records, and papers, and to take the depositions of witnesses.
    2. For such purposes, the commissioner is authorized to issue a subpoena for any witness or a subpoena duces tecum to compel the production of any books, records or papers. These subpoenas may be served by registered mail, return receipt requested, to the addressee's business mailing address, or by such personnel of the department of commerce and insurance as the commissioner may designate, or shall be directed for service to the sheriff of the county where such witness resides or is found or where such person in custody of any books, records, or papers resides or is found.
  1. In case of a refusal to obey a subpoena issued to any person under subsection (b), any circuit or chancery court of this state within the jurisdiction in which the person refusing to obey the subpoena is found or resides may issue to such person, upon application by the commissioner, an order requiring such person to appear before the court to show cause why the person should not be held in contempt for refusal to obey the subpoena. Failure to obey a subpoena may be punished by the court as a contempt of court.
    1. The commissioner may, with the written approval of the attorney general and reporter, issue to any person who has been or may be called to a hearing or other proceeding under this part, a written order requiring the individual to give testimony or provide other information which the person refuses to give or provide on the basis of the person's privilege against self-incrimination. Such order shall be issued only if the commissioner finds that:
      1. The testimony or other information from such individual may be in the public interest; and
      2. Such individual has refused or is likely to refuse to testify or provide other information on the basis of the individual's privilege against self-incrimination.
    2. Whenever any witness refuses, on the basis of the witness's privilege against self-incrimination, to testify or provide other information at any hearing or other proceeding under this part, and the person presiding over the proceeding delivers to the witness a written order issued under subdivision (d)(1), the witness may not refuse to comply with the order on the basis of the witness's privilege against self-incrimination; but no testimony or other information compelled under the order as to which the witness could validly assert the privilege against self-incrimination (or any information directly or indirectly derived from such testimony or other information) may be used against the witness in any criminal case, except a prosecution for perjury, false swearing, giving a false statement to the commissioner pursuant to this part, or otherwise failing to comply with the order.
    1. In the case of any investigation conducted under this section, the commissioner may hold hearings, or may appoint an investigative agent to conduct such hearings who shall have the same powers and authority in conducting such hearings as are in this section granted to the commissioner. The agent shall be possessed of such qualifications as the commissioner may require.
    2. A transcript of the testimony and evidence and objections resulting from such hearings shall be taken, unless waived in writing by all parties present at such hearings. Copies of such transcript shall be available to all parties present at the hearing (to the extent of their testimony if a private hearing) upon payment of a reasonable fee for reproducing such transcript.
    3. All recommendations of the investigative agent shall be advisory only and shall not have the effect of an order of the commissioner.
  2. In any case where hearings are conducted by an investigative agent, such agent shall submit to the commissioner a written report which shall include a transcript of the testimony in evidence (if requested by the commissioner), findings of fact, and a recommendation of the action to be taken by the commissioner with reasons therefor. The recommendation of such agent shall be approved, modified, or disapproved by the commissioner. The commissioner may direct an investigative agent to take additional testimony or permit the introduction of further documentary evidence.
  3. In addition to any other hearings and investigations which the commissioner is authorized or required by this part to conduct, the commissioner is also authorized to hold general investigative hearings on the commissioner's own motion with respect to any matter under this part. A general investigative hearing as provided for herein may be conducted by any person designated by the commissioner for that purpose and may, but need not be, transcribed by the commissioner or by any other interested party. No formal action may be taken as a result of such investigative hearing, but the commissioner may take such action as the commissioner deems appropriate, based on the information developed in the hearing and on any other information which the commissioner may have.

Acts 1980, ch. 866, § 18; 1981, ch. 459, § 2; T.C.A., § 48-16-118; T.C.A., § 48-2-118.

Code Commission Notes.

Former § 48-2-118 was transferred to § 48-1-118 by the code commission in 2012.

Compiler's Notes. The Securities Law of 1955, formerly codified as §§ 48-1601 — 48-1653, was repealed by Acts 1980, ch. 886, § 27. However, the section also contained a savings provision referring to former §§ 48-1601 — 48-1653 which read:

“(b)  Prior law exclusively governs all suits, actions, prosecutions, or proceedings which are pending or may be initiated on the basis of facts or circumstances occurring before the effective date of this Act, except that no civil suit or action may be maintained to enforce any liability under prior law unless brought within any period of limitation which applied when the cause of action accrued and in any event within two years after the effective date of this Act.

“(c)  All effective registrations under prior law, all administrative orders relating to such registrations, and all conditions imposed upon such registrations remain in effect so long as they would have remained in effect if this Act had not been passed. They are considered to have been filed, entered, or imposed under this Act, but are governed by prior law.

“(d)  Prior law applies in respect of any sale made within one year after the effective date of this Act pursuant to an offering exempt under prior law which offering was begun in good faith before such effective date.

“(e)  Judicial review of all administrative orders as to which review proceedings have not been instituted by the effective date of this Act are governed by Section 20, except that no review proceeding may be instituted unless the petition is filed within any period of limitation which applied to a review proceeding when the order was entered and in any event within 60 days after the effective date of this Act.”

The effective date of the Act was July 2, 1980.

Cross-References. Certified mail in lieu of registered mail, § 1-3-111.

48-1-119. Injunctions.

  1. Whenever it appears to the commissioner that any person has engaged or is about to engage in any act or practice constituting a violation of any provision of this part or any rule or order hereunder, the commissioner may, in the commissioner's discretion, bring an action in the chancery court of any county in this state to enjoin the acts or practices and to enforce compliance with this part or any rule or order hereunder.
  2. Upon a proper showing, a permanent or temporary injunction, restraining order, writ of mandamus, disgorgement, or other proper equitable relief shall be granted and a receiver or conservator may be appointed for the defendant or the defendant's assets.
  3. The court may not require the commissioner to post a bond.

Acts 1980, ch. 866, § 19; T.C.A., § 48-16-119; T.C.A., § 48-2-119.

Code Commission Notes.

Former § 48-2-119 was transferred to § 48-1-119 by the code commission in 2012.

Compiler's Notes. The Securities Law of 1955, formerly codified as §§ 48-1601 — 48-1653, was repealed by Acts 1980, ch. 886, § 27. However, the section also contained a savings provision referring to former §§ 48-1601 — 48-1653 which read:

“(b)  Prior law exclusively governs all suits, actions, prosecutions, or proceedings which are pending or may be initiated on the basis of facts or circumstances occurring before the effective date of this Act, except that no civil suit or action may be maintained to enforce any liability under prior law unless brought within any period of limitation which applied when the cause of action accrued and in any event within two years after the effective date of this Act.

“(c)  All effective registrations under prior law, all administrative orders relating to such registrations, and all conditions imposed upon such registrations remain in effect so long as they would have remained in effect if this Act had not been passed. They are considered to have been filed, entered, or imposed under this Act, but are governed by prior law.

“(d)  Prior law applies in respect of any sale made within one year after the effective date of this Act pursuant to an offering exempt under prior law which offering was begun in good faith before such effective date.

“(e)  Judicial review of all administrative orders as to which review proceedings have not been instituted by the effective date of this Act are governed by Section 20, except that no review proceeding may be instituted unless the petition is filed within any period of limitation which applied to a review proceeding when the order was entered and in any event within 60 days after the effective date of this Act.”

The effective date of the Act was July 2, 1980.

48-1-120. Judicial review.

Any person aggrieved by a final order of the commissioner under this part may obtain judicial review of the order in the chancery court of Davidson County by proceedings in accordance with the Uniform Administrative Procedures Act, compiled in title 4, chapter 5.

Acts 1980, ch. 866, § 20; T.C.A., § 48-16-120; T.C.A., § 48-2-120.

Code Commission Notes.

Former § 48-2-120 was transferred to § 48-1-120 by the code commission in 2012.

Compiler's Notes. The Securities Law of 1955, formerly codified as §§ 48-1601 — 48-1653, was repealed by Acts 1980, ch. 886, § 27. However, the section also contained a savings provision referring to former §§ 48-1601 — 48-1653 which read:

“(b)  Prior law exclusively governs all suits, actions, prosecutions, or proceedings which are pending or may be initiated on the basis of facts or circumstances occurring before the effective date of this Act, except that no civil suit or action may be maintained to enforce any liability under prior law unless brought within any period of limitation which applied when the cause of action accrued and in any event within two years after the effective date of this Act.

“(c)  All effective registrations under prior law, all administrative orders relating to such registrations, and all conditions imposed upon such registrations remain in effect so long as they would have remained in effect if this Act had not been passed. They are considered to have been filed, entered, or imposed under this Act, but are governed by prior law.

“(d)  Prior law applies in respect of any sale made within one year after the effective date of this Act pursuant to an offering exempt under prior law which offering was begun in good faith before such effective date.

“(e)  Judicial review of all administrative orders as to which review proceedings have not been instituted by the effective date of this Act are governed by Section 20, except that no review proceeding may be instituted unless the petition is filed within any period of limitation which applied to a review proceeding when the order was entered and in any event within 60 days after the effective date of this Act.”

The effective date of the Act was July 2, 1980.

NOTES TO DECISIONS

1. Order Not Subject to Judicial Review.

An order approving the issuance of a subpoena in connection with the investigation of financial institutions was not a final order subject to judicial review. State v. First Trust Money Servs., 931 S.W.2d 226, 1996 Tenn. App. LEXIS 225 (Tenn. Ct. App. 1996).

48-1-121. Fraudulent acts or devices.

  1. It is unlawful for any person, in connection with the offer, sale or purchase of any security in this state, directly or indirectly, to:
    1. Employ any device, scheme, or artifice to defraud;
    2. Make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading; or
    3. Engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.
  2. It is unlawful for any person who receives any consideration from another person primarily for advising the other person as to the value of securities or their purchase or sale, whether through the issuance of analyses or reports or otherwise, in this state, to:
    1. Employ any device, scheme, or artifice to defraud the other person;
    2. Engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon the other person; or
    3. Take or have custody of any securities or funds of any client except as the commissioner may by rule permit or unless the person is licensed as a broker-dealer under this part.
  3. It is unlawful for any person to make or cause to be made, in any document filed with the commissioner or in any proceeding under this part, any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading.
  4. The commissioner may, after notice and opportunity for a hearing under the Uniform Administrative Procedures Act, compiled in title 4, chapter 5, impose a civil penalty against any person found to be in violation of this section, or any rule or order adopted or issued under this section, in an amount not to exceed ten thousand dollars ($10,000) per violation, or in an amount not to exceed twenty thousand dollars ($20,000) per violation if an individual who is a designated adult is a victim.

Acts 1980, ch. 866, § 21; T.C.A., § 48-16-121; Acts 1996, ch. 1072, § 9; 1997, ch. 164, § 7; 2010, ch. 829, § 4; T.C.A., § 48-2-121; Acts 2017, ch. 424, § 42.

Code Commission Notes.

Former § 48-2-121 was transferred to § 48-1-121 by the code commission in 2012.

Compiler's Notes. The Securities Law of 1955, formerly codified as §§ 48-1601 — 48-1653, was repealed by Acts 1980, ch. 886, § 27. However, the section also contained a savings provision referring to former §§ 48-1601 — 48-1653 which read:

“(b)  Prior law exclusively governs all suits, actions, prosecutions, or proceedings which are pending or may be initiated on the basis of facts or circumstances occurring before the effective date of this Act, except that no civil suit or action may be maintained to enforce any liability under prior law unless brought within any period of limitation which applied when the cause of action accrued and in any event within two years after the effective date of this Act.

“(c)  All effective registrations under prior law, all administrative orders relating to such registrations, and all conditions imposed upon such registrations remain in effect so long as they would have remained in effect if this Act had not been passed. They are considered to have been filed, entered, or imposed under this Act, but are governed by prior law.

“(d)  Prior law applies in respect of any sale made within one year after the effective date of this Act pursuant to an offering exempt under prior law which offering was begun in good faith before such effective date.

“(e)  Judicial review of all administrative orders as to which review proceedings have not been instituted by the effective date of this Act are governed by Section 20, except that no review proceeding may be instituted unless the petition is filed within any period of limitation which applied to a review proceeding when the order was entered and in any event within 60 days after the effective date of this Act.”

The effective date of the Act was July 2, 1980.

Law Reviews.

SEC Injunctions, 68 Tenn. L. Rev. 427 (2001).

NOTES TO DECISIONS

1. Elements of Offense.

Reliance by victims is not an element to the offense of omitting or misrepresenting a material fact in connection with the sale or purchase of securities. State v. Brewer, 932 S.W.2d 1, 1996 Tenn. Crim. App. LEXIS 96 (Tenn. Crim. App. 1996).

The burdens are different for a private cause of action using § 48-2-122 (now T.C.A. § 48-1-122), and for a criminal enforcement action under § 48-2-121 (now T.C.A. § 48-1-121) by law enforcement authorities. Constantine v. Miller Indus., Inc., 33 S.W.3d 809, 2000 Tenn. App. LEXIS 202 (Tenn. Ct. App. 2000), review or rehearing denied, — S.W.3d —, 2000 Tenn. LEXIS 666 (Tenn. 2000), overruled in part, Green v. Green, 293 S.W.3d 493, 2009 Tenn. LEXIS 518 (Tenn. Aug. 26, 2009).

Actual reliance is a requirement for maintaining a private cause of action under § 48-2-122(c) (now T.C.A. § 48-1-122(c)) for a violation of § 48-2-121 (now T.C.A. § 48-1-121). Constantine v. Miller Indus., Inc., 33 S.W.3d 809, 2000 Tenn. App. LEXIS 202 (Tenn. Ct. App. 2000), review or rehearing denied, — S.W.3d —, 2000 Tenn. LEXIS 666 (Tenn. 2000), overruled in part, Green v. Green, 293 S.W.3d 493, 2009 Tenn. LEXIS 518 (Tenn. Aug. 26, 2009).

Trial court erred in dismissing investors'  claims of common-law fraud and misrepresentation, negligence, and breach of fiduciary duty claims made against their investment advisor, at the summary judgment stage, because, the investors claimed that the advisor recommended that they made investments he knew were risky despite the fact that they told him they wanted to make safe, conservative investments and the advisor received a larger commission on those investments while the investors sustained significant financial losses as a result of his representations that their investments were safe. Johnson v. John Hancock Funds, 217 S.W.3d 414, 2006 Tenn. App. LEXIS 447 (Tenn. Ct. App. 2006), appeal denied, Johnson v. John Hancock Funds, LLC, — S.W.3d —, 2006 Tenn. LEXIS 1114 (Tenn. Nov. 20, 2006).

While providing a prospectus may satisfy the disclosure requirements in SEC Rule 10b-5(b), it does not necessarily foreclose other federal claims; and by the same token, the court declined to find that providing a client with a prospectus is a complete defense, as a matter of law, to state claims that the stock broker or investment advisor misrepresented facts or failed to disclose facts material to his or her client's investment decisions. Johnson v. John Hancock Funds, 217 S.W.3d 414, 2006 Tenn. App. LEXIS 447 (Tenn. Ct. App. 2006), appeal denied, Johnson v. John Hancock Funds, LLC, — S.W.3d —, 2006 Tenn. LEXIS 1114 (Tenn. Nov. 20, 2006).

Although appellate court improperly made reliance an element of a claim under T.C.A. § 48-2-122(b)(1) (now T.C.A. § 48-1-122(b)(1)), order granting summary judgment was properly reversed because the record contained genuine disputes regarding the material facts relating to the substance of the purchaser's statements to the seller regarding a bank line of credit and the materiality of such statements. Green v. Green, 293 S.W.3d 493, 2009 Tenn. LEXIS 518 (Tenn. Aug. 26, 2009).

Lawyer who pleaded guilty to facilitation of a felony violation of T.C.A. § 48-2-121 (now T.C.A. § 48-1-121) was guilty of a serious crime within the meaning of American Bar Association Standards for Imposing Lawyer Sanctions § 5.11. Given aggravating factors of his prior discipline, his experience practicing law, and his lack of remorse, disbarment was appropriate. Talley v. Bd. of Prof'l Responsibility, 358 S.W.3d 185, 2011 Tenn. LEXIS 971 (Tenn. Oct. 26, 2011).

2. Federal Law.

The language of Tennessee's Securities Act closely follows Rule 10b-5 of the securities and exchange commission, omitting only the jurisdictional requirement of the federal act that an instrumentality of interstate commerce be used. Ockerman v. May Zima & Co., 27 F.3d 1151, 1994 FED App. 0230P, 1994 U.S. App. LEXIS 16109 (6th Cir. Tenn. 1994).

Where the district court properly dismissed investors'  claims against a brokerage under 15 U.S.C. § 78j(b) for failure to meet the heightened pleading requirements of 15 U.S.C. § 78u-4(b)(2), the court did not abuse its discretion in declining to exercise 28 U.S.C. § 1367 supplemental jurisdiction over the investors'  claims under T.C.A. § 48-2-121(a) (now T.C.A. § 48-1-121(a)) and Ala. Code § 8-6-19. Robert N. Clemens Trust v. Morgan Stanley DW, Inc., 485 F.3d 840, 2007 U.S. App. LEXIS 10111, 2007 FED App. 153P (6th Cir. May 2, 2007).

3. Limitation of Actions.

Two-year statute of limitations in § 48-2-122 (now T.C.A. § 48-1-122) rather than three-year statute of limitations for Tennessee common-law fraud and deceit claims applies to claims under Rule 10b-5 of the securities and exchange commission. Ockerman v. May Zima & Co., 694 F. Supp. 414, 1988 U.S. Dist. LEXIS 15329, 1988 U.S. Dist. LEXIS 18368 (M.D. Tenn. 1988).

4. —When Convictions Not Multiplicitous.

Where the various counts on which the defendant was convicted required proof of facts which were unnecessary for conviction under other counts of the indictment, the convictions were not multiplicitous. State v. Brewer, 932 S.W.2d 1, 1996 Tenn. Crim. App. LEXIS 96 (Tenn. Crim. App. 1996).

5. Claim Sufficient.

Company's claims under the Tennessee Securities Act were sufficient to survive a motion to dismiss because it alleged that a collateralized debt obligation (CDO) was marketed from Memphis, Tennessee and that a Tennessee corporation was intricately involved in the marketing and sale of the CDO; the company alleged that misrepresentations and omissions were made in connection with the sale of a security in Tennessee, and a Tennessee corporation was intricately involved in the marketing and sale. First Cmty. Bank, N.A. v. First Tenn. Bank, N.A., — S.W.3d —, 2014 Tenn. App. LEXIS 498 (Tenn. Ct. App. Aug. 20, 2014), aff'd in part and vacated in part, First Cmty. Bank, N.A. v. First Tenn. Bank, 489 S.W.3d 369, 2015 Tenn. LEXIS 1005 (Tenn. Dec. 14, 2015).

48-1-122. Civil liabilities.

    1. Any person who:
      1. Sells a security in violation of §§ 48-1-104 — 48-1-109, 48-1-110(f), or of any condition imposed under § 48-1-107(e), or any rule, or order under this part of which the person has notice; or
      2. Sells a security in violation of § 48-1-121(a) (the purchaser not knowing of the violation of § 48-1-121(a), and who does not carry the burden of proof of showing that the person did not know and in the exercise of reasonable care could not have known of the violation of § 48-1-121(a));

        shall be liable to the person purchasing the security from the seller to recover the consideration paid for the security, together with interest at the legal rate from the date of payment, less the amount of any income received on the security, upon the tender of the security, or, if the purchaser no longer owns the security, the amount that would be recoverable upon a tender, less the value of the security when the purchaser disposed of it and interest at the legal rate from the date of disposition.

    2. Tender shall require only notice of willingness to exchange the security for the amount specified.
    3. Any notice may be given by service as in civil actions or by certified mail addressed to the last known address of the person liable.
    1. Any person who purchases a security in violation of § 48-1-121(a) (the seller not knowing of the violation of § 48-1-121(a), and who does not carry the burden of proof of showing that the purchaser did not know and in the exercise of reasonable care could not have known of the violation of § 48-1-121(a)) shall be liable to the person selling the security to the purchaser to return the security, plus any income received by the purchaser thereon, upon tender of the consideration received, or, if the purchaser no longer owns the security, the excess of the value of the security when the purchaser no longer owns the security, the excess of the value of the security when the purchaser disposed of it, plus interest at the legal rate from the date of disposition, over the consideration paid for the security.
    2. Tender requires only notice of willingness to pay the amount specified in exchange for the security.
    3. Any notice may be given by service as in civil actions or by certified mail to the last known address of the person liable.
    1. Any person who willfully engages in any act or conduct which violates § 48-1-121 shall be liable to any other person (not knowing that any such conduct constituted a violation of § 48-1-121) who purchases or sells any security at a price which was affected by the act or conduct for the damages sustained as a result of such act or conduct unless the person sued shall prove that the person sued acted in good faith and did not know, and in the exercise of reasonable care could not have known, that such act or conduct violated § 48-1-121.
    2. Damages shall be the difference between the price at which the other person purchased or sold securities and the market value which the securities would have had at the time of the other person's purchase or sale in the absence of the act or conduct plus interest at the legal rate.
  1. Any person who shall make or cause to be made any statement in any application, report, or document filed pursuant to this part or any rule or order hereunder or any undertaking contained in a registration statement hereunder, or in any advice given in such person's capacity as an investment adviser, which statement was at the time and in the light of the circumstances under which it was made false or misleading with respect to any material fact, shall be liable to any person (not knowing that any such statement was false or misleading) who, in reliance upon such statement, shall have purchased or sold a security at a price which was affected by such statement, for damages (calculated as provided in subsections (a) and (b)) caused by such reliance, unless the person sued shall prove that the person sued acted in good faith and had no knowledge that such statement was false or misleading and in the exercise of reasonable care could not have known that such statement was false or misleading.
  2. A person seeking to enforce any liability under this section may sue either at law or in equity in any court of competent jurisdiction.
  3. In any such suit under this section, the court may, in its discretion, require an undertaking for the payment of the costs of such suit, and assess reasonable costs, including reasonable attorneys' fees, against either party litigant.
  4. Every person who directly or indirectly controls a person liable under this section, every partner, principal executive officer, or director of such person, every person occupying a similar status or performing similar functions, every employee of such person who materially aids in the act or transaction constituting the violation, and every broker-dealer or agent who materially aids in the act or transaction constituting the violation, are also liable jointly and severally with and to the same extent as such person, unless the person who would be liable under this subsection (g) proves that the person who would be liable did not know, and in the exercise of reasonable care could not have known, of the existence of the facts by reason of which the liability is alleged to exist. There is contribution as in cases of contract among the several persons so liable.
  5. No action shall be maintained under this section unless commenced before the expiration of five (5) years after the act or transaction constituting the violation or the expiration of two (2) years after the discovery of the facts constituting the violation, or after such discovery should have been made by the exercise of reasonable diligence, whichever first expires.
  6. Any condition, stipulation, or provision binding any person acquiring any security to waive compliance with any provision of this part or any rule or order hereunder is void.
  7. The rights and remedies under this part are in addition to any other rights or remedies that may exist at law or in equity.
  8. The legal rate of interest shall be that as provided by § 47-14-121.

Acts 1980, ch. 866, § 22; 1981, ch. 459, §§ 3, 4; T.C.A., § 48-16-122; Acts 1996, ch. 1072, §§ 4, 5; 2003, ch. 100, §§ 1, 2; T.C.A., § 48-2-122.

Code Commission Notes.

Former § 48-2-122 was transferred to § 48-1-122 by the code commission in 2012.

Compiler's Notes. The Securities Law of 1955, formerly codified as §§ 48-1601 — 48-1653, was repealed by Acts 1980, ch. 886, § 27. However, the section also contained a savings provision referring to former §§ 48-1601 — 48-1653 which read:

“(b)  Prior law exclusively governs all suits, actions, prosecutions, or proceedings which are pending or may be initiated on the basis of facts or circumstances occurring before the effective date of this Act, except that no civil suit or action may be maintained to enforce any liability under prior law unless brought within any period of limitation which applied when the cause of action accrued and in any event within two years after the effective date of this Act.

“(c)  All effective registrations under prior law, all administrative orders relating to such registrations, and all conditions imposed upon such registrations remain in effect so long as they would have remained in effect if this Act had not been passed. They are considered to have been filed, entered, or imposed under this Act, but are governed by prior law.

“(d)  Prior law applies in respect of any sale made within one year after the effective date of this Act pursuant to an offering exempt under prior law which offering was begun in good faith before such effective date.

“(e)  Judicial review of all administrative orders as to which review proceedings have not been instituted by the effective date of this Act are governed by Section 20, except that no review proceeding may be instituted unless the petition is filed within any period of limitation which applied to a review proceeding when the order was entered and in any event within 60 days after the effective date of this Act.”

The effective date of the Act was July 2, 1980.

Acts 2003, ch. 100, § 3 provided that the amendment to subsection (h) shall apply to all proceedings addressed by this part that are commenced on or after May 7, 2003.

Law Reviews.

Securities Issuer Liability for Third Party Misstatements: Refining the Entanglement Standard see 53 Vand. L. Rev. 947 (2000).

NOTES TO DECISIONS

1. Reliance Upon Misrepresentations.

Actual reliance continues to be a requirement for maintaining a private cause of action under T.C.A. § 48-2-122(c) (now T.C.A. § 48-1-122(c)) for a violation of T.C.A. § 48-2-121 (now T.C.A. § 48-1-121). Constantine v. Miller Indus., Inc., 33 S.W.3d 809, 2000 Tenn. App. LEXIS 202 (Tenn. Ct. App. 2000), review or rehearing denied, — S.W.3d —, 2000 Tenn. LEXIS 666 (Tenn. 2000), overruled in part, Green v. Green, 293 S.W.3d 493, 2009 Tenn. LEXIS 518 (Tenn. Aug. 26, 2009).

Trial court erred in dismissing investors'  claims of common-law fraud and misrepresentation, negligence, and breach of fiduciary duty claims made against their investment advisor, at the summary judgment stage, because, the investors claimed that the advisor recommended that they made investments he knew to be risky despite the fact that they told him they wanted to make safe, conservative investments and the advisor received a larger commission on those investments while the investors sustained significant financial losses as a result of his representations that their investments were safe. Johnson v. John Hancock Funds, 217 S.W.3d 414, 2006 Tenn. App. LEXIS 447 (Tenn. Ct. App. 2006), appeal denied, Johnson v. John Hancock Funds, LLC, — S.W.3d —, 2006 Tenn. LEXIS 1114 (Tenn. Nov. 20, 2006).

While providing a prospectus may satisfy the disclosure requirements in SEC Rule 10b-5(b), codified in 17 CFR 240.10b-5(b), it does not necessarily foreclose other federal claims; and by the same token, the court declined to find that providing a client with a prospectus is a complete defense, as a matter of law, to state claims that the stock broker or investment advisor misrepresented facts or failed to disclose facts material to his or her client's investment decisions. Johnson v. John Hancock Funds, 217 S.W.3d 414, 2006 Tenn. App. LEXIS 447 (Tenn. Ct. App. 2006), appeal denied, Johnson v. John Hancock Funds, LLC, — S.W.3d —, 2006 Tenn. LEXIS 1114 (Tenn. Nov. 20, 2006).

Where trustees of retirement plans alleged that securities brokers were liable for their registered agent's theft of plans'  funds which were entrusted to the agent for investment, the agent could only deal in securities based on registration with the brokers, and thus the brokers could be liable for the agent's theft under T.C.A. § 48-2-122(g) (now T.C.A. § 48-1-122(g)) even though the brokers only controlled the agent indirectly. As You Sow v. AIG Fin. Advisors, Inc., 584 F. Supp. 2d 1034, 2008 U.S. Dist. LEXIS 29365 (M.D. Tenn. Mar. 26, 2008).

Although appellate court improperly made reliance an element of a claim under T.C.A. § 48-2-122(b)(1) (now T.C.A. § 48-1-122(b)(1)), order granting summary judgment was properly reversed because the record contained genuine disputes regarding the material facts relating to the substance of the purchaser's statements to the seller regarding a bank line of credit and the materiality of such statements. Green v. Green, 293 S.W.3d 493, 2009 Tenn. LEXIS 518 (Tenn. Aug. 26, 2009).

2. Limitation of Actions.

Statute of limitations applicable to actions under Tennessee's Blue Sky Law is not applicable to federal securities claims. Media General, Inc. v. Tanner, 625 F. Supp. 237, 1985 U.S. Dist. LEXIS 13970 (W.D. Tenn. 1985).

Two-year statute of limitations in this section rather than three-year statute of limitations for Tennessee common-law fraud and deceit claims applies to claims under Rule 10b-5 of the securities and exchange commission. Ockerman v. May Zima & Co., 694 F. Supp. 414, 1988 U.S. Dist. LEXIS 15329, 1988 U.S. Dist. LEXIS 18368 (M.D. Tenn. 1988).

Federal securities claims are subject to the statute of limitations applicable to actions under Tennessee's Blue Sky laws, and not to the statute of limitations applicable to Tennessee common law fraud and deceit claims. Logan v. Ledford, 699 F. Supp. 141, 1988 U.S. Dist. LEXIS 12469 (M.D. Tenn. 1988).

With respect to federal securities act claims, the appropriate statute of limitations is this section, rather than T.C.A. § 28-3-105. Montcastle v. American Health Sys., 702 F. Supp. 1369, 1988 U.S. Dist. LEXIS 16419 (E.D. Tenn. 1988).

In a securities and exchange commission Rule 10b-5 action, federal courts in this state should borrow the three-year statute of limitations governing actions for common-law fraud. Nichols v. Merrill Lynch, Pierce, Fenner & Smith, 706 F. Supp. 1309, 1989 U.S. Dist. LEXIS 1182 (M.D. Tenn. 1989).

The Tennessee Securities Act of 1980 with its two-year statute of repose, subsection (h) of this section, is the most analogous statute to SEC Rule 10b-5, codified in 17 CFR 240.10b-5, and thus this section, and not T.C.A. § 28-3-105, the three-year statute of limitations for common law fraud, applies to 10b-5 cases in Tennessee. Ockerman v. May Zima & Co., 27 F.3d 1151, 1994 FED App. 0230P, 1994 U.S. App. LEXIS 16109 (6th Cir. Tenn. 1994).

Investors' claims to recover monetary damages against investment firm are based solely on common law breach of fiduciary duty and do not fall within the ambit of subsection (h) of this section. Instead, breach of fiduciary duty claims are quasi-contractual in nature and the applicable statute of limitations is six years pursuant to T.C.A. § 28-3-109(a)(3). Dean Witter Reynolds v. McCoy, 853 F. Supp. 1023, 1994 U.S. Dist. LEXIS 7685 (E.D. Tenn. 1994), aff'd without opinion, Dean Witter Reynolds, Inc. v. McCoy, 70 F.3d 1271, 1995 U.S. App. LEXIS 39272 (6th Cir. Tenn. 1995).

Where a seller gave repeated assurances to purchasers of unregistered securities that civil claims were being filed on their behalf and persuaded the purchasers not to file individual actions, equitable estoppel was properly applied to allow amendment of a complaint in order to add a cause of action under the Tennessee Securities Act. Hardcastle v. Harris, 170 S.W.3d 67, 2004 Tenn. App. LEXIS 827 (Tenn. Ct. App. 2004), appeal denied, — S.W.3d —, 2005 Tenn. LEXIS 500 (Tenn. May 23, 2005).

3. Tolling of Limitations.

Subsection (h) places an absolute two-year cap on the bringing of actions which cannot be tolled merely by a plaintiff's failure to discover a cause of action. Montcastle v. American Health Sys., 702 F. Supp. 1369, 1988 U.S. Dist. LEXIS 16419 (E.D. Tenn. 1988).

The two-year limitations period in subsection (h) may, in certain circumstances, be tolled by fraudulent concealment. Montcastle v. American Health Sys., 702 F. Supp. 1369, 1988 U.S. Dist. LEXIS 16419 (E.D. Tenn. 1988).

Plaintiffs' claims against the defendants under the Tennessee Blue Sky Law, for investments made more than two years before the action was filed, were barred under the two year provision of T.C.A. § 48-2-122(h) (now T.C.A. § 48-1-122(h)). Joyner v. Triple Check Financial Service, 782 F. Supp. 364, 1991 U.S. Dist. LEXIS 19144 (W.D. Tenn. 1991).

4. Notice Requirement.

T.C.A. § 48-2-122(a)(1)(A) (now T.C.A. § 48-1-122(a)(1)(H)) phrase “of which the person has notice” applies only to that statute's internal reference to “any condition imposed under T.C.A. § 48-2-107(f) (now T.C.A. § 48-1-107(f)), or any rule, or order under this part” because: (1) The Tennessee general assembly's repetitive use of the preposition “of” reflects an intention to distinguish between violations of T.C.A. §§ 48-2-104, 48-2-109, and 48-2-110(f) (now T.C.A. §§ 48-1-104, 48-2-109, and 48-1-110(f)), and violations of any condition imposed under T.C.A. § 48-2-107(f) (now T.C.A. § 48-1-107(f)), or any rule, or order; and (2) Since the former violations are statutory and the latter involve violations of a rule or order issued by the Tennessee division of securities, the general assembly could reasonably have decided to apply the notice requirement to administrative actions by the division, but not to violations of the Tennessee securities act of 1980. Hardcastle v. Harris, 170 S.W.3d 67, 2004 Tenn. App. LEXIS 827 (Tenn. Ct. App. 2004), appeal denied, — S.W.3d —, 2005 Tenn. LEXIS 500 (Tenn. May 23, 2005).

Because the notice requirement of T.C.A. § 48-2-122 (now T.C.A. § 48-1-122) does not apply to the entire statute, a seller's defense regarding a lack of notice that certain contracts constituted unregistered securities was rejected. Hardcastle v. Harris, 170 S.W.3d 67, 2004 Tenn. App. LEXIS 827 (Tenn. Ct. App. 2004), appeal denied, — S.W.3d —, 2005 Tenn. LEXIS 500 (Tenn. May 23, 2005).

5. Misrepresentation.

Although appellate court improperly made reliance an element of a claim under T.C.A. § 48-2-122(b)(1) (now T.C.A. § 48-1-122(b)(1)), order granting summary judgment was properly reversed because the record contained genuine disputes regarding the material facts relating to the substance of the purchaser's statements to the seller regarding a bank line of credit and the materiality of such statements. Green v. Green, 293 S.W.3d 493, 2009 Tenn. LEXIS 518 (Tenn. Aug. 26, 2009).

6. Secondary Liability.

Because a complaint filed by plaintiff receivers for two failed entities alleged defendant attorney was a well-connected “bag man” in the entities securities fraud scheme, drafted relevant documents, communicated with investors, diverted funds, and told employees of the entities how to do their jobs, general involvement and control was indicated such that an aiding and assisted claim under T.C.A. §§ 48-2-102(3), 48-5-122(g) (now T.C.A. §§ 48-1-102(3), 48-1-122(g)), had been sufficiently pleaded. Cumberland & Ohio Co. v. Coffman, 719 F. Supp. 2d 884, 2010 U.S. Dist. LEXIS 50316 (M.D. Tenn. May 21, 2010).

Decisions Under Prior Law

1. Reliance Upon Misrepresentations.

When a material misrepresentation is made, reliance upon that misrepresentation must be proven to recover. Diversified Equities, Inc. v. Warren, 567 S.W.2d 171, 1976 Tenn. App. LEXIS 271 (Tenn. Ct. App. 1976), overruled, V. L. Nicholson Co. v. Transcon Inv. & Financial, Ltd., 595 S.W.2d 474, 1980 Tenn. LEXIS 406 (Tenn. 1980), overruled in part, Green v. Green, 293 S.W.3d 493, 2009 Tenn. LEXIS 518 (Tenn. Aug. 26, 2009).

2. Estoppel.

Where investor took an active part in the management of a corporation in which the investor had purchased stock and generally participated in its management, the investor's conduct estopped the investor from rescinding the investor's stock purchase. Tucker v. McDell's, Inc., 50 Tenn. App. 62, 359 S.W.2d 597, 1961 Tenn. App. LEXIS 140 (Tenn. Ct. App. 1961).

48-1-123. Criminal prosecution.

  1. Any person who willfully violates any provision of this part or who willfully violates any rule or order under this part commits a Class D felony. No person may be imprisoned for the violation of any rule or order if the person proves that the person had no actual knowledge of the rule or order.
  2. The commissioner may refer such evidence as is available concerning violations of this part or of any rule or order hereunder to the attorney general and reporter, or the district attorney general in the county where the violation was committed, either of whom may, with or without such a reference, institute the appropriate criminal proceedings under this part.
  3. Nothing in this part limits the power of this state to punish any person for any conduct which constitutes a crime by statute or at common law.

Acts 1980, ch. 866, § 23; T.C.A., § 48-16-123; Acts 1989, ch. 591, § 42; 1996, ch. 1072, § 3; T.C.A., § 48-2-123.

Code Commission Notes.

Former § 48-2-123 was transferred to § 48-1-123 by the code commission in 2012.

Compiler's Notes. The Securities Law of 1955, formerly codified as §§ 48-1601 — 48-1653, was repealed by Acts 1980, ch. 886, § 27. However, the section also contained a savings provision referring to former §§ 48-1601 — 48-1653 which read:

“(b)  Prior law exclusively governs all suits, actions, prosecutions, or proceedings which are pending or may be initiated on the basis of facts or circumstances occurring before the effective date of this Act, except that no civil suit or action may be maintained to enforce any liability under prior law unless brought within any period of limitation which applied when the cause of action accrued and in any event within two years after the effective date of this Act.

“(c)  All effective registrations under prior law, all administrative orders relating to such registrations, and all conditions imposed upon such registrations remain in effect so long as they would have remained in effect if this Act had not been passed. They are considered to have been filed, entered, or imposed under this Act, but are governed by prior law.

“(d)  Prior law applies in respect of any sale made within one year after the effective date of this Act pursuant to an offering exempt under prior law which offering was begun in good faith before such effective date.

“(e)  Judicial review of all administrative orders as to which review proceedings have not been instituted by the effective date of this Act are governed by Section 20, except that no review proceeding may be instituted unless the petition is filed within any period of limitation which applied to a review proceeding when the order was entered and in any event within 60 days after the effective date of this Act.”

The effective date of the Act was July 2, 1980.

Cross-References. Penalty for Class D felony, § 40-35-111.

NOTES TO DECISIONS

1. Willfully.

Defendant's convictions for willfully selling securities without registering with the state as a broker-dealer or agent in violation of T.C.A. § 48-2-109 (now T.C.A. § 48-1-109) were reinstated because the term willfully in T.C.A. § 48-2-123(a) (now T.C.A. § 48-1-123(a)) required only that defendant acted deliberately and was fully aware of his conduct and defendant was aware he was selling securities and knew that he was not registered as a broker-dealer or agent. State v. Casper, 297 S.W.3d 676, 2009 Tenn. LEXIS 719 (Tenn. Nov. 6, 2009).

48-1-124. Scope of law — Service of process.

  1. This part applies to persons who buy or sell securities from, in, or into this state, or who give or receive advice concerning the purchase or sale of securities from, in, or into this state.
  2. For the purpose of this section, a purchase or sale is made in this state, whether or not either party is then present in this state, when:
    1. An offer that results in a sale originates from this state;
    2. An offer to purchase or sell a security is accepted in this state; or
    3. An offer that results in a sale is directed by the offeror to this state and received at the place to which it is directed or at any post office in this state in the case of a mailed offer.
  3. For the purpose of this section, an offer to buy or to sell is accepted in this state when acceptance is communicated to the offeror in this state and:
    1. Has not previously been communicated to the offeror, orally or in writing, outside this state; and
    2. Whether or not either party is then present in this state, when the offeree directs it to the offeror in this state reasonably believing the offeror to be in this state and it is received at the place to which it is directed (or at any post office in this state in the case of a mailed acceptance).
  4. Sections 48-1-109(a) and (c) and 48-1-121 apply when any act instrumental in effecting prohibited conduct is done in this state, whether or not either party is then present in this state.
  5. Every applicant for registration and renewal under this part, every person making a notice filing, and every issuer for whom a registration, exemption from registration, or notice filing or renewal is required under this part, shall file with the commissioner, in such form as the commissioner by rule prescribes, an irrevocable consent appointing the commissioner or the commissioner's successor in office to be the applicant's or issuer's attorney-in-fact to receive service of any lawful process in any noncriminal suit, action, or proceeding against the applicant or issuer or the applicant's or issuer's successor, executor, or administrator, which arises under this part or any rule or order hereunder after the consent has been filed, with the same force and validity as if served personally on the person filing the consent. Service may be made by leaving a copy of the process in the office of the commissioner, but it is not effective unless:
    1. The plaintiff, who may be the commissioner in a suit, action, or proceeding instituted by the commissioner, forthwith sends notice of the service and a copy of the process by registered mail to the defendant or respondent at the defendant's or respondent's last address on file with the commissioner; and
    2. The plaintiff's affidavit of compliance with this subsection (e) is filed in the case on or before the return day of the process, if any, or within such further time as the court allows.
  6. When any person, including any nonresident of this state, engages in conduct prohibited or made actionable by this part or any rule or order hereunder, and has not filed a consent to service of process under subsection (e) and personal jurisdiction over the person cannot otherwise be obtained in this state, the conduct shall be considered equivalent to the appointment of the commissioner or the commissioner's successor in office to be such person's attorney-in-fact to receive service of any lawful process to the same extent as if such person had filed a consent to service of process under subsection (e).
  7. When process is served under this section, the court, or the commissioner in a proceeding before the commissioner, shall order such continuance as may be necessary to afford the defendant or respondent reasonable opportunity to defend.
  8. Pursuant to Section 6(c) of the federal Philanthropy Protection Act of 1995, Public Law 104-62 (15 U.S.C. § 80a-3a(c)), this part shall not be preempted.

Acts 1980, ch. 866, § 24; T.C.A., § 48-16-124; Acts 1997, ch. 61, § 2; T.C.A., § 48-2-124; Acts 2017, ch. 424, §§ 43-45.

Code Commission Notes.

Former § 48-2-124 was transferred to § 48-1-124 by the code commission in 2012.

Compiler's Notes. The Securities Law of 1955, formerly codified as §§ 48-1601 — 48-1653, was repealed by Acts 1980, ch. 886, § 27. However, the section also contained a savings provision referring to former §§ 48-1601 — 48-1653 which read:

“(b)  Prior law exclusively governs all suits, actions, prosecutions, or proceedings which are pending or may be initiated on the basis of facts or circumstances occurring before the effective date of this Act, except that no civil suit or action may be maintained to enforce any liability under prior law unless brought within any period of limitation which applied when the cause of action accrued and in any event within two years after the effective date of this Act.

“(c)  All effective registrations under prior law, all administrative orders relating to such registrations, and all conditions imposed upon such registrations remain in effect so long as they would have remained in effect if this Act had not been passed. They are considered to have been filed, entered, or imposed under this Act, but are governed by prior law.

“(d)  Prior law applies in respect of any sale made within one year after the effective date of this Act pursuant to an offering exempt under prior law which offering was begun in good faith before such effective date.

“(e)  Judicial review of all administrative orders as to which review proceedings have not been instituted by the effective date of this Act are governed by Section 20, except that no review proceeding may be instituted unless the petition is filed within any period of limitation which applied to a review proceeding when the order was entered and in any event within 60 days after the effective date of this Act.”

The effective date of the Act was July 2, 1980.

Cross-References. Certified mail in lieu of registered mail, § 1-3-111.

48-1-125. Notice filing and fee requirements for covered securities.

      1. Any issuer, except an issuer of any security that is a covered security under subdivisions (a)(1)(B)-(D), which proposes to sell any security which is a covered security shall file with the commissioner, prior to a sale of such security in this state, a notice consisting of all documents filed with the securities and exchange commission, together with:
        1. A consent to service of process as required under § 48-1-124(e), unless built into the notice filing form; and
        2. A nonrefundable filing fee of five hundred dollars ($500).
      2. An issuer planning to offer and sell securities in this state in an offering pursuant to Tier 2 of Regulation A shall submit the following at least twenty-one (21) days prior to the initial sale in this state:
        1. A completed Regulation A-Tier 2 notice filing form or copies of all documents filed with the securities and exchange commission;
        2. A consent to service of process as required under § 48-1-124(e), if not filing on the Regulation A-Tier 2 notice filing form; and
        3. A nonrefundable filing fee of five hundred dollars ($500).
        1. With respect to any security that is a covered security under § 18(b)(4)(C) of the Securities Act of 1933 (15 U.S.C. §  77r(b)(4)(C)), the issuer shall file with the commissioner a notice consisting of:
          1. A completed Uniform Notice of Federal Crowdfunding Offering form or copies of all documents filed with the securities and exchange commission;
          2. A consent to service of process as required under § 48-1-124(e), if not filing on the Uniform Notice of Federal Crowdfunding Offering form; and
          3. A nonrefundable filing fee of five hundred dollars ($500).
        2. If the issuer has its principal place of business in this state, the filing required under subdivision (a)(1)(C)(i) shall be filed with the commissioner concurrently when the issuer files its initial Form C with the securities and exchange commission.
        3. If the issuer does not have its principal place of business in this state but residents of this state have purchased fifty percent (50%) or greater of the aggregate amount of the offering, the filing required under subdivision (a)(1)(C)(i) shall be filed when the issuer becomes aware that such purchases have met that threshold and, in any event, no later than thirty (30) days from the date of completion of the offering.
      3. With respect to any security that is a covered security under § 18(b)(4)(E) of the Securities Act of 1933, the issuer shall file with the commissioner, no later than fifteen (15) days after the first sale of such covered security in this state, a notice consisting of:
        1. Form D signed by the issuer; and
        2. A nonrefundable filing fee of five hundred dollars ($500).
    1. After the initial offer of a covered security in this state, all documents that are part of an amendment to a federal registration statement or Form D filed with the securities and exchange commission under the Securities Act of 1933 (15 U.S.C. § 77a et seq.), shall be filed concurrently with the commissioner.
    2. All documents referred to in subdivisions (a)(1) and (a)(2) that have been filed and recorded on the Electronic Data Gathering Access and Retrieval (EDGAR) system, the Interactive Data Electronic Applications (IDEA) system, the Electronic Filing Depository (EFD), or any other electronic data gathering system either maintained by the securities and exchange commission or approved by the commissioner, may be utilized in lieu of filing such documents in paper form with the commissioner or the commissioner's designee; provided, that the person making the notice filing provides an accurate filing number or other identifying designation issued by the securities and exchange commission, and that a printed or electronically stored copy is immediately accessible to the commissioner or the commissioner's designee.
    1. Notice filings made pursuant to subdivision (a)(1)(A) are effective for one (1) year commencing on the later of the notice filing date or the securities and exchange commission effective date. Notice filings may be renewed by making a filing and paying a fee as provided under subdivision (a)(1)(A) no later than the close of business on the tenth business day prior to the date of expiration.
    2. Notice filings made pursuant to subdivision (a)(1)(B) are effective for one (1) year from the date of filing and may be renewed by making a filing as required by subdivision (a)(1)(B) and paying a nonrefundable renewal fee of one hundred dollars ($100).
    3. Notice filings made pursuant to subdivision (a)(1)(C) are effective for one (1) year from the date of filing and may be renewed by making a filing as required by subdivision (a)(1)(C) and paying a nonrefundable renewal fee of one hundred dollars ($100).
    4. Notice filings made pursuant to subdivision (a)(1)(D) are effective for one (1) year from the date of filing unless the issuer conducts a continuous offering and files concurrent amendments as required by subdivision (a)(2) and pays a nonrefundable renewal fee of one hundred dollars ($100).
    1. The commissioner may issue a stop order suspending the offer and sale of a covered security, except a covered security under § 18(b)(1) of the Securities Act of 1933 (15 U.S.C. § 77r(b)(1)), upon a finding that:
      1. The order is in the public interest; and
      2. There is a failure to comply with any filing or fee required under this part.
    2. Any issuer of a covered security that does not promptly remedy a delay in payment of any fee or promptly remedy a delay in making any filing required under this part shall be deemed not to have complied with such filing or fee requirements. For purposes of this subdivision (c)(2), an issuer will have promptly remedied a delay in payment or filing if the issuer remits the required fee or filing within ten (10) business days of receipt of notification of the delay or underpayment.
  1. When any amendment to a notice filing filed under this section changes the name of the offering of securities, the issuer shall pay a processing fee of fifty dollars ($50.00), payable upon filing the amendment with the commissioner.

Acts 1997, ch. 164, § 8; 2001, ch. 61, §§ 15-17; 2010, ch. 697, § 4; T.C.A., § 48-2-125; Acts 2017, ch. 424, § 46.

Code Commission Notes.

Former § 48-2-125 was transferred to § 48-1-125 by the code commission in 2012.

Compiler's Notes. The Securities Law of 1955, formerly codified as §§ 48-1601 — 48-1653, was repealed by Acts 1980, ch. 886, § 27. However, the section also contained a savings provision referring to former §§ 48-1601 — 48-1653 which read:

“(b)  Prior law exclusively governs all suits, actions, prosecutions, or proceedings which are pending or may be initiated on the basis of facts or circumstances occurring before the effective date of this Act, except that no civil suit or action may be maintained to enforce any liability under prior law unless brought within any period of limitation which applied when the cause of action accrued and in any event within two years after the effective date of this Act.

“(c)  All effective registrations under prior law, all administrative orders relating to such registrations, and all conditions imposed upon such registrations remain in effect so long as they would have remained in effect if this Act had not been passed. They are considered to have been filed, entered, or imposed under this Act, but are governed by prior law.

“(d)  Prior law applies in respect of any sale made within one year after the effective date of this Act pursuant to an offering exempt under prior law which offering was begun in good faith before such effective date.

“(e)  Judicial review of all administrative orders as to which review proceedings have not been instituted by the effective date of this Act are governed by Section 20, except that no review proceeding may be instituted unless the petition is filed within any period of limitation which applied to a review proceeding when the order was entered and in any event within 60 days after the effective date of this Act.”

The effective date of the Act was July 2, 1980.

Acts 2001, ch. 61, § 1 provided that the act shall be cited as “The Securities Omnibus Act of 2001.”

48-1-126. Exemptions from notice filing and fee requirements.

Notwithstanding § 48-1-125(a)(1)(A)(i) and (ii), the following covered securities are exempt from the notice filing and fee requirements set forth in § 48-1-125:

  1. Any covered security sold to an institutional investor, as defined under § 48-1-102;
  2. Any security that is defined to be a covered security pursuant to § 48-1-102 and is exempt from federal securities registration pursuant to § 3(a)(2) of the Securities Act of 1933;
  3. Any security that is defined to be a covered security pursuant to § 48-1-102 and is exempt from federal securities registration pursuant to § 3(a)(3) of the Securities Act of 1933;
  4. Any security that is defined to be a covered security pursuant to § 48-1-102 and is exempt from federal securities registration pursuant to § 3(a)(5) of the Securities Act of 1933;
  5. Any security that is defined to be a covered security pursuant to § 48-1-102 and is exempt from federal securities registration pursuant to § 3(a)(6) of the Securities Act of 1933;
  6. Any security that is defined to be a covered security pursuant to § 48-1-102 and is exempt from federal securities registration pursuant to § 3(a)(7) of the Securities Act of 1933;
  7. Any security that is defined to be a covered security pursuant to § 48-1-102 and is sold in a transaction exempt from federal registration pursuant to § 3(a)(9) of the Securities Act of 1933;
  8. Any security that is defined to be a covered security pursuant to § 48-1-102 and is sold in a transaction exempt from federal registration pursuant to § 3(a)(10) of the Securities Act of 1933;
  9. Any security that is defined to be a covered security pursuant to § 48-1-102 and is exempt from federal registration pursuant to § 3(a)(12) of the Securities Act of 1933;
  10. Any security that is defined to be a covered security pursuant to § 48-1-102 and is exempt from federal registration pursuant to § 3(a)(13) of the Securities Act of 1933;
  11. Any security that is defined to be a covered security pursuant to § 48-1-102 and is determined, by rule or order of the commissioner, that such notice filing is not necessary for the protection of investors;
  12. Any security issued by a unit investment trust that is registered under the federal Investment Company Act of 1940 (15 U.S.C. § 80a-1 et seq.), as amended, if:
    1. The units have been the subject of a previous notice filing and fee under this part and have been sold;
    2. The units are offered or sold by a broker-dealer registered under this part; and
    3. The units are sold by or on behalf of a sponsor or depositor of the unit investment trust or affiliate of the sponsor or depositor; and
  13. Any security that is defined to be a covered security pursuant to § 18(b)(1) of the Securities Act of 1933, or will be such a covered security upon completion of the transaction.

Acts 1999, ch. 74, § 2; 2010, ch. 697, § 5; T.C.A., § 48-2-126; Acts 2017, ch. 424, § 47.

Code Commission Notes.

Former § 48-2-126 was transferred to § 48-1-126 by the code commission in 2012.

Compiler's Notes. The Securities Law of 1955, formerly codified as §§ 48-1601 — 48-1653, was repealed by Acts 1980, ch. 886, § 27. However, the section also contained a savings provision referring to former §§ 48-1601 — 48-1653 which read:

“(b)  Prior law exclusively governs all suits, actions, prosecutions, or proceedings which are pending or may be initiated on the basis of facts or circumstances occurring before the effective date of this Act, except that no civil suit or action may be maintained to enforce any liability under prior law unless brought within any period of limitation which applied when the cause of action accrued and in any event within two years after the effective date of this Act.

“(c)  All effective registrations under prior law, all administrative orders relating to such registrations, and all conditions imposed upon such registrations remain in effect so long as they would have remained in effect if this Act had not been passed. They are considered to have been filed, entered, or imposed under this Act, but are governed by prior law.

“(d)  Prior law applies in respect of any sale made within one year after the effective date of this Act pursuant to an offering exempt under prior law which offering was begun in good faith before such effective date.

“(e)  Judicial review of all administrative orders as to which review proceedings have not been instituted by the effective date of this Act are governed by Section 20, except that no review proceeding may be instituted unless the petition is filed within any period of limitation which applied to a review proceeding when the order was entered and in any event within 60 days after the effective date of this Act.”

The effective date of the Act was July 2, 1980.

Section 3 of the Securities Act of 1933, referred to in this section, is codified in 15 U.S.C. § 77c.

48-1-127. Senior exploitation reporting and records.

    1. If a qualified individual reasonably believes that financial exploitation of a designated adult has occurred, has been attempted or may have been attempted, or is being attempted, the qualified individual, in cooperation with the qualified individual's broker-dealer or investment adviser, may notify the commissioner.
    2. Subsequent to notifying the commissioner, a qualified individual may, to the extent permitted under federal law, notify any of the following concerning the qualified individual's belief that financial exploitation may have occurred:
      1. A relative of the designated adult as defined in § 71-6-102;
      2. A legal guardian of the designated adult;
      3. A trustee, co-trustee, or successor trustee of the account of the designated adult;
      4. An agent under a power of attorney of the designated adult; or
      5. Any other person permitted under existing laws, rules, regulations, or customer agreement.
    1. A broker-dealer or investment adviser may delay a disbursement from an account of a designated adult or an account on which a designated adult is a beneficiary if:
      1. The broker-dealer, investment adviser, or qualified individual reasonably believes, after initiating an internal review of the requested disbursement and the suspected financial exploitation, that the requested disbursement may result in financial exploitation of a designated adult; and
      2. The broker-dealer or investment adviser:
        1. Immediately, but in no event more than two (2) business days after the requested disbursement, provides written notification of the delay and the reason for the delay to all parties authorized to transact business on the account, unless any such party is reasonably believed to have engaged in or attempted financial exploitation of the designated adult;
        2. Immediately, but in no event more than two (2) business days after the requested disbursement, notifies the commissioner; and
        3. Continues its internal review of the suspected or attempted financial exploitation of the designated adult, as necessary, and reports any additional results to the commissioner within seven (7) business days after the requested disbursement.
    2. The commissioner is authorized to establish additional disbursement-delay guidelines by rules promulgated in accordance with the Uniform Administrative Procedures Act, compiled in title 4, chapter 5.
    3. Any delay of a disbursement as authorized by this section shall expire upon the sooner of:
      1. A determination by the broker-dealer or investment adviser that the disbursement will not result in financial exploitation of the designated adult; or
      2. Fifteen (15) business days after the date on which the broker-dealer or investment adviser first delayed disbursement of the funds, unless the commissioner requests that the broker-dealer or investment adviser extends the delay, in which case the delay shall expire no more than twenty-five (25) business days after the date on which the broker-dealer or investment adviser first delayed disbursement of the funds unless otherwise terminated or extended by the commissioner or an order of a court of competent jurisdiction.
    4. A court of competent jurisdiction may enter an order extending the delay of the disbursement of funds or an order granting other protective relief based on the petition of the commissioner, the broker-dealer or investment adviser that initiated the delay under this section, or any other interested party.
  1. A broker-dealer, investment adviser, or qualified individual that, in good faith and exercising reasonable care, complies with subsections (a) and (b) is immune from liability for such conduct.
  2. A broker-dealer or investment adviser shall provide access to or copies of records that are relevant to the suspected financial exploitation of a designated adult to the commissioner. The records may include historical records or records relating to the most recent disbursement as well as disbursements that comprise the suspected financial exploitation of a designated adult. All records made available to the commissioner under this section shall not be open to inspection by members of the public under § 10-7-503.

Acts 2017, ch. 242, § 48.

Part 2
Miscellaneous Provisions

48-1-201. Participation certificates in bonds or notes secured by mortgages on realty.

Persons issuing and selling participation certificates in bonds or notes secured by mortgages or deeds of trust on land wherever located shall hold legal title to such bonds or notes in trust for the use and benefit of bona fide purchasers of such certificates to the extent of the interests sold to such purchasers, and such certificates and the interests represented thereby shall not be subject to the claims of creditors of the trustee holding legal title.

Acts 1980, ch. 599, § 1; T.C.A., § 48-16-201; Acts 1985, ch. 110, § 1; T.C.A., § 48-2-201.

Code Commission Notes.

Former § 48-2-201 was transferred to § 48-1-201 by the code commission in 2012.

Law Reviews.

The Federal Income Tax Considerations Involved in Forming and Operating a Bank Holding Company (Clayton D. Smith), 11 Mem. St. U.L. Rev. 453 (1981).

Chapters 2-10
[Reserved]
For-Profit Business Corporations

Chapter 11
General Provisions

Part 1
Short Title and Reservation of Power

48-11-101. Short title.

Chapters 11-27 of this title shall be known and may be cited as the “Tennessee Business Corporation Act.”

Acts 1986, ch. 887, § 1.01.

Cross-References. Acts of incorporation left unrepealed, § 1-2-105.

Applicability of business corporation law, title 48, chs. 11-27, to corporations existing on January 1, 1988, title 48, ch. 27.

Cemetery companies, title 46, ch. 2.

Chancery jurisdiction of controversies, § 16-11-105.

Corporations created by general law, Tenn. Const., art. XI, § 8.

Nonprofit corporations, general provisions, title 48, ch. 51.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-104, 5-203.

Law Reviews.

Aligning Law and Forum: The Home Court Advantage, 81 Tenn. L. Rev. 1 (2013).

The Supercharged IPO, 67 Vand. L. Rev. 307 (2014).

Dual Identities and Dueling Obligations: Preserving Independence in Corporate Representation, 68 Tenn. L. Rev. 179 (2001).

Punitive Damages and Business Organizations: A Pathetic Fallacy, 67 Tenn. L. Rev. 971 (2000).

The Debt-Equity Distinction in a Second-Best World, 53 Vand. L. Rev. 1055 (2000).

Why a Board? Group Decisionmaking in Corporate Governance, 55 Vand. L. Rev. 1 (2002).

Attorney General Opinions. Provision of physical therapy services by a non-professional corporation. OAG 94-131, 1994 Tenn. AG LEXIS 144 (11/8/94).

48-11-102. Reservation of power to amend or repeal.

The general assembly has the power to amend or repeal all or part of chapters 11-27 of this title at any time, and all domestic and foreign corporations subject to chapters 11-27 of this title shall be governed by the amendment or repeal.

Acts 1986, ch. 887, § 1.02.

Cross-References. General assembly's power to amend or repeal laws regarding domestic and foreign limited liability corporations, § 48-201-102.

General assembly's power to amend or repeal laws regarding domestic and foreign nonprofit corporations, § 48-51-102.

General assembly's power to amend or repeal laws regarding domestic and foreign professional corporations, § 48-101-634.

General assembly's power to amend or repeal laws regarding domestic and foreign professional limited liability corporations, § 48-248-606.

48-11-103. Eminent domain.

Chapters 11-27 of this title do not repeal or affect the right or power of eminent domain under other existing laws, and any corporation which shall have the power of eminent domain under existing laws shall have the power to the same extent and in the same manner as if organized under chapters 11-27 of this title, and all statutes of this state granting the power of eminent domain and making compensation shall remain in force and effect and applicable to the appropriate existing corporations and to the appropriate corporations organized under chapters 11-27 of this title.

Acts 1986, ch. 887, § 1.03.

Cross-References. Nonprofit corporations — Eminent domain, § 48-51-103.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Internal Improvements.

Corporation incorporated for the purpose of building, buying, maintaining, leasing, owning and/or operating pipelines or water mains, etc., and which engaged in the installation of a pipeline from the city water main to a subdivision was engaged in a work of internal improvement so as to have the right of eminent domain under § 29-16-101. Shinkle v. Nashville Improv. Co., 172 Tenn. 555, 113 S.W.2d 404, 1937 Tenn. LEXIS 97 (1938).

48-11-104. Applicability.

Chapters 11-27 of this title shall apply to every corporation for profit now existing or hereafter formed, and to the outstanding and future securities thereof; provided, that, if there are other specific statutory provisions which govern the formation of, impose restrictions or requirements on, confer special powers, privileges or authorities on, or fix special procedures or methods for, special categories of corporations, then to the extent such provisions are inconsistent with or different from chapters 11-27 of this title, such provisions shall prevail.

Acts 1987, ch. 273, § 2.

Part 2
Definitions and Notice

48-11-201. Definitions for chapters 11 through 27.

As used in chapters 11-27 of this title, unless the context otherwise requires (or the term is otherwise defined in another chapter of the Tennessee Business Corporation Act, in which event the term shall have such other meaning for that chapter):

  1. “Affiliate” of a specific person means a person that directly, or indirectly through one (1) or more intermediaries, controls, or is controlled by, or is under common control with, the person specified;
  2. “Authorized shares” means the shares of all classes a domestic or foreign corporation is authorized to issue;
  3. “Business” means any activity or function;
  4. “Charter” includes amended and restated charters and articles of merger;
  5. “Confirmation of good standing” means confirmation by the commissioner of revenue issued through electronic communication to the secretary of state or a certificate of tax clearance that at the time such confirmation is issued a domestic or foreign corporation is current on all taxes and penalties to the satisfaction of the commissioner;
  6. “Conspicuous” means so written that a reasonable person against whom the writing is to operate should have noticed it. For example, printing in italics or boldface or contrasting color, or typing in capitals or underlined, is conspicuous;
  7. “Corporation,” “domestic corporation” or “domestic business corporation” means a corporation for profit, which is not a foreign corporation, incorporated under or subject to chapters 11-27 of this title;
  8. “Deliver” or “delivery” means any method of delivery used in conventional commercial practice, including delivery by hand, mail, commercial delivery, and, if authorized in accordance with § 48-11-202, by electronic transmission;
  9. “Distribution” means a direct or indirect transfer of money or other property (except its own shares) or incurrence of indebtedness (whether directly or indirectly, including through a guaranty) by a corporation to or for the benefit of its shareholders in respect of any of its shares. A distribution may be in the form of a declaration or payment of a dividend; a purchase, redemption, or other acquisition of shares; a distribution of indebtedness (which includes the incurrence of indebtedness for the benefit of the shareholders); or otherwise;
  10. “Document” means:
    1. Any tangible medium on which information is inscribed, and includes any writing or written instrument; or
    2. An electronic record;
  11. “Effective date of notice,” as defined in § 48-11-202(i);
  12. “Electronic” means relating to technology having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities;
  13. “Electronic record” means information that is stored in an electronic or other medium and is retrievable in paper form through an automated process used in conventional commercial practice, unless otherwise authorized in accordance with § 48-11-202;
  14. “Electronic transmission” or “electronically transmitted” means any form or process of communication not directly involving the physical transfer of paper or another tangible medium, which is:
    1. Suitable for the retention, retrieval, and reproduction of information by the recipient; and
    2. Is retrievable in paper form by the recipient through an automated process used in conventional commercial practice, unless otherwise authorized in accordance with § 48-11-202(j);
  15. “Emergency” exists when a quorum of the corporate directors cannot readily be assembled because of some catastrophic event;
  16. “Employee” includes an officer but not a director. A director may accept duties that make the director also an employee;
  17. “Entity” includes domestic and foreign business corporation; domestic and foreign nonprofit corporation; estate; trust; domestic and foreign unincorporated entity and state, United States, and foreign government. The term includes two (2) or more persons having a joint or common economic interest;
  18. “Filing entity” means an unincorporated entity that is of a type that is created by filing a public organic document;
  19. “Foreign corporation” means a corporation for profit incorporated under a law other than the laws of this state;
  20. “Foreign nonprofit corporation” means a corporation incorporated under a law other than the law of this state, which would be a nonprofit corporation if incorporated under the laws of this state;
  21. “Foreign unincorporated entity” means an unincorporated entity whose internal affairs are governed by an organic law of a jurisdiction other than this state;
  22. “Governmental subdivision” includes authority, county, district, and municipality;
  23. “Includes” denotes a partial definition;
  24. “Individual” includes the estate of an incompetent or deceased individual;
  25. “Interest” means either or both of the following rights under the organic law of an unincorporated entity:
    1. The right to receive distributions from the entity either in the ordinary course or upon liquidation; or
    2. The right to receive notice or vote on issues involving its internal affairs, other than as an agent, assignee, proxy, or person responsible for managing its business and affairs;
  26. “Means” denotes an exhaustive definition;
  27. “Month” means the time from any day of any month to the corresponding day of the succeeding month, if any, and if none, the last day of the succeeding month. “A period of two (2) or more months” means the time from any day of the first month in such period to the corresponding day of the last month in such period, if any, and if none, the last day of the last month in such period;
  28. “Nonfiling entity” means an unincorporated entity that is of a type that is not created by filing a public organic document;
  29. “Nonprofit corporation” or “domestic nonprofit corporation” means a corporation incorporated under the laws of this state and subject to the Tennessee Nonprofit Corporation Act, compiled in chapters 51-68 of this title;
  30. “Notice,” as defined in § 48-11-202;
  31. “Organic document” means a public organic document or a private organic document;
  32. “Organic law” means the statute governing the internal affairs of a domestic or foreign business or nonprofit corporation or unincorporated entity;
  33. “Person” includes individual and entity;
  34. “Principal office” means the office (in or out of this state) so designated in the annual report where the principal executive offices of a domestic or foreign corporation are located;
  35. “Private organic document” means any document (other than the public organic document, if any) that determines the internal governance of an unincorporated entity. Where a private organic document has been amended or restated, the term means the private organic document as last amended or restated;
  36. “Proceeding” includes civil suit and criminal, administrative, and investigatory action;
  37. “Public organic document” means the document, if any, that is filed of public record to create an unincorporated entity. Where a public organic document has been amended or restated, the term means the public organic document as last amended or restated;
  38. “Record date” means the date established under chapter 16 or 17 on which a corporation determines the identity of its shareholders for purposes of chapters 11-27 of this title;
  39. “Secretary” means the corporate officer to whom the bylaws or the board of directors has delegated responsibility under § 48-18-401(c) for custody of the minutes of the meetings of the board of directors and of the shareholders and for authenticating records of the corporation;
  40. “Share” means the unit into which the proprietary interests in a corporation are divided;
  41. “Shareholder” means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation;
  42. “Sign” or “signature” means, with present intent to authenticate or adopt a document:
    1. To execute or adopt a tangible symbol to a document, and includes any manual, facsimile, or conformed signature; or
    2. To attach to or logically associate with an electronic transmission an electronic sound, symbol, or process, and includes an electronic signature in an electronic transmission;
  43. “State,” when referring to a part of the United States, includes a state and commonwealth (and their agencies and governmental subdivisions) and a territory and insular possession (and their agencies and governmental subdivisions) of the United States;
  44. “Subscriber” means a person who subscribes for shares in a corporation, whether before or after incorporation;
  45. “Subsidiary” means a corporation more than fifty percent (50%) of whose outstanding voting shares are owned by its parent and/or the parent's other wholly-owned subsidiaries;
  46. “Tax clearance for termination or withdrawal” means confirmation by the commissioner of revenue issued through electronic communication to the secretary of state or a certificate of tax clearance that a domestic or foreign corporation has filed all applicable reports, including, but not limited to, a final report, and has paid all fees, penalties and taxes as required by the revenue laws of this state;
  47. “Unincorporated entity” means an organization or artificial legal person that either has a separate legal existence or has the power to acquire an estate in real property in its own name and that is not any of the following: a domestic or foreign business or nonprofit corporation, an estate, a trust, a state, the United States, or a foreign government. The term includes a general partnership, limited liability company, limited partnership, business trust, joint stock association, and unincorporated nonprofit association;
  48. “United States” includes district, authority, bureau, commission, department, and any other agency of the United States;
  49. “Voting group” means all shares of one (1) or more classes or series that under the charter or chapters 11-27 of this title are entitled to vote and be counted together collectively on a matter at a meeting of shareholders. All shares entitled by the charter or chapters 11-27 of this title to vote generally on the matter are for that purpose a single voting group; and
  50. “Writing” or “written” means any information in the form of a document.

Acts 1986, ch. 887, § 1.20; 1987, ch. 273, §§ 3, 4; 1989, ch. 451, § 1; 1994, ch. 776, §§ 1, 2; 2010, ch. 741, § 1; 2012, ch. 1051, §§ 1-6.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-1114.

Law Reviews.

Some Whys and Wherefores in Drafting Shareholder Agreements (Robert L. McMurray), 23 Tenn. B.J. 19 (1987).

NOTES TO DECISIONS

1. Conspicuous.

Security agreement did not in any way make proxy appointment conspicuous. In re John Hicks Chrysler-Plymouth, Inc., 152 B.R. 503, 1992 Bankr. LEXIS 2293 (Bankr. E.D. Tenn. 1992).

2. Subsidiary.

While the Tennessee Court of Appeals addressed the concept of reverse piercing in the corporation/shareholder context, it never adopted it, and T.C.A. § 48-11-201 defined a subsidiary as a corporation more than 50 percent of whose outstanding voting shares were owned by its parent and/or the parent's other wholly-owned subsidiaries. However, the alleged parent, the insurance agency, never owned any shares of the company, and therefore, because the company was not a subsidiary of the insurance agency, the plaintiff's reverse piercing claim failed. Nippert v. Jackson, 860 F. Supp. 2d 554, 2012 U.S. Dist. LEXIS 35109 (M.D. Tenn. Mar. 15, 2012).

48-11-202. General notice requirements.

  1. Notice under chapters 11-27 of this title must be in writing unless oral notice is reasonable in the circumstances and not prohibited by the charter or bylaws. Unless otherwise agreed between the sender and the recipient, words in a notice or other communication under chapters 11-27 of this title must be in English.
  2. A notice or other communication may be given or sent by any method of delivery, except that electronic transmissions must be in accordance with this section. If these methods of delivery are impracticable, a notice or other communication may be communicated by a newspaper of general circulation in the area where published, or by radio, television, or other form of public broadcast communication.
  3. Notice or other communication to a domestic or foreign corporation (authorized to transact business in this state) may be delivered to its registered agent at its registered office (or to a designated mailing address such as a post office box if the United States postal service does not deliver to the registered agent's registered office) or to the secretary of the corporation at its principal office shown in its most recent annual report (or to a designated mailing address such as a post office box if the United States postal service does not deliver to the corporation's principal office) or, in the case of a foreign corporation that has not yet delivered an annual report, in its application for a certificate of authority.
  4. Notice or other communications may be delivered by electronic transmission if consented to by the recipient or if authorized by subsection (j).
    1. Any consent under subsection (d) may be revoked by the person who consented by written or electronic notice to the person to whom the consent was delivered. Any such consent is deemed revoked if:
      1. The corporation is unable to deliver two (2) consecutive electronic transmissions given by the corporation in accordance with such consent; and
      2. Such inability becomes known to the secretary or an assistant secretary of the corporation or to the transfer agent, or other person responsible for the giving of notice or other communication.
    2. The inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action.
  5. Unless otherwise agreed between the sender and the recipient, an electronic transmission is received when:
    1. It enters an information processing system that the recipient has designated or uses for the purposes of receiving electronic transmissions or information of the type sent, and from which the recipient is able to retrieve the electronic transmission; and
    2. It is in a form capable of being processed by that system.
  6. Receipt of an electronic acknowledgement from an information processing system described in subdivision (f)(1) establishes that an electronic transmission was received but, by itself, does not establish that the content sent corresponds to the content received.
  7. An electronic transmission is received under this section even if no individual is aware of its receipt.
  8. Notice or other communication, if in a comprehensible form or manner, is effective at the earliest of the following:
    1. If in a physical form, the earliest of when it is actually received, or when it is left at:
      1. A shareholder's address shown on the corporation's record of shareholders maintained by the corporation under § 48-26-101(c);
      2. A director's residence or usual place of business; or
      3. The corporation's principal place of business;
    2. If mailed first class postage prepaid and correctly addressed to a shareholder, upon deposit in the United States mail;
    3. If mailed by United States mail postage prepaid and correctly addressed to a recipient other than a shareholder, the earliest of when it is actually received, or:
      1. If sent by registered or certified mail, return receipt requested, the date shown on the return receipt signed by or on behalf of the addressee; or
      2. Five (5) days after it is deposited in the United States mail;
    4. If an electronic transmission, when it is received as provided in subsection (f); or
    5. If oral, when communicated, if communicated in a comprehensible manner.
  9. A notice or other communication may be in the form of an electronic transmission that cannot be directly reproduced in paper form by the recipient through an automated process used in conventional commercial practice only if:
    1. The electronic transmission is otherwise retrievable in perceivable form; and
    2. The sender and the recipient have consented in writing to the use of such form of electronic transmission.
  10. If chapters 11-27 of this title prescribe requirements for notices or other communications in particular circumstances, those requirements govern. If the charter or bylaws prescribe requirements for notices or other communications, not inconsistent with this section or other provisions of chapters 11-27 of this title, those requirements govern. The charter or bylaws may authorize or require delivery of notices of meetings of directors by electronic transmission.

Acts 1986, ch. 887, § 1.21; 1987, ch. 273, §§ 5, 6; 1994, ch. 776, § 3; 2012, ch. 1051, § 7.

Cross-References. Certified mail in lieu of registered mail, § 1-3-111.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-811, 5-1107, 5-1108, 5-1301.

48-11-203. Number of shareholders.

  1. For purposes of chapters 11-27 of this title, the following identified as a shareholder in a corporation's current record of shareholders constitutes one (1) shareholder:
    1. Three (3) or fewer co-owners;
    2. A corporation, partnership, trust, estate, or other entity; and
    3. The trustees, guardians, custodians, or other fiduciaries of a single trust, estate, or account.
  2. For purposes of chapters 11-27 of this title, shareholdings registered in substantially similar names constitute one (1) shareholder if it is reasonable to believe that the names represent the same person.

Acts 1986, ch. 887, § 1.22.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-1301.

Part 3
Filing Documents

48-11-301. Filing requirements.

  1. A document must satisfy the requirements of this section, and of any other section that adds to or varies these requirements, to be entitled to filing by the secretary of state.
  2. Chapters 11-27 of this title must require or permit filing the document in the office of the secretary of state.
  3. The document must contain the information required by chapters 11-27 of this title. It may contain other information as well.
  4. The document must be typewritten or printed in ink in a clear and legible fashion on one (1) side of letter size paper.
  5. The document must be in the English language. A corporate name need not be in English if written in English letters or Arabic or Roman numerals, and the certificate of existence required of foreign corporations need not be in English if accompanied by a reasonably authenticated English translation.
  6. The document must be executed:
    1. By the chair of the board of directors of a domestic or foreign corporation, by its president, or by another of its authorized officers;
    2. If directors have not been selected or the corporation has not been formed, by an incorporator; or
    3. If the corporation is in the hands of a receiver, trustee or other court-appointed fiduciary, by that fiduciary.
  7. The person executing the document shall sign it and state beneath or opposite such person's signature such person's name and the capacity in which such person signs. The document may but need not contain:
    1. The corporate seal;
    2. An attestation by the secretary or an assistant secretary;
    3. An acknowledgement, verification or proof; or
    4. The date the document is signed, except that such date shall be required for the annual report for the secretary of state.
  8. If the secretary of state has prescribed a mandatory form for the document under § 48-11-302, the document must be in or on the prescribed form.
  9. The document must be delivered to the office of the secretary of state for filing and must be accompanied by the correct filing fee, and any corporate tax, license fee, interest or penalty required by chapters 11-27 of this title.
  10. Whenever this title permits any of the terms of a plan or a filed document to be dependent on facts objectively ascertainable outside the plan or filed document, the following apply:
    1. The manner in which the facts will operate upon the terms of the plan or filed document shall be set forth in the plan or filed document;
    2. The facts may include, but are not limited to:
      1. Any of the following that is available in a nationally recognized news or information medium either in print or electronically: statistical or market indices, market prices of any security or group of securities, interest rates, currency exchange rates, or similar economic or financial data;
      2. A determination or action by any person or body, including the corporation or any other party to a plan or filed document; or
      3. The terms of, or actions taken under, an agreement to which the corporation is a party, or any other agreement or document;
    3. As used in this subsection (j):
      1. “Filed document” means a document filed with the secretary of state under any provision of chapters 11-27 of this title, except chapter 25 or § 48-26-203; and
      2. “Plan” means a plan of domestication, nonprofit conversion, entity conversion, merger, or share exchange;
    4. None of the following provisions of a plan or filed document shall be made dependent on facts outside the plan or filed document:
      1. The name and address of any person required in a filed document;
      2. The registered office of any entity required in a filed document;
      3. The registered agent of any entity required in a filed document;
      4. The number of authorized shares and designation of each class or series of shares;
      5. The effective date of a filed document;
      6. Any required statement in a filed document of the date on which the underlying transaction was approved or the manner in which that approval was given; and
    5. If a provision of a filed document is made dependent on a fact ascertainable outside of the filed document, and that fact is not ascertainable by reference to a source described in subdivision (j)(2)(A) or a document that is a matter of public record, or the affected shareholders have not received notice of the fact from the corporation, then the corporation shall file with the secretary of state articles of amendment setting forth the fact promptly after the time when the fact referred to is first ascertainable or thereafter changes. Articles of amendment under this subdivision (j)(5) are deemed to be authorized by the authorization of the original filed document or plan to which they relate and may be filed by the corporation without further action by the board of directors or the shareholders.
  11. The secretary of state has the power to promulgate appropriate rules and regulations establishing acceptable methods for execution of any document to be filed with the secretary of state.
  12. All documents submitted to the secretary of state for filing should contain a statement which makes it clear that they are being filed pursuant to the Tennessee Business Corporation Act, compiled in chapters 11-27 of this title.
  13. The secretary of state has the power to establish procedures for the filing of documents with the secretary of state by means of electronic transmission.
  14. Notwithstanding any other law to the contrary, whenever this title requires that an application or other document submitted to the secretary of state for filing be accompanied by a confirmation of good standing, tax clearance for termination or withdrawal, or other similar communication of taxpayer status by the commissioner of revenue, then such requirement shall be met, and a paper certificate need not accompany the application or other document, if the commissioner provides to the secretary of state electronic verification of the required information. Upon request of the person seeking certificate information, the commissioner shall provide to the secretary of state electronic verification in lieu of a paper certificate.

Acts 1986, ch. 887, § 1.30; 1987, ch. 273, § 7; 1989, ch. 451, § 2; 1991, ch. 188, § 1; 1994, ch. 776, § 4; 1999, ch. 80, § 1; 2010, ch. 741, § 2; 2011, ch. 99, §§ 23, 24; 2012, ch. 1051, §§ 8, 9.

Cross-References. Documents filed with county register of deeds in addition to the secretary of state's office, § 48-11-303.

Filing requirements, §§ 48-51-301 and 48-247-101.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-101, 5-201.

48-11-302. Forms.

    1. The secretary of state may prescribe and furnish on request forms for:
      1. An application for a certificate of existence;
      2. A foreign corporation's application for a certificate of authority to transact business in this state;
      3. A foreign corporation's application for a certificate of withdrawal; and
      4. The annual report.
    2. If the secretary of state so requires, use of these forms is mandatory.
  1. The secretary of state may prescribe and shall furnish on request forms for other documents required or permitted to be filed by chapters 11-27 of this title. If the secretary of state has prescribed a mandatory form for the document, the document must be in or on the prescribed form or a conformed copy thereof.

Acts 1986, ch. 887, § 1.31; 1987, ch. 273, § 8; 2012, ch. 1051, § 10.

48-11-303. Filing, service, and copying fees.

  1. The secretary of state shall collect the following fees when the documents described in this subsection (a) are delivered to the secretary of state for filing:

    Document  Fee

    1. Charter (including designation of initial registered office  and agent)  $100.00
    2. Application for use of indistinguishable name  20.00
    3. Application for reserved name  20.00
    4. Notice of transfer or cancellation of reserved name  20.00
    5. Application for registered name  20.00
    6. Application for renewal for registered name  20.00
    7. Application for or change, cancellation, or renewal of  assumed name  20.00
    8. Corporation's statement of change of registered agent or  registered office, or both  20.00
    9. Agent's statement of change of registered office  5.00  per corporation,   but not less than   20.00
    10. Agent's statement of resignation  20.00
    11. Charter amendment  20.00
    12. Restatement of charter  20.00
    13. Amended and restated charter  20.00
    14. Articles of entity conversion  100.00
    15. Articles of charter surrender  20.00
    16. Statement of abandonment of merger, conversion or share  exchange  20.00
    17. Articles of merger or share exchange  100.00
    18. Articles of dissolution and termination by incorporators  or directors  20.00
    19. Articles of dissolution  20.00
    20. Articles of revocation of dissolution  20.00
    21. Articles of termination of corporate existence  20.00
    22. Certificate of administrative dissolution  No fee
    23. Application for reinstatement following  administrative dissolution  70.00
    24. Articles of termination following administrative dissolution  or revocation  100.00
    25. Certificate of reinstatement  No fee
    26. Certificate of judicial dissolution  No fee
    27. Application for certificate of authority (including  designation of initial registered office and agent)  600.00
    28. Application for amended certificate of authority  20.00
    29. Application for certificate of withdrawal  20.00
    30. Certificate of revocation of authority to transact business  No fee
    31. Application for certificate of withdrawal following  administrative revocation  100.00
    32. Application for reinstatement following administrative  revocation  70.00
    33. Annual report  20.00
    34. Articles of correction  20.00
    35. Application for certificate of existence or authorization  20.00
    36. Any other document required or permitted to be filed by  chapters 11-27 of this title  20.00
  2. The secretary of state shall collect a fee of twenty dollars ($20.00) each time process is served on the secretary of state under chapters 11-27 of this title. The party to a proceeding causing service of process is entitled to recover this fee as costs if such party prevails in the proceeding.
  3. The secretary of state shall collect a fee of twenty dollars ($20.00) for copying all filed documents relating to a domestic or foreign corporation. All such copies will be certified or validated by the secretary of state.
  4. In addition to the other filing requirements of chapters 11-27 of this title, a copy of all documents specified in subdivisions (a)(1) and (11)-(20) shall also be filed in the office of the register of deeds in the county wherein a corporation has its principal office, if such principal office is in Tennessee, and in the case of a merger, in the county in which the new or surviving corporation shall have its principal office if such principal office is in Tennessee. The register of deeds may charge five dollars ($5.00) plus fifty cents (50¢) per page in excess of five (5) pages for such filing.

Acts 1986, ch. 887, § 1.32; 1987, ch. 273, § 9; 1989, ch. 451, §§ 3, 33; 1991, ch. 188, § 6; 1998, ch. 784, § 1; 1998, ch. 890, § 1; 2000, ch. 568, § 1; 2012, ch. 1051, §§ 11, 12.

Cross-References. Business corporations, fees for filing with the secretary of state, § 48-51-303.

Register's fee for recording instruments, § 8-21-1001.

48-11-304. Effective time and date of document.

  1. Except as provided in subsection (b) and § 48-11-305(c), a document accepted for filing is effective:
    1. At the time of filing on the date it is filed by the secretary of state, as evidenced by the secretary of state's date and time endorsement on the original document; and
    2. At the time specified in the document as its effective time on the date it is filed.
  2. A document may specify a delayed effective time and date, and if it does so the document becomes effective at the time and date specified. If a delayed effective date but not time is specified, the document is effective at the close of business on that date. A delayed effective date for a document may not be later than the ninetieth day after the date it is filed by the secretary of state. Notwithstanding the foregoing, documents specified in § 48-11-303(a)(3)-(7), (15), (16), (20), (21), (25), (31), (33) and (34) may not specify a delayed effective time and date.
  3. The secretary of state shall not file any charter or application for a certificate of authority unless that document designates the registered agent and registered office of such domestic or foreign corporation in accordance with chapters 15 and 25 of this title. The secretary of state shall not file any other document under chapters 11-27 of this title if at the time of filing the domestic or foreign corporation does not have a registered agent or registered office designated at such time, unless at the time such document is received for filing the secretary of state also receives for filing a statement designating such registered agent or registered office, or both.

Acts 1986, ch. 887, § 1.33; 1987, ch. 273, §§ 10-13; 1991, ch. 188, § 13; 2012, ch. 1051, § 13.

Cross-References. Documents filed with county register of deeds in addition to the secretary of state's office, § 48-11-303.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-401.

48-11-305. Correcting filed document.

  1. A domestic or foreign corporation may correct a document filed by the secretary of state if the document:
    1. Contains an incorrect statement; or
    2. Was defectively executed, attested, sealed, verified, or acknowledged.
  2. A document is corrected by:
    1. Preparing articles of correction that:
      1. Describe the document (including its filing date) or attach a copy of it to the articles;
      2. Specify the incorrect statement and the reason it is incorrect or the manner in which the execution was defective; and
      3. Correct the incorrect statement or defective execution; and
    2. Delivering the articles to the secretary of state for filing.
  3. Articles of correction are effective on the effective time and date of the document they correct except as to persons relying on the uncorrected document and adversely affected by the correction. As to those persons, articles of correction are effective when filed.

Acts 1986, ch. 887, § 1.34; 1987, ch. 273, § 14.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-701.

48-11-306. Filing duty of secretary of state.

  1. If a document delivered to the office of the secretary of state for filing satisfies the requirements of § 48-11-301, the secretary of state shall file it.
  2. The secretary of state files a document by stamping or otherwise endorsing “Filed,” together with the secretary of state's name and official title and the date and time of receipt, on such document. After filing a document, except for filings pursuant to §§ 48-15-103, 48-25-109 and 48-26-203, the secretary of state shall deliver the document, with the filing fee receipt (or acknowledgment of receipt if no fee is required) attached, to the domestic or foreign corporation or its representative in due course. A domestic or foreign corporation or its representative may present to the secretary of state an exact or conformed copy of the document presented for filing together with such document, and, in that event, the secretary of state shall stamp or otherwise endorse the exact or conformed copy filed, together with the secretary of state's name and official title and the date and time of receipt, and immediately return the exact or conformed copy to the party filing the original of such document.
  3. If the secretary of state refuses to file a document, the secretary of state shall return it to the domestic or foreign corporation or its representative within a reasonable time after the document was received for filing, together with a brief, written explanation of the reason for the secretary of state's refusal.
  4. The secretary of state's duty to file documents under this section is ministerial. The secretary of state's filing or refusing to file a document does not:
    1. Affect the validity or invalidity of the document in whole or part;
    2. Relate to the correctness or incorrectness of information contained in the document;
    3. Create a presumption that the document is valid or invalid or that information contained in the document is correct or incorrect; or
    4. Establish that a document purporting to be an exact or conformed copy is in fact an exact or conformed copy.
  5. Any corporate document which meets the requirements of chapters 11-27 of this title for filing and recording shall be received, filed and recorded by the appropriate office, notwithstanding any contrary requirements found in any other provision of the laws of this state.

Acts 1986, ch. 887, § 1.35; 1987, ch. 273, §§ 15, 16; 2012, ch. 1051, § 14.

Cross-References. Documents filed with county register of deeds in addition to the secretary of state's office, § 48-11-303.

Filing duty, §§ 48-51-306, 48-247-105.

48-11-307. Appeal from secretary of state's refusal to file document.

  1. If the secretary of state refuses to file a document delivered to the secretary of state's office for filing, the domestic or foreign corporation may appeal the refusal to the chancery court of Davidson County. The appeal is commenced by petitioning the court to compel filing the document and by attaching to the petition the document and the secretary of state's explanation of the secretary of state's refusal to file.
  2. The court may summarily order the secretary of state to file the document or take other action the court considers appropriate.
  3. The court's final decision may be appealed as in other civil proceedings.
  4. Any judicial review of the secretary of state's refusal to file a document shall be conducted in accordance with the Uniform Administrative Procedures Act, compiled in title 4, chapter 5.

Acts 1986, ch. 887, § 1.36.

48-11-308. Evidentiary effect of copy of filed document.

A certificate attached or certification affixed to a copy of a document filed by the secretary of state, bearing the secretary of state’s signature (which may be in facsimile or other electronic format) and the seal of this state, is conclusive evidence that the original document is on file with the secretary of state.

Acts 1986, ch. 887, § 1.37; 1987, ch. 273, § 17; 2012, ch. 1051, § 15.

48-11-309. Certificate of existence or authorization.

  1. Any person may apply to the secretary of state to furnish a certificate of existence for a domestic corporation or a certificate of authorization for a foreign corporation authorized to transact business in this state.
  2. A certificate of existence or authorization sets forth:
    1. The domestic corporation's corporate name or the foreign corporation's corporate name used in this state;
    2. That:
      1. The domestic corporation is duly incorporated under the laws of this state, the effective date of its incorporation, and the period of its duration if less than perpetual; or
      2. The foreign corporation is authorized to transact business in this state;
    3. That all fees, taxes and penalties owed to this state have been paid, if:
      1. Payment is reflected in the records of the secretary of state or the department of revenue; and
      2. Nonpayment allows:
        1. Administrative dissolution of a domestic corporation; or
        2. Administrative revocation of the certificate of authority of a foreign corporation;
    4. That its most recent annual report required by § 48-26-203 has been filed with the secretary of state;
      1. For a domestic corporation:
        1. That articles of termination of existence have not been filed;
        2. Whether or not articles of dissolution have been filed and remain effective;
        3. Whether or not a certificate of dissolution has been filed and remains effective; and
        4. That a decree of judicial dissolution has not been filed;
      2. For a foreign corporation:
        1. That a certificate of withdrawal has not been filed; and
        2. Whether or not a certificate of revocation of certificate of authority has been filed and remains effective;
    5. That the certificate is effective as of the date of the issuance of the certificate; and
    6. Other facts of record in the office of the secretary of state that may be requested by the applicant.
  3. Subject to any qualification stated in the certificate, a certificate of existence or authorization issued by the secretary of state is effective as of the date on the certificate and may be relied upon as conclusive evidence that the domestic or foreign corporation is in existence or is authorized to transact business in this state and is in good standing.

Acts 1986, ch. 887, § 1.38; 1987, ch. 273, § 18; 1991, ch. 188, § 12; 1994, ch. 776, § 5; 2010, ch. 742, § 1; 2011, ch. 99, § 25.

48-11-310. Penalty for signing false document.

A person who signs a document, knowing it to be false in any material respect, with intent that the document be delivered to the secretary of state for filing, commits a Class A misdemeanor.

Acts 1986, ch. 887, § 1.39; 1989, ch. 591, §§ 1, 6.

Code Commission Notes.

The misdemeanor in this section has been designated as a Class A misdemeanor by authority of § 40-35-110, which provides that an offense designated a misdemeanor without specification as to category is a Class A misdemeanor. See also § 39-11-114.

Cross-References. Forgery, false entries on books, penalty, § 39-14-114.

Penalty for Class A misdemeanor, § 40-35-111.

Part 4
Secretary of State

48-11-401. Powers.

The secretary of state has the power reasonably necessary to perform the duties required of the secretary of state by chapters 11-27 of this title, including, without limitation, the power to promulgate necessary and appropriate rules and regulations consistent with chapters 11-27 of this title, and the power to destroy any records in the secretary of state's office concerning the domestic or foreign corporation ten (10) years after such corporation has dissolved, withdrawn from the state, or has had its certificate of authority revoked.

Acts 1986, ch. 887, § 1.40; 1987, ch. 273, § 19.

Cross-References. Monthly list of newly licensed corporations, § 8-3-104.

48-11-402. Deputies of secretary of state.

An act of a duly authorized deputy of the secretary of state in the secretary of state's behalf under chapters 11-27 of this title is the equivalent of the act of the secretary of state; provided, that the name of the secretary of state is signed by such deputy as deputy.

Acts 1986, ch. 887, § 1.41.

Chapter 12
Incorporation

48-12-101. Incorporators.

One (1) or more persons may act as the incorporator or incorporators of a corporation by delivering a charter to the secretary of state for filing. If any incorporator dies or is for any reason unable to act, the other incorporators, if any, may act. If there is no incorporator able to act, any person for whom an incorporator was acting as agent may act in the incorporator's stead or, if such other person also dies or is for any reason unable to act, or the incorporator was not acting as agent, the incorporator's legal representative may act.

Acts 1986, ch. 887, § 2.01.

Cross-References. Business and industrial development corporations, title 45, ch. 8, part 2.

Documents filed with county register of deeds in addition to the secretary of state's office, § 48-11-303.

Nonprofit corporations, incorporation, title 48, ch. 52.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Industrial Loan and Thrift Corporations.

Industrial loan and thrift corporations are chartered under the general corporation laws applicable to private corporations except to the extent that title 45, ch. 5 provides to the contrary. Williams v. American Plan Corp., 216 Tenn. 435, 392 S.W.2d 920, 1965 Tenn. LEXIS 589 (1965).

48-12-102. Charter.

  1. The charter must set forth:
    1. A corporate name for the corporation that satisfies the requirements of § 48-14-101;
    2. The number of shares the corporation is authorized to issue;
    3. The street address and zip code of the corporation's initial registered office (and a mailing address such as a post office box if the United States postal service does not deliver to the registered agent's registered office), the county in which the office is located, and the name of its initial registered agent at that office;
    4. The name and address and zip code of each incorporator;
    5. The street address and zip code of the initial principal office of the corporation (and a mailing address such as a post office box if the United States postal service does not deliver to the principal office);
    6. Information required by chapter 16 of this title; and
    7. A statement that the corporation is for profit.
  2. The charter may set forth:
    1. The names and addresses of the individuals who are to serve as the initial directors;
    2. Provisions not inconsistent with law:
      1. Stating the purpose or purposes for which the corporation is organized;
      2. Regarding the management of the business and regulating the affairs of the corporation; or
      3. Defining, limiting and regulating the powers and rights of the corporation, its board of directors and shareholders;
      1. A provision eliminating or limiting the personal liability of a director to the corporation or its shareholders for monetary damages for breach of fiduciary duty as a director; provided, that such provision shall not eliminate or limit the liability of a director:
        1. For any breach of the director's duty of loyalty to the corporation or its shareholders;
        2. For acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; or
        3. Under § 48-18-302;
      2. No such provision shall eliminate or limit the liability of a director for any act or omission occurring prior to the date when such provisions become effective. All references in this subdivision (b)(3) to a “director” are also deemed to refer to a member of the governing body of a corporation which dispenses with or limits the authority of the board of directors pursuant to § 48-18-101(c); and
    3. Any provision that under chapters 11-27 of this title is required or permitted to be set forth in the bylaws.
  3. The charter need not set forth any of the corporate powers enumerated in chapters 11-27 of this title.

Acts 1986, ch. 887, § 2.02; 1987, ch. 273, §§ 20, 21, 48; 1991, ch. 188, § 2; 1994, ch. 776, §§ 6-8; 2012, ch. 1051, §§ 16-18; 2014, ch. 783, §§ 1, 2.

Cross-References. Applicability to charter of corporation existing on January 1, 1988, § 48-27-101.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-101, 5-201, 5-706, 5-707.

Law Reviews.

Corporate Directors [and Officers] Making Business Judgments in Tennessee: The Business Judgment Rule, 44 U. Mem. L. Rev. 455 (2013).

48-12-103. Incorporation.

  1. Unless a delayed effective date is specified, the corporate existence begins when the charter is filed by the secretary of state.
  2. The secretary of state's filing of the charter is conclusive proof that the incorporators satisfied all conditions precedent to incorporation except in a proceeding by the state to cancel or revoke the incorporation or involuntarily dissolve the corporation.

Acts 1986, ch. 887, § 2.03; 1987, ch. 273, § 22.

Cross-References. Documents filed with county register of deeds in addition to the secretary of state's office, § 48-11-303.

Proof of incorporation in criminal cases, § 40-17-117.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-101, 5-201.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Requirements Mandatory.

The statutory requirements for the completion of the organization of a corporation were mandatory, and, unless they were all substantially done, the charter was void and the incorporation was incomplete. Collier v. Union R. Co., 113 Tenn. 96, 83 S.W. 155, 1904 Tenn. LEXIS 9 (1904).

2. Proof of Existence.

Evidence of user under a legislative charter was prima facie evidence that the conditions which the charter required to be performed, precedent to the time that the corporation was to go into operation, had been performed. Williams v. Union Bank, 21 Tenn. 339, 1841 Tenn. LEXIS 14 (1841); Gleaves v. Brick Church Tpk. Co., 33 Tenn. 491, 1853 Tenn. LEXIS 78 (1853); Merriman v. Magiveny, 59 Tenn. 494, 1873 Tenn. LEXIS 98 (1873); Augusta Mfg. Co. v. Vertrees, 72 Tenn. 75, 1879 Tenn. LEXIS 7 (1879).

Where a corporation had been organized and existed under a general statute, its existence could not be proved by parol evidence, if objected to, but must be proved by the production of the charter, or a certified copy thereof. Trice v. State, 39 Tenn. 591, 1859 Tenn. LEXIS 284 (1859); Bond v. State, 129 Tenn. 75, 165 S.W. 229, 1913 Tenn. LEXIS 95 (1913).

3. Foreign Corporations.

Where proof of the charter of a corporation of another state is required, it must be by the production of the charter, or an authenticated copy thereof, or the statute granting the charter, or a book purporting to be the public statute book of the state, in which the charter is printed. Jones v. State, 37 Tenn. 346, 1858 Tenn. LEXIS 12 (1858); Owen v. State, 37 Tenn. 493, 1858 Tenn. LEXIS 46 (1858); Augusta Mfg. Co. v. Vertrees, 72 Tenn. 75, 1879 Tenn. LEXIS 7 (1879); Bank of Jamaica v. Jefferson, 92 Tenn. 537, 22 S.W. 211, 1893 Tenn. LEXIS 10, 36 Am. St. Rep. 100 (1893); State v. Missio, 105 Tenn. 218, 58 S.W. 216, 1900 Tenn. LEXIS 66 (1900).

A complainant in chancery, suing as a foreign corporation, must prove the corporate existence, if it was not admitted in the answer, whether denied or not. Bank of Jamaica v. Jefferson, 92 Tenn. 537, 22 S.W. 211, 1893 Tenn. LEXIS 10, 36 Am. St. Rep. 100 (1893).

4. Right to Question Existence.

The legality or validity of the charter of a de facto corporation was a question for the state, to be raised by a proceeding in the nature of a quo warranto or similar proceeding, and could not ordinarily be made in a collateral proceeding. La Grange & M. R. R. Co. v. Rainey, 47 Tenn. 420, 1870 Tenn. LEXIS 163 (1870); Merriman v. Magiveny, 59 Tenn. 494, 1873 Tenn. LEXIS 98 (1873); State v. Butler, 83 Tenn. 104, 1885 Tenn. LEXIS 27 (1885); Miller v. American Mut. Accident Ins. Co., 92 Tenn. 167, 21 S.W. 39, 1892 Tenn. LEXIS 63, 20 L.R.A. 765 (1892).

Only the state, by proceedings in the nature of quo warranto, can attack the validity of a de facto corporation. Lee v. Harrison, 196 Tenn. 603, 270 S.W.2d 173, 1954 Tenn. LEXIS 427 (1954).

Only the state can raise the question of corporate existence. Springfield Tobacco Redryers Corp. v. Springfield, 41 Tenn. App. 254, 293 S.W.2d 189, 1956 Tenn. App. LEXIS 166 (Tenn. Ct. App. 1956).

The provisions of former section precluding attack upon a defectively organized corporation did not apply to a situation wherein the termination of forfeiture of the charter of a properly organized corporation was involved. Jesse A. Bland Co. v. Knox Concrete Products, Inc., 207 Tenn. 206, 338 S.W.2d 605, 1960 Tenn. LEXIS 448 (1960).

5. Corporations De Facto or by Estoppel.

For cases discussing de facto corporations under prior corporation laws, see Merriman v. Magiveny, 59 Tenn. 494, 1873 Tenn. LEXIS 98 (1873); Miller v. American Mut. Accident Ins. Co., 92 Tenn. 167, 21 S.W. 39, 1892 Tenn. LEXIS 63, 20 L.R.A. 765 (1892); Tennessee Automatic Lighting Co. v. Massey, 56 S.W. 35, 1899 Tenn. Ch. App. LEXIS 144 (1899). But see Hunter v. Swadley, 141 Tenn. 156, 207 S.W. 730, 1918 Tenn. LEXIS 77 (1918); Thompson & Green Machinery Co. v. Music City Lumber Co., 683 S.W.2d 340, 1984 Tenn. App. LEXIS 3232 (Tenn. Ct. App. 1984).

For cases discussing estoppel to deny corporate existence, see Tennessee Automatic Lighting Co. v. Massey, 56 S.W. 35, 1899 Tenn. Ch. App. LEXIS 144 (1899); Union Bank & Trust Co. v. Wright, 58 S.W. 755, 1900 Tenn. Ch. App. LEXIS 50 (1900); Ingle Sys. Co. v. Norris & Hall, 132 Tenn. 472, 178 S.W. 1113, 1915 Tenn. LEXIS 36, 5 A.L.R. 1578 (1915), questioned, Thompson & Green Machinery Co. v. Music City Lumber Co., 683 S.W.2d 340, 1984 Tenn. App. LEXIS 3232 (Tenn. Ct. App. 1984); Hunter v. Swadley, 141 Tenn. 156, 207 S.W. 730, 1918 Tenn. LEXIS 77 (1918); Hawkins v. Lane, 3 Tenn. App. 221, 1926 Tenn. App. LEXIS 94 (1926); Cope v. Wilkinson, 166 Tenn. 63, 59 S.W.2d 528, 1932 Tenn. LEXIS 113 (1932); Citizen's Bank & Trust Co. v. Scott & Sanders, 18 Tenn. App. 89, 72 S.W.2d 1064, 1933 Tenn. App. LEXIS 104 (1933). But see Springfield Tobacco Redryers Corp. v. Springfield, 41 Tenn. App. 254, 293 S.W.2d 189, 1956 Tenn. App. LEXIS 166 (Tenn. Ct. App. 1956); Thompson & Green Machinery Co. v. Music City Lumber Co., 683 S.W.2d 340, 1984 Tenn. App. LEXIS 3232 (Tenn. Ct. App. 1984).

Neither the doctrine of de facto corporation nor corporation by estoppel were viable in Tennessee after the passage of the Tennessee General Corporations Act (Acts 1968, ch. 523). Thompson & Green Machinery Co. v. Music City Lumber Co., 683 S.W.2d 340, 1984 Tenn. App. LEXIS 3232 (Tenn. Ct. App. 1984).

48-12-104. Liability for preincorporation transactions.

All persons purporting to act as or on behalf of a corporation, knowing there was no incorporation under chapters 11-27 of this title, are jointly and severally liable for all liabilities created while so acting except for any liability to any person who knew or reasonably should have known that there was no incorporation.

Acts 1986, ch. 887, § 2.04.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Exceptions.

There was no good faith exception in former similar section. Thompson & Green Machinery Co. v. Music City Lumber Co., 683 S.W.2d 340, 1984 Tenn. App. LEXIS 3232 (Tenn. Ct. App. 1984).

Former similar section did not contain an exception that one who assumes to act as a corporation without authority shall be jointly and severally liable for debts and liabilities except when the plaintiff thereafter dealt with the corporation as a corporation or when the plaintiff did not intend to bind one who assumed to act personally. Thompson & Green Machinery Co. v. Music City Lumber Co., 683 S.W.2d 340, 1984 Tenn. App. LEXIS 3232 (Tenn. Ct. App. 1984).

2. Corporations De Facto or by Estoppel.

Neither the doctrine of de facto corporation nor corporation by estoppel were viable in Tennessee since the passage of the Tennessee General Corporations Act. Thompson & Green Machinery Co. v. Music City Lumber Co., 683 S.W.2d 340, 1984 Tenn. App. LEXIS 3232 (Tenn. Ct. App. 1984).

3. Preincorporation Contracts.

The former section did not address promoter liability on preincorporation contracts where no misrepresentation that there was an existing corporation had been made and where the contracts were made solely in the name and credit of a future corporation. Company Stores Dev. Corp. v. Pottery Warehouse, Inc., 733 S.W.2d 886, 1987 Tenn. App. LEXIS 2680 (Tenn. Ct. App. 1987).

48-12-105. Organization of corporation.

  1. After incorporation:
    1. If initial directors are named in the charter, the initial directors shall hold an organizational meeting, at the call of a majority of the directors, to complete the organization of the corporation by appointing officers, adopting bylaws, and carrying on any other business brought before the meeting;
    2. If initial directors are not named in the charter, the incorporator or incorporators shall hold an organizational meeting at the call of a majority of the incorporators and upon at least two (2) days' notice of the date, time, and place of the meeting to:
      1. Elect directors and complete the organization of the corporation; or
      2. Elect a board of directors who shall complete the organization of the corporation.
  2. Action required or permitted by chapters 11-27 of this title to be taken by incorporators at an organizational meeting may be taken without a meeting. If all incorporators consent to taking such action without a meeting, the affirmative vote of the number of incorporators that would be necessary to authorize or take such action at a meeting is the act of the incorporators. The action must be evidenced by one (1) or more written consents describing the action taken, signed by each incorporator in one (1) or more counterparts, indicating each signing incorporator's vote or abstention on the action, and shall be included in the minutes or filed with the corporate records reflecting the action taken.
  3. An organizational meeting may be held in or out of this state.
  4. If the corporate existence of a corporation has begun pursuant to § 48-12-103, no action of such corporation shall be invalid solely as a result of the failure to hold an organizational meeting or otherwise complete the organization of the corporation as contemplated in subsection (a).

Acts 1986, ch. 887, § 2.05; 1994, ch. 776, § 9.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-102, 5-202.

48-12-106. Bylaws.

  1. The incorporators or board of directors of a corporation shall adopt initial bylaws for the corporation.
  2. The bylaws of a corporation may contain any provision for managing the business and regulating the affairs of the corporation that is not inconsistent with law or the charter.

Acts 1986, ch. 887, § 2.06.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-103, 5-104, 5-202, 5-203.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Void Bylaws.

The charter was the fundamental law of the corporation, and in its terms and spirit was a constitution of the body acting under it; all bylaws inconsistent with the charter, or in contravention thereof, were void. Martin v. Nashville Bldg. Asso., 42 Tenn. 418, 1865 Tenn. LEXIS 84 (1865).

A bylaw prohibiting transfers of shares of stock except to the corporation, though endorsed on the certificates, was void and imposed no legal liability on the corporation to purchase its stock. Herring v. Ruskin Co-op. Ass'n, 52 S.W. 327, 1899 Tenn. Ch. App. LEXIS 7 (1899).

A bylaw granting directors of the corporation an option to purchase stock of a stockholder desiring to dispose of shares, and restricting transfers on the books for any reason, was invalid as being in restraint of trade. Petre v. Bruce, 157 Tenn. 131, 7 S.W.2d 43, 1927 Tenn. LEXIS 57 (1928).

48-12-107. Emergency bylaws.

  1. Unless the charter provides otherwise, the board of directors or the incorporators of a corporation may adopt bylaws to be effective only in an emergency. The emergency bylaws, which are subject to amendment or repeal by the shareholders, may make all provisions necessary for managing the corporation during the emergency, including:
    1. Procedures for calling a meeting of the board of directors;
    2. Quorum requirements for the meeting; and
    3. Designation of additional or substitute directors.
  2. All provisions of the regular bylaws consistent with the emergency bylaws remain effective during the emergency. The emergency bylaws are not effective after the emergency ends.
  3. Corporate action taken in good faith in accordance with the emergency bylaws:
    1. Binds the corporation; and
    2. May not be used to impose liability on a corporate director, officer, employee, or agent.
  4. An emergency exists for purposes of this section if a quorum of the corporation's directors cannot readily be assembled because of some catastrophic event.

Acts 1986, ch. 887, § 2.07; 1987, ch. 273, § 23; 2012, ch. 1051, § 19.

Chapter 13
Purposes and Powers

48-13-101. Purposes.

  1. Every corporation incorporated under chapters 11-27 of this title has the purpose of engaging in any lawful business unless a more limited purpose is set forth in the charter.
  2. A corporation engaging in a business that is subject to regulation under another statute of this state may incorporate under chapters 11-27 of this title only if permitted by, and subject to all limitations of, the other statute.

Acts 1986, ch. 887, § 3.01.

Cross-References. Applicability of business corporation law, title 48, chs. 11-27, to corporations existing on January 1, 1988, title 48, ch. 27.

Documents filed with county register of deeds in addition to the secretary of state's office, § 48-11-303.

Nonprofit corporations, purposes and powers, title 48, ch. 53.

48-13-102. General powers.

Unless its charter provides otherwise, every corporation has perpetual duration and succession in its corporate name and has the same powers as an individual to do all things necessary or convenient to carry out its business and affairs, including, without limitation, power to:

  1. Sue and be sued, complain and defend in its corporate name;
  2. Have a corporate seal, which may be altered at will, and to use it, or a facsimile of it, by impressing or affixing it or in any other manner reproducing it;
  3. Make and amend bylaws, not inconsistent with its charter or with the laws of this state, for managing the business and regulating the affairs of the corporation;
  4. Purchase, receive, lease, or otherwise acquire, and own, hold, improve, use, and otherwise deal with, real or personal property, or any legal or equitable interest in property, wherever located;
  5. Sell, convey, mortgage, pledge, lease, exchange, and otherwise dispose of, or grant a security interest in, all or any part of its property;
  6. Purchase, receive, subscribe for, or otherwise acquire; own, hold, vote, use, sell, mortgage, lend, pledge, or otherwise dispose of, or grant a security interest in; and deal in and with shares or other interests in, or obligations of, any other entity;
  7. Make contracts and guarantees, incur liabilities, borrow money, issue its notes, bonds, and other obligations (which may be convertible into or include the option to purchase other securities of the corporation), and secure any of its obligations or those of any other person by mortgage, pledge of, or security interest in, any of its property, franchises, or income;
  8. Lend money, invest and reinvest its funds, and receive and hold real and personal property as security for repayment;
  9. Be a promoter, partner, member, associate, or manager of any partnership, joint venture, trust, or other entity;
  10. Conduct its business, locate offices, and exercise the powers granted by chapters 11-27 of this title within or without this state;
  11. Elect directors and appoint officers, employees, and agents of the corporation, define their duties, fix their compensation, and lend them money and credit;
  12. Pay pensions and establish pension plans, pension trusts, profit sharing plans, share bonus plans, share option plans, and benefit or incentive plans for any or all of the current or former directors, officers, employees, and agents of the corporation or any of its subsidiaries;
  13. Make donations for the public welfare or for charitable, scientific, or educational purposes;
  14. Make payments or donations, or do any other act, not inconsistent with law, that furthers the business and affairs of the corporation;
  15. Procure for its benefit insurance on the life of any of its directors, officers or employees, to insure the life of any shareholder for the purpose of acquiring at the shareholder's death shares owned by such shareholder and to continue such insurance after the relationship terminates; and
  16. Accept gifts, devises, and bequests subject to any conditions or limitations contained in such gift, devise, or bequest, so long as such conditions or limitations are not contrary to chapters 11-27 of this title or the purposes for which the corporation is organized.

Acts 1986, ch. 887, § 3.02.

Cross-References. Authentication of corporate instruments, § 66-22-108.

NOTES TO DECISIONS

1. Standing.

Three individual siblings lacked standing to recover on a theory that they lost the benefit of their bargain where after winning a bid to purchase a grease business assets from the estate, they assigned the right to purchase to a new corporation, that corporation was a distinct legal entity responsible for pursuing its own legal actions, and even though the siblings were directly affected and were the only shareholders, that fact did not entitle them to bring a cause of action to recover damages sustained by the corporation. In re Estate of McRedmond, — S.W.3d —, 2014 Tenn. App. LEXIS 743 (Tenn. Ct. App. Nov. 14, 2014), aff'd in part, rev'd in part, Keller v. Estate of McRedmond, 2016 Tenn. LEXIS 506, 495 S.W.3d 852 (2016).

48-13-103. Emergency powers.

  1. In anticipation of or during an emergency, the board of directors of a corporation may:
    1. Modify lines of succession to accommodate the incapacity of any director, officer, employee, or agent; and
    2. Relocate the principal office, designate alternative principal offices or regional offices, or authorize the officers to do so.
  2. During an emergency, unless emergency bylaws provide otherwise:
    1. Notice of a meeting of the board of directors need be given only to those directors whom it is practicable to reach and may be given in any practicable manner, including by publication and radio; and
    2. One (1) or more officers of the corporation present at a meeting of the board of directors may be deemed to be directors for the meeting, in order of rank and within the same rank in order of seniority, as necessary to achieve a quorum.
  3. Corporate action taken in good faith during an emergency under this section to further the ordinary business affairs of the corporation:
    1. Binds the corporation; and
    2. May not be used to impose liability on a corporate director, officer, employee, or agent.

Acts 1986, ch. 887, § 3.03; 1987, ch. 273, § 24.

48-13-104. Ultra vires actions.

  1. Except as provided in subsection (b), the validity of corporate action may not be challenged on the ground that the corporation lacks or lacked power to act.
  2. A corporation's power to act may be challenged in a proceeding by:
    1. A shareholder against the corporation to enjoin the act;
    2. The corporation, directly, derivatively, or through a receiver, trustee, or other legal representative, against an incumbent or former director, officer, employee, or agent of the corporation; or
    3. The attorney general and reporter under § 48-24-301.
  3. In a shareholder's proceeding under subdivision (b)(1) to enjoin an unauthorized corporate act, the court may enjoin or set aside the act, if equitable and if all affected persons are parties to the proceeding, and may award damages for loss (other than anticipated profits) suffered by the corporation or another party because of enjoining the unauthorized act.

Acts 1986, ch. 887, § 3.04.

Cross-References. Limited liability companies, Ultra vires actions, § 48-213-101.

Nonprofit corporations, Ultra vires actions, § 48-53-104.

NOTES TO DECISIONS

Decisions Under Prior Law

1. In General.

Corporate action taken without the requisite number of officers and directors may be ultra vires; but such action is not invalid and such lack of capacity may be asserted only by certain parties in specific situations. United States v. Daugherty, 599 F. Supp. 671, 1984 U.S. Dist. LEXIS 21576 (E.D. Tenn. 1984).

2. Within Corporate Powers.

Where officer of cement company who undertook low-cost building project and houses were to be constructed from cement blocks, undertaking was not ultra vires, but incidental to business of corporation. Nashville Breeko Block & Tile Co. v. Hopton, 29 Tenn. App. 394, 196 S.W.2d 1010, 1946 Tenn. App. LEXIS 76 (Tenn. Ct. App. 1946).

3. Leases.

Where an amusement company empowered to hold real estate for amusement purposes only leased property not suitable for such purposes without alterations and where the lease prohibited alterations except by consent of the lessor, the lease was ultra vires on its face. Hedges v. Signal Amusement Co., 16 Tenn. App. 361, 64 S.W.2d 534, 1933 Tenn. App. LEXIS 18 (Tenn. Ct. App. 1933).

Where a lease was ultra vires on its face, the corporation could set up this defense in an action for rents. Hedges v. Signal Amusement Co., 16 Tenn. App. 361, 64 S.W.2d 534, 1933 Tenn. App. LEXIS 18 (Tenn. Ct. App. 1933).

4. Gift of Bonds.

The stipulation in a contract of subscription to the original capital stock of a manufacturing corporation was without consideration, ultra vires, and void, where it provided that the subscriber should receive, upon consideration of the subscription, the bonds of the corporation to the full amount of the subscription, secured by a first mortgage “upon the company's plant,” in addition to the subscriber's stock for the like amount; the corporation might repudiate such illegal stipulation, without releasing the subscriber from liability for the subscription, or subjecting itself to an action by the subscriber. Such stipulation was regarded as an independent covenant, and not a condition precedent to the payment of the subscription. Morrow v. Nashville Iron, & Steel Co., 87 Tenn. 262, 10 S.W. 495, 1888 Tenn. LEXIS 59, 10 Am. St. Rep. 658, 3 L.R.A. 37 (1889); Street R.R. v. Morrow, 87 Tenn. 406, 11 S.W. 348, 1888 Tenn. LEXIS 73, 2 L.R.A. 853 (1888).

5. Pledge of Bonds.

Where the bonds of a corporation were issued under a resolution of the stockholders for the purpose of paying the existing indebtedness of the corporation and securing future loans, for the retirement of an existing bond issue, and for additional improvements, with authority vested in the directors by the resolution of the stockholders to sell the bonds for cash or to use the bonds for the aforementioned purposes in such manner as they might, in their judgment and discretion, deem best, a pledge of the bonds to secure the debts of the corporation instead of a sale of them for cash in accordance with the resolution was not void as ultra vires, although a portion of the indebtedness was due to directors, where all reasonable endeavors to make sales were used, but failed, and the pledge was necessary to quiet creditors. Hunt v. Memphis Gaslight Co., 95 Tenn. 136, 31 S.W. 1006, 1895 Tenn. LEXIS 72 (1895); Rawlings v. New Memphis Gaslight Co., 105 Tenn. 268, 60 S.W. 206, 1900 Tenn. LEXIS 76, 80 Am. St. Rep. 880 (1900).

6. Note to Purchase Stock.

Where charter authorized corporation to make bills and notes in the course of its business, a note executed by corporation to purchase stock in another corporation was ultra vires since note was executed beyond the scope of the business, but in the hands of an innocent purchaser for value the note was valid. Jefferson Bank of St. Louis v. Chapman-White-Lyons Co., 122 Tenn. 415, 123 S.W. 641, 1909 Tenn. LEXIS 28 (1909).

7. Laches.

In equity suit by minority of stockholders to set aside, as ultra vires, corporation's deed, executed nine years before, laches precludes relief. Cullen v. Coal Creek Min. & Mfg. Co., 42 S.W. 693, 1897 Tenn. Ch. App. LEXIS 72 (1897).

Chapter 14
Name

48-14-101. Corporate name.

  1. A corporate name:
    1. Must contain the word “corporation,” “incorporated,” “company,” or the abbreviation “corp.,” “inc.,” “co.,” or words or abbreviations of like import in another language (provided they are written in roman characters or letters); provided, that, if such corporation is formed for the purpose of an insurance or banking business, the name of such corporation need not contain any of the aforementioned words or abbreviations. A corporation using the corporate designations “limited” or “ltd.,” with such having been filed in the secretary of state's office prior to May 29, 1989, may continue to use that corporate designation until such time as it files an amendment which in any way changes its corporate name; and
    2. May not contain language stating or implying that the corporation:
      1. Transacts or has power to transact any business for which authorization in whatever form and however denominated is required under the laws of this state, unless the appropriate commission or officer has granted such authorization and certifies that fact in writing;
      2. Is organized as, affiliated with, or sponsored by, any fraternal, veterans', service, religious, charitable, or professional organization, unless that fact is certified in writing by the organization with which affiliation or sponsorship is claimed;
      3. Is an agency or instrumentality of, affiliated with or sponsored by the United States or the state of Tennessee or a subdivision or agency thereof, unless such fact is certified in writing by the appropriate official of the United States or the state of Tennessee or subdivision or agency thereof; or
      4. Is organized for a purpose other than that permitted by § 48-13-101 and its charter.
  2. Except as authorized by subsection (c), the name of a domestic corporation, and the name of a foreign corporation that is authorized to transact business in this state or is applying for a certificate of authority to transact business in this state, shall be distinguishable upon the records of the secretary of state from the respective names of or for every other entity, whether true, assumed, reserved or registered, to the extent the use or reservation of such names is evidenced by a filing with the secretary of state under applicable law.
  3. A domestic or foreign corporation, or person acting on behalf of a corporation not yet formed, may apply to the secretary of state for authorization to use a name that is not distinguishable upon the secretary of state's records from one (1) or more of the names described in subsection (b). The secretary of state shall authorize use of the indistinguishable name applied for, if:
    1. The person holding the right to use the previously filed name described in subsection (b) consents to the use in writing and submits an undertaking, in a form satisfactory to the secretary of state, to cancel its reservation of such name or change such name to a name that is distinguishable upon the records of the secretary of state from the name of the applicant;
    2. The applicant delivers to the secretary of state a certified copy of the final judgment of a court of competent jurisdiction establishing the applicant's right to use the name applied for in this state; or
    3. The person holding the right to use the previously filed name described in subsection (b) consents in writing to the use of such name by the applicant, and both the other person and the applicant consent in a form satisfactory to the secretary of state to use the same registered agent.
    1. A domestic corporation or a foreign corporation authorized to transact business or applying for a certificate of authority to transact business may elect to adopt an assumed corporate name that complies with the requirements of subsections (a)-(c), except that such name need not contain the corporate designations contained in subdivision (a)(1).
    2. As used in chapters 11-27 of this title, “assumed corporate name” means any name used by the corporation other than its true corporate name, except that the following shall not constitute the use of an assumed corporate name under chapters 11-27 of this title:
      1. The identification by a corporation of its business with a trademark or service mark of which it is the owner or licensed user; and
      2. The use of a name of a division, not separately incorporated and not containing the word “corporation,” “incorporated,” or “limited” or an abbreviation of one (1) of such words; provided, that the corporation also clearly discloses its corporate name.
    3. Before transacting any business in this state under an assumed corporate name or names, the corporation shall, for each assumed corporate name, pursuant to resolution by its board of directors, execute and file in accordance with chapter 11, part 3 of this title, an application setting forth:
      1. The true corporate name;
      2. The state or country under the laws of which it is organized;
      3. That it intends to transact business under an assumed corporate name; and
      4. The assumed corporate name which it proposes to use.
    4. The right to use an assumed corporate name shall be effective for five (5) years from the date of filing with the secretary of state.
    5. A corporation shall renew the right to use its assumed corporate name or names, if any, within the two (2) months preceding the expiration of such right, for a period of five (5) years, by filing an application to renew each assumed name and paying the renewal fee as prescribed by § 48-11-303(a).
  4. Any domestic or foreign corporation may, pursuant to resolution by its board of directors, change or cancel any or all of its assumed corporate names by executing and filing, in accordance with chapter 11, part 3 of this title, an application setting forth:
    1. The true corporate name;
    2. The state or country under the laws of which it is organized;
    3. That it intends to cease transacting business under an assumed corporate name by changing or cancelling it;
    4. The assumed corporate name to be changed from or cancelled; and
    5. If the assumed corporate name is to be changed, the assumed corporate name which the corporation proposes to use.
  5. Upon the filing of an application to change an assumed corporate name, the corporation shall have the right to use such assumed corporate name for the period authorized by subsection (d).
  6. The right to use an assumed corporate name shall be cancelled by the secretary of state:
    1. If the corporation fails to renew an assumed corporate name;
    2. If the corporation has filed an application to change or cancel an assumed corporate name;
    3. If a domestic corporation has been dissolved; or
    4. If a foreign corporation has had its certificate of authority to transact business in this state revoked.
  7. Nothing in this section, or in § 48-14-102, § 48-14-103 or § 48-25-106, shall abrogate or limit the law as to unfair competition or unfair trade practice, or derogate from the common law, the principles of equity, or the statutes of this state or of the United States with respect to the right to acquire and protect trade names and trademarks.

Acts 1986, ch. 887, § 4.01; 1987, ch. 273, §§ 25, 26; 1989, ch. 451, § 4; 1994, ch. 868, §§ 2-5; 1997, ch. 224, § 1; 2010, ch. 743, §§ 1, 2.

Cross-References. Applicability of business corporation law, title 48, chs. 11-27, to corporations existing on January 1, 1988, title 48, ch. 27.

Documents filed with county register of deeds in addition to the secretary of state's office, § 48-11-303.

Foreign limited liability companies, title 48, chapter 246, part 2.

Nonprofit corporations, name, title 48, ch. 54.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-504 — 5-506, 5-905.

Law Reviews.

Bad Faith in Cyberspace: Trademark Rights on the World Wide Web (Chad Denver Emerson), 36 Tenn. B.J. 14 (2000).

NOTES TO DECISIONS

1. Capacity.

Company operating under assumed name had capacity to sue in Tennessee on contract governed by Texas law even though corporation had not filed assumed name certificates with the secretary of state of Texas, and Texas law provided that failing to do so barred an action or proceeding in any court of that state. Kemmons Wilson, Inc. v. Allied Bank of Texas, 836 S.W.2d 104, 1992 Tenn. App. LEXIS 10 (Tenn. Ct. App. 1992).

2. Agent Liability.

Trial court properly found a managing member of a limited liability company (LLC) was personally liable as an agent for the LLC because the agent failed to disclose the identity of his principal when conducting business with a website development company; the agent conducted business under the name of another entity, which had been administratively dissolved in 2004, not the LLC, and the agent failed to list any assumed names or “d/b/a” names in the LLC's registration with the Secretary of State, in accordance with T.C.A. §§ 48-14-101(d)(2) (now § 48-14-101(d)(3)) and 48-249-106(d). ICG Link, Inc. v. Steen, 363 S.W.3d 533, 2011 Tenn. App. LEXIS 597 (Tenn. Ct. App. Oct. 31, 2011).

Decisions Under Prior Law

1. Wrongful Use of Name.

A corporation taking or using the name of a preexisting corporation, or one so nearly the same as to lead to interminable confusion and strife, would be enjoined from doing so, or would be required to make a modification of its name sufficient to obviate the objection. Ex parte Walker, 1 Cooper's Tenn. Ch. 97 (1873); Benevolent & Protective Order of Elks v. Improved Benevolent & Protective Order of Elks, 122 Tenn. 141, 118 S.W. 389, 1909 Tenn. LEXIS 9 (1909).

2. Right to Name.

Industrial loan and thrift company operating under title 45, ch. 5 which had been originally granted a charter with the term “savings and loan” in corporate name did not thereby acquire a contractual right from the state to use such term without more in their name. Peoples Sav. & Loan of Nashville Co. v. Pack, 225 Tenn. 296, 467 S.W.2d 578, 1971 Tenn. LEXIS 345 (1971).

48-14-102. Reserved name.

  1. A person may reserve the exclusive use of a corporate name, including an assumed corporate name, by delivering an application to the secretary of state for filing. The application must set forth the name and address of the applicant and the name proposed to be reserved. If the secretary of state finds that the corporate name applied for meets the requirements of § 48-14-101 and is available, the secretary of state shall reserve the name for the applicant's exclusive use for a four-month period. Upon the expiration of the four-month period, the same or any other party may apply to reserve the same name.
  2. The owner of a reserved corporate name, including an assumed corporate name, may transfer the reservation to another person by delivering to the secretary of state a notice of the transfer signed by the owner that states the name and address of the transferee.
  3. The reservation of a specific name may be cancelled by filing with the secretary of state a notice, executed by the applicant or transferee, specifying the name reservation to be cancelled and the name and address of the applicant or transferee.

Acts 1986, ch. 887, § 4.02; 1987, ch. 273, § 27; 1989, ch. 451, § 5.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-501 — 5-503.

48-14-103. Registered name.

  1. A foreign corporation may register its corporate name, or an assumed corporate name under which it transacts business, or its corporate name with any addition pursuant to § 48-25-106, if the name is distinguishable upon the records of the secretary of state from the corporate names that are not available under § 48-14-101(b).
  2. A foreign corporation registers its corporate name, or its assumed corporate name, or its corporate name with any addition pursuant to § 48-25-106, by delivering to the secretary of state for filing an application:
    1. Setting forth its corporate name, its assumed corporate name, or its corporate name with any addition pursuant to § 48-25-106, the state or country and date of its incorporation, and a brief description of the nature of the business in which it is engaged; and
    2. Accompanied by a certificate of existence (or a document of similar import) from the state or country of incorporation, which certificate shall bear a date of not more than one (1) month prior to the date the application is filed in this state.
  3. The name is registered for the applicant's exclusive use upon the effective date of the application and until the end of the calendar year in which such registration occurs.
  4. A foreign corporation whose registration is effective may renew it for successive years by delivering to the secretary of state for filing a renewal application, which complies with the requirements of subsection (b), between October 1 and December 31 of the preceding year. The renewal application renews the registration for the following calendar year.
  5. A foreign corporation whose registration is effective may thereafter qualify as a foreign corporation under that name or consent in writing to the use of that name by a corporation thereafter incorporated under chapters 11-27 of this title or by another foreign corporation thereafter authorized to transact business in this state. The registration terminates when the domestic corporation is incorporated or the foreign corporation qualifies or consents to the qualification of another foreign corporation under the registered name.

Acts 1986, ch. 887, § 4.03; 1987, ch. 273, § 28.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-507, 5-508.

Chapter 15
Office and Agent

48-15-101. Registered office and registered agent.

  1. Each corporation must continuously maintain in this state:
    1. A registered office that may be the same as any of its places of business; and
    2. A registered agent, who may be:
      1. An individual who resides in this state and whose business office is identical with the registered office;
      2. A domestic corporation or not for profit domestic corporation whose business office is identical with the registered office; or
      3. A foreign corporation or not for profit foreign corporation authorized to transact business in this state whose business office is identical with the registered office.
  2. If a registered agent resigns or is unable to perform the registered agent's duties, the designating corporation shall promptly designate another registered agent to the end that it shall at all times have a registered agent in this state.

Acts 1986, ch. 887, § 5.01.

Cross-References. Applicability of business corporation law, title 48, chs. 11-27, to corporations existing on January 1, 1988, title 48, ch. 27.

Nonprofit corporations, office and agent, title 48, ch. 55.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-604.

Law Reviews.

The Future of General Jurisdiction in Tennessee, 27 U. Mem. L. Rev. 559 (1997).

NOTES TO DECISIONS

1. Service on a Subagent.

Trial court's judgment against a company was affirmed, as under T.C.A. § 48-15-101, the company's registered agent could designate a subagent to accept service, and none of the allegations in the process server's affidavit about service on the subagent was refuted. Thus, service on the company, and the subsequent judgment, were valid. Rubio v. Precision Aerodynamics, Inc., 232 S.W.3d 738, 2006 Tenn. App. LEXIS 650 (Tenn. Ct. App. Oct. 5, 2006).

48-15-102. Change of registered office or registered agent.

  1. A corporation may change its registered office or registered agent by delivering to the secretary of state for filing a statement of change that sets forth:
    1. The name of the corporation;
    2. If the current registered office is to be changed, the street address of the new registered office and the zip code for such office (and a mailing address such as a post office box if the United States postal service does not deliver to the registered agent’s registered office), and the county in which the office is located;
    3. If the current registered agent is to be changed, the name of the new registered agent; and
    4. That after the change or changes are made, the street addresses of its registered office and the business office of its registered agent will be identical.
  2. If a registered agent changes the street address of such registered agent's business office, such registered agent may change the street address of the registered office of any corporation for which such registered agent is the registered agent by notifying the corporation in writing of the change and signing (either manually or in facsimile) and delivering to the secretary of state for filing a statement that complies with the requirements of subsection (a) and recites that the corporation has been notified of the change.

Acts 1986, ch. 887, § 5.02; 1987, ch. 273, §§ 29, 48; 1991, ch. 188, § 11; 2012, ch. 1051, § 20; 2014, ch. 783, § 3.

Amendments. The 2012 amendment, effective January 1, 2013, inserted “(or a mailing address such as a post office box if the United States postal service does not deliver to the registered agent’s registered office)” in (a)(2).

The 2014 amendment substituted “and a mailing address” for “or a mailing address” in (a)(2).

Effective Dates. Acts 2012, ch. 1051, § 62. January 1, 2013; provided, that, for the purpose of the secretary of state taking necessary actions for the implementation of the act, the act shall take effect May 21, 2012.

Acts 2014, ch. 783, § 24. July 1, 2014.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-601, 5-602.

48-15-103. Resignation of registered agent.

  1. A registered agent may resign the registered agent's agency appointment by signing and filing with the secretary of state an original statement of resignation accompanied by the registered agent's certification that the registered agent has mailed a copy thereof to the principal office of the corporation by certified mail. The statement may include a statement that the registered office is also discontinued.
  2. The agency appointment is terminated, and the registered office discontinued if so provided, on the date on which the statement is filed by the secretary of state.

Acts 1986, ch. 887, § 5.03.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-603.

48-15-104. Service on corporation.

  1. A corporation's registered agent is the corporation's agent for service of process, notice, or demand required or permitted by law to be served on the corporation.
  2. Whenever a domestic or foreign corporation authorized to do business in this state fails to appoint or maintain a registered agent in this state, whenever its registered agent cannot be found with reasonable diligence, whenever a foreign corporation shall transact business or conduct affairs in this state without first procuring a certificate of authority to do so from the secretary of state, or whenever the certificate of authority of a foreign corporation shall have been withdrawn or revoked, then the secretary of state shall be an agent of such corporation upon whom any such process, notice or demand may be served.
  3. Whenever a domestic or foreign corporation authorized to do business in this state is an employer within the meaning of the Workers' Compensation Law and such corporation is, for the purpose of such Workers' Compensation Law, self insured or a part of a self-insurance pool as provided in title 50, chapter 6, part 4, such corporation shall, for workers' compensation actions only, be required to appoint the commissioner of commerce and insurance and the commissioner's chief deputy, or their successors, as its true and lawful attorneys upon either of whom all lawful process in any such action or legal proceeding against it may be served as is required of insurance companies by § 56-2-103.
  4. This section does not prescribe the only means, or necessarily the required means, of serving a corporation.

Acts 1986, ch. 887, § 5.04; 1987, ch. 273, §§ 30, 47.

Cross-References. Foreign corporations subject to actions, § 20-2-201.

Workers' compensation insurance, title 50, ch. 6, part 4.

NOTES TO DECISIONS

1. Construction.

Trial court's judgment against a company was affirmed, as under T.C.A. § 48-15-104, the company's registered agent could designate a subagent to accept service, and none of the allegations in the process server's affidavit about service on the subagent was refuted. Thus, service on the company, and the subsequent judgment, were valid. Rubio v. Precision Aerodynamics, Inc., 232 S.W.3d 738, 2006 Tenn. App. LEXIS 650 (Tenn. Ct. App. Oct. 5, 2006).

2. Doing Business.

Venue was proper in the county in which a restaurant filed suit because the Secretary of State's office was in that county; a refuse company transacted business in Tennessee, and thus, T.C.A. § 20-4-104(3)(B), read in conjunction with T.C.A. § 48-15-104(b), operated to make the Secretary of State the registered agent for the company because it did not have a registered agent in the State. J. Alexander's Holdings, LLC v. Republic Servs., — S.W.3d —, 2017 Tenn. App. LEXIS 307 (Tenn. Ct. App. May 12, 2017).

Decisions Under Prior Law

1. Construction.

The statutes providing for service of process on corporations are to be read in pari materia. De Laney Furniture Co. v. Magnavox Co. of Tennessee, 222 Tenn. 329, 435 S.W.2d 828, 1968 Tenn. LEXIS 511 (1968), overruled in part, Davenport v. State Farm Mut. Auto. Ins. Co., 756 S.W.2d 678, 1988 Tenn. LEXIS 160 (Tenn. 1988).

Former similar section along with § 20-2-201 were not the exclusive methods of acquiring jurisdiction of a foreign corporation, but former Tenn. R. Civ. P. 4.04(4) provided an additional means. Gallaher v. Chemical Leaman Tank Lines, Inc., 367 F. Supp. 1063, 1973 U.S. Dist. LEXIS 10476 (E.D. Tenn. 1973).

Trial court's judgment against a company was affirmed, as under T.C.A. § 48-15-104, the company's registered agent could designate a subagent to accept service, and none of the allegations in the process server's affidavit about service on the subagent was refuted. Thus, service on the company, and the subsequent judgment, were valid. Rubio v. Precision Aerodynamics, Inc., 232 S.W.3d 738, 2006 Tenn. App. LEXIS 650 (Tenn. Ct. App. Oct. 5, 2006).

2. Doing Business.

Foreign corporation was subject to process served upon the secretary of state under the former section in a civil suit for personal injuries from a defect in its product, where it had agents in the state selling to distributors and consumers, settling claims, servicing delinquent accounts, briefing product's use and investigating uses, since it was substantially carrying on a business. Radford v. Minnesota Mining & Mfg. Co., 128 F. Supp. 775, 1955 U.S. Dist. LEXIS 3712 (D. Tenn. 1955).

Where out-of-state corporation furnished materials for construction in Tennessee and also took the contract for the erection of such installation, such corporation was doing business in Tennessee and subject to service. Shuler v. Wood, 198 F. Supp. 801, 1961 U.S. Dist. LEXIS 3446 (E.D. Tenn. 1961).

If a foreign corporation which has no physical facilities in this state has not designated an agent upon whom process against it may be served but has made use of the privilege extended by law to foreign corporations to do business within Tennessee after proper domestication, it is deemed to have constituted Tennessee secretary of state its agent for the service of process in actions arising out of unauthorized business done by it within Tennessee; however, any such transactions complained of must have arisen in this state and attendant circumstances localized its activities and evidenced its “presence” in some sense. Trussell v. Bear Mfg. Co., 215 F. Supp. 802, 1963 U.S. Dist. LEXIS 6381 (E.D. Tenn. 1963).

Substituted service of process through Tennessee secretary of state was properly had on a foreign corporation in action against the corporation for injuries sustained by the buyer of an allegedly defective second-hand wheel balancer manufactured by the corporation, the corporation having sold the balancer to a Tennessee jobber and supplied a representative who conducted meetings with the jobber's salesmen and supervised installation of any such equipment, as such activity constituted “doing business” in Tennessee. Trussell v. Bear Mfg. Co., 215 F. Supp. 802, 1963 U.S. Dist. LEXIS 6381 (E.D. Tenn. 1963).

Defendant foreign corporation was “doing business within” Tennessee by transacting in a continuous manner a substantial part of its ordinary business, and must be deemed to have constituted the Tennessee secretary of state its agent to receive process in a civil action arising from unauthorized business, wherein the buyer of a defective second-hand wheel balancer, manufactured by corporation, brought action for injury; sale of the balancer and other equipment to Tennessee jobber and sending a representative to meet with jobber's salesmen and supervise installation of the equipment constituted “doing business.” Trussell v. Bear Mfg. Co., 215 F. Supp. 802, 1963 U.S. Dist. LEXIS 6381 (E.D. Tenn. 1963).

Where uncontroverted affidavits as well as deposition of the plaintiff established that no new facts had been developed with respect to defendant doing business in Tennessee since dismissal of former action on ground that defendant was not doing business in Tennessee so as to be subject to service of process, action would be dismissed for lack of jurisdiction. Smartt v. Coca-Cola Bottling Corp., 337 F.2d 950, 1964 U.S. App. LEXIS 4056 (6th Cir. Tenn. 1964), cert. denied, Chambliss v. Coca-Cola Bottling Corp., 380 U.S. 934, 85 S. Ct. 941, 13 L. Ed. 2d 822, 1965 U.S. LEXIS 1698 (1965), cert. denied, Chambliss v. Coca-Cola Bottling Corp., 380 U.S. 934, 85 S. Ct. 941, 13 L. Ed. 2d 822, 1965 U.S. LEXIS 1698 (1965).

A foreign manufacturer selling automobiles accompanied by a written warranty to an American subsidiary, who in turn sold them to regional distributors, who in turn sold them to distributors, who in turn sold them to dealers, one of which, located in Tennessee, sold one of such automobiles to a plaintiff, did not maintain the minimal contacts within the state necessary to authorize service in an action for damages caused by a defect in such automobile. Fayette v. Volkswagen of America, Inc., 273 F. Supp. 323, 1967 U.S. Dist. LEXIS 8184 (W.D. Tenn. 1967).

The American subsidiary of a foreign automobile manufacturer whose employees occasionally came into Tennessee on company business and who advertised in magazines distributed in Tennessee, appeared on the air in the state, and was authorized by the manufacturer to exercise certain supervision of Tennessee dealers selling the product of such manufacturer was not subject to service in an action for damages by a purchaser of one of such automobiles. Fayette v. Volkswagen of America, Inc., 273 F. Supp. 323, 1967 U.S. Dist. LEXIS 8184 (W.D. Tenn. 1967).

3. Conflict of Laws.

Question of whether business activities make a nonresident corporation amenable to process is controlled by the Tennessee statutes and court decisions unless the business is in interstate commerce, in which event the federal decisions will control. Radford v. Minnesota Mining & Mfg. Co., 128 F. Supp. 775, 1955 U.S. Dist. LEXIS 3712 (D. Tenn. 1955).

4. Death of Agent.

Fact that defendant's agent for service of process died before the period of limitations for bringing action against defendant had run would not toll the statute since, in such case, service could be made on the secretary of state. Sigler v. Youngblood Truck Lines, Inc., 149 F. Supp. 61, 1957 U.S. Dist. LEXIS 3823 (D. Tenn. 1957).

5. Withdrawal from Business in State.

Jurisdiction over a foreign corporation as to transaction before its withdrawal from business in the state could not be acquired by service of process upon a resident person who had been its local agent at the time of the transaction. Guthrie v. Connecticut Indem. Ass'n, 101 Tenn. 643, 49 S.W. 829, 1898 Tenn. LEXIS 115 (1898), superseded by statute as stated in, Algee v. State Farm Gen. Ins. Co., 890 S.W.2d 445, 1994 Tenn. App. LEXIS 373 (Tenn. Ct. App. 1994).

48-15-105. Procedure for service on domestic or foreign corporation by service on secretary of state.

  1. Service on the secretary of state, when the secretary of state is an agent for a domestic or foreign corporation as provided in § 48-15-104(b), of any process, notice, or demand shall be made by delivering to the secretary of state the original and one (1) copy of such process, notice, or demand, duly certified by the clerk of the court in which the suit or action is pending or brought, together with the proper fee. A statement which identifies which of the grounds, as listed in § 48-15-104(b), for service on the secretary of state is applicable, must be included. The secretary of state shall endorse the time of receipt upon the original and copy and immediately shall send the copy, along with a written notice that service of the original was also made, by registered or certified mail, with return receipt requested, addressed to such corporation at its registered office (or designated alternative mailing address) or principal office (or designated alternative mailing address) as shown in the records on file in the secretary of state's office or as shown in the official registry of the state or country in which such corporation is incorporated. If none of the previously mentioned addresses are available to the secretary of state, service may be made on any one (1) of the incorporators at the address set forth in the charter. The secretary of state may require the plaintiff (or complainant as the case may be) or the plaintiff's (or complainant's) attorney to furnish the latter address.
  2. The refusal or failure of such corporation to accept delivery of the registered or certified mail provided for in subsection (a), or the refusal or failure to sign the return receipt, shall not affect the validity of such service; and any such corporation refusing or failing to accept delivery of such registered or certified mail shall be charged with knowledge of the contents of any process, notice, or demand contained therein.
  3. When the registered or certified mail return receipt is received by the secretary of state or when a corporation refuses or fails to accept delivery of the registered or certified mail and it is returned to the secretary of state, the secretary of state shall forward the receipt or such refused or undelivered mail to the clerk of the court in which the suit or action is pending, together with the original process, notice, or demand, a copy of the notice the secretary of state sent to the defendant corporation and the secretary of state's affidavit setting forth the secretary of state's compliance with this section. Upon receipt thereof, the clerk shall copy the affidavit on the rule docket of the court and shall mark it, the receipt or refused or undelivered mail, and the copy of notice as of the day received and place them in the file of the suit or action where the process and pleadings are kept, and such receipt or refused or undelivered mail, affidavit, and copy of notice shall be and become a part of the technical record in the suit or action and thereupon service on the defendant shall be complete. Service made under this section shall have the same legal force and validity as if the service had been made personally in this state.
  4. Subsequent pleadings or papers permitted or required to be served on such defendant domestic or foreign corporation may be served on the secretary of state as agent for such defendant corporation in the same manner, at the same cost and with the same effect as process, notice, or demand are served on the secretary of state as agent for such defendant corporation under this section.
  5. No appearance shall be required in the suit or action by the defendant domestic or foreign corporation nor shall any judgment be taken against the defendant domestic or foreign corporation in less than one (1) month after the date service is completed under this section.
  6. The secretary of state shall keep a record of all processes, notices, and demands served upon the secretary of state under this section, which record shall include the time of such service and the secretary of state's action with reference thereto.

Acts 1986, ch. 887, § 5.05; 1989, ch. 451, § 6; 2012, ch. 1051, § 21.

Cross-References. Certified mail in lieu of registered mail, § 1-3-111.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Products Liability Cases.

In products liability action brought by buyer of French automobile to recover from out-of-state importer for damages suffered in a traffic accident in Tennessee as a result of alleged defects in the automobile, federal district court had jurisdiction under §§ 20-2-214 and 20-2-215 of importer which sold automobile through regional distributor and local retail dealer after purchasing it from parent French corporation which had manufactured it. Tate v. Renault, Inc., 278 F. Supp. 457, 1967 U.S. Dist. LEXIS 7423 (E.D. Tenn. 1967), aff'd, 402 F.2d 795, 1968 U.S. App. LEXIS 5055 (6th Cir. 1968), aff'd, Tate v. Renault, Inc., 402 F.2d 795, 1968 U.S. App. LEXIS 5055 (6th Cir. 1968).

Chapter 16
Shares and Distributions

Part 1
Shares

48-16-101. Authorized shares.

  1. The charter must prescribe the number of shares of each class that the corporation is authorized to issue. If more than one (1) class of shares is authorized, the charter must prescribe a distinguishing designation for each class, and prior to the issuance of shares of a class, the preferences, limitations, and relative rights of that class must be described in the charter. All shares of a class must have preferences, limitations, and relative rights identical with those of other shares of the same class except to the extent otherwise permitted by § 48-16-102.
  2. The charter must authorize:
    1. One (1) or more classes of shares that together have unlimited voting rights; and
    2. One (1) or more classes of shares (which may be the same class or classes as those with voting rights) that together are entitled to receive the net assets of the corporation upon dissolution.
  3. The charter may authorize one (1) or more classes of shares that:
    1. Have special, conditional, or limited voting rights, or no right to vote, except to the extent prohibited by chapters 11-27 of this title;
    2. Are redeemable or convertible as specified in the charter:
      1. At the option of the corporation, the shareholder, or another person or upon the occurrence of a designated event;
      2. For cash, indebtedness, securities, or other property;
      3. In a designated amount or in an amount determined in accordance with a designated formula or by reference to extrinsic data or events;
    3. Entitle the holders to distributions calculated in any manner, including dividends that may be cumulative, noncumulative, or partially cumulative;
    4. Have preference over any other class of shares with respect to distributions, including dividends and distributions upon the dissolution of the corporation; or
    5. Have a par value; provided, that the mere recitation of a par value for shares shall not create a requirement for a minimum consideration for the issuance of any such shares or impose any other restriction on their issuance or create any other right or liability with respect thereto.
  4. The description of the designations, preferences, limitations, and relative rights of share classes in subsection (c) is not exhaustive.
  5. Any of the voting rights, preferences, limitations and relative rights of any class or series of shares authorized under this section may be made dependent upon facts ascertainable outside the charter; provided, that the manner in which such facts shall operate upon the voting powers, preferences, limitations and relative rights is set forth in reasonable detail in the charter.

Acts 1986, ch. 887, § 6.01; 1994, ch. 776, §§ 10-13.

Cross-References. Applicability of business corporation law, title 48, chs. 11-27, to corporations existing on January 1, 1988, title 48, ch. 27.

Nonprofit corporations, distributions, title 48, ch. 63.

Law Reviews.

Shareholder Oppression in Close Corporations: The Unanswered Question on Perspective, 53 Vand. L. Rev. 749 (2000).

48-16-102. Terms of class or series determined by board of directors.

  1. If the charter so provides, the board of directors may determine, in whole or part, the preferences, limitations, and relative rights (within the limits set forth in § 48-16-101) of:
    1. Any class of shares before the issuance of any shares of that class; or
    2. One (1) or more series within a class before the issuance of any shares of that series.
  2. Each series of a class must be given a distinguishing designation.
  3. All shares of a series must have preferences, limitations, and relative rights identical with those of other shares of the same series and, except to the extent otherwise provided in the description of the series, with those of other series of the same class.
  4. Before issuing any shares of a class or series created under this section, the corporation must deliver to the secretary of state for filing articles of amendment, which are effective without shareholder action, that set forth:
    1. The name of the corporation;
    2. The text of the amendment determining the terms of the class or series of shares;
    3. The date it was adopted; and
    4. A statement that the amendment was duly adopted by the board of directors.

Acts 1986, ch. 887, § 6.02.

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 88.

48-16-103. Issued and outstanding shares.

  1. A corporation may issue the number of shares of each class or series authorized by the charter. Shares that are issued are outstanding shares until they are reacquired, redeemed, converted, or cancelled.
  2. The reacquisition, redemption, or conversion of outstanding shares is subject to the limitation of subsection (c) and to § 48-16-401.
  3. At all times that shares of the corporation are outstanding, one (1) or more shares that together have unlimited voting rights and one (1) or more shares that together are entitled to receive the net assets of the corporation upon dissolution must be outstanding.

Acts 1986, ch. 887, § 6.03.

48-16-104. Fractional shares.

  1. A corporation may:
    1. Issue fractions of a share or pay in money the value of fractions of a share;
    2. Arrange for disposition of fractional shares by the shareholders; and
    3. Issue scrip in registered or bearer form entitling the holder to receive a full share upon surrendering enough scrip to equal a full share.
  2. Each certificate representing scrip must be conspicuously labeled “scrip” and must contain the information required by § 48-16-206(b).
  3. The holder of a fractional share is entitled to exercise the rights of a shareholder, including the right to vote, to receive dividends, and to participate in the assets of the corporation upon liquidation. The holder of scrip is not entitled to any of these rights unless the scrip provides for them.
  4. The board of directors may authorize the issuance of scrip, subject to any condition considered desirable, including that:
    1. The scrip will become void if not exchanged for full shares before a specified date; and
    2. The shares for which the scrip is exchangeable may be sold and the proceeds paid to the scripholders.

Acts 1986, ch. 887, § 6.04.

Part 2
Issuance of Shares

48-16-201. Subscription for shares.

  1. A subscription for shares entered into before incorporation shall be in writing, and any such subscription shall be irrevocable for six (6) months unless the subscription agreement provides a longer or shorter period or all the subscribers agree to revocation.
  2. The board of directors may determine the payment terms of subscriptions for shares that were entered into before incorporation, unless the subscription agreement specifies them. A call for payment by the board of directors must be uniform so far as practicable as to all shares of the same class or series, unless the subscription agreement specifies otherwise.
  3. Shares issued pursuant to subscriptions entered into before incorporation are fully paid and nonassessable when the corporation receives the consideration specified in the subscription agreement.
  4. If a subscriber defaults in payment of money or property under a subscription agreement entered into before incorporation, the corporation may collect the amount owed as any other debt. Alternatively, unless the subscription agreement provides otherwise, the corporation may rescind the agreement and may sell the shares if the debt remains unpaid more than twenty (20) days after the corporation sends written demand for payment to the subscriber.
  5. A subscription agreement entered into after incorporation shall be in writing and is a contract between the subscriber and the corporation subject to § 48-16-202.

Acts 1986, ch. 887, § 6.20.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-1109, 5-1110.

48-16-202. Issuance of shares.

  1. The powers granted in this section to the board of directors may be reserved to the shareholders by the charter.
  2. The board of directors may authorize shares to be issued for consideration consisting of any tangible or intangible property or benefit to the corporation, including cash, promissory notes, services performed, contracts for services to be performed, or other benefits to be received, or other securities of the corporation.
  3. Before the corporation issues shares, the board of directors shall determine that the consideration received or to be received for shares to be issued is adequate. A decision by the board of directors to accept consideration for shares shall be deemed a determination that the consideration is adequate. A determination by the board of directors is conclusive insofar as the adequacy of consideration for the issuance of shares relates to whether the shares are validly issued, fully paid, and nonassessable.
  4. When the corporation receives the consideration for which the board of directors authorized the issuance of shares, the shares issued therefor are fully paid and nonassessable. For the purposes of this subsection (d), when and to the extent consideration for the issuance of shares consists of a promissory note or contract for services or other benefits, the corporation has received such consideration at the time such note is issued or contract is entered into.
  5. The corporation may place in escrow shares issued for a contract for future services or benefits or a promissory note, or make other arrangements to restrict the transfer of the shares, and may credit distributions in respect of the shares against their purchase price, until the services are performed, the note is paid, or the benefits received. If the services are not performed, the note is not paid, or the benefits are not received, the shares escrowed or restricted and the distributions credited may be cancelled in whole or in part.

Acts 1986, ch. 887, § 6.21; 1994, ch. 776, §§ 14, 15.

Cross-References. Stocks held by fiduciary in nominee's name, § 35-3-118.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-103, 5-1203.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Consideration for Stock.

2. —Services.

Where the rights of creditors were not involved, officers of a corporation for the manufacture of a patented article of purely speculative value, who in good faith and with assent of the other stockholders gave their time, skill and means in attempting to develop and establish the business in consideration of a portion of unissued stock which had no present market value, were not liable to the corporation for the par value. Divine v. Universal Sewing Machine Motor Attachment Co., 38 S.W. 93, 1896 Tenn. Ch. App. LEXIS 59 (1896).

The labor or services given as consideration must be services actually rendered and not services to be rendered in the future. Community General Hospital, Inc. v. Diehl, 50 Tenn. App. 268, 360 S.W.2d 935, 1962 Tenn. App. LEXIS 151 (Tenn. Ct. App. 1962).

There was no consideration for issuance of common stock to directors for services in promotion of sale of preferred stock where the promotion of the corporation failed. Community General Hospital, Inc. v. Diehl, 50 Tenn. App. 268, 360 S.W.2d 935, 1962 Tenn. App. LEXIS 151 (Tenn. Ct. App. 1962).

3. —Property.

Stock subscriptions in corporation other than moneyed corporations could be paid in land or other property necessary or suitable to the business of the corporation, if paid in good faith and at its real value. Searight, Thornton & Co. v. Payne, 74 Tenn. 283, 1880 Tenn. LEXIS 248 (1880); Kelley v. Fletcher, 94 Tenn. 1, 28 S.W. 1099, 1894 Tenn. LEXIS 20 (1894); Bristol Bank & Trust Co. v. Jonesboro Banking & Trust Co., 101 Tenn. 545, 48 S.W. 228, 1898 Tenn. LEXIS 103 (1898); Russell v. Tennessee & Kentucky Tobacco Co., 16 Tenn. App. 561, 65 S.W.2d 256, 1933 Tenn. App. LEXIS 28 (Tenn. Ct. App. 1933).

The whole or any part of the capital stock might be paid in land suitable for its purposes, at a fair cash valuation; and such property might be situate outside the state. Albitzue v. Guadelupe y Caloo Min. Co., 92 Tenn. 598, 22 S.W. 739, 1893 Tenn. LEXIS 16 (1893); Strong v. Efficiency Apartment Corp., 159 Tenn. 337, 17 S.W.2d 1, 1928 Tenn. LEXIS 91 (1929).

Corporation might be organized to buy specific property or manufacturing plant, provided such property or plant were useful and convenient and suitable to its purposes, and its purposes were legal. The transfer of property to the corporation in consideration of the issuance of its entire stock to the property owner would be upheld in a contest between the property owner's existing creditors and the creditors of the corporation, after both had become insolvent. Bristol Bank & Trust Co. v. Jonesboro Banking & Trust Co., 101 Tenn. 545, 48 S.W. 228, 1898 Tenn. LEXIS 103 (1898).

Corporation could accept property in payment of subscriptions, provided the property was needed by the corporation and a fair valuation was placed thereon. Aiken v. Galyon-Crumley Lumber Co., 1 Tenn. App. 702, 1926 Tenn. App. LEXIS 10 (1926).

A corporation could accept in payment for its stock any property it is authorized to own and that is necessary in its business, provided the property was accepted in good faith and at a fair valuation. Russell v. Tennessee & Kentucky Tobacco Co., 16 Tenn. App. 561, 65 S.W.2d 256, 1933 Tenn. App. LEXIS 28 (Tenn. Ct. App. 1933).

4. —Surplus and Undivided Profits.

There was no power to pay for stock by the use of surplus and undivided profits, consisting of tangible and intangible assets. United Hosiery Mills Corp. v. Stevens, 146 Tenn. 531, 243 S.W. 656, 1921 Tenn. LEXIS 30 (1922); Russell v. Tennessee & Kentucky Tobacco Co., 16 Tenn. App. 561, 65 S.W.2d 256, 1933 Tenn. App. LEXIS 28 (Tenn. Ct. App. 1933).

An amendment to a charter purporting to grant right of payment for capital stock on increase in surplus and undivided profits, consisting of tangible and intangible assets, was void. United Hosiery Mills Corp. v. Stevens, 146 Tenn. 531, 243 S.W. 656, 1921 Tenn. LEXIS 30 (1922); Russell v. Tennessee & Kentucky Tobacco Co., 16 Tenn. App. 561, 65 S.W.2d 256, 1933 Tenn. App. LEXIS 28 (Tenn. Ct. App. 1933).

Where there was no evidence of agreement to devote profits to the payment of stock subscriptions or to treat the stock as paid-up in consideration of the surrender of the profits to the corporation, the fact that stockholders left in the business funds that might have been used to declare a dividend did not constitute a payment of subscriptions. Russell v. Tennessee & Kentucky Tobacco Co., 16 Tenn. App. 561, 65 S.W.2d 256, 1933 Tenn. App. LEXIS 28 (Tenn. Ct. App. 1933).

5. —Loan of Credit.

The loaning of credit to the corporation was not sufficient payment of subscriptions. Russell v. Tennessee & Kentucky Tobacco Co., 16 Tenn. App. 561, 65 S.W.2d 256, 1933 Tenn. App. LEXIS 28 (Tenn. Ct. App. 1933).

6. —Presumption of Fairness.

Where a corporation, pursuant to legal authority, issued full-paid and nonassessable certificates of stock in payment of property or services, or where it received property or services in payment of stock subscriptions, it was presumed that the transaction was made in good faith, and the property or services placed at a fair valuation; and in a suit to compel such stockholders to pay the difference between the par value of the stock and the alleged actual value of the property or services, in order to create a fund for the payment of the debts of the corporation, facts must be pleaded and proved showing that the transaction was fraudulent, and should not therefore operate as payment in full for such stock. Kelley v. Fletcher, 94 Tenn. 1, 28 S.W. 1099, 1894 Tenn. LEXIS 20 (1894); Shields v. Clifton Hill Land Co., 94 Tenn. 123, 28 S.W. 668, 1894 Tenn. LEXIS 31, 45 Am. St. Rep. 700, 26 L.R.A. 509 (1894); Jones v. Whitworth, 94 Tenn. 602, 30 S.W. 736, 1894 Tenn. LEXIS 73 (1895).

When property was accepted in payment of subscriptions, the burden was on the party attacking the validity of such transaction to show that an unfair value was put on the property. Russell v. Tennessee & Kentucky Tobacco Co., 16 Tenn. App. 561, 65 S.W.2d 256, 1933 Tenn. App. LEXIS 28 (Tenn. Ct. App. 1933).

7. —Attack on Consideration.

The creditors of an insolvent corporation, or its assignee for their benefit, could not maintain a bill against its stock subscribers who had paid their subscriptions in property which the corporation was legally authorized to receive in payment for stock, for the difference between the face value of the subscriptions and the real value of the property, or for the difference between the actual value and the overvaluation of the property, without a distinct allegation that the overvaluation of the property was intentionally fraudulent, or was so gross and palpable as to be constructively fraudulent, as to corporate creditors. An allegation that the property was “not conveyed at a fair cash value, but very far in excess of it” is insufficient. Jones v. Whitworth, 94 Tenn. 602, 30 S.W. 736, 1894 Tenn. LEXIS 73 (1895).

8. —Limitations.

Although notes given for stock may be barred by limitations, the statute does not begin on the indebtedness of the stock until a call is made. Moses v. Ocoee Bank, 69 Tenn. 398, 1878 Tenn. LEXIS 110 (1878).

The statutes of limitation of six and 10 years did not commence to run against the right of corporate creditors to enforce the liability of stockholders for the difference between the fraudulent overvaluation and the actual valuation of land conveyed by stockholders in payment for their subscriptions for stock, until the legal insolvency of the corporation had occurred. Jones v. Whitworth, 94 Tenn. 602, 30 S.W. 736, 1894 Tenn. LEXIS 73 (1895).

48-16-203. Liability of shareholders.

  1. A purchaser from a corporation of its own shares is not liable to the corporation or its creditors with respect to the shares except to pay the consideration for which the shares were authorized to be issued (§ 48-16-202) or specified in a preincorporation subscription agreement (§ 48-16-201).
  2. A shareholder of a corporation is not personally liable for the acts or debts of the corporation except that the shareholder may become personally liable by reason of the shareholder's own acts or conduct.
  3. Any person becoming an assignee or transferee of shares or of a subscription for shares in good faith and without knowledge or notice that the full consideration therefor has not been paid shall not be personally liable for any unpaid portion of such consideration, but the transferor shall remain liable therefor, whether such assignment or transfer be voluntary or involuntary.
  4. No person holding shares in any corporation as collateral security shall be personally liable as a shareholder, but the person pledging such shares shall be considered the holder thereof and shall be so liable. No executor, administrator, guardian, trustee, or other fiduciary shall be personally liable as a shareholder, but the estate and funds in the hands of such executor, administrator, guardian, trustee, or other fiduciary shall be liable.

Acts 1986, ch. 887, § 6.22.

Law Reviews.

Vicarious Liability and the Traditional Law Firm Partnership: What You Should Know (Paul S. Davidson) 29 Tenn. B.J. 12 (1993).

NOTES TO DECISIONS

1. Liability of Officers.

Although a bankruptcy debtor was the sole member of a limited liability company (LLC) which was undercapitalized and owed a debt to a creditor, payment of debts to other creditors rather than the creditor did not constitute misconduct warranting personal liability of the debtor for the LLC's debt to the creditor. Ampharm, Inc. v. Samples (In re Samples), — B.R. —, 2009 Bankr. LEXIS 4077 (Bankr. M.D. Tenn. Dec. 11, 2009).

2. Shareholders Not Held Liable.

When a creditor pierced the corporate veil of a debtor's company to hold the debtor personally liable for debts to the creditor, the creditor could not hold other shareholders of the company personally liable on the theory that the other shareholders were liable once the corporate veil was pierced because: (1) T.C.A. § 48-16-203(b) directly contradicted the creditor's assertion by providing that a shareholder of a corporation was not personally liable for the acts or debts of the corporation except that the shareholder could become personally liable by reason of the shareholder's own acts or conduct, (2) No evidence supported the creditor's assertion that the other shareholders were apprised of, and acquiesced in, the debtor's use of the company's funds for personal reasons in disregard of the company's corporate form, and (3) The other shareholders'  boilerplate acknowledgments that the other shareholders ratified the acts of the company's officers were insufficient to hold the other shareholders personally liable. Delta Dev. Corp. v. F. Fani Gulf Int'l, 393 S.W.3d 185, 2012 Tenn. App. LEXIS 222 (Tenn. Ct. App. Apr. 3, 2012), appeal denied, — S.W.3d —, 2012 Tenn. LEXIS 594 (Tenn. Aug. 16, 2012).

Decisions Under Prior Law

1. Payment of Subscriptions.

Where a call for payment of stock subscriptions was made by the board of directors, and the president was authorized by the board to make the call, and the president made and advertised it in the president's capacity as president alone, the president's action must be regarded as that of the board itself. Read v. Memphis Gayoso Gas Co., 56 Tenn. 545, 1872 Tenn. LEXIS 174 (1872).

2. —Sale of Stock.

Where a subscriber for stock in a corporation failed to pay the same or any part thereof, the corporation might, by bill in chancery, subject the stock to sale in satisfaction of the amount due and owing on the subscription. Chase v. E. T., V. & G. R.R. Co., 73 Tenn. 415, 1880 Tenn. LEXIS 153 (1880).

3. —Enforcement.

The stock subscribed and agreed to be paid becomes the property of the corporation, and its directory has the right to enforce its payment; and at the instance of a creditor, the directory might be required in a court of equity to enforce such payment. Ohio Life Ins. & Trust Co. v. Merchants' Ins. & Trust Co., 30 Tenn. 1, 1850 Tenn. LEXIS 44 (1850); Kelley v. Fletcher, 94 Tenn. 1, 28 S.W. 1099, 1894 Tenn. LEXIS 20 (1894); Shields v. Clifton Hill Land Co., 94 Tenn. 123, 28 S.W. 668, 1894 Tenn. LEXIS 31, 45 Am. St. Rep. 700, 26 L.R.A. 509 (1894).

Where the subscription for the initiatory stock in a corporation was valid, and the subscription for the increased stock was invalid, or where some assessments and calls for the payment of stock subscriptions were valid and some were invalid, the valid subscriptions or assessments and calls thereon might be sued for and enforced, and those that were invalid might be abandoned or waived. Read v. Memphis Gayoso Gas Co., 56 Tenn. 545, 1872 Tenn. LEXIS 174 (1872); Pope v. Merchants' Trust Co., 118 Tenn. 506, 103 S.W. 792, 1907 Tenn. LEXIS 60 (1907).

Action on a subscription might be maintained without a previous tender of certificate for the shares. Paducah & M. R. Co.  v. Parks, 86 Tenn. 554, 8 S.W. 842 (1888).

Stock subscriptions were not collectible where the corporation had not issued, and had no power to issue, or had divested itself of the power to issue, stock certificates to the subscribers in accordance with the terms of their contract of subscription, as where it had previously issued to others stock certificates for the entire capital stock, which were still outstanding. Railroad v. Knoxville, 98 Tenn. 1, 37 S.W. 883, 1896 Tenn. LEXIS 199 (1896); Newport Cotton-Mill Co. v. Mims, 103 Tenn. 465, 53 S.W. 736, 1899 Tenn. LEXIS 128 (1899).

The receiver and creditors of an insolvent corporation stood upon no higher ground than the corporation itself if it were in a solvent condition, as regards the enforcement of a contract of subscription which the corporation, without fault or participation of the contesting subscribers, had failed or disabled itself to perform on its part, as where it cannot lawfully issue certificates of stock therefor. Newport Cotton-Mill Co. v. Mims, 103 Tenn. 465, 53 S.W. 736, 1899 Tenn. LEXIS 128 (1899); White v. Bratton, 5 Tenn. App. 61, — S.W. —, 1927 Tenn. App. LEXIS 36 (Tenn. Ct. App. 1927).

4. —Forfeiture for Nonpayment.

No power existed in a corporation to disfranchise one of its members or to declare a forfeiture of stock, for nonpayment of assessments and calls upon subscriptions, unless the power was expressly conferred upon the corporation by statute; and for a stronger reason, a mere failure to pay such calls would not work a forfeiture of the stock. Chase v. E. T., V. & G. R.R. Co., 73 Tenn. 415, 1880 Tenn. LEXIS 153 (1880); Cartwright v. Dickinson, 88 Tenn. 476, 12 S.W. 1030, 1889 Tenn. LEXIS 68, 17 Am. St. Rep. 910, 7 L.R.A. 706 (1890).

5. —Limitations.

The statutes of limitation would not commence to run against a subscription with no fixed date of maturity and subject to call, until it was rendered payable by a call made for its payment, either by the directors or a court of equity, when the insolvency of the corporation was established, either by a general assignment or by a judgment and return of nulla bona, or, in case of bankruptcy, until some order or assessment of the court. This rule applied to personal representatives or estates of deceased subscribers. Moses v. Ocoee Bank, 69 Tenn. 398, 1878 Tenn. LEXIS 110 (1878); Marr v. Bank of W. Tenn., 72 Tenn. 578, 1880 Tenn. LEXIS 66 (1880); Jones v. Whitworth, 94 Tenn. 602, 30 S.W. 736, 1894 Tenn. LEXIS 73 (1895).

6. Liability for Unpaid Subscriptions.

The subscription to the original or initiatory stock, made before the charter was procured, was absolute and irrevocable at the instant that all prerequisites made essential by law to the granting of the charter had been complied with. The subscriber then became a stockholder, and was liable absolutely for the subscription. Cartwright v. Dickinson, 88 Tenn. 476, 12 S.W. 1030, 1889 Tenn. LEXIS 68, 17 Am. St. Rep. 910, 7 L.R.A. 706 (1890).

It is not necessary, in order to make appellants liable to the responsibilities of stockholders, that they should have formally subscribed for stock. The fact that they receipted for, accepted, and held a certificate makes them liable to satisfy unsecured creditors. Hamby v. Fouche, 15 Tenn. App. 248, — S.W.2d —, 1932 Tenn. App. LEXIS 92 (Tenn. Ct. App. 1932).

7. —As Trustee or Agent.

Where stock in a corporation is issued to one and the word “trustee” or “agent” is added to the name of the party, the party receiving the stock is personally liable for payment therefor. Hamby v. Fouche, 15 Tenn. App. 248, — S.W.2d —, 1932 Tenn. App. LEXIS 92 (Tenn. Ct. App. 1932).

8. Assignee for Creditors.

Unpaid subscription was an asset of the corporation, and passed, under a general assignment for the benefit of its creditors, to the assignee, whose duty it was to collect the same; and the assignee might maintain a suit therefor. Cartwright v. Dickinson, 88 Tenn. 476, 12 S.W. 1030, 1889 Tenn. LEXIS 68, 17 Am. St. Rep. 910, 7 L.R.A. 706 (1890).

The right of an assignee under a general assignment for the benefit of its creditors to recover unpaid subscription for stock was not defeated by the fact that, with the assignee's permission given upon the execution of an indemnity bond, the stockholders other than such defaulting stockholder reorganized the corporation and resumed business with the machinery assigned to the assignee, after compromising some of the debts and acquiring assets sufficient to pay the others, with money borrowed and raised by issuing and selling preferred stock. Cartwright v. Dickinson, 88 Tenn. 476, 12 S.W. 1030, 1889 Tenn. LEXIS 68, 17 Am. St. Rep. 910, 7 L.R.A. 706 (1890).

9. Subpledgee.

Where a certificate of stock in a corporation was not fully paid up, when it was pledged by the owner as collateral security for a debt, and the owner made subsequent payments on the stock after it was received by the purchaser or subpledgee from the owner's assignee or first pledgee, such payments would not inure to the benefit of such purchaser or subpledgee. Cherry v. Frost, 75 Tenn. 1, 1881 Tenn. LEXIS 66 (1881).

10. Innocent Purchaser.

An innocent purchaser of a certificate of stock, for value and without notice, either from the face of the certificate or otherwise, that the stock is subject to future calls for unpaid balance of the subscription, could not be held by the corporation for the unpaid subscription. West Nashville Planing-Mill Co. v. Nashville Sav. Bank, 86 Tenn. 252, 6 S.W. 340, 1887 Tenn. LEXIS 44, 6 Am. St. Rep. 835 (1888).

A bona fide purchaser of stock for value without notice or knowledge that the subscription was unpaid could not be held for the unpaid subscription. Russell v. Tennessee & Kentucky Tobacco Co., 16 Tenn. App. 561, 65 S.W.2d 256, 1933 Tenn. App. LEXIS 28 (Tenn. Ct. App. 1933).

11. —Death of Subscriber.

The personal representative of a deceased stockholder was liable for unpaid parts of the deceased's subscription, and not the heirs, even though the personal representative had settled the personal estate and paid proceeds to the heirs. Grigsby v. Ainsworth, 13 Tenn. App. 372, — S.W.2d —, 1930 Tenn. App. LEXIS 145 (Tenn. Ct. App. 1930).

If the holder of unpaid corporate stock dies without paying therefor, liability for the unpaid subscription may be enforced against the deceased's executrix. American Nat'l Bank v. Tinsley Millinery Co., 20 Tenn. App. 459, 100 S.W.2d 665, 1936 Tenn. App. LEXIS 37 (Tenn. Ct. App. 1936).

12. —Subscriptions by Insolvents.

Subscriptions by insolvents could not be counted to hold others liable; but, if such were apparently solvent at the time of subscription, no fraud was perpetrated on such others although insolvency afterwards developed. Heiskell v. Morris, 135 Tenn. 238, 186 S.W. 99, 1916 Tenn. LEXIS 24 (1916); Mountain View Dev. Co. v. Burnett, 164 Tenn. 210, 46 S.W.2d 809, 1931 Tenn. LEXIS 25 (1931).

Insolvency at time of subscription was a matter of defense, and the burden of proof was on the defender asserting it. Heiskell v. Morris, 135 Tenn. 238, 186 S.W. 99, 1916 Tenn. LEXIS 24 (1916).

The fact that part of subscription was not collectible was not a defense to an action against other stockholders on their subscriptions, in the absence of fraud, gross negligence, or any showing that stockholders whose subscriptions were obtained were insolvent at the time. Planters' Warehouse Co. v. Sentelle, 148 Tenn. 353, 255 S.W. 589, 1923 Tenn. LEXIS 22 (1923).

13. —Conditional Subscriptions.

For cases discussing subscriber liability under conditional subscriptions to stock, see Paducah & M. R. Co.  v. Parks, 86 Tenn. 554, 8 S.W. 842 (1888); Anderson v. Middle & E. Tenn. Cent. R.R., 91 Tenn. 44, 17 S.W. 803, 1891 Tenn. LEXIS 75 (1891); Doak v. Stahlman, 58 S.W. 741, 1899 Tenn. Ch. App. LEXIS 178 (1899); Sweeney v. Tennessee C. R. Co., 118 Tenn. 297, 100 S.W. 732, 1906 Tenn. LEXIS 98 (1907); Heiskell v. Morris, 135 Tenn. 238, 186 S.W. 99, 1916 Tenn. LEXIS 24 (1916); Eastern Products Corp. v. Tennessee C., I. & R. Co., 151 Tenn. 239, 269 S.W. 4, 1924 Tenn. LEXIS 64, 40 A.L.R. 1483 (1925), cert. denied, 269 U.S. 572, 46 S. Ct. 100, 70 L. Ed. 418, 1925 U.S. LEXIS 193 (1925), cert. denied, Eastern Products Corp. v. Tennessee C., I. & R. Co., 269 U.S. 572, 46 S. Ct. 100, 70 L. Ed. 418, 1925 U.S. LEXIS 193 (1925); Talbot v. Automobile Identification Underwriters, Inc., 163 Tenn. 256, 43 S.W.2d 220, 1931 Tenn. LEXIS 108 (1931); Mountain View Dev. Co. v. Burnett, 164 Tenn. 210, 46 S.W.2d 809, 1931 Tenn. LEXIS 25 (1931).

14. —Increase in Stock.

For cases discussing liability of subscribers to increase in capital stock, see Union Ry. v. Sneed, 99 Tenn. 1, 41 S.W. 364 (1897); Newport Cotton-Mill Co. v. Mims, 103 Tenn. 465, 53 S.W. 736, 1899 Tenn. LEXIS 128 (1899); Pope v. Merchants' Trust Co., 118 Tenn. 506, 103 S.W. 792, 1907 Tenn. LEXIS 60 (1907); Planters' Warehouse Co. v. Sentelle, 148 Tenn. 353, 255 S.W. 589, 1923 Tenn. LEXIS 22 (1923); Mountain View Dev. Co. v. Burnett, 164 Tenn. 210, 46 S.W.2d 809, 1931 Tenn. LEXIS 25 (1931).

15. —Stock Illegally Issued.

Where corporation had no creditors, it could not recover on balance due on subscription by director to increased stock issued, where corporation did not comply with statutory provisions for issuance of additional stock, since issue was void; director was entitled to recover from corporation the amount paid on subscription. Union Ry. v. Sneed, 99 Tenn. 1, 41 S.W. 364 (1897).

There is no liability on overplus of shares erroneously issued in double the amount subscribed for, which error was corrected at first meeting of stockholders. White v. Bratton, 5 Tenn. App. 61, — S.W. —, 1927 Tenn. App. LEXIS 36 (Tenn. Ct. App. 1927).

Where there was no valid subscription, and the certificates of stock were recalled and canceled, there was no liability on call. White v. Bratton, 5 Tenn. App. 61, — S.W. —, 1927 Tenn. App. LEXIS 36 (Tenn. Ct. App. 1927).

16. —Creditor's Rights.

The subscribers for stock in a corporation were not liable to its creditors upon their unpaid subscriptions until the exhaustion of the corporate assets. Blake v. Hinkle, 18 Tenn. 218, 1836 Tenn. LEXIS 124 (1836); Sullivan v. Farnsworth, 132 Tenn. 691, 179 S.W. 317, 1915 Tenn. LEXIS 65 (1915).

The capital stock of a corporation, whether actually paid in or only subscribed and remaining unpaid, was a trust fund for the payment of its debts. Ohio Life Ins. & Trust Co. v. Merchants' Ins. & Trust Co., 30 Tenn. 1, 1850 Tenn. LEXIS 44 (1850); Marr v. Bank of West Tennessee, 44 Tenn. 471, 1867 Tenn. LEXIS 71 (1867); Chase v. E. T., V. & G. R.R. Co., 73 Tenn. 415, 1880 Tenn. LEXIS 153 (1880).

A creditor whose debt was created before the subscriptions to stock were made may have remedy. Shields v. Clifton Hill Land Co., 94 Tenn. 123, 28 S.W. 668, 1894 Tenn. LEXIS 31, 45 Am. St. Rep. 700, 26 L.R.A. 509 (1894).

All unpaid stock subscriptions inure to the benefit of all creditors alike, whether their debts were created before or after the subscriptions were made, or before or after the capitalization of the corporation or any subscriptions for its stock. Kelley v. Fletcher, 94 Tenn. 1, 28 S.W. 1099, 1894 Tenn. LEXIS 20 (1894); Shields v. Clifton Hill Land Co., 94 Tenn. 123, 28 S.W. 668, 1894 Tenn. LEXIS 31, 45 Am. St. Rep. 700, 26 L.R.A. 509 (1894); Jones v. Whitworth, 94 Tenn. 602, 30 S.W. 736, 1894 Tenn. LEXIS 73 (1895); Sullivan v. Farnsworth, 132 Tenn. 691, 179 S.W. 317, 1915 Tenn. LEXIS 65 (1915).

Where a corporation has become hopelessly insolvent, a creditor and stockholder of the corporation has the right to maintain an action against subscribers for unpaid stock of the corporation. American Nat'l Bank v. Tinsley Millinery Co., 20 Tenn. App. 459, 100 S.W.2d 665, 1936 Tenn. App. LEXIS 37 (Tenn. Ct. App. 1936).

17. —Cancellation or Release.

In the absence of express power conferred by statute, no power existed in the corporation, its officers, or directory to release a stockholder from payment of a stock subscription, after the stockholder's liability had become fixed. Such release could be effected alone by the consent of all the stockholders, where the rights of creditors were not involved. Chase v. E. T., V. & G. R.R. Co., 73 Tenn. 415, 1880 Tenn. LEXIS 153 (1880); Cartwright v. Dickinson, 88 Tenn. 476, 12 S.W. 1030, 1889 Tenn. LEXIS 68, 17 Am. St. Rep. 910, 7 L.R.A. 706 (1890).

A stockholder was not released, in law or equity, from liability for the stockholder's unpaid subscription where, on account of the stockholder's own or the stockholder's agent's mistake of law or fact, the stockholder supposed the contract of subscription had been properly canceled, and for that reason ceased to act as a stockholder in the corporation, which became insolvent through its subsequent management, in which the stockholder did not participate. Cartwright v. Dickinson, 88 Tenn. 476, 12 S.W. 1030, 1889 Tenn. LEXIS 68, 17 Am. St. Rep. 910, 7 L.R.A. 706 (1890).

Where an officer of a corporation assumed responsibility to obtain a release or cancellation of the stockholder's contract of subscription, the officer became the agent of the stockholder. Cartwright v. Dickinson, 88 Tenn. 476, 12 S.W. 1030, 1889 Tenn. LEXIS 68, 17 Am. St. Rep. 910, 7 L.R.A. 706 (1890).

The unauthorized release by the action of the corporation or its officers was not made effectual by reason of their having procured new and additional subscriptions and contribution of new capital to take the place of that released. It was wholly immaterial whether the new and additional subscriptions and contributions of capital were void or valid. Cartwright v. Dickinson, 88 Tenn. 476, 12 S.W. 1030, 1889 Tenn. LEXIS 68, 17 Am. St. Rep. 910, 7 L.R.A. 706 (1890).

If a corporation undertook by way of reduction of its capital stock to retire a part of its shares and to release subscribers therefor on unpaid parts of their subscriptions, such was ineffectual as to creditors in existence at the time of the reduction. Grigsby v. Ainsworth, 13 Tenn. App. 372, — S.W.2d —, 1930 Tenn. App. LEXIS 145 (Tenn. Ct. App. 1930).

Cancellation of subscription after the corporation became insolvent was void as to creditors, and the subscriber remained liable. Hamby v. Fouche, 15 Tenn. App. 248, — S.W.2d —, 1932 Tenn. App. LEXIS 92 (Tenn. Ct. App. 1932).

Where the bill by a receiver set up an attempt to cancel a subscription and defendant denied the allegations of the bill generally, the latter could not urge the cancellation as an affirmative defense. Hamby v. Fouche, 15 Tenn. App. 248, — S.W.2d —, 1932 Tenn. App. LEXIS 92 (Tenn. Ct. App. 1932).

The holders of unpaid corporate stock cannot defeat recovery on their subscriptions for the stock, by surrendering it to the corporation for cancellation at the suggestion of a creditor, pursuant to a resolution passed by the holders of unpaid stock, without notice to the holders of paid-up stock, since it requires the consent of all stockholders, where there are no rights of intervening creditors, to release the holders of unpaid stock from liability thereon. American Nat'l Bank v. Tinsley Millinery Co., 20 Tenn. App. 459, 100 S.W.2d 665, 1936 Tenn. App. LEXIS 37 (Tenn. Ct. App. 1936).

Unpaid subscriptions for corporate stock, like any other asset of the corporation, when it becomes insolvent, may be collected through the interposition of a court of equity, and, if the corporation has secretly agreed not to require payment, or if it has released the subscribers without consideration, the agreement or release may be held void as against creditors on the ground of fraud. American Nat'l Bank v. Tinsley Millinery Co., 20 Tenn. App. 459, 100 S.W.2d 665, 1936 Tenn. App. LEXIS 37 (Tenn. Ct. App. 1936).

18. —Defenses.

The fact that a corporation had violated its charter by taking stock subscriptions in excess of its authorized and fixed capital stock, or by other illegal acts, constituted no defense to its suit to recover from a subscriber the amount of the subscriber's unpaid subscription which was legal and valid because taken before the fixed capital stock was exceeded. Cartwright v. Dickinson, 88 Tenn. 476, 12 S.W. 1030, 1889 Tenn. LEXIS 68, 17 Am. St. Rep. 910, 7 L.R.A. 706 (1890).

The subscribers were not estopped to resist the collection of their subscriptions by the fact that they might have become directors, or attended the meetings of the directors or stockholders, if they did not participate or acquiesce in the illegal acts of the corporation, but promptly repudiated such after notice. Newport Cotton-Mill Co. v. Mims, 103 Tenn. 465, 53 S.W. 736, 1899 Tenn. LEXIS 128 (1899).

The subscriber upon increased capitalization, when sued on the subscriber's notes issued under the subscriber's contract of subscription, should not be permitted to set up as a defense the want of a legal organization, or the invalidity of the amendment to the charter increasing the amount of the capitalization, on the ground that the witness to the signature of the corporators on their application for the amendment to the charter was incompetent. Pope v. Merchants' Trust Co., 118 Tenn. 506, 103 S.W. 792, 1907 Tenn. LEXIS 60 (1907).

One whose subscription was obtained by fraud must show diligence in discovering the fraud and repudiating the subscription contract, as against creditors of the corporation. One year of delay and payment of one assessment operated to defeat the defense. Heiskell v. Morris, 135 Tenn. 238, 186 S.W. 99, 1916 Tenn. LEXIS 24 (1916).

That a corporation purchased realty at an excessive price was not a defense by a stockholder to an action to recover on his subscription. Planters' Warehouse Co. v. Sentelle, 148 Tenn. 353, 255 S.W. 589, 1923 Tenn. LEXIS 22 (1923).

19. —Interest.

In adjusting liabilities of stockholders in insolvent bank, actual payments on stock would bear interest from date on which made. Those who paid in notes of the bank would only be allowed the amount actually paid for such notes. Moses v. Ocoee Bank, 69 Tenn. 398, 1878 Tenn. LEXIS 110 (1878).

The receiver, suing to recover balance due on stock subscription, might recover interest thereon from the date of the subscription, although the subscriber was not liable for interest on the subscriber's individual, proportionate, or double liability beyond the par value of the stock, because such liability did not exist against the stockholder until the necessity for its collection arose. Sullivan v. Farnsworth, 132 Tenn. 691, 179 S.W. 317, 1915 Tenn. LEXIS 65 (1915).

20. Liability of Officers.

Where defendants, president and secretary respectively, of the corporation claimed that they were ignorant that the stock was unpaid, as officers they could not be heard to say as against creditors of the insolvent corporation that they were without such knowledge. Hamby v. Fouche, 15 Tenn. App. 248, — S.W.2d —, 1932 Tenn. App. LEXIS 92 (Tenn. Ct. App. 1932).

21. Procedure.

While all the stockholders in a domestic corporation, subscriptions of which have not been fully paid up, must be made parties to action by corporate receiver, so as to apportion the loss equitably among them, nevertheless, where stockholder in a foreign corporation was sued in this state, the relation of the stockholder being contractual and entered into in contemplation of the laws of the state of corporation, those laws govern, and the courts of Tennessee would enforce the remedy they provide against a single stockholder, insofar as that remedy was not penal. Sullivan v. Farnsworth, 132 Tenn. 691, 179 S.W. 317, 1915 Tenn. LEXIS 65 (1915).

In receiver's suits to collect subscriptions, all solvent delinquent stockholders within the jurisdiction should be made defendants, but the failure to do so may not operate as a defense by one properly sued, where question was not raised in limine. Hamby v. Fouche, 15 Tenn. App. 248, — S.W.2d —, 1932 Tenn. App. LEXIS 92 (Tenn. Ct. App. 1932).

A debt which a stockholder had against the insolvent corporation could not be set off against a debt the stockholder owed for unpaid stock to the receiver of the corporation representing all creditors. Russell v. Tennessee & Kentucky Tobacco Co., 16 Tenn. App. 561, 65 S.W.2d 256, 1933 Tenn. App. LEXIS 28 (Tenn. Ct. App. 1933).

The filing of an answer by a corporation to a general creditors' bill, admitting that the corporation was hopelessly insolvent and was not a going concern, waived objection to the maintenance of the creditors' bill, thereby precluding the holders of unpaid stock from thereafter objecting thereto. American Nat'l Bank v. Tinsley Millinery Co., 20 Tenn. App. 459, 100 S.W.2d 665, 1936 Tenn. App. LEXIS 37 (Tenn. Ct. App. 1936).

48-16-204. Share dividends.

  1. Unless the charter provides otherwise, shares may be issued pro rata and without consideration to the corporation's shareholders or to the shareholders of one (1) or more classes or series. An issuance of shares under this subsection (a) is a share dividend.
  2. Shares of one (1) class or series may not be issued as a share dividend in respect of shares of another class or series unless:
    1. The charter so authorizes;
    2. A majority of the votes entitled to be cast by the class or series to be issued approves the issue; or
    3. There are no outstanding shares of the class or series to be issued.
  3. If the board of directors does not fix the record date for determining shareholders entitled to a share dividend, it is the date the board of directors authorizes the share dividend.

Acts 1986, ch. 887, § 6.23.

48-16-205. Options to subscribe for or purchase shares — Instruments evidencing options — Authority to grant.

  1. Unless the charter otherwise provides, a corporation, by its directors, may grant rights, options or warrants to subscribe for or to purchase shares of any authorized class, at the times and on the terms that are set forth in such rights, options or warrants, or in the contracts, warrants or instruments that evidence such rights, options or warrants, which contracts, warrants or instruments may be transferable or nontransferable and may be separable or inseparable from such rights, options or warrants upon the following conditions:
    1. If the shares are subject to preemptive rights and if the rights, options or warrants are not granted to shareholders in satisfaction of their preemptive rights, the granting of the rights, options or warrants must be authorized by the vote or consent of the shareholders or holders of shares of particular classes that then would be required to waive or release such preemptive rights; the vote or consent shall release the preemptive rights to the shares required to satisfy the rights, options or warrants if and when exercised; and
    2. If at the time of granting the rights, options or warrants the corporation does not have authorized and unissued shares sufficient to satisfy the rights, options or warrants if and when exercised, the granting of the rights, options or warrants must be authorized by the vote of the shareholders or holders of shares of particular classes that then would be required to adopt an amendment to the charter for the purpose of increasing the authorized number of such shares, and the shares required to be issued upon the exercise of the rights, options or warrants shall be provided by an amendment concurrently or thereafter adopted by the shareholders or the directors.
    1. The securities, contracts, warrants or instruments that evidence the rights, options or warrants may contain any terms not repugnant to law, including, but not limited to, the following:
      1. Restrictions upon the authorization or issuance of additional shares;
      2. Provisions for the adjustment of the exercise price;
      3. Provisions concerning rights in the event of reorganization, merger, share exchange or sale of the entire assets of the corporation;
      4. Provisions for the reservation of authorized but unissued shares to satisfy the rights, options or warrants;
      5. Restrictions upon the declaration of payment of dividends or distributions; or
      6. Conditions on the exercise of the rights, options or warrants, including, subject to the limitation specified in subdivision (b)(2), conditions that preclude a holder, including, but not limited to, a holder of at least a specified number or percentage of the outstanding common shares of the corporation, or a holder offering to purchase at least a specified number or percentage of the outstanding common shares of the corporation, from exercising the rights, options or warrants.
    2. The express or implied authority conferred by subdivision (b)(1) or any other section of this chapter for securities, contracts, warrants, or instruments that evidence such rights, options or warrants to contain a condition on the exercise of such rights, options or warrants that precludes a holder, including, but not limited to, a holder of at least a specified number or percentage of the outstanding common shares of the corporation, or a holder offering to purchase at least a specified number or percentage of the outstanding common shares of the corporation, from exercising rights, options or warrants, shall apply only to:
      1. A corporation that has issued and has outstanding shares listed on a national securities exchange or is regularly quoted in an over-the-counter market by one (1) or more members of a national or affiliated securities association; or
      2. A corporation that has adopted a shareholder's agreement pursuant to which rights, options or warrants are granted, if the securities, contracts, warrants or instruments that evidence the rights, options or warrants contain a condition that precludes a holder, including, but not limited to, a holder of at least a specified number or percentage of the outstanding common shares of the corporation or a holder offering to purchase at least a specified number or percentage of the outstanding common shares of the corporation, from exercising the rights, options or warrants.
  2. Subject to the conditions set forth in subsection (a), the board of directors may authorize one (1) or more officers to designate the recipients of rights, options, warrants or other equity compensation awards that involve the issuance of shares and determine, within an amount and subject to any other limitations established by the board and, if applicable, the stockholders, the number of such rights, options, warrants or other equity compensation awards and the terms thereof to be received by the recipients; provided, that no officer shall use such authority to designate either such officer or such other persons as the board of directors may specify as a recipient of such rights, options, warrants or other equity compensation awards.
  3. As used in this section, “securities” includes obligations and shares of the corporation.
  4. This section shall apply to any rights, options or warrants, or any contracts, warrants, or instruments that evidence such rights, options or warrants which were issued subsequent to January 1, 1985.

Acts 1986, ch. 887, § 6.24; 1989, ch. 451, § 7; 2012, ch. 1051, § 22.

48-16-206. Form and content of certificate.

  1. Shares may but need not be represented by certificates. Unless chapters 11-27 of this title or another statute expressly provides otherwise, the rights and obligations of shareholders are identical whether or not their shares are represented by certificates.
  2. At a minimum each share certificate must state on its face:
    1. The name of the issuing corporation and that it is organized under the laws of this state;
    2. The name of the person to whom issued; and
    3. The number and class of shares and the designation of the series, if any, the certificate represents.
  3. If the issuing corporation is authorized to issue different classes of shares or different series within a class, the designations, relative rights, preferences, and limitations applicable to each class and the variations in rights, preferences, and limitations determined for each series (and the authority of the board of directors to determine variations for future series) must be summarized on the front or back of each certificate. Alternatively, each certificate may state conspicuously on its front or back that the corporation will furnish the shareholder this information on request in writing and without charge.
  4. Each share certificate:
    1. Shall be signed (either manually or in facsimile) by two (2) officers designated in the bylaws or by the board of directors; and
    2. May bear the corporate seal or its facsimile.
  5. If the person who signed (either manually or in facsimile) a share certificate no longer holds office when the certificate is issued, the certificate is nevertheless valid.

Acts 1986, ch. 887, § 6.25.

NOTES TO DECISIONS

1. Equity Invoked.

On December 31, 2001, the employee performed his obligations under the agreement, but the corporation never issued stock certificates evincing his ownership of shares; as a transfer of stock did not require issuance or delivery of a stock certificate to be valid, the court invoked equity to determine that the issuance and delivery of stock certificates to the employee was considered as having been done, and thus he was vested with ownership of the shares on December 31, 2001. Powers v. A&W Supply, Inc., — S.W.3d —, 2017 Tenn. App. LEXIS 188 (Tenn. Ct. App. Mar. 21, 2017).

2. Consideration on Summary Judgment.

Although the certificate was not signed by two corporate directors or officers, the two-signature requirement of T.C.A. § 48-16-206(d)(1) did not preclude the trial court's consideration of the certificate as evidence on the question of the intent of the issuers of the stock. In re Estate of Miller, — S.W.3d —, 2017 Tenn. App. LEXIS 434 (Tenn. Ct. App. June 29, 2017).

48-16-207. Shares without certificates.

  1. Unless the charter or bylaws provide otherwise, the board of directors of a corporation may authorize the issue of some or all of the shares of any or all of its classes or series without certificates. The authorization does not affect shares already represented by certificates until they are surrendered to the corporation.
  2. Within a reasonable time after the issue or transfer of shares without certificates, the corporation shall send the shareholder a written statement of the information required on certificates by § 48-16-206(b) and (c), and, if applicable, § 48-16-208, except that no such written statement need be sent by a corporation in respect of shares that are not subject to any restriction on transfer described in § 48-16-208 and that are issued by a corporation subject to the reporting requirements of § 13 of the Securities Exchange Act of 1934 (15 U.S.C. § 78m).

Acts 1986, ch. 887, § 6.26.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-1103.

48-16-208. Restriction on transfer of shares and other securities.

  1. The charter, bylaws, an agreement among shareholders, or an agreement between shareholders and the corporation may impose restrictions on the transfer or registration of transfer of shares of the corporation. A restriction does not affect shares issued before the restriction was adopted unless the holders of the shares are parties to the restriction agreement or voted in favor of the restriction.
  2. A restriction on the transfer or registration of transfer of shares is valid and enforceable against the holder or a transferee of the holder if the restriction is authorized by this section and its existence is noted conspicuously on the front or back of the certificate or is contained in the information statement required by § 48-16-207(b). Unless so noted, a restriction is not enforceable against a person without knowledge of the restriction.
  3. A restriction on the transfer or registration of transfer of shares is authorized:
    1. To maintain the corporation's status when it is dependent on the number or identity of its shareholders;
    2. To preserve exemptions under federal or state securities law; or
    3. For any other reasonable purpose.
  4. A restriction on the transfer or registration of transfer of shares may:
    1. Obligate the shareholder first to offer the corporation or other persons (separately, consecutively, or simultaneously) an opportunity to acquire the restricted shares;
    2. Obligate the corporation or other persons (separately, consecutively, or simultaneously) to acquire the restricted shares;
    3. Require the corporation, the holders of any class of its shares, or another person to approve the transfer of the restricted shares, if the requirement is not manifestly unreasonable; or
    4. Prohibit the transfer of the restricted shares to designated persons or classes of persons, if the prohibition is not manifestly unreasonable.
  5. For purposes of this section, “shares” includes a security convertible into or carrying a right to subscribe for or acquire shares.

Acts 1986, ch. 887, § 6.27.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-1101, 5-1102, 5-1110 — 5-1113.

Law Reviews.

Some Whys and Wherefores in Drafting Shareholder Agreements (Robert L. McMurray), 23 Tenn. B.J. 19 (1987).

48-16-209. Expense of issue.

A corporation may pay the expenses of selling or underwriting its shares, and of organizing or reorganizing the corporation, from the consideration received for shares.

Acts 1986, ch. 887, § 6.28.

Part 3
Subsequent Acquisition of Shares by Shareholders and Corporation

48-16-301. Shareholders' preemptive rights.

  1. The shareholders of a corporation, solely by virtue of their status as such, do not have a preemptive right to acquire the corporation's unissued shares except to the extent the charter so provides.
  2. A statement included in the charter that “the corporation elects to have preemptive rights” (or words of similar import) means that the following principles apply except to the extent the charter expressly provides otherwise:
    1. The shareholders of the corporation have a preemptive right, granted on uniform terms and conditions prescribed by the board of directors to provide a fair and reasonable opportunity to exercise the right, to acquire proportional amounts of the corporation's unissued shares upon the decision of the board of directors to issue them;
    2. A shareholder may waive this preemptive right. A waiver evidenced by a writing is irrevocable even though it is not supported by consideration;
    3. There is no preemptive right with respect to:
      1. Shares issued as compensation to directors, officers, agents, or employees of the corporation, its subsidiaries or affiliates;
      2. Shares issued to satisfy conversion or option rights created to provide compensation to directors, officers, agents, or employees of the corporation, its subsidiaries or affiliates;
      3. Shares authorized in the charter that are issued within six (6) months from the effective date of incorporation; or
      4. Shares sold otherwise than for cash;
    4. Holders of shares of any class without general voting rights but with preferential rights to distributions or assets have no preemptive rights with respect to shares of any class;
    5. Holders of shares of any class with general voting rights but without preferential rights to distributions or assets have no preemptive rights with respect to shares of any class with preferential rights to distributions or assets unless the shares with preferential rights are convertible into or carry a right to subscribe for or acquire shares without preferential rights; and
    6. Shares subject to preemptive rights that are not acquired by shareholders may be issued to any person for a period of one (1) year after being offered to shareholders at a consideration set by the 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 one (1) year is subject to the shareholders' preemptive rights.
  3. For purposes of this section, “shares” includes a security convertible into or carrying a right to subscribe for or acquire shares.
  4. This section does not limit or otherwise affect the ability of a corporation to grant by contract to one (1) or more of its shareholders the right to acquire shares on a preemptive or other priority basis.

Acts 1986, ch. 887, § 6.30; 1989, ch. 451, § 8; 1994, ch. 776, §§ 16, 17.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-101, 5-201.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Injunction.

An injunction might issue to restrain issuance of stock in disregard of the rights of stockholders to subscribe pro rata therefor; the same rule applies to previously issued shares bought in by the corporation as treasury stock. Petre v. Bruce, 157 Tenn. 131, 7 S.W.2d 43, 1927 Tenn. LEXIS 57 (1928).

2. Estoppel.

Where the course of conduct of the officers and directors of a corporation was induced by misrepresentation of complainant and lacked elements of understanding and intention, such persons did not by consenting to the issue of a majority of shares of stock to complainant stockholder waive an agreement by such stockholder not to acquire a majority of stock in the corporation or to acquire control thereof, and complainant could not maintain a suit in equity to cancel an issue of stock to individual shareholders on the ground that under the bylaws and statute complainant was entitled to a pro rata share of such new issue. Heylandt Sales Co. v. Welding Gas Prods. Co., 180 Tenn. 437, 175 S.W.2d 557, 1943 Tenn. LEXIS 14 (1943).

Complainant stockholder who agreed not to acquire a majority of stock in a corporation or to secure control thereof but who acquired control of such corporation in violation of the agreement was precluded by the doctrine of unclean hands and estoppel by waiver from maintaining a suit in equity to cancel a new issue of stock to individual shareholders based on ground that complainant had been denied the right of participation in such issue in violation of a right reserved by the bylaws and statute. Heylandt Sales Co. v. Welding Gas Prods. Co., 180 Tenn. 437, 175 S.W.2d 557, 1943 Tenn. LEXIS 14 (1943).

48-16-302. Corporation's acquisition of its own shares.

    1. A corporation may acquire its own shares and shares so acquired constitute authorized but unissued shares.
    2. Shares of a class or a series, the preferences, limitations and relative rights of which were determined by the board of directors pursuant to § 48-16-102, that are acquired by the corporation shall constitute authorized but unissued shares having the same preferences, limitations and relative rights as the shares so acquired; provided, that, if the charter so provides, such authorized but unissued shares may instead constitute or be included in a class of shares with respect to which the board may again determine the preferences, limitations and relative rights under § 48-16-102.
  1. If the charter prohibits the reissue of acquired shares, the number of authorized shares is reduced by the number of shares acquired, effective upon amendment of the charter.
  2. The board of directors may adopt articles of amendment that are required by subsection (b) without shareholder action, and deliver them to the secretary of state for filing. The articles must set forth:
    1. The name of the corporation;
    2. The reduction in the number of authorized shares, itemized by class and series; and
    3. The total number of authorized shares, itemized by class and series, remaining after reduction of the shares.

Acts 1986, ch. 887, § 6.31; 1994, ch. 776, § 18.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-704.

Part 4
Distributions

48-16-401. Distributions to shareholders.

  1. A board of directors may authorize and the corporation may make distributions to its shareholders subject to restriction by the charter and the limitation in subsection (c).
  2. If the board of directors does not fix the record date for determining shareholders entitled to a distribution (other than one involving a repurchase or reacquisition of shares), it is the date the board of directors authorizes the distribution.
  3. No distribution may be made if, after giving it effect:
    1. The corporation would not be able to pay its debts as they become due in the usual course of business; or
    2. The corporation's total assets would be less than the sum of its total liabilities plus (unless the charter permits otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution.
  4. The board of directors may base a determination that a distribution is not prohibited under subsection (c) either on financial statements prepared on the basis of accounting practices and principles that are reasonable in the circumstances or on a fair valuation or other method that is reasonable in the circumstances.
  5. Except as provided in subsection (g), the effect of a distribution under subsection (c) is measured:
    1. In the case of distribution by purchase, redemption, or other acquisition of the corporation's shares, as of the earlier of:
      1. The date money or other property is transferred or debt incurred by the corporation; or
      2. The date the shareholder ceases to be a shareholder with respect to the acquired shares;
    2. In the case of any other distribution of indebtedness or distribution through the incurrence of indebtedness, as of the date the indebtedness is distributed or incurred. In a case in which the incurrence of indebtedness is the granting of a mortgage, security interest, lien, or other encumbrance of the corporation's assets, the indebtedness shall be deemed to be incurred on the date of the execution and delivery of the security instrument granting such mortgage, security interest, lien, or other encumbrance; and
    3. In all other cases, as of:
      1. The date the distribution is authorized if the payment occurs within four (4) months after the date of authorization; or
      2. The date the payment is made if it occurs more than four (4) months after the date of authorization.
  6. A corporation's indebtedness to a shareholder incurred by reason of a distribution made in accordance with this section is at parity with the corporation's indebtedness to its general, unsecured creditors except to the extent subordinated by agreement.
  7. Indebtedness of a corporation, including indebtedness issued as a distribution, is not considered a liability for purposes of determinations under subsection (c) if its terms provide that payment of principal and interest are to be made only if and to the extent that payment of a distribution to shareholders could then be made under this section. If the indebtedness referred to in the preceding sentence is issued as a distribution, each payment of principal or interest is treated as a distribution, the effect of which is measured on the date the payment is actually made.

Acts 1986, ch. 887, § 6.40; 1989, ch. 451, § 9; 1994, ch. 776, §§ 19, 20.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-1114, 5-1202.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Dividends.

For cases, under prior statutes, discussing the particular funds from which dividends could be paid, see Titus v. Piggly Wiggly Corp., 2 Tenn. App. 184, — S.W. —, 1925 Tenn. App. LEXIS 101 (Tenn. Ct. App. 1925); Trenton Cotton Oil Co. v. McCanless, 190 Tenn. 219, 229 S.W.2d 143, 1950 Tenn. LEXIS 442 (1950); Brooks Equip. & Mfg. Co. v. United States, 95 F. Supp. 247, 1951 U.S. Ct. Cl. LEXIS 9 (Ct. Cl. 1951).

2. —Action of Directors.

Withdrawal of surplus net profits without action of the directors, where there were but two stockholders who were the officers, was not unlawful. Chattanooga Sav. Bank v. Brewer, 9 F.2d 982, 1925 U.S. Dist. LEXIS 1400 (1925), aff'd, 17 F.2d 79, 1927 U.S. App. LEXIS 2909 (1927), aff'd, Chattanooga Sav. Bank v. Brewer, 17 F.2d 79, 1927 U.S. App. LEXIS 2909 (1927), cert. denied, Chattanooga Sav. Bank v. Brewer, 274 U.S. 751, 47 S. Ct. 764, 71 L. Ed. 1332, 1927 U.S. LEXIS 198 (1927).

3. —Persons Entitled.

A dividend on particular shares belonged to the person who owned the shares on date of its declaration, which segregated the dividend from the general assets, as between vendor and vendee of the shares. Wallin v. Johnson City Lumber & Mfg. Co., 136 Tenn. 124, 188 S.W. 577, 1916 Tenn. LEXIS 106, L.R.A. (n.s.) 1917B323 (1916).

A dividend on particular shares belonged to the person who owned the shares on date of its declaration notwithstanding the fact that the resolution of declaration provided that payment to stockholders should be at a later date on order of the directory. Wallin v. Johnson City Lumber & Mfg. Co., 136 Tenn. 124, 188 S.W. 577, 1916 Tenn. LEXIS 106, L.R.A. (n.s.) 1917B323 (1916).

Where there was a binding contract to sell shares, payment of purchase price deferred, and there was a dividend declared between the time of the making of the contract and the delivery of the certificate, the dividend belonged in equity to the purchaser. Thompson v. Exchange Bldg. Co., 157 Tenn. 275, 8 S.W.2d 489, 1928 Tenn. LEXIS 191, 60 A.L.R. 693 (1928).

Where an option to purchase shares of stock was given, and before the option was exercised a dividend was declared, it went to the person granting the option. Thompson v. Exchange Bldg. Co., 157 Tenn. 275, 8 S.W.2d 489, 1928 Tenn. LEXIS 191, 60 A.L.R. 693 (1928).

In the absence of agreement to the contrary, a pledge of shares as collateral security carried with it the right to receive dividends afterwards declared to be applied to the secured debt. Payne v. Fowler, 12 Tenn. App. 449, — S.W.2d —, 1930 Tenn. App. LEXIS 87 (Tenn. Ct. App. 1930).

4. —Effect.

The declaration of a dividend had the effect to appropriate to the stockholders the amount required to pay it, the stockholders having the right to recover against the corporation as debtor. Wallin v. Johnson City Lumber & Mfg. Co., 136 Tenn. 124, 188 S.W. 577, 1916 Tenn. LEXIS 106, L.R.A. (n.s.) 1917B323 (1916).

5. —Notes.

A judgment on notes executed by an insolvent corporation for unearned dividends was a valid claim, though the notes were executed in violation of law. Alabama Marble & Stone Co. v. Chattanooga Marble & Stone Co., 37 S.W. 1004, 1896 Tenn. Ch. App. LEXIS 44 (1896).

Notes executed by an insolvent corporation for unearned dividends in violation of law were not enforceable by transferees who took same before maturity and without notice, but as collateral security for a past-due debt. Alabama Marble & Stone Co. v. Chattanooga Marble & Stone Co., 37 S.W. 1004, 1896 Tenn. Ch. App. LEXIS 44 (1896).

6. —Application to Debt.

A corporation could not apply the stockholder's dividend to the payment of a demand it held against a partnership of which the stockholder was a member. American Nat'l Bank v. Nashville Warehouse & Elevator Co., 36 S.W. 960, 1896 Tenn. Ch. App. LEXIS 21 (1896).

7. —Interest.

Where a corporation had been enjoined from collecting dividends due to its stockholders, which injunction was afterwards dissolved, a stockholder could recover thereon simple interest at legal rate from the time the dividend was declared, pending the injunction. Heck v. Bulkley, 3 Shannon's Cases 291, 1 S.W. 612, 1886 Tenn. LEXIS 167 (1886).

Chapter 17
Shareholders

Part 1
Meetings

48-17-101. Annual meeting.

  1. Unless directors are elected by written consent in lieu of an annual meeting as permitted by § 48-17-104, a corporation shall hold a meeting of shareholders annually at a time stated in, or fixed in accordance with, the bylaws.
  2. Annual shareholders' meetings may be held in or out of this state at the place stated in or fixed in accordance with the bylaws. If no place is stated in or fixed in accordance with the bylaws, annual meetings shall be held at the corporation's principal office.
  3. The failure to hold an annual meeting at the time stated in or fixed in accordance with a corporation's bylaws does not affect the validity of any corporate action.

Acts 1986, ch. 887, § 7.01; 2012, ch. 1051, § 23.

Cross-References. Applicability of business corporation law, title 48, chs. 11-27, to corporations existing on January 1, 1988, title 48, ch. 27.

Nonprofit corporations, members and memberships, title 48, ch. 56.

Law Reviews.

A Theory of Shareholder Activism and its Place in Corporate Law, 82 Tenn. L. Rev. 791 (2015).

48-17-102. Special meeting.

  1. A corporation shall hold a special meeting of shareholders:
    1. On call of its board of directors or the person or persons authorized to do so by the charter or bylaws; or
    2. Unless the charter otherwise provides, if the holders of at least ten percent (10%) of all the votes entitled to be cast on any issue proposed to be considered at the proposed special meeting sign, date, and deliver to the corporation's secretary one (1) or more written demands for the meeting describing the purpose or purposes for which it is to be held.
  2. If not otherwise fixed under § 48-17-103 or § 48-17-107, the record date for determining shareholders entitled to demand a special meeting is the date the first shareholder signs the demand.
  3. Special shareholders' meetings may be held in or out of this state at the place stated in or fixed in accordance with the bylaws. If no place is stated or fixed in accordance with the bylaws, special meetings shall be held at the corporation's principal office.
  4. Only business within the purpose or purposes described in the meeting notice required by § 48-17-105(c) may be conducted at a special shareholders' meeting.

Acts 1986, ch. 887, § 7.02; 1989, ch. 451, § 10.

48-17-103. Court-ordered meeting.

  1. A court of record having equity jurisdiction in the county where a corporation's principal office (or, if none in this state, its registered office) is located may summarily order a meeting to be held on application of:
    1. Any shareholder of the corporation entitled to participate in an annual meeting, if an annual meeting was not held within the earlier of six (6) months after the end of the corporation's fiscal year or fifteen (15) months after its last annual meeting; or
    2. A shareholder who signed a demand for a special meeting valid under § 48-17-102, if:
      1. Notice of the special meeting was not given within one (1) month after the date the demand was delivered to the corporation's secretary; or
      2. The special meeting was not held in accordance with the notice.
  2. The court may fix the time and place of the meeting, determine the shares entitled to participate in the meeting, specify a record date for determining shareholders entitled to notice of and vote at the meeting, prescribe the form and content of the meeting notice, fix the quorum required for specific matters to be considered at the meeting (or direct that the votes represented at the meeting constitute a quorum for action on those matters) and enter other orders necessary to accomplish the purpose or purposes of the meeting.

Acts 1986, ch. 887, § 7.03; 1987, ch. 273, § 31.

48-17-104. Action without meeting.

  1. Action required or permitted by chapters 11-27 of this title to be taken at a shareholders' meeting may be taken without a meeting. If all shareholders entitled to vote on the action consent to taking such action without a meeting, the affirmative vote of the number of shares that would be necessary to authorize or take such action at a meeting is the act of the shareholders. The action must be evidenced by one (1) or more written consents describing the action taken, signed by each shareholder entitled to vote on the action in one (1) or more counterparts, indicating each signing shareholder's vote or abstention on the action, and delivered to the corporation for inclusion in the minutes or filing with the corporate records.
  2. The charter may provide that any action required or permitted by chapters 11-27 of this title to be taken at a shareholders' meeting may be taken without a meeting, and without prior notice, if consents in writing setting forth the action so taken are signed by the holders of outstanding shares having not less than the minimum number of votes that would be required to authorize or take the action at a meeting at which all shares entitled to vote on the action were present and voted. The written consent shall bear the date of signature of the shareholder who signs the consent and be delivered to the corporation for inclusion in the minutes or filing with the corporate records.
  3. If not otherwise determined under § 48-17-103 or § 48-17-107, the record date for determining shareholders entitled to take action without a meeting is the date the first shareholder signs the consent under subsection (a).
  4. A consent signed under this section has the effect of a meeting vote and may be described as such in any document. Unless the charter, bylaws or a resolution of the board of directors provides for a reasonable delay to permit tabulation of written consents, the action taken by written consent shall be effective when written consents signed by sufficient shareholders to take the action are delivered to the corporation.
  5. If chapters 11-27 of this title or the charter requires that notice of proposed action be given to nonvoting shareholders and the action is to be taken by consent of the voting shareholders, then the corporation must give its nonvoting shareholders written notice of the proposed action at least ten (10) days before the action is taken. The notice must contain or be accompanied by the same material that under chapters 11-27 of this title would have been required to be sent to nonvoting shareholders in a notice of meeting at which the proposed action would have been submitted to the shareholders for action.
    1. If action is taken by less than unanimous written consent of the voting shareholders, the corporation must give its nonconsenting voting shareholders written notice of the action not more than ten (10) days after:
      1. Written consents sufficient to take the action have been delivered to the corporation; or
      2. Such later date that tabulation of consents is completed pursuant to an authorization under subsection (d).
    2. The notice must reasonably describe the action taken and contain or be accompanied by the same material that chapters 11-27 of this title would require to be sent to voting shareholders in a notice of a meeting at which the action would have been submitted to the shareholders for action.
  6. The notice requirements in subsections (e) and (f) shall not delay the effectiveness of actions taken by written consent, and a failure to comply with such notice requirements shall not invalidate actions taken by written consent; provided, that this subsection (g) shall not be deemed to limit judicial power to fashion any appropriate remedy in favor of a shareholder adversely affected by a failure to give such notice within the required time period.
  7. An electronic transmission may be used to consent to an action, if the electronic transmission contains or is accompanied by information from which the corporation can determine the date on which the electronic transmission was signed and that the electronic transmission was authorized by the shareholder, the shareholder's agent or the shareholder's attorney-in-fact.
  8. Delivery of a written consent to the corporation under this section is delivery to the corporation's registered agent at its registered office (or to a designated mailing address such as a post office box if the United States postal service does not deliver to the registered agent's registered office) or to the secretary of the corporation at its principal office (or to a designated mailing address such as a post office box if the United States postal service does not deliver to the corporation's principal office).

Acts 1986, ch. 887, § 7.04; 2012, ch. 1051, § 24; 2015, ch. 60, § 1.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-707, 5-902.

48-17-105. Notice of meeting.

  1. A corporation shall notify shareholders of the date, time, and place of each annual and special shareholders' meeting no fewer than ten (10) days nor more than two (2) months before the meeting date. Unless chapters 11-27 of this title or the charter requires otherwise, the corporation is required to give notice only to shareholders entitled to vote at the meeting.
  2. Unless chapters 11-27 of this title or the charter requires otherwise, notice of an annual meeting need not include a description of the purpose or purposes for which the meeting is called.
  3. Notice of a special meeting must include a description of the purpose or purposes for which the meeting is called.
  4. If not otherwise fixed under § 48-17-103 or § 48-17-107, the record date for determining shareholders entitled to notice of and to vote at an annual or special shareholders' meeting is the close of business on the day before the first notice is mailed or otherwise dispatched to shareholders.
  5. Unless the bylaws require otherwise, if an annual or special shareholders' meeting is adjourned to a different date, time, or place, notice need not be given of the new date, time, or place if the new date, time, or place is announced at the meeting before adjournment. If a new record date for the adjourned meeting is or must be fixed under § 48-17-107, however, notice of the adjourned meeting must be given under this section to persons who are shareholders as of the new record date.
  6. A certificate of the secretary or other person giving the notice, or of a transfer agent of the corporation, that the notice required by this section has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

Acts 1986, ch. 887, § 7.05; 1994, ch. 776, § 21.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-811, 5-1107, 5-1108.

48-17-106. Waiver of notice.

  1. A shareholder may waive any notice required by chapters 11-27 of this title, the charter, or bylaws before or after the date and time stated in the notice. The waiver must be in writing, be signed by the shareholder entitled to the notice, and be delivered to the corporation for inclusion in the minutes or filing with the corporate records.
  2. A shareholder's attendance at a meeting:
    1. Waives objection to lack of notice or defective notice of the meeting, unless the shareholder at the beginning of the meeting (or promptly upon the shareholder's arrival) objects to holding the meeting or transacting business at the meeting; and
    2. Waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the shareholder objects to considering the matter when it is presented.

Acts 1986, ch. 887, § 7.06.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-1302.

48-17-107. Record date.

  1. The bylaws may fix or provide the manner of fixing the record date for one (1) or more voting groups in order to determine the shareholders entitled to notice of a shareholders' meeting, to demand a special meeting, to vote, or to take any other action. If the bylaws do not fix or provide for fixing a record date, the board of directors of the corporation may fix a future date as the record date.
  2. A record date fixed under this section may not be more than seventy (70) days before the meeting or action requiring a determination of shareholders.
  3. A determination of shareholders entitled to notice of or vote at a shareholders' meeting is effective for any adjournment of the meeting unless the board of directors fixes a new record date, which it must do if the meeting is adjourned to a date more than four (4) months after the date fixed for the original meeting.
  4. If a court orders a meeting adjourned to a date more than four (4) months after the date fixed for the original meeting, it may provide that the original record date continues in effect or it may fix a new record date.

Acts 1986, ch. 887, § 7.07.

48-17-108. Waiver or approval by fiduciaries.

Each fiduciary, including such acting as executor, administrator, guardian, committee, agent, or trustee, who is a shareholder of record, whether the corporation issuing such shares is foreign or domestic, may waive notice or lapse of time pursuant to § 48-17-106 and may consent to the taking of any corporate action pursuant to § 48-17-104.

Acts 1986, ch. 887, § 7.08.

48-17-109. Shareholder meetings through special communication.

Unless the charter or bylaws provide otherwise, the corporation may permit any or all shareholders to participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication by which all shareholders participating may simultaneously hear each other during the meeting. A shareholder who participates in a meeting by this means is deemed to be present in person at the meeting.

Acts 1994, ch. 776, § 22.

48-17-110. Conduct of the meeting.

  1. At each meeting of shareholders, a chair shall preside. The chair shall be appointed as provided in the bylaws or, in the absence of such provision, by the board.
  2. The chair, unless the charter or bylaws provide otherwise, shall determine the order of business and shall have the authority to establish rules for the conduct of the meeting.
  3. Any rules adopted for, and the conduct of, the meeting shall be fair to shareholders.
  4. The chair of the meeting shall announce at the meeting when the polls close for each matter voted upon. If no announcement is made, the polls shall be deemed to have closed upon the final adjournment of the meeting. After the polls close, no ballots, proxies or votes nor any revocations or changes thereto may be accepted.

Acts 2012, ch. 1051, § 27.

Part 2
Voting

48-17-201. Shareholders' list for meeting.

  1. After fixing a record date for a meeting, a corporation shall prepare an alphabetical list of the names of all its shareholders who are entitled to notice of a shareholders' meeting. The list must be arranged by voting group (and within each voting group by class or series of shares) and show the address of and number of shares held by each shareholder, in each case as reflected in the records of the corporation.
  2. The shareholders' list must be available for inspection by any shareholder, beginning two (2) business days after notice of the meeting is given for which the list was prepared and continuing through the meeting, at the corporation's principal office or at a place identified in the meeting notice in the city where the meeting will be held. A shareholder, or the shareholder's agent or attorney, is entitled on written demand to inspect and, subject to the requirements of § 48-26-102(c), to copy the list, during regular business hours and at such shareholder's or agent's expense, during the period it is available for inspection.
  3. The corporation shall make the shareholders' list available at the meeting, and any shareholder, or the shareholder's agent or attorney, is entitled to inspect the list at any time during the meeting or any adjournment. If the right to vote at any meeting is challenged, the person presiding may rely on such list as evidence of the right of the person challenged to vote at such meeting.
  4. If the corporation refuses to allow a shareholder, the shareholder's agent, or attorney to inspect the shareholders' list before or at the meeting (or copy the list as permitted by subsection (b)), a court of record having equity jurisdiction in the county where a corporation's principal office (or, if none in this state, its registered office) is located, on application of the shareholder, may summarily order the inspection or copying at the corporation's expense and may postpone the meeting for which the list was prepared until the inspection or copying is complete.
  5. Refusal or failure to prepare or make available the shareholders' list does not affect the validity of action taken at the meeting.

Acts 1986, ch. 887, § 7.20; 1994, ch. 776, § 23.

48-17-202. Voting entitlement of shares.

  1. Except as provided in subsections (b) and (c) or unless the charter provides otherwise, each outstanding share, regardless of class, is entitled to one (1) vote on each matter voted on at a shareholders' meeting. Except as provided in subsection (f), only shares are entitled to vote.
  2. Absent special circumstances, the shares of a corporation are not entitled to vote if they are owned, directly or indirectly, by a second corporation, domestic or foreign, and the first corporation owns, directly or indirectly, a majority of the shares entitled to vote for directors of the second corporation, and no such shares shall be counted in determining the total number of outstanding shares of the corporation at any given time.
  3. Subsection (b) does not limit the power of a corporation to vote any shares, including its own shares, held by it in a fiduciary capacity.
  4. Redeemable shares are not entitled to vote after notice of redemption is mailed to the holders and a sum sufficient to redeem the shares has been deposited with a bank, trust company, or other financial institution under an irrevocable obligation to pay the holders the redemption price on surrender of the shares, and no such shares shall be counted in determining the total number of outstanding shares of the corporation at any given time.
  5. Shares standing in the name of another corporation, domestic or foreign, may be voted by such officer, agent, or proxy as the bylaws of such corporation may prescribe or, in the absence of a bylaw provision, as the board of directors of such corporation may determine. The corporation whose shares are being voted may rely on the representations of such officer, agent, or proxy as to the authority unless such authority is questioned.
  6. A corporation may in its charter confer upon the holders of any bonds, debentures or other debt obligations the power to vote in respect of its corporate affairs and management of the corporation to the extent and in the manner provided in the charter and may confer upon such holders of bonds, debentures or other debt obligations the same right of inspection of its books, accounts and other records, and also any other rights, which the shareholders of the corporation have or may have by reason of chapters 11-27 of this title or of its charter. If and to the extent the charter so provides, such holders shall be deemed to be shareholders, and their bonds, debentures or other debt obligations shall be deemed to be shares of stock, for the purpose of any provision of this title which requires the vote of shareholders as a prerequisite to any corporate action, and the charter may divest the holders of shares of capital stock, in whole or in part, of their right to vote on any corporate matter whatsoever, except as set forth in § 48-20-104.

Acts 1986, ch. 887, § 7.21; 1994, ch. 776, §§ 24, 25.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Denial of Right to Vote.

An injunction would issue to restrain a director from denying one the right to vote the stockholder's share of stock which had not been transferred on the books because of an invalid bylaw which undertook to deny transfer right. Petre v. Bruce, 157 Tenn. 131, 7 S.W.2d 43, 1927 Tenn. LEXIS 57 (1928).

2. Shares of Subsidiary.

Where a parent corporation owned the majority common stock of a subsidiary, and five of the directors of the parent corporation comprised five of the six directors of the subsidiary, the parent corporation, through its directors, was entitled to vote the stock of the subsidiary, as the corporate owner thereof and to elect the board of directors of the subsidiary. State ex rel. Washington Industries, Inc. v. Shacklett, 512 S.W.2d 284, 1974 Tenn. LEXIS 483 (Tenn. 1974).

48-17-203. Proxies.

  1. A shareholder may vote such shareholder's shares in person or by proxy.
  2. Without limiting the manner in which a shareholder may authorize another person or persons to act for the shareholder as proxy pursuant to this section, the following shall constitute a valid means by which a shareholder may grant such authority:
    1. A shareholder may execute a writing authorizing another person or persons to act for the shareholder as proxy. Execution may be accomplished by the shareholder personally signing such writing or by an attorney-in-fact in the case of an individual shareholder or by an authorized officer, director, employee, agent or attorney-in-fact in the case of any other shareholder signing such writing or causing the shareholder's signature to be affixed to such writing by any reasonable means, including, but not limited to, facsimile signature;
    2. A shareholder may authorize another person or persons to act for the shareholder as proxy by transmitting or authorizing the transmission of a telegram, cablegram, or electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission; provided, that any such telegram, cablegram, or electronic transmission shall either set forth or be submitted with information from which it can be determined that the telegram, cablegram, or electronic transmission was authorized by the shareholder. If it is determined that such telegrams, cablegrams, or electronic transmissions are valid, the inspectors or, if there are no inspectors, such other persons making such determination shall specify the information upon which they relied;
    3. Any copy, electronic transmission or other reliable reproduction of such writing or transmission may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used; provided, that such copy, electronic transmission or other reproduction shall be a complete reproduction of the entire original writing or transmission.
  3. An appointment of a proxy is effective when received by the secretary or other officer or agent authorized to tabulate votes. An appointment is valid for eleven (11) months unless another period is expressly provided in the appointment form.
  4. An appointment of a proxy is revocable by the shareholder unless the appointment form conspicuously states that it is irrevocable and the appointment is coupled with an interest. Appointments coupled with an interest include the appointment of:
    1. A pledgee;
    2. A person who purchased or agreed to purchase the shares;
    3. A creditor of the corporation who extended it credit under terms requiring the appointment;
    4. An employee of the corporation whose employment contract requires the appointment; or
    5. A party to a voting agreement created under § 48-17-302.
  5. In the case of a proxy not made irrevocable under subsection (d), the death or incapacity of the shareholder appointing a proxy does not affect the right of the corporation to accept the proxy's authority unless notice of the death or incapacity is received by the secretary or other officer or agent authorized to tabulate votes before the proxy exercises the proxy's authority under the appointment.
  6. An appointment made irrevocable under subsection (d) becomes revocable when the interest with which it is coupled is extinguished.
  7. A transferee for value of shares subject to an irrevocable appointment may revoke the appointment if the transferee did not know of its existence when such transferee acquired the shares and the existence of the irrevocable appointment was not noted conspicuously on the certificate representing the shares or on the information statement for shares without certificates.
  8. Subject to § 48-17-205 and to any express limitation on the proxy's authority appearing on the face of the appointment form, a corporation is entitled to accept the proxy's vote or other action as that of the shareholder making the appointment.
  9. Each fiduciary, including such acting as executor, administrator, guardian, committee, agent, or trustee, owning shares registered in such person's name as fiduciary, or in the name of another for the convenience of the fiduciary, whether the corporation issuing such shares is foreign or domestic, may, in addition to exercising the voting rights vested in such fiduciary, execute and deliver, or cause to be executed and delivered, a proxy or proxies in accordance with this section to others for the voting of such shares, but subject always to the following limitations:
    1. If there are two (2) or more fiduciaries acting, the proxy shall be executed by, and voting instructions shall be issued by, agreement of all fiduciaries or a majority of them, and in the event of failure to obtain a majority, each of the fiduciaries shall vote the number of shares held by the fiduciaries divided by the number of fiduciaries; and
    2. In the event the rights, manner or method of voting or the purpose to be accomplished is fixed by the instrument or instruments appointing the fiduciaries, the directions therein shall govern.

Acts 1986, ch. 887, § 7.22; 1994, ch. 776, §§ 26, 27; 1998, ch. 578, § 1; 2012, ch. 1051, §§ 25, 26.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-1104 — 5-1106.

Law Reviews.

Judicial Review of Defensive Tactics in Proxy Contests: When Is Using a Rights Plan Right? (Randall S. Thomas), 46 Vand. L. Rev. 503 (1993).

NOTES TO DECISIONS

1. Revocation of Proxy Appointment.

If a proxy appointment is revocable, the shareholder can revoke the proxy simply by voting the stock itself; the shareholder's vote, not the proxy's vote, counts. In re John Hicks Chrysler-Plymouth, Inc., 152 B.R. 503, 1992 Bankr. LEXIS 2293 (Bankr. E.D. Tenn. 1992).

2. —“Coupled with an Interest.”

“Coupled with an interest” basically means that the proxy has an interest in the stock that justifies the proxy in voting the stock for its own benefit and against the shareholder's interest. In re John Hicks Chrysler-Plymouth, Inc., 152 B.R. 503, 1992 Bankr. LEXIS 2293 (Bankr. E.D. Tenn. 1992).

3. —Conspicuous Statement of Irrevocability.

Security agreement did not in any way make proxy appointment conspicuous. In re John Hicks Chrysler-Plymouth, Inc., 152 B.R. 503, 1992 Bankr. LEXIS 2293 (Bankr. E.D. Tenn. 1992).

48-17-204. Shares held by nominees.

  1. A corporation may establish a procedure by which the beneficial owner of shares that are registered in the name of a nominee is recognized by the corporation as the shareholder. The extent of this recognition may be determined in the procedure.
  2. The procedure may set forth:
    1. The types of nominees to which it applies;
    2. The rights or privileges that the corporation recognizes in a beneficial owner;
    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 selection of the procedure is effective; and
    6. Other aspects of the rights and duties created.

Acts 1986, ch. 887, § 7.23.

48-17-205. Corporation's acceptance of votes.

  1. If the name signed on a vote, consent, waiver, or proxy appointment corresponds to the name of a shareholder, the corporation if acting in good faith is entitled to accept the vote, consent, waiver, or proxy appointment and give it effect as the act of the shareholder.
  2. If the name signed on a vote, consent, waiver, or proxy appointment does not correspond to the name of its shareholder, the corporation if acting in good faith is nevertheless entitled to accept the vote, consent, waiver, or proxy appointment and give it effect as the act of the shareholder if:
    1. The shareholder is an entity and the name signed purports to be that of an officer or agent of the entity;
    2. The name signed purports to be that of an administrator, executor, guardian, or conservator representing the shareholder and, if the corporation requests, evidence of fiduciary status acceptable to the corporation has been presented with respect to the vote, consent, waiver, or proxy appointment;
    3. The name signed purports to be that of a receiver or trustee in bankruptcy of the shareholder and, if the corporation requests, evidence of this status acceptable to the corporation has been presented with respect to the vote, consent, waiver, or proxy appointment;
    4. The name signed purports to be that of a pledgee, beneficial owner, or attorney-in-fact of the shareholder and, if the corporation requests, evidence acceptable to the corporation of the signatory's authority to sign for the shareholder has been presented with respect to the vote, consent, waiver, or proxy appointment; or
    5. Two (2) or more persons are the shareholder as cotenants or fiduciaries and the name signed purports to be the name of at least one (1) of the co-owners and the person signing appears to be acting on behalf of all the co-owners.
  3. The corporation is entitled to reject a vote, consent, waiver, or proxy appointment if the secretary or other officer or agent authorized to tabulate votes, acting in good faith, has reasonable basis for doubt about the validity of the signature on it or about the signatory's authority to sign for the shareholder.
  4. The corporation and its officer or agent who accepts or rejects a vote, consent, waiver, or proxy appointment in good faith and in accordance with the standards of this section are not liable in damages to the shareholder for the consequences of the acceptance or rejection.
  5. Corporate action based on the acceptance or rejection of a vote, consent, waiver, or proxy appointment under this section is valid unless a court of competent jurisdiction determines otherwise.

Acts 1986, ch. 887, § 7.24.

48-17-206. Quorum and voting requirements for voting groups.

  1. Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. Unless the charter or chapters 11-27 of this title provide otherwise, a majority of the votes entitled to be cast on the matter by the voting group constitutes a quorum of that voting group for action on that matter. If a quorum of the shares entitled to vote as a voting group shall fail to be obtained at any meeting, the chair of the meeting or the holders of a majority of the shares of such voting group who are present, in person or by proxy, may adjourn the meeting to another place, date or time and no notice of such place, date or time need be given except as required in § 48-17-105(e).
  2. Once a share is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for that adjourned meeting.
  3. If a quorum exists, action on a matter (other than the election of directors) by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless the charter or chapters 11-27 of this title requires a greater number of affirmative votes.
  4. A charter amendment adding, changing, or deleting a quorum or voting requirement for a voting group greater than specified in subsection (a) or (c) is governed by § 48-17-208.
  5. The election of directors is governed by § 48-17-209.

Acts 1986, ch. 887, § 7.25; 1994, ch. 776, § 28.

48-17-207. Action by single and multiple voting groups.

  1. If the charter or chapters 11-27 of this title provide for voting by a single voting group on a matter, action on that matter is taken when voted upon by the voting group as provided in § 48-17-206.
  2. If the charter or chapters 11-27 of this title provide for voting by two (2) or more voting groups on a matter, action on that matter is taken only when voted upon by each of those voting groups counted separately as provided in § 48-17-206. Action may be taken by one (1) voting group on a matter even though no action is taken by another voting group entitled to vote on the matter.

Acts 1986, ch. 887, § 7.26.

48-17-208. Greater quorum or voting requirements.

  1. The charter may provide for a greater quorum or voting requirement for shareholders (or voting groups of shareholders) than is provided for by chapters 11-27 of this title.
  2. An amendment to the charter that adds, changes, or deletes a greater quorum or voting requirement shall meet the same quorum requirement and be adopted by the same vote and voting groups required to take action under the quorum and voting requirements then in effect or proposed to be adopted, whichever is greater.

Acts 1986, ch. 887, § 7.27.

48-17-209. Voting for directors — Cumulative voting.

  1. Unless otherwise provided in the charter, directors are elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present.
  2. Shareholders do not have a right to cumulate their votes for directors unless the charter so provides.
  3. A statement included in the charter that “(all) (a designated voting group of) shareholders are entitled to cumulate their votes for directors” (or words of similar import) means that the shareholders designated are entitled to multiply the number of votes they are entitled to cast by the number of directors for whom they are entitled to vote and cast the product for a single candidate or distribute the product among two (2) or more candidates.
  4. Shares otherwise entitled to vote cumulatively may not be voted cumulatively at a particular meeting unless:
    1. The meeting notice or proxy statement accompanying the notice states conspicuously that cumulative voting is authorized; or
    2. A shareholder who has the right to cumulate that shareholder's votes gives notice to the corporation no fewer than forty-eight (48) hours before the time set for the meeting of that shareholder's intent to cumulate that shareholder's votes during the meeting, and if one (1) shareholder gives this notice, all other shareholders in the same voting group participating in the election are entitled to cumulate their votes without giving further notice.

Acts 1986, ch. 887, § 7.28.

48-17-210. Shareholders presumed sui juris.

A corporation may treat any of its shareholders as sui juris until written notice to the contrary is received by the corporation.

Acts 1986, ch. 887, § 7.29.

Part 3
Voting Trusts and Shareholders' Agreements

48-17-301. Voting trusts.

  1. One (1) or more shareholders may create a voting trust, conferring on a trustee the right to vote or otherwise act for them, by signing an agreement setting out the provisions of the trust (which may include anything consistent with its purpose) and transferring their shares to the trustee. When a voting trust agreement is signed, the trustee shall prepare a list of the names and addresses of all owners of beneficial interests in the trust, together with the number and class of shares each transferred to the trust, and deliver copies of the list and agreement to the corporation's principal office.
  2. A voting trust becomes effective on the date the first shares subject to the trust are registered in the trustee's name. A voting trust is valid for not more than ten (10) years after its effective date unless extended under subsection (c).
  3. All or some of the parties to a voting trust may extend it for additional terms of not more than ten (10) years each by signing an extension agreement and obtaining the voting trustee's written consent to the extension. An extension is valid for ten (10) years from the date the first shareholder signs the extension agreement. The voting trustee shall deliver copies of the extension agreement and list of beneficial owners to the corporation's principal office. An extension agreement binds only those parties signing it.
  4. The trustee or trustees of the voting trust may execute and deliver to the transferring shareholders voting trust certificates evidencing the interest of such transferring shareholder in the shares transferred in trust, and such voting trust certificates shall be transferable in the same manner and with the same effect as certificates representing shares under chapter 16 of this title.

Acts 1986, ch. 887, § 7.30.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-1116.

NOTES TO DECISIONS

1. Voting Trust Created Upon Death of Shareholder.

A contract between a corporation's sole shareholders requiring the shares of the first to die to be put in a voting trust did not violate the Voting Trust Statute; since the contract created a present obligation with respect to the shares owned by the decedent, the share passed to the decedent's spouse subject to the existing obligation. Estate of Sinclair v. Keith-Sinclair Co., 894 S.W.2d 747, 1994 Tenn. App. LEXIS 636 (Tenn. Ct. App. 1994).

Decisions Under Prior Law

1. Transfer Between Trusts.

An agreement whereby stock deposited with one voting trust should come under another voting trust immediately upon the termination of the first trust was not illegal where such stock was not subject to be voted by the second trust until the termination of the first. Life & Casualty Ins. Co. v. McCormack, 174 Tenn. 327, 125 S.W.2d 151, 1938 Tenn. LEXIS 96 (1939).

48-17-302. Shareholders' agreements.

  1. An agreement between two (2) or more shareholders, if in writing and signed by the parties thereto, may provide that, in exercising any voting rights, the shares held by them shall be voted as therein provided, or as they may agree, or as determined in accordance with a procedure agreed upon by them. Nothing in this subsection (a) shall impair the right of the corporation to treat the shareholders of record as entitled to vote the shares standing in their names. A voting agreement created under this section is not subject to § 48-17-301 and may be specifically enforced.
  2. No written agreement to which all or less than all the shareholders have actually assented, whether embodied in the charter or bylaws or in any agreement in writing signed by all the parties thereto, which agreement relates to any phase of the affairs of the corporation, whether to the management of its business or to the division of its profits or otherwise, shall be invalid as between the parties thereto on the ground that it is an attempt by the parties thereto to restrict the discretion of the board of directors in its management of the business of the corporation or to treat the corporation as if it were a partnership or to arrange their relationships in a manner that would be appropriate only between partners.
  3. A transferee of shares in a corporation whose shareholders have entered into an agreement authorized by subsection (a) or (b) shall be bound by such agreement if the transferee takes the shares with notice thereof. A transferee shall be deemed to have notice of any such agreement or any such renewal if the existence thereof is noted on the face or back of the certificate or certificates representing such shares.
  4. The effect of any agreement authorized by subsection (b) shall be to relieve the directors and impose upon the shareholders assenting thereto the liability for managerial acts or omissions that is imposed on directors by law, to the extent that and so long as the discretion or powers of the board of directors, in its management of corporate affairs, are controlled by any such agreement.

Acts 1986, ch. 887, § 7.31; 1994, ch. 776, §§ 29, 30.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-1116.

NOTES TO DECISIONS

1. Management of Corporation.

Section 48-17-302(b) is directed at those agreements that in any way relate to the affairs of the corporation or which attempt to change the management of corporate affairs in a method or manner not contemplated by the Corporations Act. Pearson v. Hardy, 853 S.W.2d 497, 1992 Tenn. App. LEXIS 969 (Tenn. Ct. App. 1992).

2. Duration of Agreement.

Stock redemption agreement dealing solely with the rights of the stockholders and corporation to purchase stock of the stockholders if and when it is offered for sale, and which was permitted by T.C.A. § 48-16-208, was not subject to the 20-year limitation formerly found in T.C.A. § 48-17-302(c). Pearson v. Hardy, 853 S.W.2d 497, 1992 Tenn. App. LEXIS 969 (Tenn. Ct. App. 1992).

Part 4
Derivative Proceedings

48-17-401. Procedure in derivative proceedings.

  1. A person may not commence a proceeding in the right of a domestic or foreign corporation unless the person was a shareholder of the corporation when the transaction complained of occurred or unless the person became a shareholder through transfer by operation of law from one who was a shareholder at that time.
  2. A complaint in a proceeding brought in the right of a corporation must be verified and allege with particularity the demand made, if any, to obtain action by the board of directors and either that the demand was refused or ignored or why the person did not make the demand. Whether or not a demand for action was made, if the corporation commences an investigation of the charges made in the demand or complaint, the court may stay any proceeding until the investigation is completed.
  3. A proceeding commenced under this section may not be discontinued or settled without the court's approval. If the court determines that a proposed discontinuance or settlement will substantially affect the interest of the corporation's shareholders or a class of shareholders, the court shall direct that notice be given the shareholders affected. If notice is so directed to be given, the court may determine which one (1) or more parties to the suit shall bear the expense of giving such notice, in such proportions as the court finds to be reasonable in the circumstances, and the amount of such expense shall be awarded as special costs of the suit and recoverable in the same manner as other taxable costs.
  4. On termination of the proceeding, the court may order:
    1. The corporation to pay the plaintiff's reasonable expenses, including counsel fees, incurred in the proceeding, if the court finds that the proceeding has resulted in a substantial benefit to the corporation;
    2. The plaintiff to pay any defendant's reasonable expenses, including counsel fees, incurred in defending the proceeding, if the court finds that the proceeding was commenced or maintained without reasonable cause or for an improper purpose; or
    3. A party to pay an opposing party's reasonable expenses, including counsel fees, incurred because of the filing of a pleading, motion or other paper, if the court finds that the pleading, motion or other paper was not well grounded in fact, after reasonable inquiry, or warranted by existing law or a good faith argument for the extension, modification or reversal of existing law and was interposed for an improper purpose, such as to harass or cause unnecessary delay or needless increase in the cost of litigation.
  5. For purposes of this section, “shareholder” includes a beneficial owner whose shares are held in a voting trust or held by a nominee on the beneficial owner's behalf.

Acts 1986, ch. 887, § 7.40; 2008, ch. 726, § 1.

Textbooks. Gibson's Suits in Chancery (7th ed., Inman), § 572.

Tennessee Forms (Robinson, Ramsey and Harwell), No. 1-23.06-1.

Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, §§ 50, 90.

NOTES TO DECISIONS

1. Demand for Action.

All jurisdictions impose threshold preconditions on derivative suits, the most common precondition requiring the shareholder to first make a written demand on the corporation's directors requesting them to prosecute the suit or to take other suitable corrective action, commonly known as the “demand requirement.” Preconditions such as demand allow the directors to occupy their normal status as the conductors of the corporation's affairs, encourage informal resolution of intracorporate disputes, guard against misuse of the derivative remedy. Lewis on behalf of Citizens Sav. Bank & Trust Co. v. Boyd, 838 S.W.2d 215, 1992 Tenn. App. LEXIS 471 (Tenn. Ct. App. 1992).

Courts in some jurisdictions like Tennessee that do not require a precomplaint demand in every case have segregated derivative actions into two categories. “Demand refused” cases are those in which the corporation's directors have refused to take action in response to a shareholder's demand. “Demand excused” cases are those in which a shareholder is not required to make a demand because doing so would be futile. Lewis on behalf of Citizens Sav. Bank & Trust Co. v. Boyd, 838 S.W.2d 215, 1992 Tenn. App. LEXIS 471 (Tenn. Ct. App. 1992).

Tennessee's futility exception to the demand requirement for derivative actions does not apply to foreign corporations, because their governance is determined by the laws of the state of incorporation; therefore, a trial court did not err by dismissing a derivative action for failure to make a pre-suit demand on a Utah corporation, because such a demand was required under Utah law. Hicks v. Lewis, 148 S.W.3d 80, 2003 Tenn. App. LEXIS 718 (Tenn. Ct. App. 2003), appeal denied, — S.W.3d —, 2004 Tenn. LEXIS 318 (Tenn. Apr. 5, 2004).

Proper demand-futility standard is version of two-pronged Aronson test. Lukas v. McPeak, 730 F.3d 635, 2013 FED App. 280P, 2013 U.S. App. LEXIS 19295 (6th Cir. Sept. 19, 2013).

Shareholder failed to meet demand-futility standard because shareholder failed to demonstrate majority of board was interested and not independent; at best, allegations made out that one board member's disinterest and independence may have been compromised, but did not allege any specifics regarding other board members. Lukas v. McPeak, 730 F.3d 635, 2013 FED App. 280P, 2013 U.S. App. LEXIS 19295 (6th Cir. Sept. 19, 2013).

2. Dismissal.

The party seeking dismissal of a derivative suit based on a special litigation committee's recommendation has the burden of satisfying the court of the committee's independence, good faith, and procedural fairness, as well as the soundness of the committee's conclusions and recommendations. Lewis on behalf of Citizens Sav. Bank & Trust Co. v. Boyd, 838 S.W.2d 215, 1992 Tenn. App. LEXIS 471 (Tenn. Ct. App. 1992).

Since T.C.A. § 48-17-401(c) specifically requires the court to approve the dismissal of all derivative actions, the court should not limit its review to a special litigation committee's investigative procedure and methodologies, but should extend review to the rationale of the committee's decision. The reviewing court is not to substitute its own business judgment for the committee's but should critically evaluate the special litigation committee's findings and recommendations, to determine whether they were made in good faith, whether they are supported by the record of the investigation, and whether they are consistent with the corporation's best interests as articulated in the special committee's report. Lewis on behalf of Citizens Sav. Bank & Trust Co. v. Boyd, 838 S.W.2d 215, 1992 Tenn. App. LEXIS 471 (Tenn. Ct. App. 1992).

3. Action by Estate.

A personal representative was a proper entity to maintain a shareholder derivative action on behalf of the estate with respect to a sale of stock even though the representative could not maintain the suit in the representative's own right as a shareholder because the representative participated in the transaction. Christiansen v. Rolich Corp., 909 S.W.2d 823, 1995 Tenn. App. LEXIS 399 (Tenn. Ct. App. 1995), appeal denied, 1995 Tenn. LEXIS 632 (Tenn. Oct. 30, 1995).

4. Standing.

A single shareholder had standing to bring a derivative action on behalf of the corporation against another shareholder, despite the fact that plaintiff was the only affected shareholder and had brought an independent action against the corporation. Hall v. Tennessee Dressed Beef Co., 957 S.W.2d 536, 1997 Tenn. LEXIS 627 (Tenn. 1997).

Shareholder under T.C.A. § 48-17-401(e) does not mean that a shareholder is only someone who falls into the categories listed thereunder; therefore, in an action alleging that a president of a corporation converted corporate assets, the court rejected the assertion that certain shareholders were not allowed to bring a derivative action because they were not specifically included in § 48-17-401(e). May v. Nat'l Bank of Commerce, 387 F. Supp. 2d 770, 2004 U.S. Dist. LEXIS 28751 (W.D. Tenn. 2004).

Although a grandchild did not own a nursery's stock at the time of alleged wrongs, a trial court erred in dismissing the grandchild's stockholder's derivative action because the grandchild acquired the stock by operation of law from a predecessor who was a stockholder at the time of the acts; thus, the grandchild had standing to maintain the action under T.C.A. § 48-17-401. Howell v. Ryerkerk, — S.W.3d —, 2010 Tenn. App. LEXIS 304 (Tenn. Ct. App. Apr. 30, 2010).

5. Derivative Action Improper.

For purposes of T.C.A. § 48-17-401(c), appellants had not satisfied the statutory requirements for a derivative action; because that was their sole recourse under T.C.A. § 48-56-401(a)(1) to contest the authority of the board of directors, appellants could not challenge the board's assessment of association fees absent a properly pleaded derivative action, for purposes of T.C.A. § 48-53-104(b). Germantown Manor Homeowners Ass'n v. GGAT Dev. Corp., — S.W.3d —, 2017 Tenn. App. LEXIS 576 (Tenn. Ct. App. Aug. 24, 2017).

Decisions Under Prior Law

1. Standing.

Where a corporation sued for damages for the induced breach of a contract between the corporation and a former employee, the principal stockholder and creditor of the corporation had standing in court to maintain an action for damages for inducing the breach of contract. Koehler v. Cummings, 380 F. Supp. 1294, 1971 U.S. Dist. LEXIS 12910 (M.D. Tenn. 1971).

2. Award of Costs.

When it should have been obvious to the plaintiff at the outset that someone with a primary interest in protecting the plaintiff's debentures, rather than protecting the plaintiff's stock, could not fairly and adequately represent the interests of the other shareholders, the action was brought without reasonable cause. Owen v. Modern Diversified Industries, Inc., 643 F.2d 441, 1981 U.S. App. LEXIS 19383 (6th Cir. Tenn. 1981).

It was proper to award partial attorney's fees when the court expressly found the plaintiff did not bring the action in bad faith. Owen v. Modern Diversified Industries, Inc., 643 F.2d 441, 1981 U.S. App. LEXIS 19383 (6th Cir. Tenn. 1981).

Chapter 18
Directors and Officers

Part 1
Board of Directors

48-18-101. Requirement for and duties of board of directors.

  1. Except as provided in subsection (c), each corporation must have a board of directors.
  2. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation managed under the direction of, its board of directors, subject to any limitation set forth in the charter.
  3. A corporation having fifty (50) or fewer shareholders may dispense with or limit the authority of a board of directors by describing in its charter who will perform some or all of the duties of a board of directors; provided, that any such person or persons shall be subject to the same standards of conduct that this chapter imposes on directors in the performance of their duties.

Acts 1986, ch. 887, § 8.01.

Cross-References. Applicability of business corporation law, title 48, chs. 11-27, to corporations existing on January 1, 1988, title 48, ch. 27.

Nonprofit corporations, directors and officers, title 48, ch. 58.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-201.

Law Reviews.

Corporate Directors [and Officers] Making Business Judgments in Tennessee: The Business Judgment Rule, 44 U. Mem. L. Rev. 455 (2013).

Director and Officer Liability, 40 Vand. L. Rev. 599 (1987).

Why a Board? Group Decisionmaking in Corporate Governance, 55 Vand. L. Rev. 1 (2002).

48-18-102. Qualifications of directors.

The charter or bylaws may prescribe qualifications for directors. A director need not be a resident of this state or a shareholder of the corporation unless the charter or bylaws so prescribe.

Acts 1986, ch. 887, § 8.02.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-103.

48-18-103. Number and election of directors.

  1. A board of directors must consist of one (1) or more individuals, with the number specified in or fixed in accordance with the charter or bylaws.
  2. The charter or bylaws may provide that the board of directors has power to fix or change the number of directors, including an increase or decrease in the number of directors. Absent such a provision, only the shareholders may fix or change the number of directors, except as provided in subsection (c).
  3. The charter or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or the board of directors; provided, that unless the charter or bylaws provide otherwise, only the shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa.
  4. Directors are elected at the first annual shareholders' meeting and at each annual meeting thereafter, unless their terms are staggered under § 48-18-106 or unless their terms are for more than one (1) year as provided by § 48-18-105.

Acts 1986, ch. 887, § 8.03.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-402.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Voting for Directors.

Election of a director by vote of a single stockholder did not make the director agent of latter or raise any presumption that the director acted otherwise than for corporation's interest. Rogers v. Nashville, C. & St. L. R. Co., 91 F. 299, 1898 U.S. App. LEXIS 1849 (6th Cir. Tenn. 1898).

48-18-104. Election of directors by certain classes of shareholders.

If the charter authorizes dividing the shares into classes or series, the charter may also authorize the election of all or a specified number of directors by the holders of one (1) or more authorized classes or series of shares. Each class (or classes) or series of shares entitled to elect one (1) or more directors is a separate voting group for purposes of the election of directors.

Acts 1986, ch. 887, § 8.04.

48-18-105. Terms of directors generally.

  1. The terms of the initial directors of a corporation expire at the first shareholders' meeting at which directors are elected.
  2. The terms of all other directors expire at the next annual shareholders' meeting following their election unless their terms are staggered under § 48-18-106, or unless the charter provides for terms of more than one (1) year but not more than three (3) years.
  3. A decrease in the number of directors does not shorten an incumbent director's term.
  4. The term of a director elected to fill a vacancy expires at the next shareholders' meeting at which directors are elected.
  5. Despite the expiration of a director's term, the director continues to serve until a successor is elected and qualified or until there is a decrease in the number of directors.

Acts 1986, ch. 887, § 8.05.

48-18-106. Staggered terms for directors.

The charter may provide for staggering the terms of directors by dividing the total number of directors into two (2) or three (3) groups, with each group containing one half (½) or one third (1/3) of the total, as near as may be. In that event, the terms of directors in the first group expire at the first annual shareholders' meeting after their election, the terms of the second group expire at the second annual shareholders' meeting after their election, and the terms of the third group, if any, expire at the third annual shareholders' meeting after their election. At each annual shareholders' meeting held thereafter, the directors shall be chosen for a term of two (2) years or three (3) years, as the case may be, to succeed those whose terms expire.

Acts 1986, ch. 887, § 8.06.

48-18-107. Resignation of directors.

  1. A director may resign at any time by delivering a written resignation to the board of directors, or its chair, or to the secretary of the corporation.
  2. A resignation is effective when the resignation is delivered unless the resignation specifies a later effective date or an effective date determined upon the happening of an event or events. A resignation that is conditioned upon failing to receive a specified vote for election as a director may provide that it is irrevocable.

Acts 1986, ch. 887, § 8.07; 2012, ch. 1051, § 28.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-1303.

48-18-108. Removal of directors.

  1. The shareholders may remove one (1) or more directors with or without cause unless the charter provides that directors may be removed only for cause.
  2. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove the director without cause.
  3. If cumulative voting is authorized, a director may not be removed if the number of votes sufficient to elect the director under cumulative voting is voted against the director's removal. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove the director exceeds the number of votes cast not to remove the director.
  4. If so provided by the charter, any or all of the directors may be removed for cause by a vote of a majority of the entire board of directors.
  5. A director may be removed by the shareholders or directors only at a meeting called for the purpose of removing the director and the meeting notice must state that the purpose, or one (1) of the purposes, of the meeting is removal of directors.

Acts 1986, ch. 887, § 8.08.

Law Reviews.

A Critical Look at Corporate Governance (Lawrence E. Mitchell), 45 Vand. L. Rev. 1263 (1992).

48-18-109. Removal of directors by judicial proceeding.

  1. Any court of record having equity jurisdiction in the county where a corporation's principal office (or, if none in this state, its registered office) is located may remove a director of the corporation from office in a proceeding commenced either by the corporation or by its shareholders holding at least ten percent (10%) of the outstanding shares of any class if the court finds that:
    1. The director engaged in fraudulent or dishonest conduct, or gross abuse of authority or discretion, with respect to the corporation; and
    2. Removal is in the best interest of the corporation.
  2. The court that removes a director may bar the director from reelection for a period prescribed by the court.
  3. If shareholders commence a proceeding under subsection (a), they shall make the corporation a party defendant.

Acts 1986, ch. 887, § 8.09.

48-18-110. Vacancy on board.

  1. Unless the charter provides otherwise, if a vacancy occurs on a board of directors, including a vacancy resulting from an increase in the number of directors or a vacancy resulting from a removal with or without cause:
    1. The shareholders may fill the vacancy;
    2. The board of directors may fill the vacancy; or
    3. If the directors remaining in office constitute fewer than a quorum of the board, they may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office.
  2. If the vacant office was held by a director elected by a voting group of shareholders, only the holders of shares of that voting group are entitled to vote to fill the vacancy if it is filled by the shareholders.
  3. A vacancy that will occur at a specific later date (by reason of a resignation effective at a later date under § 48-18-107(b) or otherwise) may be filled before the vacancy occurs but the new director may not take office until the vacancy occurs.

Acts 1986, ch. 887, § 8.10.

48-18-111. Compensation of directors.

Unless the charter or bylaws provide otherwise, the board of directors may fix the compensation of directors.

Acts 1986, ch. 887, § 8.11.

Part 2
Meetings and Action of the Board

48-18-201. Meetings.

  1. The board of directors may hold regular or special meetings in or out of this state. Unless the bylaws otherwise provide, special meetings of the board of directors may be called by the chair of the board, the president, or any two (2) directors.
  2. Unless the charter or bylaws provide otherwise, the board of directors may permit any or all directors to participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication by which all directors participating may simultaneously hear each other during the meeting. A director participating in a meeting by this means is deemed to be present in person at the meeting.

Acts 1986, ch. 887, § 8.20.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Special or Informal Meetings.

Although the rules of the corporation required the directors to have regular meetings, they might have special or informal meetings whenever the interest of the corporation required it, because this was a necessary power incident to the faithful discharge of their trust; and if recorded as part of their official action, such meetings were legal and binding. Read v. Memphis Gayoso Gas Co., 56 Tenn. 545, 1872 Tenn. LEXIS 174 (1872).

Though there be no formal meeting of directorate and no minutes of their action, the unanimous agreement or act of the number of directors requisite to form a quorum might bind the corporation to increase of salaries, when such directors were practically the sole owners of the corporate stock. Watts v. Gordon, 127 Tenn. 96, 153 S.W. 483, 1912 Tenn. LEXIS 13 (1912).

48-18-202. Action without meeting.

  1. Except to the extent that the charter or bylaws require that action by the board of directors be taken at a meeting, action required or permitted by chapters 11-27 of this title to be taken by the board of directors may be taken without a meeting if each director signs a consent describing the action to be taken and delivers it to the corporation.  If all directors consent to taking such action without a meeting, the affirmative vote of the number of directors that would be necessary to authorize or take such action at a meeting is the act of the board.  The action must be evidenced by one (1) or more written consents describing the action taken, signed by each director in one (1) or more counterparts, indicating each signing director's vote or abstention on the action, and delivered to the corporation, and shall be included in the minutes or filed with the corporate records reflecting the action taken.
  2. Action taken under this section is the act of the board of directors when one (1) or more consents signed by all the directors are delivered to the corporation. The consent may specify the time at which the action taken thereunder is to be effective. A director's consent may be withdrawn by a revocation signed by the director and delivered to the corporation prior to delivery to the corporation of unrevoked written consents signed by all the directors.
  3. A consent signed under this section has the effect of action taken at a meeting of the board of directors and may be described as such in any document.

Acts 1986, ch. 887, § 8.21; 2012, ch. 1051, § 29.

NOTES TO DECISIONS

1. Minutes of a Director's Meeting.

Although document purported to be the minutes of a director's meeting, it met statutory requirements of action taken by consent without a meeting and properly authorized the corporation to execute notes, where the document described the action taken, was signed by each director, indicated the vote of each director by describing the vote as “unanimous,” and further provided that each director ratified and confirmed the action described. Herskowitz v. Pilot House Motor Inns, Inc., 806 S.W.2d 531, 1990 Tenn. App. LEXIS 250 (Tenn. Ct. App. 1990).

2. No Preemption.

Claims brought under T.C.A. § 48-22-101 and T.C.A. § 48-18-202 to void a transaction entered into by a corporation's president were not preempted by 29 U.S.C. § 1144 of the Employee Retirement Income Security Act because the action did not seek to recover benefits. May v. Nat'l Bank of Commerce, 387 F. Supp. 2d 770, 2004 U.S. Dist. LEXIS 28751 (W.D. Tenn. 2004).

48-18-203. Notice of meeting.

  1. Unless the charter or bylaws provide otherwise, regular meetings of the board of directors may be held without notice of the date, time, place, or purpose of the meeting.
  2. Unless the charter or bylaws provide for a longer or shorter period, special meetings of the board of directors must be preceded by at least two (2) days' notice of the date, time, and place of the meeting. The notice need not describe the purpose of the special meeting unless required by the charter or bylaws.
  3. Notice of an adjourned meeting need not be given if the time and place to which the meeting is adjourned are fixed at the meeting at which the adjournment is taken, and if the period of adjournment does not exceed one (1) month in any one (1) adjournment.

Acts 1986, ch. 887, § 8.22.

48-18-204. Waiver of notice.

  1. A director may waive any notice required by chapters 11-27 of this title, the charter, or bylaws before or after the date and time stated in the notice. Except as provided by subsection (b), the waiver must be in writing, signed by the director entitled to the notice, and filed with the minutes or corporate records.
  2. A director's attendance at or participation in a meeting waives any required notice to the director of the meeting unless the director at the beginning of the meeting (or promptly upon the director's arrival) objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting.

Acts 1986, ch. 887, § 8.23.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-1302.

48-18-205. Quorum and voting.

  1. Unless the charter or bylaws require a greater number, a quorum of a board of directors consists of:
    1. A majority of the fixed number of directors if the corporation has a fixed board size; or
    2. A majority of the number of directors prescribed, or if no number is prescribed, the number in office immediately before the meeting begins, if the corporation has a variable-range size board.
  2. The charter or bylaws may authorize a quorum of a board of directors to consist of no fewer than one third (1/3) of the fixed or prescribed number of directors determined under subsection (a).
  3. If a quorum is present when a vote is taken, the affirmative vote of a majority of directors present is the act of the board of directors unless the charter or bylaws require the vote of a greater number of directors.
  4. A director who is present at a meeting of the board of directors when corporate action is taken is deemed to have assented to the action taken unless:
    1. The director objects at the beginning of the meeting (or promptly upon the director's arrival) to holding it or transacting business at the meeting;
    2. The director's dissent or abstention from the action taken is entered in the minutes of the meeting; or
    3. The director delivers written notice of the director's dissent or abstention to the presiding officer of the meeting before its adjournment or to the corporation immediately after adjournment of the meeting. The right of dissent or abstention is not available to a director who votes in favor of the action taken.

Acts 1986, ch. 887, § 8.24.

Law Reviews.

Why a Board? Group Decisionmaking in Corporate Governance, 55 Vand. L. Rev. 1 (2002).

48-18-206. Committees.

  1. Unless the charter or bylaws provide otherwise, the board of directors may create one (1) or more committees. A committee may consist of one (1) member. All members of committees of the board of directors which exercise powers of the board of directors must be members of the board of directors and serve at the pleasure of the board of directors.
  2. The creation of a committee and appointment of a member or members to it must be approved by the greater of:
    1. A majority of all the directors in office when the action is taken; or
    2. The number of directors required by the charter or bylaws to take action under § 48-18-205.
  3. Sections 48-18-201 — 48-18-205, which govern meetings, action without meetings, notice and waiver of notice, and quorum and voting requirements of the board of directors, apply to committees and their members as well.
  4. To the extent specified by the board of directors or in the charter or bylaws, each committee may exercise the authority of the board of directors under § 48-18-101.
  5. A committee may not, however:
    1. Authorize distributions, except according to a formula or method prescribed by the board of directors;
    2. Fill vacancies on the board of directors or on any of its committees;
    3. Adopt, amend, or repeal bylaws;
    4. Authorize or approve reacquisition of shares, except according to a formula or method prescribed by the board of directors; or
    5. Authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences, and limitations of a class or series of shares, except that the board of directors may authorize a committee (or senior executive officer of the corporation) to do so within limits specifically prescribed by the board of directors.
  6. The creation of, delegation of authority to, or action by a committee does not alone constitute compliance by a director with the standards of conduct described in § 48-18-301.

Acts 1986, ch. 887, § 8.25; 1994, ch. 776, § 31.

Part 3
Standards of Conduct

48-18-301. General standards for directors.

  1. A director shall discharge all duties as a director, including duties as a member of a committee:
    1. In good faith;
    2. With the care an ordinarily prudent person in a like position would exercise under similar circumstances; and
    3. In a manner the director reasonably believes to be in the best interests of the corporation.
  2. In discharging such duties, a director is entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, if prepared or presented by:
    1. One (1) or more officers or employees of the corporation (or a subsidiary of the corporation) whom the director reasonably believes to be reliable and competent in the matters presented;
    2. Legal counsel, public accountants, or other persons as to matters the director reasonably believes are within the person's professional or expert competence; or
    3. A committee of the board of directors of which the director is not a member, if the director reasonably believes the committee merits confidence.
  3. A director is not acting in good faith if the director has knowledge concerning the matter in question that makes reliance otherwise permitted by subsection (b) unwarranted.
  4. A director is not liable for any action taken as a director, or any failure to take any action, if the director performed the duties of the office in compliance with this section.

Acts 1986, ch. 887, § 8.30; 1994, ch. 776, § 32.

Textbooks. Gibson's Suits in Chancery (7th ed., Inman), § 506.

Law Reviews.

Corporate Directors [and Officers] Making Business Judgments in Tennessee: The Business Judgment Rule, 44 U. Mem. L. Rev. 455 (2013).

Delaware LLCs for Tennessee Lawyers? (Richard Spore), 35 Tenn. B.J. 27 (1999).

The Conundrum of Directors' Duties in Nearly Insolvent Corporations (Mike Roberts), 23 Mem. St. U.L. Rev. 273 (1993).

NOTES TO DECISIONS

Decisions Under Prior Law

1. Duty Limited to Corporation.

Statute imposed a duty that ran to the corporation, in favor of the corporation and its stockholders; it was not intended to establish a statutory privity between directors and officers and third parties not representing the corporate entity. Merriman v. Smith, 599 S.W.2d 548, 1979 Tenn. App. LEXIS 389 (Tenn. Ct. App. 1979).

2. Directors as Trustees.

The directors occupied a fiduciary relation toward the stockholders, and were bound to good faith and reasonable diligence in the performance of their duties; they were not express trustees, and were trustees only in the sense in which every agent is a trustee for the agent's principal, but they were bound to exercise diligence and good faith to all the parties interested in the affairs of the corporation; they must also use care, attention, circumspection in the affairs of the corporation, and particularly in the safekeeping and disbursement of the funds committed to their control; they must see that these funds are appropriated as intended to the purposes of the trust, and if they misappropriate them, or allow others to divert them from these purposes, they must answer individually for it. Ignorance would not excuse them when they had the means of knowledge. Shea v. Mabry, 69 Tenn. 319, 1878 Tenn. LEXIS 94 (1878); Vance v. Phoenix Ins. Co., 72 Tenn. 385, 1880 Tenn. LEXIS 31 (1880); Wallace v. Lincoln Sav. Bank, 89 Tenn. 630, 15 S.W. 448, 1890 Tenn. LEXIS 87, 24 Am. St. Rep. 625 (1891); Deaderick v. Bank of Commerce, 100 Tenn. 457, 45 S.W. 786, 1897 Tenn. LEXIS 136 (1897).

Directors, not being technical trustees, might purchase stock from stockholders without being subjected to the stringent rules governing such. Harris v. Lemming-Harris Agricultural Works, 43 S.W. 869, 1896 Tenn. Ch. App. LEXIS 125 (1896).

3. Absent Director.

A director who is absent at the time questionable action is taken by the board but who arrives shortly thereafter and is informed of all that has been done, whereupon the director approves of what has been done, occupies the same status as one present and voting throughout the meeting. Uffelman v. Boillin, 19 Tenn. App. 1, 82 S.W.2d 545, 1935 Tenn. App. LEXIS 18 (Tenn. Ct. App. 1935).

4. Personal Liability.

Where the makers of a note described themselves in the body as “the directors” of a certain corporation, the note was the individual obligation of the parties signing it, and was not the agreement of the corporation. Gregory v. Bohannon, 3 Shan. 479 (1875).

Directors were primarily liable to the corporation both for nonfeasance and misfeasance, but they might, in equity, be proceeded against by stockholders or creditors in proper cases, who would be subrogated to the rights of the corporation; such liability was an asset of the corporation, and passed to the assignee under a general assignment for the benefit of creditors. Shea v. Knoxville & K. R. Co., 65 Tenn. 277, 1873 Tenn. LEXIS 345 (1873); Moses v. Ocoee Bank, 69 Tenn. 398, 1878 Tenn. LEXIS 110 (1878); Hume v. Commercial Bank, 77 Tenn. 728, 1882 Tenn. LEXIS 130 (1882).

Statutory liability of directors for creating excessive debts was not an asset of the corporation, but was one inuring directly and exclusively to the benefit of particular creditors whose debts were excessively created; and such liability could be enforced only by a general creditor's bill, and not by a suit prosecuted by the receiver of the corporation. A suit to enforce such liability could not be maintained by a few, less than all, of the creditors of the corporation entitled to hold the directors so liable, but the suit must be brought by all, or by some on behalf of all, of the creditors for whose debts the directors had so rendered themselves individually liable. Moulton v. Connell-Hall-McLester Co., 93 Tenn. 377, 27 S.W. 672, 1893 Tenn. LEXIS 65 (1894); Tradesman Pub. Co. v. Knoxville Car-Wheel Co., 95 Tenn. 634, 32 S.W. 1097, 1895 Tenn. LEXIS 140, 49 Am. St. Rep. 943, 31 L.R.A. 593 (1895); Simmons v. Taylor, 106 Tenn. 729, 63 S.W. 1123, 1901 Tenn. LEXIS 130 (1901).

A director was not liable to creditors for profits earned by way of use of a plant which the director had leased from the corporation as an idle plant after the failure of the corporation, the director paying a maximum rental therefor. Russell v. Tennessee & Kentucky Tobacco Co., 16 Tenn. App. 561, 65 S.W.2d 256, 1933 Tenn. App. LEXIS 28 (Tenn. Ct. App. 1933).

Where directors, acting as individuals, sold, in good faith, and on advice of counsel, to the corporation capital stock for the purpose of retiring the stock at a time when the corporation was in a prosperous condition and there was no reason to anticipate its subsequent financial collapse, due to economic conditions, they were not liable to stockholders for the purchase price of the stock to stockholders who: (1) participated in the transaction; (2) who for any appreciable length of time before a receiver was appointed knew of the transaction; or (3) who, subsequent to the transaction, purchased their stock from one with knowledge of the transaction. Uffelman v. Boillin, 19 Tenn. App. 1, 82 S.W.2d 545, 1935 Tenn. App. LEXIS 18 (Tenn. Ct. App. 1935).

A director of a corporation, who on advice of experienced counsel and in good faith, approved a sale of the capital stock of the corporation to the corporation, for purposes of retirement of the stock, by other directors as individuals, the corporation being at the time in a prosperous condition and there being then no reason to anticipate the subsequent financial collapse of the corporation due to economic conditions, was not liable for the purchase price of the shares so sold. Uffelman v. Boillin, 19 Tenn. App. 1, 82 S.W.2d 545, 1935 Tenn. App. LEXIS 18 (Tenn. Ct. App. 1935).

5. —Directors Not Accepting Office.

Directors who were not notified of their election and did not accept the office, nor assume the duties thereof, were not liable to the creditors of the corporation, simply because the corporation caused their names to be published as directors, in which they tacitly acquiesced by mere negligence, without any word or act on their part tending to show that they held themselves out as directors. Hume v. Commercial Bank, 77 Tenn. 728, 1882 Tenn. LEXIS 130 (1882).

6. —Exhaustion of Corporate Assets.

The stockholders, officers, and directors of a corporation were not individually and personally liable for their delinquencies, to its creditors until the corporate assets of every description, legal and equitable, should have been exhausted. Blake v. Hinkle, 18 Tenn. 218, 1836 Tenn. LEXIS 124 (1836); Johnson v. Churchwell, 38 Tenn. 146, 1858 Tenn. LEXIS 144 (Tenn. Sep. 1858); Allison v. Coal Co., 87 Tenn. 60, 9 S.W. 226, 1888 Tenn. LEXIS 35 (1888); Albitzue v. Guadelupe y Caloo Min. Co., 92 Tenn. 598, 22 S.W. 739, 1893 Tenn. LEXIS 16 (1893); Tradesman Pub. Co. v. Knoxville Car-Wheel Co., 95 Tenn. 634, 32 S.W. 1097, 1895 Tenn. LEXIS 140, 49 Am. St. Rep. 943, 31 L.R.A. 593 (1895).

7. Claims Against Corporation.

An officer, though a director, might recover for services rendered outside the scope of the officer's official duties, on an implied promise to pay therefor. Reeve v. Harris, 50 S.W. 658, 1897 Tenn. Ch. App. LEXIS 161 (1897).

Where a director lent the corporation money to enable it to take up checks issued by it on a failed bank, the director had a claim allowable in a general creditors' proceeding. Russell v. Tennessee & Kentucky Tobacco Co., 16 Tenn. App. 561, 65 S.W.2d 256, 1933 Tenn. App. LEXIS 28 (Tenn. Ct. App. 1933).

8. Salaries.

In voting salaries to themselves directors were required to act in utmost good faith in the interest of stockholders; exorbitant salaries not sustainable. Harris v. Lemming-Harris Agricultural Works, 43 S.W. 869, 1896 Tenn. Ch. App. LEXIS 125 (1896).

9. Discharge of Duties.

Whether a director or officer has properly discharged the duties of office is a question of fact to be determined in each case in view of all the circumstances. Fitch v. Midland Bank & Trust Co., 737 S.W.2d 785, 1987 Tenn. App. LEXIS 2798 (Tenn. Ct. App. 1987).

48-18-302. Liability for unlawful distributions.

  1. A director who votes for or assents to a distribution made in violation of § 48-16-401 or the charter is personally liable to the corporation for the amount of the distribution that exceeds what could have been distributed without violating such section or the charter if it is established that the director did not perform such director's duties in compliance with § 48-18-301. In any proceeding commenced under this section, a director has all of the defenses ordinarily available to a director.
  2. A director held liable under subsection (a) for an unlawful distribution is entitled to contribution from:
    1. Every other director who could be held liable under subsection (a) for the unlawful distribution; and
    2. Each shareholder for the amount the shareholder accepted knowing the distribution was made in violation of § 48-16-401 or the charter.
  3. A proceeding under this section is barred unless it is commenced within two (2) years after the date on which the effect of the distribution was measured under § 48-16-401.

Acts 1986, ch. 887, § 8.33; 1994, ch. 776, § 33; 1996, ch. 618, § 1; T.C.A. § 48-18-304; Acts 2012, ch. 1051, § 30.

Compiler's Notes. Former § 48-18-302 (Acts 1986, ch. 887, § 8.31), concerning director and officer conflict of interest, was repealed by Acts 2012, ch. 1051, § 30, effective January 1, 2013.

Part 4
Officers

48-18-401. Required officers.

  1. A corporation has the officers described in its bylaws or designated by its board of directors in accordance with the bylaws. Unless the charter or bylaws provide otherwise, officers shall be elected or appointed by the board of directors.
  2. A duly appointed officer may appoint one (1) or more officers or assistant officers if authorized by the bylaws or the board of directors.
  3. The bylaws or the board of directors shall delegate to one (1) of the officers responsibility for preparing minutes of the directors' and shareholders' meetings and for authenticating records of the corporation.
  4. The same individual may simultaneously hold more than one (1) office in a corporation.

Acts 1986, ch. 887, § 8.40; 1989, ch. 451, § 11; 1999, ch. 272, § 1; 2012, ch. 1051, §§ 31, 32.

Law Reviews.

Corporate Directors [and Officers] Making Business Judgments in Tennessee: The Business Judgment Rule, 44 U. Mem. L. Rev. 455 (2013).

NOTES TO DECISIONS

Decisions Under Prior Law

1. Compensation of Officers.

For cases discussing compensation of officers, see Reeve v. Harris, 50 S.W. 658, 1897 Tenn. Ch. App. LEXIS 161 (1897); Wood v. Myers Paper Co., 3 Tenn. App. 128, 1926 Tenn. App. LEXIS 76 (1926); Graves v. Graves Co., 7 Tenn. App. 369, 1928 Tenn. App. LEXIS 55 (1928).

48-18-402. Duties of officers.

Each officer has the authority and shall perform the duties set forth in the bylaws or, to the extent consistent with the bylaws, the duties prescribed by the board of directors or by direction of an officer authorized by the board of directors to prescribe the duties of other officers.

Acts 1986, ch. 887, § 8.41.

NOTES TO DECISIONS

Decisions Under Prior Law

1. President.

Where it was claimed that the president of a land company (a corporation) in selling its stock agreed that the corporation would buy it back in event the purchaser became dissatisfied and surrendered the shares, there was lack of power in such officer to bind the corporation to repurchase. Olds v. Phillipsburg Land Co., 48 S.W. 285, 1898 Tenn. Ch. App. LEXIS 69 (1898).

A deed of trust purporting to be that of a corporation and to convey its property is sufficient though signed by “M.L.B., president of K.L. Company.” Its validity was not affected by failure of the instrument to recite authority for the official to borrow money for the security of which it was executed. Where the money was received by the corporation, authority was presumed in favor of the lender secured thereby. Turner v. Kingston Lumber & Mfg. Co., 59 S.W. 410, 1900 Tenn. Ch. App. LEXIS 93 (1900).

The president of a corporation had no power by virtue of the president's office alone to control the corporation's property or its management. Nickey Bros. v. Lonsdale Mfg. Co., 149 Tenn. 391, 258 S.W. 776, 1923 Tenn. LEXIS 104 (1924).

Where bonds secured by deed of trust were issued so that a corporation might borrow money for lawful purposes, and its president was authorized to dispose of them through a trust company or other agency, for the best interest of the corporation, and use the proceeds for corporate purposes, when the president deposited them with the bank, directing that they be sold, and so much of the proceeds as was necessary be applied to the debts to the bank, the president was acting within the powers vested in the president. Nickey Bros. v. Lonsdale Mfg. Co., 149 Tenn. 391, 258 S.W. 776, 1923 Tenn. LEXIS 104 (1924).

2. Secretary.

A secretary of an ordinary trading corporation was without power to endorse and transfer its commercial paper. Furst & Furst v. Freels, 9 Tenn. App. 423, — S.W.2d —, 1928 Tenn. App. LEXIS 248 (Tenn. Ct. App. 1928).

3. Delegation of Powers.

A contract to purchase and for exclusive right to sell coal in a certain territory, made by a general manager of a coal company, not officer under charter or bylaw, but under the president, was binding on a coal company as against one who did not know of limit on authority. Allison v. Tennessee C., I. & R. Co., 46 S.W. 348, 1897 Tenn. Ch. App. LEXIS 112 (1897).

What a corporation might do lawfully through its proper officers might be done through a delegated agent. McCallum v. McIsaac, 159 Tenn. 655, 21 S.W.2d 392, 1929 Tenn. LEXIS 26 (1929).

4. Payment of Personal Debts.

The liability of the payee accepting a check of the corporation signed by an officer in payment of the officer's own debt depended on authority to use corporate funds for that purpose, or on ratification by the corporation. Mt. Verd Mills Co. v. McElwee, 42 S.W. 465, 1897 Tenn. Ch. App. LEXIS 59 (1897); Watts v. Gordon, 127 Tenn. 96, 153 S.W. 483, 1912 Tenn. LEXIS 13 (1912).

Payee who accepts check of corporation in payment of the debt of an officer has the burden of showing the authority. Charles A. Hill & Co. v. Belmont Heights Baptist Church, 17 Tenn. App. 603, 69 S.W.2d 612, 1933 Tenn. App. LEXIS 94 (Tenn. Ct. App. 1933).

5. Pleading Corporate Nonexistence.

Persons served as representative of a corporation were entitled to plead nonexistence of the corporation. Kelley v. Mississippi C. R. Co., 1 F. 564, 1880 U.S. App. LEXIS 2389 (C.C.D. Tenn. 1880).

48-18-403. Standards of conduct for officers.

  1. An officer with discretionary authority shall discharge all duties under that authority:
    1. In good faith;
    2. With the care an ordinarily prudent person in a like position would exercise under similar circumstances; and
    3. In a manner the officer reasonably believes to be in the best interest of the corporation.
  2. In discharging such duties, an officer is entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, if prepared or presented by:
    1. One (1) or more officers or employees of the corporation (or a subsidiary of the corporation) whom the officer reasonably believes to be reliable and competent in the matters presented; or
    2. Legal counsel, public accountants, or other persons as to matters the officer reasonably believes are within the person's professional or expert competence.
  3. An officer is not acting in good faith if the officer has knowledge concerning the matter in question that makes reliance otherwise permitted by subsection (b) unwarranted.
  4. An officer is not liable for any action taken as an officer, or any failure to take any action, if the officer performed the duties of office in compliance with this section.

Acts 1986, ch. 887, § 8.42; 1994, ch. 776, § 34.

Law Reviews.

Corporate Directors [and Officers] Making Business Judgments in Tennessee: The Business Judgment Rule, 44 U. Mem. L. Rev. 455 (2013).

NOTES TO DECISIONS

1. Illustrative Cases.

An inmate's petition for a declaration that the officers and an agent of the corporation that operated a penal facility for the state wrongfully denied the inmate's claim for property losses was properly dismissed where there was no allegation that the defendants failed to exercise their authority in accordance with the standards of T.C.A. § 48-18-403. Becker v. Myers, 895 S.W.2d 685, 1994 Tenn. App. LEXIS 590 (Tenn. Ct. App. 1994).

Majority shareholders of close corporation who were also officers, directors and employees of the corporation, owed a duty of good faith and fairness to the corporation which they served as officers, and if they were protecting legitimate interests of the corporation when they fired the only other shareholder, the presence of spite or ill will would not render them or the corporation liable to the minority shareholder whose employment was terminated. Nelson v. Martin, 958 S.W.2d 643, 1997 Tenn. LEXIS 573 (Tenn. 1997), overruled in part, Trau-Med of Am., Inc. v. Allstate Ins. Co., 71 S.W.3d 691, 2002 Tenn. LEXIS 154 (Tenn. 2002), overruled in part, Watson's Carpet & Floor Covering, Inc. v. McCormick, 247 S.W.3d 169, 2007 Tenn. App. LEXIS 27 (Tenn. Ct. App. Jan. 18, 2007), but see, Trau-Med of Am., Inc. v. Allstate Ins. Co., 71 S.W.3d 691, 2002 Tenn. LEXIS 154 (Tenn. 2002).

The court adopted the tort of intentional interference with business relationships, thereby overruling that portion of the court's decision in Nelson v. Martin, 958 S.W.2d 643, 1997 Tenn. LEXIS 573 (Tenn. 1997); the court also hold that liability should be imposed on the interfering party provided that the plaintiff can demonstrate the following: (1) An existing business relationship with specific third parties or a prospective relationship with an identifiable class of third persons; (2) The defendant's knowledge of that relationship and not a mere awareness of the plaintiff's business dealings with others in general; (3) The defendant's intent to cause the breach or termination of the business relationship; (4) The defendant's improper motive or improper means; and finally, (5) Damages resulting from the tortious interference.Trau-Med of Am., Inc. v. Allstate Ins. Co., 71 S.W.3d 691, 2002 Tenn. LEXIS 154 (Tenn. 2002).

Decisions Under Prior Law

1. Duty Limited to Corporation.

Statute imposed a duty that ran to the corporation, in favor of the corporation and its stockholders but was not intended to establish a statutory privity between directors and officers and third parties not representing the corporate entity. Merriman v. Smith, 599 S.W.2d 548, 1979 Tenn. App. LEXIS 389 (Tenn. Ct. App. 1979).

2. Officers as Trustees.

Officers of an insolvent corporation, in whose hands the assets remain, were quasi trustees for the creditors of the corporation. Marr v. Bank of West Tennessee, 44 Tenn. 471, 1867 Tenn. LEXIS 71 (1867); Memphis Barrel Co. v. Ward, 99 Tenn. 172, 42 S.W. 13, 1897 Tenn. LEXIS 21, 63 Am. St. Rep. 825 (1897).

3. President's Knowledge of Untruthfulness of Statement.

Where a financial statement was made by a corporation to a bank whose president, independently of the statement, knew of the true financial condition of the corporation, the bank was bound by the president's knowledge; so that if there were fraud, it did not work to the detriment of the bank. Russell v. Tennessee & Kentucky Tobacco Co., 16 Tenn. App. 561, 65 S.W.2d 256, 1933 Tenn. App. LEXIS 28 (Tenn. Ct. App. 1933).

4. Prima Facie Liability.

Proof that company president disbursed company funds as an unsecured loan, without receiving any evidence of indebtedness, constituted a prima facie case of the president's liability for breach of the president's fiduciary duties. Founders Life Corp. v. Hampton, 597 S.W.2d 897, 1980 Tenn. LEXIS 450 (Tenn. 1980).

5. Delivery of Shares in Pledge.

That the president of the debtor corporation and the vice-president of the creditor corporation were the same was immaterial on the issue of delivery of shares in pledge, there being no charge of fraud. Winslow v. Harriman Iron Co., 42 S.W. 698, 1897 Tenn. Ch. App. LEXIS 73 (1897).

6. Suit by Stockholder.

Stockholder in a corporation might sue to enforce a claim of the corporation against its managing officer for diversion of funds, when its assignee in insolvency refused to do so, though the stockholder was authorized to sue upon corporate rights of action. Streight v. Junk, 59 F. 321, 1893 U.S. App. LEXIS 2355 (6th Cir. Tenn. 1893).

48-18-404. Resignation and removal of officers.

  1. An officer may resign at any time by delivering notice to the corporation. A resignation is effective when the notice is delivered unless the notice specified a later effective date. If a resignation is made effective at a later date and the corporation accepts the future effective date, its board of directors may fill the pending vacancy before the effective date if the board of directors provides that the successor does not take office until the effective date.
  2. A board of directors may remove any officer at any time with or without cause and any officer or assistant officer, if appointed by another officer, may likewise be removed by such officer.

Acts 1986, ch. 887, § 8.43.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-1303.

Law Reviews.

Corporate Directors [and Officers] Making Business Judgments in Tennessee: The Business Judgment Rule, 44 U. Mem. L. Rev. 455 (2013).

48-18-405. Contract rights of officers.

  1. The appointment of an officer does not itself create contract rights.
  2. An officer's removal does not affect the officer's contract rights, if any, with the corporation. An officer's resignation does not affect the corporation's contract rights, if any, with the officer.

Acts 1986, ch. 887, § 8.44.

48-18-406. Release or assignment of life insurance on officers.

When a corporation, organized under the laws of this state, has caused or shall cause to be insured the life of any director, officer, agent, or employee, or when such corporation is named as a beneficiary in or assignee of any policy of life insurance, due authority to effect, assign, release, relinquish, convert, surrender, change the beneficiary, or to take any other action with reference to such insurance shall be sufficiently evidenced to the insurance company by a written statement to that effect, signed by the president or secretary or other corresponding officer of such corporation. Such statement shall be binding upon such corporation, and any act done or suffered to be done by it upon the faith thereof shall protect the insurance company concerned, without further inquiry into the validity of the corporate authority or the regularity of the corporate proceedings. No person shall be disqualified, by reason of interest in the subject matter, from acting as a director or as a member of the executive committee of such corporation, on any corporate procedure touching such insurance.

Acts 1986, ch. 887, § 8.45.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-1304.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Constitutionality.

Statute was not unconstitutional as class legislation on ground that it gave corporate officers of insurance companies more power to bind corporations than was granted corporate officers generally in dealing with corporate assets. Massachusetts Mut. Life Ins. Co. v. Vogue, Inc., 54 Tenn. App. 624, 393 S.W.2d 164, 1965 Tenn. App. LEXIS 282 (Tenn. Ct. App. 1965).

Part 5
Indemnification

48-18-501. Part definitions.

In this part:

  1. “Corporation” includes any domestic or foreign predecessor entity of a corporation in a merger or other transaction in which the predecessor's existence ceased upon consummation of the transaction;
  2. “Director” means an individual who is or was a director of a corporation, including individuals acting pursuant to § 48-18-101, or an individual who, while a director of a corporation, is or was serving at the corporation's request as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise. A director is considered to be serving an employee benefit plan at the corporation's request if the director's duties to the corporation also impose duties on or otherwise involve services by the director to the plan or to participants in or beneficiaries of the plan. “Director” includes, unless the context requires otherwise, the estate or personal representative of a director;
  3. “Expenses” includes counsel fees;
  4. “Liability” means the obligation to pay a judgment, settlement, penalty, fine (including an excise tax assessed with respect to an employee benefit plan), or reasonable expenses incurred with respect to a proceeding;
    1. “Official capacity” means:
      1. When used with respect to a director, the office of director in a corporation; and
      2. When used with respect to an individual other than a director, as contemplated in § 48-18-507, the office in a corporation held by the officer or the employment or agency relationship undertaken by the employee or agent on behalf of the corporation;
    2. “Official capacity” does not include service for any other foreign or domestic corporation or any partnership, joint venture, trust, employee benefit plan, or other enterprise;
  5. “Party” includes an individual who was, is, or is threatened to be made a named defendant or respondent in a proceeding; and
  6. “Proceeding” means any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative and whether formal or informal.

Acts 1986, ch. 887, § 8.50; 1987, ch. 273, § 32.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-101, 5-201.

48-18-502. Authority to indemnify.

  1. Except as provided in subsection (d), a corporation may indemnify an individual made a party to a proceeding because the individual is or was a director against liability incurred in the proceeding if:
    1. The individual's conduct was in good faith; and
    2. The individual reasonably believed:
      1. In the case of conduct in the individual's official capacity with the corporation, that the individual's conduct was in its best interest; and
      2. In all other cases, that the individual's conduct was at least not opposed to its best interests; and
    3. In the case of any criminal proceeding, the individual had no reasonable cause to believe the individual's conduct was unlawful.
  2. A director's conduct with respect to an employee benefit plan for a purpose the director reasonably believed to be in the interests of the participants in and beneficiaries of the plan is conduct that satisfies the requirement of subdivision (a)(2)(B).
  3. The termination of a proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent is not, of itself, determinative that the director did not meet the standard of conduct described in this section.
  4. A corporation may not indemnify a director under this section:
    1. In connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation; or
    2. In connection with any other proceeding charging improper personal benefit to the director, whether or not involving action in the director's official capacity, in which the director was adjudged liable on the basis that personal benefit was improperly received by the director.

Acts 1986, ch. 887, § 8.51.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Indemnification Appropriate.

“Outside” directors of a corporation charged with issuing a false and misleading prospectus in connection with a securities registration who showed that, before signing the registration statement, they conducted a reasonable investigation and verification of the facts in the statement, and that based on that investigation they had reasonable grounds to believe and did actually believe that the statement was true and accurate, were entitled to a court order of indemnification by the corporation for expenses incurred in defending a lawsuit based on the issuance of that statement and such indemnification did not contravene the public policy of the Securities Act of 1933, compiled in 15 U.S.C. § 77a et seq. Goldstein v. Alodex Corp., 409 F. Supp. 1201, 1976 U.S. Dist. LEXIS 16048 (E.D. Pa. 1976).

48-18-503. Mandatory indemnification.

Unless limited by its charter, a corporation shall indemnify a director who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which the director was a party because the director is or was a director of the corporation against reasonable expenses incurred by the director in connection with the proceeding.

Acts 1986, ch. 887, § 8.52.

NOTES TO DECISIONS

1. In General.

Since plaintiff was sued because of the plaintiff's position with the company, and since the plaintiff was successful in the defense of that suit, the plaintiff was entitled to indemnification as a matter of law. Sherman v. Am. Water Heater Co., 50 S.W.3d 455, 2001 Tenn. App. LEXIS 119 (Tenn. Ct. App. 2001), review or rehearing denied, — S.W.3d —, 2001 Tenn. LEXIS 544 (Tenn. July 2, 2001).

48-18-504. Advance for expenses.

  1. A corporation may pay for or reimburse the reasonable expenses incurred by a director who is a party to a proceeding in advance of final disposition of the proceeding if:
    1. The director furnishes the corporation a written affirmation of the director's good faith belief that the director has met the standard of conduct described in § 48-18-502;
    2. The director furnishes the corporation a written undertaking, executed personally or on the director's behalf, to repay the advance if it is ultimately determined that the director is not entitled to indemnification; and
    3. A determination is made that the facts then known to those making the determination would not preclude indemnification under this part.
  2. The undertaking required by subdivision (a)(2) must be an unlimited general obligation of the director but need not be secured and may be accepted without reference to financial ability to make repayment.
  3. Determinations and authorizations of payments under this section shall be made in the manner specified in § 48-18-506.

Acts 1986, ch. 887, § 8.53; 1987, ch. 273, § 33.

48-18-505. Court ordered indemnification.

Unless a corporation's charter provides otherwise, a director of the corporation who is a party to a proceeding may apply for indemnification to the court conducting the proceeding or to another court of competent jurisdiction. On receipt of an application, the court, after giving any notice the court considers necessary, may order indemnification if it determines the director is:

  1. Entitled to mandatory indemnification under § 48-18-503, in which case the court shall also order the corporation to pay the director's reasonable expenses incurred to obtain court-ordered indemnification; or
  2. Fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not the director met the standard of conduct set forth in § 48-18-502 or was adjudged liable as described in § 48-18-502(d), but if the director was adjudged so liable the director's indemnification is limited to reasonable expenses incurred.

Acts 1986, ch. 887, § 8.54.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Indemnification Granted.

“Outside” directors of a corporation charged with issuing a false and misleading prospectus in connection with a securities registration who showed that, before signing the registration statement, they conducted a reasonable investigation and verification of the facts in the statement and that based on that investigation they had reasonable grounds to believe and did actually believe that the statement was true and accurate were entitled to a court order of indemnification by the corporation for expenses incurred in defending a lawsuit based on the issuance of that statement and such indemnification did not contravene the public policy of the Securities Act of 1933, compiled in 15 U.S.C. § 77a et seq. Goldstein v. Alodex Corp., 409 F. Supp. 1201, 1976 U.S. Dist. LEXIS 16048 (E.D. Pa. 1976).

48-18-506. Determination and authorization of indemnification.

  1. A corporation may not indemnify a director under § 48-18-502 unless authorized in the specific case after a determination has been made that indemnification of the director is permissible in the circumstances because the director has met the standard of conduct set forth in § 48-18-502.
  2. The determination shall be made:
    1. By the board of directors by majority vote of a quorum consisting of directors not at the time parties to the proceeding;
    2. If a quorum cannot be obtained under subdivision (b)(1), by majority vote of a committee duly designated by the board of directors (in which designation directors who are parties may participate), consisting solely of two (2) or more directors not at the time parties to the proceeding;
    3. By independent special legal counsel:
      1. Selected by the board of directors or its committee in the manner prescribed in subdivision (b)(1) or (b)(2); or
      2. If a quorum of the board of directors cannot be obtained under subdivision (b)(1) and a committee cannot be designated under subdivision (b)(2), selected by majority vote of the full board of directors (in which selection directors who are parties may participate); or
    4. By the shareholders, but shares owned by or voted under the control of directors who are at the time parties to the proceeding may not be voted on the determination.
  3. Authorization of indemnification and evaluation as to reasonableness of expenses shall be made in the same manner as the determination that indemnification is permissible, except that if the determination is made by special legal counsel, authorization of indemnification and evaluation as to reasonableness of expenses shall be made by those entitled under subdivision (b)(3) to select counsel.

Acts 1986, ch. 887, § 8.55.

48-18-507. Indemnification of officers, employees, and agents.

Unless a corporation's charter provides otherwise:

  1. An officer of the corporation who is not a director is entitled to mandatory indemnification under § 48-18-503, and is entitled to apply for court-ordered indemnification under § 48-18-505, in each case to the same extent as a director;
  2. The corporation may indemnify and advance expenses under this part to an officer, employee, or agent of the corporation who is not a director to the same extent as to a director; and
  3. A corporation may also indemnify and advance expenses to an officer, employee, or agent who is not a director to the extent, consistent with public policy, that may be provided by its charter, bylaws, general or specific action of its board of directors, or contract.

Acts 1986, ch. 887, § 8.56.

NOTES TO DECISIONS

1. Construction.

Since plaintiff was sued because of the plaintiff's position with the company, and since the plaintiff was successful in the defense of that suit, the plaintiff was entitled to indemnification as a matter of law. Sherman v. Am. Water Heater Co., 50 S.W.3d 455, 2001 Tenn. App. LEXIS 119 (Tenn. Ct. App. 2001), review or rehearing denied, — S.W.3d —, 2001 Tenn. LEXIS 544 (Tenn. July 2, 2001).

48-18-508. Insurance.

A corporation may purchase and maintain insurance on behalf of an individual who is or was a director, officer, employee, or agent of the corporation, or who, while a director, officer, employee, or agent of the corporation, is or was serving at the request of the corporation as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise, against liability asserted against or incurred by the individual in that capacity or arising from the individual's status as a director, officer, employee, or agent, whether or not the corporation would have power to indemnify the individual against the same liability under § 48-18-502 or § 48-18-503.

Acts 1986, ch. 887, § 8.57.

48-18-509. Exclusivity of rights — Charter limiting indemnification — Payment of witness expenses.

    1. The indemnification and advancement of expenses granted pursuant to, or provided by, chapters 11-27 of this title shall not be deemed exclusive of any other rights to which a director seeking indemnification or advancement of expenses may be entitled, whether contained in chapters 11-27 of this title, the charter, or the bylaws or, when authorized by such charter or bylaws, in a resolution of shareholders, a resolution of directors, or an agreement providing for such indemnification; provided, that no indemnification may be made to or on behalf of any director if a judgment or other final adjudication adverse to the director establishes the director's liability:
      1. For any breach of the duty of loyalty to the corporation or its shareholders;
      2. For acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; or
      3. Under § 48-18-302.
    2. Nothing contained in chapters 11-27 of this title shall affect any rights to indemnification to which corporate personnel, other than directors, may be entitled by contract or otherwise under law. If the charter limits indemnification or advance for expenses, indemnification and advance for expenses are valid only to the extent consistent with the charter.
  1. This part does not limit a corporation's power to pay or reimburse expenses incurred by a director in connection with the director's appearance as a witness in a proceeding at a time when the director has not been made a named defendant or respondent to the proceeding.

Acts 1986, ch. 887, § 8.58; 1987, ch. 273, § 34; 1989, ch. 451, § 12; 2012, ch. 1051, §§ 33, 34.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-101, 5-201.

Part 6
Limitation of Actions

48-18-601. Limitation of actions for breach of fiduciary duty.

Any action alleging breach of fiduciary duties by directors or officers, including alleged violations of the standards established in § 48-18-301, § 48-18-403 or part 7 of this chapter, must be brought within one (1) year from the date of such breach or violation; provided, that in the event the alleged breach or violation is not discovered nor reasonably should have been discovered within the one-year period, the period of limitation shall be one (1) year from the date such was discovered or reasonably should have been discovered. In no event shall any such action be brought more than three (3) years after the date on which the breach or violation occurred, except where there is fraudulent concealment on the part of the defendant, in which case the action shall be commenced within one (1) year after the alleged breach or violation is, or should have been, discovered.

Acts 1986, ch. 887, § 8.60; 2012, ch. 1051, § 35.

Law Reviews.

Unpacking Limited Liability: Direct and Vicarious Liability of Corporate Participants for Torts of the Enterprise (Robert B. Thompson), 47 Vand. L. Rev. 1 (1994).

NOTES TO DECISIONS

1. Applicability.

In an action against savings and loan directors for breach of fiduciary duties, the six-year limitation period in T.C.A. § 28-3-109 applied rather than the three-year limitation period in T.C.A. § 28-3-105 where the action was filed prior to the enactment of T.C.A. § 48-18-601, which would otherwise clearly have controlled. Federal Sav. & Loan Ins. Corp. v. Burdette, 696 F. Supp. 1196, 1988 U.S. Dist. LEXIS 11038 (E.D. Tenn. 1988).

The delayed effective date of T.C.A. § 48-18-601 was not an expression of intent that it should take effect prior to its expressly stated effective date, or be retroactively applied to all rights arising after its enactment, but before its effective date. American Network Group, Inc. v. Kostyk, 804 S.W.2d 447, 1990 Tenn. App. LEXIS 763 (Tenn. Ct. App. 1990).

On January 1, 1988, the former limitation of six years was shortened to one year, and plaintiffs in action accruing before 1988 had one year after January 1, 1988, within which to sue, their suit not being barred by the former six year statute. American Network Group, Inc. v. Kostyk, 804 S.W.2d 447, 1990 Tenn. App. LEXIS 763 (Tenn. Ct. App. 1990).

Since this section applies to the breach of fiduciary duties by “directors or officers,” it did not apply to an action by minority shareholders against a majority shareholder. Mike v. Po Group, 937 S.W.2d 790, 1996 Tenn. LEXIS 529 (Tenn. 1996).

Part 7
Conflicting Interest Transactions

48-18-701. Part definitions.

In this part:

  1. “Control” (including “controlled by”) means:
    1. Having the power, directly or indirectly, to elect or remove a majority of the members of the board of directors or other governing body of an entity, whether through the ownership of voting shares or interests, by contract, or otherwise; or
    2. Being subject to a majority of the risk of loss from the entity's activities or entitled to receive a majority of the entity's residual returns;
  2. “Director's or officer's conflicting interest transaction” means a transaction effected or proposed to be effected by the corporation (or by an entity controlled by the corporation):
    1. To which, at the relevant time, the director or officer is a party; or
    2. Respecting which, at the relevant time, the director or officer had knowledge and a material financial interest known to the director or officer; or
    3. Respecting which, at the relevant time, the director or officer knew that a related person was a party or had a material financial interest;
  3. “Fair to the corporation” means, for purposes of § 48-18-702(b)(3), that the transaction as a whole was beneficial to the corporation, taking into appropriate account whether it was:
    1. Fair in terms of the director's or officer's dealings with the corporation; and
    2. Comparable to what might have been obtainable in an arm's length transaction, given the consideration paid or received by the corporation;
  4. “Material financial interest” means a financial interest in a transaction that would reasonably be expected to impair the objectivity of the director's or officer's judgment when participating in action on the authorization of the transaction;
  5. “Material relationship” means a familial, financial, professional, employment or other relationship that would reasonably be expected to impair the objectivity of the director's judgment when participating in the action to be taken;
    1. “Qualified director” means a director who, at the time action is to be taken under § 48-18-703, is not a director:
      1. As to whom the transaction is a director's or officer's conflicting interest transaction; or
      2. Who has a material relationship with another director as to whom the transaction is a director's or officer's conflicting interest transaction;
    2. The presence of one (1) or more of the following circumstances shall not automatically prevent a director from being a qualified director:
      1. Nomination or election of the director to the current board by any director who is not a qualified director with respect to the matter (or by any person that has a material relationship with that director), acting alone or participating with others; or
      2. Service as a director of another corporation of which a director who is not a qualified director with respect to the matter (or any individual who has a material relationship with that director), is or was also a director;
  6. “Related person” means:
    1. The director's or officer's spouse;
    2. A child, stepchild, grandchild, parent, step parent, grandparent, sibling, step sibling, half sibling, aunt, uncle, niece or nephew (or spouse of any thereof) of the director or officer or of the director's or officer's spouse;
    3. An individual living in the same home as the director or officer;
    4. An entity (other than the corporation or an entity controlled by the corporation) controlled by the director or officer or any person specified in subdivisions (7)(A)-(C);
    5. A domestic or foreign:
      1. Business or nonprofit corporation (other than the corporation or an entity controlled by the corporation) of which the director or officer is a director but only with respect to a transaction or proposed transaction to which the corporation and the other business or nonprofit corporation are parties or proposed parties and that is a transaction or proposed transaction that is or should be considered by the board of directors of the corporation;
      2. Unincorporated entity of which the director or officer is a general partner or a member of the governing body; or
      3. Individual, trust or estate for whom or of which the director or officer is a trustee, guardian, personal representative or like fiduciary; or
    6. A person that is or an entity that is controlled by, an employer of the director or officer;
  7. “Relevant time” means:
    1. The time at which directors' action respecting the transaction is taken in compliance with § 48-18-703; or
    2. If the transaction is not brought before the board of directors of the corporation (or its committee) for action under § 48-18-703, at the time the corporation (or an entity controlled by the corporation) becomes legally obligated to consummate the transaction; and
  8. “Required disclosure” means disclosure of:
    1. The existence and nature of the director's or officer's conflicting interest; and
    2. All facts known to the director or officer respecting the subject matter of the transaction that a director or officer free of such conflicting interest would reasonably believe to be material in deciding whether to proceed with the transaction.

Acts 2012, ch. 1051, § 36.

48-18-702. Judicial action.

  1. A transaction effected or proposed to be effected by the corporation (or by an entity controlled by the corporation) may not be the subject of equitable relief, or give rise to an award of damages or other sanctions against a director or officer of the corporation, in a proceeding by a shareholder or by or in the right of the corporation, on the ground that the director or officer has an interest respecting the transaction, if it is not a director's or officer's conflicting interest transaction.
  2. A director's or officer's conflicting interest transaction may not be the subject of equitable relief, or give rise to an award of damages or other sanctions against a director or officer of the corporation, in a proceeding by a shareholder or by or in the right of the corporation, on the ground that the director or officer has an interest respecting the transaction, if:
    1. Directors' action respecting the transaction was taken in compliance with § 48-18-703 at any time;
    2. Shareholders' action respecting the transaction was taken in compliance with § 48-18-704 at any time; or
    3. The transaction, judged according to the circumstances at the relevant time, is established to have been fair to the corporation.

Acts 2012, ch. 1051, § 36.

48-18-703. Directors' action.

  1. Directors' action respecting a director's or officer's conflicting interest transaction is effective for purposes of § 48-18-702(b)(1) if the transaction has been authorized by the affirmative vote of a majority (but no fewer than two (2)) of the qualified directors who voted on the transaction, after required disclosure by the conflicted director or officer of information not already known by such qualified directors, or after modified disclosure in compliance with subsection (b); provided, that:
    1. The qualified directors have deliberated and voted without the participation by any other director; and
    2. Where the action has been taken by a committee, all members of the committee were qualified directors, and either:
      1. The committee was composed of all the qualified directors on the board of directors; or
      2. The members of the committee were appointed by the affirmative vote of a majority of the qualified directors on the board.
  2. Notwithstanding subsection (a), when a transaction is a director's or officer's conflicting interest transaction only because a related person described in § 48-18-701(7)(E) or (7)(F) is a part to or has a material financial interest in the transaction, the conflicted director or officer is not obligated to make required disclosure to the extent that the director or officer reasonably believes that doing so would violate a duty imposed under law, a legally enforceable obligation of confidentiality, or a professional ethics rule; provided, that the conflicted director or officer discloses to the qualified directors voting on the transaction:
    1. All the information required to be disclosed that is not so violative;
    2. The existence and nature of the director's or officer's conflicting interest; and
    3. The nature of the conflicted director's or officer's duty not to disclose the confidential information.
    1. A majority (but no fewer than two (2)) of all the qualified directors on the board of directors, or on the committee, constitutes a quorum for purposes of action that complies with this section.
    2. Where directors' action under this section does not satisfy a quorum or voting requirement applicable to the authorization of the transaction by reason of the charter, the bylaws or a provision of law, independent action to satisfy those authorization requirements must be taken by the board of directors or a committee, in which action directors who are not qualified directors may participate.

Acts 2012, ch. 1051, § 36.

Cross-References. Confidentiality of public records, § 10-7-504.

48-18-704. Shareholders' action.

  1. Shareholders' action respecting a director's or officer's conflicting interest transaction is effective for purposes of § 48-18-702(b)(2) if a majority of the votes cast by the holders of all qualified shares are in favor of the transaction after:
    1. Notice to shareholders describing the action to be taken respecting the transaction;
    2. Provision to the corporation of the information referred to in subsection (b); and
    3. Communication to the shareholders entitled to vote on the transaction of the information that is the subject of required disclosure, to the extent the information is not known by them.
  2. A director or officer who has conflicting interest respecting the transaction shall, before the shareholders' vote, inform the secretary or other officer or agent of the corporation authorized to tabulate votes, in writing, of the number of shares that the director or officer knows are not qualified shares under subsection (c), and the identity of the holders of those shares.
  3. For purposes of this section:
    1. “Holder” means, and “held by” refers to, shares held by both a record shareholder (as defined in § 48-23-101) and a beneficial shareholder (as defined in § 48-23-101); and
    2. “Qualified shares” means all shares entitled to be voted with respect to the transaction except for shares that the secretary or other officer or agent of the corporation authorized to tabulate votes either knows, or under subsection (b) is notified, are held by:
      1. A director or officer who has a conflicting interest respecting the transaction; or
      2. A related person of the director or officer (excluding a person described in § 48-18-701(7)(F)).
  4. A majority of the votes entitled to be cast by the holders of all qualified shares constitutes a quorum for purposes of compliance with this section. Subject to subsection (e), shareholders' action that otherwise complies with this section is not affected by the presence of holders, or by the voting, of shares that are not qualified shares.
  5. If a shareholders' vote does not comply with subsection (a) solely because of a director's or officer's failure to comply with subsection (b), and if the director or officer establishes that the failure was not intended to influence and did not in fact determine the outcome of the vote, the court may take such action respecting the transaction and the director or officer, and may give such effect, if any, to the shareholders' vote, as the court considers appropriate in the circumstances.
  6. Where shareholders' action under this section does not satisfy a quorum or voting requirement applicable to the authorization of the transaction by reason of the charter, the bylaws or a provision of law, independent action to satisfy those authorization requirements must be taken by the shareholders, in which action shares that are not qualified shares may participate.

Acts 2012, ch. 1051, § 36.

Chapter 19
[Reserved]

Chapter 20
Amendment of Charter and Bylaws

Part 1
Amendment of Charter

48-20-101. Authority to amend.

  1. A corporation may amend its charter at any time to add or change a provision that is required or permitted in the charter or to delete a provision not required in the charter. Whether a provision is required or permitted in the charter is determined as of the effective date of the amendment.
  2. A shareholder of the corporation does not have a vested property right resulting from any provision in the charter or bylaws, including provisions relating to management, control, capital structure, dividend entitlement, or purpose or duration of the corporation.

Acts 1986, ch. 887, § 10.01; 1987, ch. 273, § 35.

Cross-References. Applicability of business corporation law, title 48, chs. 11-27, to corporations existing on January 1, 1988, title 48, ch. 27.

Documents filed with county register of deeds in addition to the secretary of state's office, § 48-11-303.

Nonprofit corporations, amendment of charter and bylaws, title 48, ch. 60.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Change in Capital Stock.

For cases discussing, under prior laws, amendments to increase or reduce capital stock, see Peck v. Elliott, 79 F. 10, 1897 U.S. App. LEXIS 1730, 38 L.R.A. 616 (6th Cir. Tenn. 1897); Union Ry. v. Sneed, 99 Tenn. 1, 41 S.W. 364 (1897); Newport Cotton-Mill Co. v. Mims, 103 Tenn. 465, 53 S.W. 736, 1899 Tenn. LEXIS 128 (1899); Uffelman v. Boillin, 19 Tenn. App. 1, 82 S.W.2d 545, 1935 Tenn. App. LEXIS 18 (Tenn. Ct. App. 1935).

2. Void Amendment.

An amendment which purported to include a grant of an unwarranted power, to pay for an increase of stock by use of surplus and undivided profits consisting of both tangible and intangible assets, was void. United Hosiery Mills Corp. v. Stevens, 146 Tenn. 531, 243 S.W. 656, 1921 Tenn. LEXIS 30 (1922).

48-20-102. Amendment by board of directors.

Unless the charter provides otherwise, a corporation's board of directors may adopt one (1) or more amendments to the corporation's charter without shareholder action to:

  1. Delete the names and addresses of the initial directors;
  2. Delete the name and address of the initial registered agent or registered office, if a statement of change is on file with the secretary of state;
  3. Designate or change the address of the principal office of the corporation (or a mailing address if the United States postal service does not deliver to the principal office);
  4. Change each issued and unissued authorized share of an outstanding class into a greater number of whole shares if the corporation has only shares of that class outstanding;
  5. Change the corporate name by substituting the word “corporation,” “incorporated,” “company,” or the abbreviation “corp.,” “inc.,” or “co.,” for a similar word or abbreviation in the name, or by adding, deleting or changing a geographical attribution for the name;
  6. Designate the street address and zip code of the corporation's current registered office (or a mailing address if the United States postal service does not deliver to the registered office), the county in which the office is located, and the name of its current registered agent at that office, as required by § 48-27-101(b);
  7. Delete the initial principal office, if an annual report is on file with the secretary of state; or
  8. Make any other change expressly permitted by chapters 11-27 of this title to be made without shareholder action.

Acts 1986, ch. 887, § 10.02; 1987, ch. 273, § 36; 1989, ch. 451, § 13; 1991, ch. 188, § 3; 2012, ch. 1051, §§ 37, 38.

48-20-103. Amendment by board of directors and shareholders.

  1. A corporation's board of directors may propose one (1) or more amendments to the charter for submission to the shareholders.
  2. For the amendment to be adopted:
    1. The board of directors shall recommend the amendment to the shareholders, unless the board of directors determines that because of conflict of interest or other special circumstances, it should make no recommendation and communicate the basis for its determination to the shareholders with the amendment; and
    2. The shareholders entitled to vote on the amendment shall approve the amendment as provided in subsection (e).
  3. The board of directors may condition its submission of the proposed amendment on any basis.
  4. The corporation shall notify each shareholder, whether or not entitled to vote, of the proposed shareholders' meeting in accordance with § 48-17-105. The notice of meeting must also state that the purpose, or one (1) of the purposes, of the meeting is to consider the proposed amendment and contain or be accompanied by a copy or summary of the amendment.
  5. Unless chapters 11-27 of this title, the charter, or the board of directors (acting pursuant to subsection (c)) requires a greater vote or a vote by voting groups, the amendment to be adopted must be approved by:
    1. A majority of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights; and
    2. The votes required by §§ 48-17-206 and 48-17-207 by every other voting group entitled to vote on the amendment.

Acts 1986, ch. 887, § 10.03.

48-20-104. Voting on amendments by voting groups.

  1. The holders of the outstanding shares of a class are entitled to vote as a separate voting group (if shareholder voting is otherwise required by chapters 11-27 of this title) on a proposed amendment if the amendment would:
    1. Increase or decrease the aggregate number of authorized shares of the class;
    2. Effect an exchange or reclassification of all or part of the shares of the class into shares of another class;
    3. Effect an exchange or reclassification, or create the right of exchange, of all or part of the shares of another class into shares of the class;
    4. Change the designation, rights, preferences, or limitations of all or part of the shares of the class;
    5. Change the shares of all or part of the class into a different number of shares of the same class;
    6. Create a new class or change a class with subordinate and inferior rights into a class of shares, having rights or preferences with respect to distributions or dissolution that are prior, superior, or substantially equal to the shares of the class, or increase the rights, preferences or number of authorized shares of any class having rights or preferences with respect to distributions or to dissolution that are prior, superior, or substantially equal to the shares of the class;
    7. Limit or deny an existing preemptive right of all or part of the shares of the class;
    8. Authorize the issuance as a share dividend of shares of such class in respect of shares of another class; or
    9. Cancel or otherwise affect rights to distributions or dividends that have accumulated but not yet been declared on all or part of the shares of the class.
  2. If a proposed amendment would affect a series of a class of shares in one (1) or more of the ways described in subsection (a), the shares of that series are entitled to vote as a separate voting group on the proposed amendment.
  3. If a proposed amendment that entitles two (2) or more series of shares to vote as separate voting groups under this section would affect those two (2) or more series in the same or a substantially similar way, the shares of all the series so affected must vote together as a single voting group on the proposed amendment.
  4. A class or series of shares is entitled to the voting rights granted by this section although the charter provides that the shares are nonvoting shares.

Acts 1986, ch. 887, § 10.04; 1989, ch. 451, § 14.

48-20-105. Amendment before issuance of shares.

If a corporation has not yet issued shares, its board of directors or its incorporators, in the event that there is no board of directors, may adopt one (1) or more amendments to the corporation's charter.

Acts 1986, ch. 887, § 10.05.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Effect on Subscribers.

An amendment to the charter filed before the corporation came into existence prevented the corporation as originally contemplated from coming into existence, so that subscriptions taken on the basis of the original charter never became binding. Wallace v. Duel, 18 Tenn. App. 483, 79 S.W.2d 595, 1934 Tenn. App. LEXIS 50 (Tenn. Ct. App. 1934).

An attempt by incorporators to change the original charter without the consent of a subscriber, after the subscription had been made, worked a change in the subscription contract, and a subsequent perfection of the amended charter did not act as an acceptance of the original offer of the subscriber, binding the subscriber to the new terms resulting from the amendment. Wallace v. Duel, 18 Tenn. App. 483, 79 S.W.2d 595, 1934 Tenn. App. LEXIS 50 (Tenn. Ct. App. 1934).

The failure of a subscriber to capital stock of a proposed corporation, upon notice given by the promoters, to attend a so-called meeting of the stockholders, the object of which was to amend the corporate charter, would not justify anyone in relying upon the subscriber's subscription as an estoppel, nor as a waiver of the subscriber's rights as they then existed. Wallace v. Duel, 18 Tenn. App. 483, 79 S.W.2d 595, 1934 Tenn. App. LEXIS 50 (Tenn. Ct. App. 1934).

48-20-106. Articles of amendment.

A corporation amending its charter shall deliver to the secretary of state for filing articles of amendment setting forth:

  1. The name of the corporation;
  2. The text of each amendment adopted;
  3. If an amendment provides for an exchange, reclassification or cancellation of issued shares, provisions for implementing such amendment if not contained in the amendment itself;
  4. The date of each amendment's adoption;
  5. If an amendment was duly adopted by the incorporators or board of directors without shareholder action, a statement to that effect and that shareholder action was not required; and
  6. If an amendment was duly adopted by the shareholders, a statement to that effect.

Acts 1986, ch. 887, § 10.06; 1989, ch. 451, § 15; 1991, ch. 188, § 8.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-703, 5-704, 5-706.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Filing.

An amended charter, equally with the charter, was void unless the requirements as to registration were complied with. Anderson v. Middle & E. Tenn. Cent. R.R., 91 Tenn. 44, 17 S.W. 803, 1891 Tenn. LEXIS 75 (1891); Union Ry. v. Sneed, 99 Tenn. 1, 41 S.W. 364 (1897).

2. Shareholder Approval.

Where the certificate evidencing the stockholder approval of the amendment was duly filed, the amendment was complete and the validity of the same could not be collaterally questioned. Filley v. Kickoff Publishing Co., 454 F.2d 1288, 1972 U.S. App. LEXIS 11409 (6th Cir. Tenn. 1972).

48-20-107. Restated charter.

  1. A corporation's board of directors may restate its charter at any time with or without shareholder action.
  2. The restatement may include one (1) or more amendments to the charter. If the restatement includes an amendment requiring shareholder approval, it shall be adopted as provided in § 48-20-103.
  3. If the board of directors submits a restatement for shareholder action, the corporation shall notify each shareholder, whether or not entitled to vote, of the proposed shareholders' meeting in accordance with § 48-17-105. The notice shall also state that the purpose, or one (1) of the purposes, of the meeting is to consider the proposed restatement and contain or be accompanied by a copy of the restatement that identifies any amendment or other change it would make in the charter.
  4. A corporation restating its charter shall deliver to the secretary of state the restated charter, setting forth the name of the corporation and the text of the restated charter, together with a certificate setting forth:
    1. Whether the restatement contains an amendment to the charter requiring shareholder approval and, if it does not, that the board of directors adopted the restatement; or
    2. If the restatement contains an amendment to the charter requiring shareholder approval, the information required by § 48-20-106.
  5. If the restatement contains an amendment to the charter, it shall be designated in the heading as an “Amended and Restated Charter.”
  6. The restated charter must contain all the requirements of a charter as set out in § 48-12-102(a) unless the corporation is exempt from any of those requirements pursuant to § 48-27-101(b).
  7. A duly adopted restated charter supersedes the original charter and all prior amendments thereto.
  8. The secretary of state may certify a restated charter as the charter currently in effect, without including the certificate information required by subsection (d).

Acts 1986, ch. 887, § 10.07; 1989, ch. 451, § 16; 1991, ch. 188, § 6.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-702.

48-20-108. Amendment of charter pursuant to reorganization.

  1. A corporation's charter may be amended without action by the board of directors or shareholders to carry out a plan of reorganization ordered or decreed by a court of competent jurisdiction under federal statute, if the charter after amendment contains only provisions required or permitted by § 48-12-102.
  2. The individual or individuals designated by the court shall deliver to the secretary of state for filing articles of amendment setting forth:
    1. The name of the corporation;
    2. The text of each amendment approved by the court;
    3. The date of the court's order or decree approving the articles of amendment;
    4. The title of the reorganization proceeding in which the order or decree was entered; and
    5. A statement that the court had jurisdiction of the proceeding under federal statute.
  3. Shareholders of a corporation undergoing reorganization do not have dissenters' rights except as and to the extent provided in the reorganization plan.
  4. This section does not apply after entry of a final decree in the reorganization proceedings, even though the court retains jurisdiction of the proceeding for limited purposes unrelated to consummation of the reorganization plan.

Acts 1986, ch. 887, § 10.08.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-705.

Law Reviews.

The Conundrum of Directors' Duties in Nearly Insolvent Corporations (Mike Roberts), 23 Mem. St. U.L. Rev. 273 (1993).

48-20-109. Effect of amendment.

An amendment to the charter does not affect a cause of action existing against or in favor of the corporation, a proceeding to which the corporation is a party, or the existing rights of persons other than shareholders of the corporation. An amendment changing a corporation's name does not abate a proceeding brought by or against the corporation in its former name.

Acts 1986, ch. 887, § 10.09.

Part 2
Amendment of Bylaws

48-20-201. Amendment of bylaws by board of directors or shareholders.

  1. A corporation's board of directors may amend or repeal the corporation's bylaws unless:
    1. The charter or chapters 11-27 of this title reserve this power exclusively to the shareholders in whole or in part; or
    2. The shareholders in amending or repealing a particular bylaw provide expressly that the board of directors may not amend or repeal that bylaw.
  2. A corporation's shareholders may amend or repeal the corporation's bylaws even though the bylaws may also be amended or repealed by its board of directors.

Acts 1986, ch. 887, § 10.20.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-104, 5-203.

48-20-202. Bylaw increasing quorum or voting requirement for shareholders.

  1. If expressly authorized by the charter, the shareholders may adopt or amend a bylaw that fixes a greater quorum or voting requirement for shareholders (or voting groups of shareholders) than is required by chapters 11-27 of this title. The adoption or amendment of a bylaw that adds, changes, or deletes a greater quorum or voting requirement for shareholders must meet the same quorum requirement and be adopted by the same vote and voting groups required to take action under the quorum and voting requirement then in effect or proposed to be adopted, whichever is greater.
  2. A bylaw that fixes a greater quorum or voting requirement for shareholders under subsection (a) may not be adopted, amended, or repealed by the board of directors.

Acts 1986, ch. 887, § 10.21.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-104.

48-20-203. Bylaw increasing quorum or voting requirement for directors.

  1. A bylaw that fixes a greater quorum or voting requirement for the board of directors may be amended or repealed:
    1. If originally adopted by the shareholders, only by the shareholders;
    2. If originally adopted by the board of directors, either by the shareholders or by the board of directors.
  2. A bylaw adopted or amended by the shareholders that fixes a greater quorum or voting requirement for the board of directors may provide that it may be amended or repealed only by a specified vote of either the shareholders or the board of directors.
  3. Action by the board of directors under subdivision (a)(2) to adopt or amend a bylaw that changes the quorum or voting requirement for the board of directors must meet the same quorum requirement and be adopted by the same vote required to take action under the quorum and voting requirement then in effect or proposed to be adopted, whichever is greater.

Acts 1986, ch. 887, § 10.22.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-104, 5-203.

Chapter 21
Merger, Share Exchange and Conversion

48-21-101. Chapter definitions.

As used in this chapter, unless the context otherwise requires:

  1. “Converted entity” means the domestic business corporation or domestic unincorporated entity that adopts a plan of entity conversion or the foreign unincorporated entity converting to a domestic business corporation;
  2. “Eligible entity” means a domestic or foreign unincorporated entity or a domestic or foreign nonprofit corporation;
  3. “Eligible interests” means interests or memberships;
  4. “Filing entity” means an unincorporated entity that is of a type that is created by filing a public organic document;
  5. “Interest holder” means a person who holds of record an interest;
  6. “Membership” means the rights of a member in a domestic or foreign nonprofit corporation;
  7. “Participating shares” means shares however denominated that entitle their holders to participate in distributions on dissolution after all preferences have been paid;
  8. “Party to a merger or share exchange” means any domestic or foreign corporation, or eligible entity that will:
    1. Merge in a plan of merger;
    2. Acquire shares or eligible interests of another domestic or foreign corporation, or an eligible entity in a share exchange; or
    3. Have all of its shares or eligible interests of one (1) or more classes or series acquired in share exchange;
  9. “Survivor” means the corporation or unincorporated entity that is in existence immediately after consummation of a merger or entity conversion pursuant to this chapter; and
  10. “Voting shares” means shares that entitle their holders to vote unconditionally in the election of directors.

Acts 1994, ch. 776, § 35; 2006, ch. 620, § 58; 2012, ch. 1051, § 39.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-808, 5-810.

Law Reviews.

Congratulations, It's A Merger!, 50 Tenn. B.J. 22 (2014).

The Market for Preclusion in Merger Litigation,  66 Vand. L. Rev. 1053 (2013).

19th Annual Institute for Law And Economic Policy Conference: The Economics of Aggregate Litigation: What Should We Do About Multijurisdictional Litigation in M&A Deals?, 66 Vand. L. Rev. 1925 (2013).

48-21-102. Merger.

  1. One (1) or more corporations may merge with one (1) or more domestic or foreign business corporations or eligible entities pursuant to a plan of merger, or two (2) or more foreign business corporations or domestic or foreign eligible entities may merge into a new domestic business corporation to be created in the merger in the manner provided in this chapter. The merger shall result in a single survivor.
  2. A foreign business corporation, or a foreign eligible entity, may be a party to a merger with a domestic business corporation, or may be created by the terms of the plan of merger, only if the merger is permitted by the laws under which the foreign business corporation or eligible entity is organized or by which it is governed. If the organic law of a domestic eligible entity does not provide procedures for the approval of a merger, a plan of merger may be adopted and approved, the merger effectuated, and dissenters' rights exercised in accordance with the procedures in this chapter and chapter 23 of this title. For the purposes of applying this chapter and chapter 23 of this title:
    1. The eligible entity, its members or interest holders, eligible interests, and organic documents taken together shall be deemed to be a domestic business corporation, shareholders, shares and charter, respectively and vice versa, as the context may require; and
    2. If the business and affairs of the eligible entity are managed by a group of persons that is not identical to the members or interest holders, that group shall be deemed to be the board of directors.
  3. The plan of merger must set forth:
    1. The name of each domestic or foreign business corporation or eligible entity planning to merge and the name of each domestic or foreign business corporation or eligible entity that shall survive the merger;
    2. The terms and conditions of the merger;
    3. The manner and basis of converting the shares of each merging domestic or foreign business corporation and eligible interest of each merging domestic or foreign eligible entity into shares or other securities, eligible interests, obligations, rights to acquire shares, other securities or eligible interest, cash, other property, or any combination of the foregoing;
    4. The charter of any domestic or foreign business corporation or nonprofit corporation, or the organic documents of any domestic or foreign unincorporated entity, to be created by the merger, or if a new domestic or foreign business or nonprofit corporation or unincorporated is not to be created by the merger, any amendments to the survivor's charter or organic documents; and
    5. Any other provision required by the laws under which any party to the merger is organized or by which it is governed, or by the charter or organic documents of any such party.
  4. The plan of merger may set forth any other provisions relating to the merger.
  5. Terms of a plan of merger may be made dependent on facts objectively ascertainable outside the plan in accordance with § 48-11-301(j).
  6. The plan of merger may also include a provision that the plan may be amended prior to filing articles of merger, but if the shareholders of a domestic corporation that is a party to the merger are required or permitted to vote on the plan, the plan must provide that subsequent to approval of the plan by such shareholders the plan may not be amended to change:
    1. The amount or kind of shares or other securities, eligible interests, obligations, rights to acquire shares, other securities, or eligible interests, cash, or other property to be received under the plan by the shareholders of or owners of eligible interests in any party to the merger;
    2. The charter of any corporation, or the organic documents of any unincorporated entity, that will survive or be created as a result of the merger, except for changes permitted by § 48-20-102 or by comparable provisions of the organic laws of any such foreign corporation or domestic or foreign unincorporated entity; or
    3. Any of the other terms or conditions of the plan if the change would adversely affect such shareholders in any material respect.
  7. Property held in trust or for charitable purposes under the laws of this state by a domestic or foreign eligible entity shall not be diverted by a merger from the objects for which it was donated, granted, or devised, unless and until the eligible entity obtains a court order specifying the disposition of the property to the extent required by and pursuant to § 35-15-413.

Acts 1986, ch. 887, § 11.01; 1987, ch. 273, § 37; 1994, ch. 776, § 36; T.C.A., § 48-21-101; Acts 2012, ch. 1051, § 39.

Compiler's Notes. Former § 48-21-102 was transferred to § 48-21-103 effective January 1, 1995.

Cross-References. Applicability of business corporation law, title 48, chs. 11-27, to corporations existing on January 1, 1988, title 48, ch. 27.

Merger, consolidation and exchange of stock of insurance companies, title 56, ch. 10.

Nonprofit corporations, merger, title 48, ch. 61.

Tennessee Business Combination Act, title 48, ch. 103, part 2.

Tennessee Control Share Acquisition Act, title 48, ch. 103, part 3.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-802, 5-804, 5-806.

48-21-103. Share exchange.

  1. Through a share exchange:
    1. A domestic corporation may acquire all of the outstanding shares of one (1) or more classes or series of shares of another domestic or foreign corporation or all of the interests of one (1) or more classes or series of interests of a domestic or foreign other entity, in exchange for shares, other securities, interests, obligations, rights to acquire shares, other securities, or interests, cash, other property, or any combination of the foregoing, pursuant to a plan of share exchange; or
    2. All of the shares of one (1) or more classes or series of shares of a domestic corporation may be acquired by another domestic or foreign corporation or other entity, in exchange for shares, other securities, interests, obligations, rights to acquire shares, other securities or interests, cash, other property, or any combination of the foregoing, pursuant to a plan of share exchange.
  2. A foreign corporation or eligible entity may be a party to a share exchange only if the share exchange is permitted by the law under which the corporation or other entity is organized or by which it is governed. If the organic law of a domestic other entity does not provide procedures for the approval of a share exchange, a plan of share exchange may be adopted and approved, the share exchange effectuated, and dissenters' rights exercised in accordance with the procedures, if any, for a merger. If the organic law of a domestic other entity does not provide procedures for the approval of either a share exchange or a merger, a plan of share exchange may be adopted and approved, the share exchange effectuated, and dissenters' rights exercised, in accordance with the procedures in this chapter and chapter 23 of this title. For the purposes of applying this chapter and chapter 23 of this title:
    1. The other entity, its interest holders, interests, and organic documents taken together shall be deemed to be a domestic business corporation, shareholders, shares, and charter, respectively and vice versa, as the context may require; and
    2. If the business and affairs of the other entity are managed by a group of persons that is not identical to the interest holders, that group shall be deemed to be the board of directors.
  3. The plan of share exchange must set forth:
    1. The name of each corporation or other entity whose shares or interests will be acquired and the name of the acquiring corporation or other entity;
    2. The terms and conditions of the share exchange;
    3. The manner and basis of exchanging shares of each corporation or interests in an other entity who shares or interests will be acquired under the share exchange into shares, other securities, interests, obligations, rights to acquire shares, other securities or interests, cash, other property, or any combination of the foregoing; and
    4. Any other provisions required by the laws under which any party to the share exchange is organized or by the charter or organic document of any such party.
  4. The plan of share exchange may set forth other provisions relating to the share exchange.
  5. This section does not limit the power of a domestic corporation to acquire all or part of the shares of one (1) or more classes or series of another corporation or interests of another entity through a voluntary exchange or otherwise.

Acts 1986, ch. 887, § 11.02; 1994, ch. 776, § 37; T.C.A., § 48-21-102; Acts 2012, ch. 1051, § 39.

Compiler's Notes. Former § 48-21-103 was transferred to § 48-21-104 effective January 1, 1995.

48-21-104. Action on plan of merger or share exchange.

In the case of a domestic corporation that is a party to a merger or share exchange:

  1. The plan of merger or share exchange shall be adopted by the board of directors of each party to the merger or share exchange and approved by the shareholders;
  2. Except as provided in subdivision (7) and in § 48-21-105, after adopting the plan of merger or share exchange, the board of directors shall submit the plan of merger or share exchange for approval by the shareholders. The board of directors must also transmit to the shareholders a recommendation that the shareholders approve the plan, unless the board of directors makes a determination that because of conflicts of interest or other special circumstances it should not make such a recommendation, in which case the board of directors must also transmit to the shareholders the basis for that determination;
  3. The board of directors may condition its submission of the plan of merger or share exchange to its shareholders on any basis;
  4. If the plan of merger or share exchange is required to be approved by the shareholders, and if the approval is to be given at a meeting, the corporation shall notify each shareholder, whether or not entitled to vote, of the shareholders' meeting at which the plan is to be submitted for approval. The notice shall state that the purpose, or one (1) of the purposes, of the meeting is to consider the plan of merger or share exchange and shall contain or be accompanied by a copy or summary of the plan. If the corporation is to be merged into an existing corporation or other entity, the notice shall also include or be accompanied by a copy or summary of the charter or organic documents of that corporation or other entity. If the corporation is to be merged into a corporation or other entity that is to be created pursuant to the merger, the notice shall include or be accompanied by a copy or a summary of the charter or organizational documents of the new corporation or other entity;
  5. Unless chapters 11-27 of this title, the charter, or the board of directors acting pursuant to subdivision (3) requires a greater vote or a vote by voting groups, the plan of merger or share exchange to be authorized must be approved by each voting group entitled to vote separately on the plan by a majority of all the votes entitled to be cast on the plan by that voting group;
  6. Separate voting by voting groups is required:
    1. On a plan of merger, by each class or series of shares that would be entitled to vote as a separate group on a provision in the plan that, if contained in a proposed amendment to the charter, would require action by separate voting groups under § 48-20-104;
    2. On a plan of share exchange, by each class or series of shares included in the exchange, with each class or series constituting a separate voting group; or
    3. On a plan of merger or share exchange, if the voting group is entitled under the charter or by agreement to vote as a voting group to approve a plan of merger or share exchange;
  7. Unless the charter otherwise provides, approval by the shareholders of a domestic corporation of a plan of merger or share exchange shall not be required if:
    1. The corporation will survive the merger or is the acquiring corporation in a share exchange;
    2. Except for amendments enumerated in § 48-20-102, its charter will not differ from the charter before the merger;
    3. Each shareholder of the corporation whose shares were outstanding immediately before the effective date of the merger or exchange will hold the same number of shares, with identical designations, preferences, limitations and relative rights, immediately after the effective date of the merger or exchange;
    4. The voting power of the shares outstanding immediately after the merger or exchange, plus the voting power of the shares issuable as a result of the merger or exchange (either by the conversion of securities issued pursuant to the merger or exchange or by the exercise of rights and warrants issued pursuant to the merger or exchange), will not exceed by more than twenty percent (20%) the voting power of the total shares of the corporation outstanding immediately before the merger or exchange; and
    5. The number of participating shares outstanding immediately after the merger or exchange, plus the number of participating shares issuable as a result of the merger or exchange (either by the conversion of securities issued pursuant to the merger or exchange by the exercise of rights and warrants issued pursuant to the merger or exchange), will not exceed more than twenty percent (20%) the total number of participating shares outstanding immediately before the merger or exchange; and
  8. If as a result of a merger or share exchange one (1) or more shareholders of a domestic corporation would become subject to owner liability for the debts, obligations, or liabilities of any other person or entity, approval of the plan of merger or share exchange shall require the execution, by each shareholder, of a separate written consent to become subject to such owner liability.

Acts 1986, ch. 887, § 11.03; 1994, ch. 776, § 38; T.C.A., § 48-21-103; Acts 1996, ch. 618, § 2; 2012, ch. 1051, § 39; 2015, ch. 60, § 2.

Compiler's Notes. Former § 48-21-104 was transferred to § 48-21-105 effective January 1, 1995.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-801, 5-807, 5-811.

48-21-105. Merger of parent and subsidiary.

  1. A domestic parent corporation owning at least ninety percent (90%) of the outstanding voting shares of each class and series of a domestic or foreign subsidiary corporation or eligible interests of an other entity may either:
    1. Merge the subsidiary corporation or other entity into the parent corporation;
    2. Merge the parent corporation into the subsidiary corporation or other entity; or
    3. Merge two (2) or more such subsidiary corporations or subsidiary other entities with and into each other.
  2. The board of directors of the parent corporation shall adopt a plan of merger that sets forth:
    1. The name of the parent corporation owning at least ninety percent (90%) of the outstanding voting shares of the subsidiary corporation or eligible interests of the other entity and the name of the subsidiary corporation(s) or other entity or entities to be a party to the merger, and the name of the corporation or other entity that is to survive the merger;
    2. The terms and conditions of the merger;
    3. The manner and basis of converting the shares of each corporation or eligible interests of the subsidiary or other entity into shares, eligible interests, obligations or other securities of the survivor or of any other corporation or other entity or into cash or other property or any combination of the foregoing; and
    4. Such other provisions with respect to the proposed merger as the board considers necessary or desirable.
  3. No vote of the shareholders of a subsidiary corporation or approval of interest holders of a subsidiary other entity shall be required with respect to such a merger. If the parent corporation will be the survivor, no vote of its shareholders shall be required. If the subsidiary corporation or other entity will be the survivor, the approval of the shareholders of the parent corporation shall be obtained in the manner provided in § 48-21-104.
  4. If under subsection (c) approval of a merger by the subsidiary's shareholders or interest holders is not required, the parent corporation shall, within ten (10) days after the effective date of the merger, notify each of the subsidiary's shareholders or interest holders that the merger has become effective.
  5. Except as provided in subsections (a)-(d), a merger between a parent and a subsidiary shall be governed by the provisions of this chapter applicable to mergers generally.

Acts 1986, ch. 887, § 11.04; 1989, ch. 451, § 34; 1994, ch. 776, § 39; T.C.A., § 48-21-104; Acts 1996, ch. 618, § 3; 2012, ch. 1051, § 39.

Compiler's Notes. Former § 48-21-105 was transferred to § 48-21-107 effective January 1, 1995.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-803, 5-804.

48-21-106. Abandonment of merger.

  1. After a plan of merger or share exchange has been adopted and approved as required by chapters 11-27 of this title, and at any time before the merger or share exchange has become effective, the merger or share exchange may be abandoned (subject to any contractual rights) by any corporation or other entity that is a party to the merger or share exchange, without action by the shareholders or interest holders of such party, in accordance with the procedures set forth in the plan of merger or share exchange or, if no such procedures are set forth in the plan, in the manner determined by the board of directors of such corporation or the managers of such other entity.
  2. If the merger or share exchange is abandoned after articles of merger or share exchange have been filed with the secretary of state but before the merger or share exchange has become effective, a statement, executed on behalf of each party to the merger or share exchange by an officer or other duly authorized representative, stating that the merger or share exchange has been abandoned in accordance with the plan and this section, shall be filed with the secretary of state prior to the effectiveness of the merger or share exchange.
  3. The secretary of state shall, when all fees have been paid as required by law:
    1. Endorse on the original and each copy the word “filed” and the month, day, and year of the filing thereof;
    2. File the original in the office of the secretary of state; and
    3. Issue a certificate of abandonment to each party to the merger or share exchange.
  4. Upon the filing of such statement by the secretary of state, the merger or share exchange shall be deemed abandoned and shall not become effective.

Acts 1994, ch. 776, § 40; 1999, ch. 361, §§ 1, 2; 2012, ch. 1051, § 39.

Compiler's Notes. Former § 48-21-106 was transferred to § 48-21-108 effective January 1, 1995.

48-21-107. Articles of merger or share exchange.

  1. After a plan of merger or share exchange has been adopted and approved as required by this chapter, articles of merger or share exchange shall be executed on behalf of each party to the merger or share exchange by an officer or other duly authorized representative and shall set forth:
    1. The names of the parties to the merger or share exchange and the date on which the merger or share exchange occurred or is to be effective;
    2. If the charter or organic documents of the survivor of a merger are amended, or if a new corporation is created as a result of a merger, the amendments to the survivor’s charter or organic documents or the charter of the new corporation;
    3. If approval by the shareholders of a domestic corporation that is a party to the merger or exchange is not required by this chapter, a statement to that effect and the date on which the plan was adopted by the board of directors;
    4. If approval by the shareholders of a domestic corporation that is a party to the merger or exchange is required by this chapter, a statement to that effect and a statement that the plan was approved by the affirmative vote of the required percentage of all of:
      1. The votes entitled to be cast if there is no voting by voting groups; or
      2. The votes entitled to be cast by each voting group having the right to vote separately on the plan and the votes cast by the outstanding shares otherwise entitled to vote on the plan; and
    5. As to each foreign corporation and each other entity that was a party to the merger or share exchange, a statement that the plan and performance of its terms were duly authorized by all action required by the laws under which it was organized and by its charter or organic documents.
  2. The original of the articles of merger or share exchange shall be delivered to the secretary of state for filing together with the required filing fee. A merger or share exchange takes effect upon the effective date of the articles of merger or share exchange.

Acts 1986, ch. 887, § 11.05; 1994, ch. 776, § 44; T.C.A., § 48-21-105; Acts 2012, ch. 1051, § 39.

Compiler's Notes. Former § 48-21-107 was transferred to § 48-21-109 effective January 1, 1995.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-801, 5-803, 5-805, 5-807, 5-809.

48-21-108. Effect of merger or share exchange.

  1. When a merger becomes effective:
    1. The corporation or eligible entity that is designated in the plan of merger as an entity surviving the merger shall survive, and the separate existence of every other corporation or eligible entity that is a party to the merger shall cease;
    2. All property owned by, and every contract right possessed by, each corporation or eligible entity that is merged into the survivor shall be vested in the survivor without reversion or impairment;
    3. All liabilities of each corporation or eligible entity that is merged into the survivor shall be vested in the survivor;
    4. A proceeding pending against any corporation or eligible entity that is a party to the merger may be continued as if the merger did not occur or the name of the survivor may be substituted in the proceeding for any corporation or eligible entity whose existence ceased in the merger;
    5. The charter or organic document of the survivor shall be amended to the extent provided in the plan of merger;
    6. The charter or organic documents of a survivor created by the plan of merger shall become effective; and
    7. The share of each corporation and the interests of each eligible entity that are to be converted into shares, other securities, interests, obligations, rights to acquire shares, other securities or interests, cash, other property, or any combination of the foregoing in the merger shall be converted or exchanged, and the former holders of such shares or eligible interests shall be entitled only to the rights provided to them in the plan of merger or to their rights under chapter 23 of this title or the organic law of the eligible entity.
  2. When a share exchange takes effect, the shares of each corporation that are to be exchanged for shares, other securities, interests, obligations, rights to acquire shares, other securities or interests, cash, other property or any combination of the foregoing in the share exchange shall be exchanged, and the former holders of such shares shall be entitled only to the rights provided in the plan of share exchange or to their rights under chapter 23 of this title.
  3. Upon a merger becoming effective, a foreign corporation, or a foreign eligible entity, that is the survivor of the merger is deemed to:
    1. Appoint the secretary of state as its agent for service of process in a proceeding to enforce the rights of shareholders of each domestic corporation that is a party to the merger who exercise dissenters' rights; and
    2. Agree that it will promptly pay the amount, if any, to which such shareholders are entitled under chapter 23 of this title.
  4. The effect of a merger or share exchange on the owner liability of a person who had owner liability for some or all of the debts, obligations or liabilities of a party to the merger or share exchange shall be as follows:
    1. The merger or share exchange does not discharge any owner liability under the organic law of the entity in which the person was a shareholder or interest holder to the extent any such owner liability arose before the effective time of the articles of merger or share exchange;
    2. The person shall not have owner liability under the organic law of the entity in which the person was shareholder or interest holder prior to the merger or share exchange for any debt, obligation or liability that arises after the effective time of the articles of merger or share exchange;
    3. The organic law of any entity for which the person had owner liability before the merger or share exchange shall continue to apply to the collection or discharge of any owner liability preserved by subdivision (d)(1), as if the merger or share exchange had not occurred; and
    4. The person shall have whatever rights of contribution from other persons are provided by the organic law of the entity for which the person had owner liability with respect to any owner liability preserved by subdivision (d)(1), as if the merger or share exchange had not occurred.
  5. A merger or share exchange shall take effect upon the date the articles of merger or share exchange are filed as provided in § 48-21-107(b) or on such later date as may be specified in the plan of merger or share exchange.

Acts 1986, ch. 887, § 11.06; 1994, ch. 776, § 41; T.C.A., § 48-21-106; Acts 2012, ch. 1051, § 39.

48-21-109. Entity conversion.

  1. A domestic business corporation may become a domestic unincorporated entity pursuant to a plan of entity conversion.
  2. A domestic business corporation may become a foreign unincorporated entity if the entity conversion is permitted by the laws of the foreign jurisdiction.
  3. A domestic unincorporated entity may become a domestic business corporation. If the organic law of a domestic unincorporated entity does not provide procedures for the approval of an entity conversion, the conversion shall be adopted and approved, and the entity conversion effectuated, in the same manner as a merger of the unincorporated entity. If the organic law of a domestic unincorporated entity does not provide procedures for the approval of either an entity conversion or a merger, a plan of entity conversion shall be adopted and approved, the entity conversion effectuated, and dissenters' rights exercised, in accordance with the procedures in this chapter and chapter 23 of this title. Without limiting this subsection (c), a domestic unincorporated entity whose organic law does not provide procedures for the approval of an entity conversion shall be subject to subsection (e) and § 48-21-111(7). For purposes of applying this chapter and chapter 23 of this title:
    1. The unincorporated entity, its interest holders, interests, and organic documents taken together, shall be deemed to be a domestic business corporation, shareholders, shares, and charters, respectively, and vice versa, as the context may require; and
    2. If the business and affairs of the unincorporated entity are managed by a group of persons that is not identical to the interest holders, that group shall be deemed to be the board of directors.
  4. A foreign unincorporated entity may become a domestic business corporation if the organic law of the foreign unincorporated entity authorizes it to become a corporation in another jurisdiction.
  5. If any provision of a debt security, note or similar evidence of indebtedness for money borrowed, whether secured or unsecured, or a contract of any kind, issued, incurred or executed by a domestic business corporation before January 1, 2013, applies to a merger of the corporation and the document does not refer to an entity conversion of the corporation, the provision shall be deemed to apply to an entity conversion of the corporation until such time as the provision is amended on or subsequent to January 1, 2013.

Acts 1986, ch. 887, § 11.07; 1994, ch. 776, §§ 42, 43; T.C.A., § 48-21-107; Acts 2012, ch. 1051, § 39.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-806, 5-810.

48-21-110. Plan of entity conversion.

  1. A plan of entity conversion must include:
    1. A statement of the type of other entity the survivor will be and, if it will be a foreign other entity, its jurisdiction of organization;
    2. The terms and conditions of the conversion;
    3. The manner and basis of converting the shares of the domestic business corporation following its conversion into interests or other securities, obligations, rights to acquire interests or other securities, cash, other property, or any combination of the foregoing; and
    4. The full text, as they will be in effect immediately after consummation of the conversion, of the organic documents of the survivor.
  2. The plan of entity conversion may also include a provision that the plan may be amended prior to filing articles of entity conversion, except that subsequent to approval of the plan by the shareholders, the plan may not be amended to change:
    1. The amount or kind of shares or other securities, interests, obligations, rights to acquire shares, other securities or interests, cash or other property to be received under the plan by the shareholders;
    2. The organic documents that will be in effect immediately following the conversion, except for changes permitted by a provision of the organic law of the survivor comparable to § 48-20-102; or
    3. Any of the other terms or conditions of the plan if the change would adversely affect any of the shareholders in any material respect.
  3. Terms of a plan of entity conversion may be made dependent upon facts objectively ascertainable outside the plan in accordance with § 48-11-301.

Acts 1994, ch. 868, § 7; 2006, ch. 620, § 59; 2012, ch. 1051, § 39.

48-21-111. Action on a plan of entity conversion.

In the case of an entity conversion of a domestic business corporation to a domestic or foreign unincorporated entity:

  1. The plan of entity conversion must be adopted by the board of directors;
  2. After adopting the plan of entity conversion, the board of directors must submit the plan to the shareholders for their approval. The board of directors must also transmit the shareholders a recommendation that the shareholders approve the plan, unless the board of directors makes a determination that because of conflicts of interest or other special circumstances it should not make such a recommendation, in which case the board of directors must transmit to the shareholders the basis for that determination;
  3. The board of directors may condition its submission of the plan of entity conversion to the shareholders on any basis;
  4. If the approval of the shareholders is to be given at a meeting, the corporation must notify each shareholder, whether or not entitled to vote, of the meeting of shareholders at which the plan of entity conversion is to be submitted for approval. The notice must state that the purpose, or one (1) of the purposes, of the meeting is to consider the plan and must contain or be accompanied by a copy or summary of the plan. The notice shall include or be accompanied by a copy of the organic documents as they will be in effect immediately after the entity conversion;
  5. Unless chapters 11-27 of this title, the charter, or the board of directors acting pursuant to subdivision (3) requires a greater vote or a vote by voting groups, the plan of conversion to be authorized must be approved by each voting group entitled to vote separately on the plan by a majority of all the votes entitled to be cast on the plan by that voting group;
  6. If any provision of the charter, bylaws or an agreement to which any of the directors or shareholders are parties, adopted or entered into before January 1, 2013, applies to a merger of the corporation and the document does not refer to an entity conversion of the corporation, the provision shall be deemed to apply to an entity conversion of the corporation until such time as the provision is subsequently amended; and
  7. If as a result of the conversion one (1) or more shareholders of the corporation would become subject to owner liability for the debts, obligations, or liabilities of any other person or entity, approval of the plan of conversion shall require the execution, by each such shareholder, of a separate written consent to become subject to such owner liability.

Acts 2000, ch. 623, § 1; 2006, ch. 620, §§ 60–62; 2012, ch. 1051, § 39.

48-21-112. Articles of entity conversion.

  1. After the conversion of a domestic business corporation to a domestic unincorporated entity has been adopted and approved as required by this chapter, articles of entity conversion shall be executed on behalf of the corporation by any officer or other duly authorized representative. The articles shall:
    1. Set forth the name of the corporation immediately before the filing of the articles of entity conversion and the name to which the name of the corporation is to be changed, which shall be a name that satisfies the organic law of the survivor;
    2. State the type of unincorporated entity that the survivor will be;
    3. Set forth a statement that the plan of entity conversion was duly approved by the shareholders in the manner required by this chapter and the charter; and
    4. If the survivor is a filing entity, have attached the applicable public organic document; except that provisions that would not be required to be included in a restated public organic document may be omitted.
  2. After the conversion of a domestic unincorporated entity to a domestic business corporation has been adopted and approved as required by the organic law of the unincorporated entity, articles of entity conversion shall be executed on behalf of the unincorporated entity by any officer or other duly authorized representative. The articles shall:
    1. Set forth the name of the unincorporated entity immediately before the filing of the articles of entity conversion and the name to which the name of the unincorporated entity is to be changed, which shall be a name that satisfies the requirements of § 48-14-101;
    2. Set forth a statement that the plan of entity conversion was duly approved in accordance with the organic law of the unincorporated entity; and
    3. Have attached a charter; except that provisions that would not be required to be included in a restated charter of a domestic business corporation may be omitted.
  3. After the conversion of a foreign unincorporated entity to a domestic business corporation has been authorized as required by the laws of the foreign jurisdiction, articles of entity conversion shall be executed on behalf of the foreign unincorporated entity by any officer or other duly authorized representative. The articles shall:
    1. Set forth the name of the unincorporated entity immediately before the filing of the articles of entity conversion and the name to which the name of the unincorporated entity is to be changed, which shall be a name that satisfies the requirements of § 48-14-101;
    2. Set forth the jurisdiction under the laws of which the unincorporated entity was organized immediately before the filing of the articles of entity conversion and the date on which the unincorporated entity was organized in that jurisdiction;
    3. Set forth a statement that the conversion of the unincorporated entity was duly approved in the manner required by its organic law; and
    4. Have attached a charter; except that provisions that would not be required to be included in a restated charter of a domestic business corporation may be omitted.
    1. The articles of entity conversion shall be delivered to the secretary of state for filing, together with the required filing fee, and shall take effect at the effective time provided in § 48-11-304.
    2. Articles of entity conversion filed under subsection (a) or (b) may be combined with any required conversion filing under the organic law of the domestic unincorporated entity if the combined filing satisfies the requirements of both this section and the other organic law.
    3. The public organic document required to be attached by subsection (a) shall be delivered to the secretary of state for filing, and shall take effect at the effective time of the articles of entity conversion. A filing fee for the public organic document shall be paid to the secretary of state in the amount specified for such public organic document by the applicable law governing the formation of such domestic unincorporated entity.
    4. The charter required to be attached by subsection (b) or (c) shall be delivered to the secretary of state for filing, and shall take effect at the effective time of the articles of entity conversion. The fee for filing the charter shall be paid in accordance with § 48-11-303.
  4. If the converting entity is a foreign unincorporated entity that is authorized to transact business in this state under a provision of law similar to chapter 25 of this title, its certificate of authority or other type of foreign qualification shall be cancelled automatically on the effective date of its conversion.

Acts 2000, ch. 623, § 2; 2006, ch. 620, § 63; 2012, ch. 1051, § 39.

48-21-113. Surrender of charter upon conversion.

  1. Whenever a domestic business corporation has adopted and approved, in the manner required by this chapter, a plan of entity conversion providing for the corporation to be converted to a foreign unincorporated entity, articles of charter surrender shall be executed on behalf of the corporation by any officer or other duly authorized representative. The articles of charter surrender shall set forth:
    1. The name of the corporation;
    2. A statement that the articles of charter surrender are being filed in connection with the conversion of the corporation to a foreign unincorporated entity;
    3. A statement that the conversion was duly approved by the shareholders in the manner required by this chapter and the charter;
    4. The jurisdiction under the laws of which the survivor will be organized; and
    5. If the survivor will be a nonfiling entity, the address of its executive office immediately after the conversion.
  2. The articles of charter surrender shall be delivered by the corporation to the secretary of state for filing together with the required filing fee. The articles of charter surrender shall take effect on the effective time provided in § 48-11-304.

Acts 2012, ch. 1051, § 39.

48-21-114. Effect of entity conversion.

  1. When a conversion under § 48-21-111 takes effect:
    1. All title to real and personal property, both tangible and intangible, of the converting entity remains in the survivor without reversion or impairment;
    2. All obligations and liabilities of the converting entity continue as obligations and liabilities of the survivor;
    3. An action or proceeding pending against the converting entity continues against the survivor as if the conversion had not occurred;
    4. In the case of a survivor that is a filing entity, its charter or public organic document and its private organic document become effective;
    5. In the case of a survivor that is a nonfiling entity, its private organic document becomes effective;
    6. The shares or interests of the converting entity are reclassified into shares, interests, other securities, obligations, rights to acquire shares, interests, or other securities, or into cash or other property in accordance with the plan of conversion; and the shareholders or interest holders of the converting entity are entitled only to the rights provided to them under the terms of the conversion and to any dissenters' rights they may have under chapter 23 of this title or under the applicable organic law of the converting entity if it is other than a corporation; and
    7. The survivor is deemed to:
      1. Be incorporated or organized under and subject to the organic law of the converting entity for all purposes;
      2. Be the same corporation or unincorporated entity without interruption as the converting entity; and
      3. Have been incorporated or otherwise organized on the date that the converting entity was originally incorporated or organized.
  2. When a conversion of a domestic business corporation to a foreign other entity becomes effective, the surviving entity is deemed to:
    1. Appoint the secretary of state as its agent for service of process in a proceeding to enforce the rights of shareholders who exercise dissenters' rights in connection with the conversion; and
    2. Agree that it will promptly pay the amount, if any, to which such shareholders are entitled under chapter 23 of this title.
  3. A shareholder who becomes subject to owner liability for some or all of the debts, obligations, or liabilities of the survivor shall be personally liable only for those debts, obligations, or liabilities of the survivor that arise after the effective time of the articles of entity conversion.
  4. The owner liability of an interest holder in an unincorporated entity that converts to a domestic business corporation shall be as follows:
    1. The conversion does not discharge any owner liability under the organic law of the unincorporated entity to the extent any such owner liability arose before the effective time of the articles of entity conversion;
    2. The interest holder shall not have owner liability under the organic law of the unincorporated entity for any debt, obligation, or liability of the corporation that arises after the effective time of the articles of entity conversion;
    3. The organic law of the unincorporated entity shall continue to apply to the collection or discharge of any owner liability preserved by subdivision (d)(1), as if the conversion had not occurred; and
    4. The interest holder shall have whatever rights of contribution from other interest holders are provided by the organic law of the unincorporated entity with respect to any owner liability preserved by subdivision (d)(1), as if the conversion had not occurred.
  5. The converting entity shall not be required to wind up its affairs or pay its liabilities and distribute its assets, and such conversion shall not be deemed to constitute a dissolution of such entity.
  6. The interests of the interest holders of the converting entity, unless otherwise agreed, shall be cancelled and become of no effect whatsoever, with respect to the survivor, and the former holders of such interests shall be entitled only to the rights provided in the plan of conversion or the organic documents for the conversion of shares into interests in the survivor.
  7. A conversion shall take effect upon the date the articles of conversion are filed, as provided in § 48-21-112, or on such later date as may be specified in the plan of conversion.
  8. Notwithstanding any other law to the contrary, this section and § 48-21-109 shall have no effect on the application of title 67 and other state and federal tax statutes. Any tax consequences of the conversion as referenced herein shall continue to be controlled by applicable state and federal tax statutes as they may be amended from time to time.

Acts 2012, ch. 1051, § 39.

48-21-115. Abandonment of entity conversion.

  1. Unless otherwise provided in a plan of entity conversion of a domestic business corporation, after the plan has been adopted and approved as required by § 48-21-111, and at any time before the entity conversion has become effective, it may be abandoned by the board of directors without action by the shareholders.
  2. If an entity conversion is abandoned after articles of entity conversion or articles of charter surrender have been filed with the secretary of state but before the entity conversion has become effective, a statement that the entity conversion has been abandoned in accordance with this section, executed by an officer or other duly authorized representative, shall be delivered to the secretary of state for filing, together with the required filing fee, prior to the effective date of the entity conversion. Upon filing, the statement shall take effect and the entity conversion shall be deemed abandoned and shall not become effective.

Acts 2012, ch. 1051, § 39.

48-21-116. Nonprofit conversion.

  1. A domestic business corporation may become a domestic nonprofit corporation pursuant to a plan of nonprofit conversion.
  2. A domestic business corporation may become a foreign nonprofit corporation if the nonprofit conversion is permitted by the laws of the foreign jurisdiction. Regardless of whether the laws of the foreign jurisdiction require the adoption of a plan of nonprofit conversion, the foreign nonprofit conversion shall be approved by the adoption by the domestic business corporation of a plan of nonprofit conversion in the manner provided in this section.
  3. The plan of nonprofit conversion must include:
    1. The terms and conditions of the conversion;
    2. The manner and basis of reclassifying the shares of the corporation following its conversion into memberships, if any, or securities, obligations, rights to acquire memberships or securities, cash, other property, or any combination of the foregoing;
    3. Any desired amendments to the charter of the corporation following its conversion; and
    4. If the domestic business corporation is to be converted to a foreign nonprofit corporation, a statement of the jurisdiction in which the corporation will be incorporated after the conversion.
  4. The plan of nonprofit conversion may also include a provision that the plan may be amended prior to filing articles of nonprofit conversion, except that subsequent to approval of the plan by the shareholders the plan may not be amended to change:
    1. The amount or kind of memberships or securities, obligations, rights to acquire memberships or securities, cash, or other property to be received by the shareholders under the plan;
    2. The charter as it will be in effect immediately following the conversion, except for changes permitted by § 48-20-102; or
    3. Any of the other terms or conditions of the plan if the change would adversely affect any of the shareholders in any material respect.
  5. Terms of a plan of nonprofit conversion may be made dependent upon facts objectively ascertainable outside the plan in accordance with § 48-11-301.
  6. If any debt security, note or similar evidence of indebtedness for money borrowed, whether secured or unsecured, or a contract of any kind, issued, incurred or executed by a domestic business corporation before January 1, 2013, contains a provision applying to a merger of the corporation and the document does not refer to a nonprofit conversion of the corporation, the provision shall be deemed to apply to a nonprofit conversion of the corporation until such time as the provision is amended on or subsequent to January 1, 2013.

Acts 2012, ch. 1051, § 39.

48-21-117. Action on a plan of nonprofit conversion.

In the case of a conversion of a domestic business corporation to a domestic or foreign nonprofit corporation:

  1. The plan of nonprofit conversion must be adopted by the board of directors;
  2. After adopting the plan of nonprofit conversion, the board of directors must submit the plan to the shareholders for their approval. The board of directors must also transmit to the shareholders a recommendation that the shareholders approve the plan, unless the board of directors makes a determination that because of conflicts of interest or other special circumstances it should not make such a recommendation, in which case the board of directors must transmit to the shareholders the basis for that determination;
  3. The board of directors may condition its submission of the plan of nonprofit conversion to the shareholders on any basis;
  4. If the approval of the shareholders is to be given at a meeting, the corporation must notify each shareholder of the meeting of shareholders at which the plan of nonprofit conversion is to be submitted for approval. The notice must state that the purpose, or one (1) of the purposes, of the meeting is to consider the plan and must contain or be accompanied by a copy or summary of the plan. The notice shall include or be accompanied by a copy of the charter as it will be in effect immediately after the nonprofit conversion;
  5. Unless chapters 11-27 of this title, the charter, or the board of directors acting pursuant to subdivision (3) requires a greater vote or a vote by voting groups, the plan of conversion to be authorized must be approved by each voting group entitled to vote separately on the plan by a majority of all the votes entitled to be cast on the plan by that voting group; and
  6. If any provision of the charter, bylaws, or an agreement to which any of the directors or shareholders are parties, adopted or entered into before January 1, 2013, applies to a merger of the corporation and the document does not refer to a nonprofit conversion of the corporation, the provision shall be deemed to apply to a nonprofit conversion of the corporation until such time as the provision is amended on or subsequent to January 1, 2013.

Acts 2012, ch. 1051, § 39.

48-21-118. Articles of nonprofit conversion.

  1. After a plan of nonprofit conversion providing for the conversion of a domestic business corporation to a domestic nonprofit corporation has been adopted and approved as required by this chapter, articles of nonprofit conversion shall be executed on behalf of the corporation by any officer or other duly authorized representative. The articles shall set forth:
    1. The name of the corporation immediately before the filing of the articles of nonprofit conversion and if that name does not satisfy the requirements of § 48-54-101, or the corporation desires to change its name in connection with the conversion, a name that satisfies the requirements of § 48-54-101; and
    2. A statement that the plan of nonprofit conversion was duly approved by the shareholders in the manner required by this chapter and the charter.
  2. The articles of nonprofit conversion shall have attached a charter that satisfies the requirements of § 48-52-102. Provisions that would not be required to be included in a charter of a domestic nonprofit corporation may be omitted.
  3. The articles of nonprofit conversion shall be delivered to the secretary of state for filing, together with the required filing fee, and shall take effect at the effective time provided in § 48-11-304. The attached charter shall also be delivered to the secretary of state for filing. The fee for filing the charter shall be paid in accordance with § 48-51-303.

Acts 2012, ch. 1051, § 39.

48-21-119. Surrender of a charter upon foreign nonprofit conversion.

  1. Whenever a domestic business corporation has adopted and approved, in the manner required by this chapter, a plan of nonprofit conversion providing for the corporation to be converted to a foreign nonprofit corporation, articles of charter surrender shall be executed on behalf of the corporation by any officer or other duly authorized representative. The articles of charter surrender shall set forth:
    1. The name of the corporation;
    2. A statement that the articles of charter surrender are being filed in connection with the conversion of the corporation to a foreign nonprofit corporation;
    3. A statement that the foreign nonprofit conversion was duly approved by the shareholders in the manner required by this section and the charter; and
    4. The corporation's new jurisdiction of incorporation.
  2. The articles of charter surrender shall be delivered by the corporation to the secretary of state for filing together with the required filing fee. The articles of charter surrender shall take effect on the effective time provided in § 48-11-304.

Acts 2012, ch. 1051, § 39.

48-21-120. Effect of nonprofit conversion.

  1. When a conversion of a domestic business corporation to a domestic nonprofit corporation becomes effective:
    1. The title to all real and personal property, both tangible and intangible, of the corporation remains in the corporation without reversion or impairment;
    2. The liabilities of the corporation remain the liabilities of the corporation;
    3. An action or proceeding pending against the corporation continues against the corporation as if the conversion had not occurred;
    4. The charter of the domestic nonprofit corporation becomes effective;
    5. The shares of the corporation are reclassified into memberships, securities, obligations, rights to acquire memberships, or securities, or into cash or other property in accordance with the plan of conversion, and the shareholders are entitled only to the rights provided in the plan of nonprofit conversion or to any rights they may have under chapter 23 of this title; and
    6. The corporation is deemed to:
      1. Be a domestic nonprofit corporation for all purposes;
      2. Be the same corporation without interruption as the corporation that existed prior to the conversion; and
      3. Have been incorporated on the date it was originally incorporated as a domestic business corporation.
  2. When a conversion of a domestic business corporation to a foreign nonprofit corporation becomes effective, the foreign nonprofit corporation is deemed to:
    1. Appoint the secretary of state as its agent for service of process in a proceeding to enforce the rights of shareholders who exercise dissenters' rights in connection with the conversion; and
    2. Agree that it will promptly pay the amount, if any, to which such shareholders are entitled under chapter 23 of this title.
  3. The owner liability of a shareholder in a domestic business corporation that converts to a domestic nonprofit corporation shall be as follows:
    1. The conversion does not discharge any owner liability of the shareholder as a shareholder of the business corporation to the extent any such owner liability arose before the effective time of the articles of nonprofit conversion;
    2. The shareholder shall not have owner liability for any debt, obligation, or liability of the nonprofit corporation that arises after the effective time of the articles of nonprofit conversion;
    3. The laws of this state shall continue to apply to the collection or discharge of any owner liability preserved by subdivision (c)(1), as if the conversion had not occurred and the nonprofit corporation was still a business corporation; and
    4. The shareholder shall have whatever rights of contribution from other shareholders are provided by the laws of this state with respect to any owner liability preserved by subdivision (c)(1), as if the conversion had not occurred and the nonprofit corporation was still a business corporation.
  4. A shareholder who becomes subject to owner liability for some or all of the debts, obligations, or liabilities of the nonprofit corporation shall have owner liability only for those debts, obligations, or liabilities of the nonprofit corporation that arise after the effective time of the articles of nonprofit conversion.

Acts 2012, ch. 1051, § 39.

48-21-121. Abandonment of a nonprofit conversion.

  1. Unless otherwise provided in a plan of nonprofit conversion of a domestic business corporation, after the plan has been adopted and approved as required by this section, and at any time before the nonprofit conversion has become effective, it may be abandoned by the board of directors without action by the shareholders.
  2. If a nonprofit conversion is abandoned under subsection (a) after articles of nonprofit conversion or articles of charter surrender have been filed with the secretary of state but before the nonprofit conversion has become effective, a statement that the nonprofit conversion has been abandoned in accordance with this section, executed by an officer or other duly authorized representative, shall be delivered to the secretary of state, together with the required filing fee, for filing prior to the effective date of the nonprofit conversion. The statement shall take effect upon filing, and the nonprofit conversion shall be deemed abandoned and shall not become effective.

Acts 2012, ch. 1051, § 39.

Chapter 22
Sale of Assets

48-22-101. Sale of assets in regular course of business and mortgage of assets.

  1. A corporation may, on the terms and conditions and for the consideration determined by the board of directors:
    1. Sell, lease, exchange, or otherwise dispose of all, or substantially all, of its property in the usual and regular course of business;
    2. Mortgage, pledge, dedicate to the repayment of indebtedness (whether with or without recourse), or otherwise encumber any or all of its property whether or not in the usual and regular course of business; or
    3. Transfer any or all of the corporation's assets to one (1) or more corporations or other entities all of the shares or interests of which are owned by the corporation.
  2. Unless the charter requires it, approval by the shareholders of a transaction described in subsection (a) is not required.

Acts 1986, ch. 887, § 12.01; 2012, ch. 1051, § 40.

Cross-References. Applicability of business corporation law, title 48, chs. 11-27, to corporations existing on January 1, 1988, title 48, ch. 27.

Nonprofit corporations, sale of assets, title 48, ch. 62.

NOTES TO DECISIONS

1. No Preemption.

Claims brought under T.C.A. § 48-22-101 and T.C.A. § 48-18-202 to void a transaction entered into by a corporation's president were not preempted by 29 U.S.C. § 1144 of the Employee Retirement Income Security Act because the action did not seek to recover benefits. May v. Nat'l Bank of Commerce, 387 F. Supp. 2d 770, 2004 U.S. Dist. LEXIS 28751 (W.D. Tenn. 2004).

48-22-102. Sale of assets other than in regular course of business.

  1. A corporation may sell, lease, exchange, or otherwise dispose of all, or substantially all, of its property (with or without the good will) otherwise than in the usual and regular course of business, on the terms and conditions and for the consideration determined by the corporation's board of directors, if the board of directors proposes and its shareholders approve the proposed transaction. The sale, lease, exchange or other disposition of all, or substantially all, of the properties (with or without the good will) of one (1) or more subsidiaries of a corporation in which such corporation owns shares possessing at least eighty percent (80%) of the total combined voting power of all classes of stock of the subsidiary then entitled to vote for the election of directors, otherwise than in the usual and regular course of business, shall be treated as a disposition within the meaning of this subsection (a) if the subsidiary or subsidiaries constitute all, or substantially all, of the properties of such corporation.
  2. For a transaction to be authorized:
    1. The board of directors must recommend the proposed transaction to the shareholders, unless the board of directors determines that because of conflict of interest or other special circumstances it should make no recommendation and communicates the basis for its determination to the shareholders with the submission of the proposed transaction; and
    2. The shareholders entitled to vote must approve the transaction.
  3. The board of directors may condition its submission of the proposed transaction on any basis.
  4. The corporation shall notify each shareholder, whether or not entitled to vote, of the proposed shareholders' meeting in accordance with § 48-17-105. The notice must also state that the purpose, or one (1) of the purposes, of the meeting is to consider the sale, lease, exchange, or other disposition of all, or substantially all, the property of the corporation and contain or be accompanied by a description of the transaction.
  5. Unless the charter or the board of directors (acting pursuant to subsection (c)) requires a greater vote or a vote by voting groups, the transaction to be authorized must be approved by a majority of all the votes entitled to be cast on the transaction.
  6. After a sale, lease, exchange or other disposition of property is authorized, the transaction may be abandoned (subject to any contractual rights) without further shareholder action.
  7. A transaction that constitutes a distribution is governed by § 48-16-401 and not by this section.

Acts 1986, ch. 887, § 12.02; 1989, ch. 451, § 17.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-1108.

Chapter 23
Dissenters' Rights

Part 1
Right to Dissent and Obtain Payment for Shares

48-23-101. Chapter definitions.

As used in this chapter, unless the context otherwise requires:

  1. “Beneficial shareholder” means the person who is a beneficial owner of shares held by a nominee as the record shareholder;
  2. “Corporation” means the issuer of the shares held by a dissenter before the corporate action, and, for purposes of §§ 48-23-203 — 48-23-302, includes the survivor of a merger or conversion or the acquiring entity in a share exchange of that issuer;
  3. “Dissenter” means a shareholder who is entitled to dissent from corporate action under § 48-23-102 and who exercises that right when and in the manner required by part 2 of this chapter;
  4. “Fair value,” with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action;
  5. “Interest” means interest from the effective date of the corporate action that gave rise to the shareholder's right to dissent until the date of payment, at the average auction rate paid on United States treasury bills with a maturity of six (6) months (or the closest maturity thereto) as of the auction date for such treasury bills closest to such effective date;
  6. “Record shareholder” means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation; and
  7. “Shareholder” means the record shareholder or the beneficial shareholder.

Acts 1986, ch. 887, § 13.01; 2012, ch. 1051, § 41.

Cross-References. Applicability of business corporation law, title 48, chs. 11-27, to corporations existing on January 1, 1988, title 48, ch. 27.

Tennessee Control Share Acquisition Act, title 48, ch. 103, part 3.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-812, 5-1108.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Valuation of Assets.

The evaluation of the assets of a corporation as a going concern does not mean that the asset value has been enhanced by a consideration of the good will of the corporation. Elk Yarn Mills v. 514 Shares of Common Stock of Elk Yarn Mills, Inc., 742 S.W.2d 638, 1987 Tenn. App. LEXIS 2878 (Tenn. Ct. App. 1987).

48-23-102. Right to dissent.

  1. A shareholder is entitled to dissent from, and obtain payment of the fair value of the shareholder's shares in the event of, any of the following corporate actions:
    1. Consummation of a plan of merger to which the corporation is a party:
      1. If shareholder approval is required for the merger by § 48-21-104 or the charter and the shareholder is entitled to vote on the merger if the merger is submitted to a vote at a shareholders' meeting or the shareholder is a nonconsenting shareholder under § 48-17-104(b) who would have been entitled to vote on the merger if the merger had been submitted to a vote at a shareholders' meeting; or
      2. If the corporation is a subsidiary that is merged with its parent under § 48-21-105;
    2. Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan if the plan is submitted to a vote at a shareholders' meeting or the shareholder is a nonconsenting shareholder under § 48-17-104(b) who would have been entitled to vote on the plan if the plan had been submitted to a vote at a shareholders' meeting;
    3. Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than in the usual and regular course of business, if the shareholder is entitled to vote on the sale or exchange if the sale or exchange is submitted to a vote at a shareholders' meeting or the shareholder is a nonconsenting shareholder under § 48-17-104(b) who would have been entitled to vote on the sale or exchange if the sale or exchange had been submitted to a vote at a shareholders' meeting, including a sale of all, or substantially all, of the property of the corporation in dissolution, but not including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one (1) year after the date of sale;
    4. An amendment of the charter that materially and adversely affects rights in respect of a dissenter's shares because it:
      1. Alters or abolishes a preferential right of the shares;
      2. Creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares;
      3. Alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities;
      4. Excludes or limits the right of the shares to vote on any matter, or to cumulate votes, other than a limitation by dilution through issuance of shares or other securities with similar voting rights; or
      5. Reduces the number of shares owned by the shareholder to a fraction of a share, if the fractional share is to be acquired for cash under § 48-16-104;
    5. Any corporate action taken pursuant to a shareholder vote to the extent the charter, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares;
    6. Consummation of a conversion of the corporation to another entity pursuant to chapter 21 of this title; or
    7. In accordance with and to the extent provided in § 48-28-104(b), an amendment to the charter of a corporation as described in § 48-28-104(b)(1), or consummation of a merger or plan of share exchange as described in § 48-28-104(b)(2).
  2. A shareholder entitled to dissent and obtain payment for the shareholder's shares under this chapter may not challenge the corporate action creating the shareholder's entitlement unless the action is unlawful or fraudulent with respect to the shareholder or the corporation.
  3. Notwithstanding subsection (a), no shareholder may dissent as to any shares of a security which, as of the date of the effectuation of the transaction which would otherwise give rise to dissenters' rights, is listed on an exchange registered under § 6 of the Securities Exchange Act of 1934 (15 U.S.C. § 78f), as amended, or is a “national market system security,” as defined in rules promulgated pursuant to the Securities Exchange Act of 1934 (15 U.S.C. § 78a), as amended.

Acts 1986, ch. 887, § 13.02; 2012, ch. 1051, §§ 42-44; 2015, ch. 497, § 2.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-1108.

Law Reviews.

The Purpose of the Shareholders' Appraisal Remedy, 65 Tenn. L. Rev. 661 (1998).

Valuation of Dissenters' Stock Under the Appraisal Remedy — Is the Delaware Block Method Right for Tennessee? (Don S. Clardy), 62 Tenn. L. Rev. 285 (1995).

NOTES TO DECISIONS

1. Valuation.

Tennessee overrules Blasingame v. American Materials, Inc., 654 S.W.2d 659 (Tenn. 1983), to the extent that it implicitly mandates use of the Delaware Block method for determining the fair value of a dissenting shareholder's stock. Tennessee adopts the approach espoused in Weinberger, in which trial courts are permitted to determine fair value by using any technique or method that is generally acceptable in the financial community and admissible in court, including valuation methods that incorporate projections of future value. Athlon Sports Communs., Inc. v. Duggan, 549 S.W.3d 107, 2018 Tenn. LEXIS 310 (Tenn. June 8, 2018).

Supreme Court of Tennessee found that trial courts were not required to use the Delaware Block method to determine the fair value of a dissenting shareholder's stock. Because the court could not determine whether a trial court's evaluation of the evidence was affected by its perception that Tennessee case law mandated the use of the Delaware Block valuation method, the court vacated the trial court's order and remanded the case for reconsideration of the valuation of the dissenting shareholders'  shares. Athlon Sports Communs., Inc. v. Duggan, 549 S.W.3d 107, 2018 Tenn. LEXIS 310 (Tenn. June 8, 2018).

Decisions Under Prior Law

1. Amendment of Charter.

Where the certificate evidencing stockholder approval of the amendment was duly filed, the amendment was complete and the dissenting stockholder's right to withdrawal vested. Filley v. Kickoff Publishing Co., 454 F.2d 1288, 1972 U.S. App. LEXIS 11409 (6th Cir. Tenn. 1972).

It was unreasonable and oppressive to require a member or stockholder to remain in a corporation whose fundamental purposes had been changed against the member or stockholder's will. Filley v. Kickoff Publishing Co., 454 F.2d 1288, 1972 U.S. App. LEXIS 11409 (6th Cir. Tenn. 1972).

48-23-103. Dissent by nominees and beneficial owners.

  1. A record shareholder may assert dissenters' rights as to fewer than all the shares registered in the record shareholder's name only if the record shareholder dissents with respect to all shares beneficially owned by any one (1) person and notifies the corporation in writing of the name and address of each person on whose behalf the record shareholder asserts dissenters' rights. The rights of a partial dissenter under this subsection (a) are determined as if the shares as to which the partial dissenter dissents and the partial dissenter's other shares were registered in the names of different shareholders.
  2. A beneficial shareholder may assert dissenters' rights as to shares of any one (1) or more classes held on the beneficial shareholder's behalf only if the beneficial shareholder:
    1. Submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and
    2. Does so with respect to all shares of the same class of which the person is the beneficial shareholder or over which the person has power to direct the vote.

Acts 1986, ch. 887, § 13.03.

Part 2
Procedure for Exercise of Dissenters' Rights

48-23-201. Notice of dissenters' rights.

  1. Where any corporate action specified in § 48-23-102(a) is to be submitted to a vote at a shareholders' meeting, the meeting notice (including any meeting notice required under chapters 11-27 to be provided to nonvoting shareholders) must state that the corporation has concluded that the shareholders are, are not, or may be entitled to assert dissenters' rights under this chapter. If the corporation concludes that dissenters' rights are or may be available, a copy of this chapter must accompany the meeting notice sent to those record shareholders entitled to exercise dissenters' rights.
  2. In a merger pursuant to § 48-21-105, the parent corporation must notify in writing all record shareholders of the subsidiary who are entitled to assert dissenters rights that the corporate action became effective. Such notice must be sent within ten (10) days after the corporate action became effective and include the materials described in § 48-23-203.
  3. Where any corporate action specified in § 48-23-102(a) is to be approved by written consent of the shareholders pursuant to § 48-17-104(a) or § 48-17-104(b):
    1. Written notice that dissenters' rights are, are not, or may be available must be sent to each record shareholder from whom a consent is solicited at the time consent of such shareholder is first solicited and, if the corporation has concluded that dissenters' rights are or may be available, must be accompanied by a copy of this chapter; and
    2. Written notice that dissenters' rights are, are not, or may be available must be delivered together with the notice to nonconsenting and nonvoting shareholders required by § 48-17-104(e) and (f), may include the materials described in § 48-23-203 and, if the corporation has concluded that dissenters' rights are or may be available, must be accompanied by a copy of this chapter.
  4. A corporation's failure to give notice pursuant to this section will not invalidate the corporate action.

Acts 1986, ch. 887, § 13.20; 2012, ch. 1051, § 45.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-811, 5-1108.

48-23-202. Notice of intent to demand payment.

  1. If a corporate action specified in § 48-23-102(a) is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights with respect to shares for which dissenters' rights may be asserted under this chapter:
    1. Must deliver to the corporation, before the vote is taken, written notice of the shareholder's intent to demand payment if the proposed action is effectuated; and
    2. Must not vote, or cause or permit to be voted, any such shares in favor of the proposed action.
  2. If a corporate action specified in § 48-23-102(a) is to be approved by less than unanimous written consent, a shareholder who wishes to assert dissenters' rights with respect to shares for which dissenters' rights may be asserted under this chapter must not sign a consent in favor of the proposed action with respect to such shares.
  3. A shareholder who fails to satisfy the requirements of subsection (a) or subsection (b) is not entitled to payment under this chapter.

Acts 1986, ch. 887, § 13.21; 2012, ch. 1051, § 46.

NOTES TO DECISIONS

1. Written Notice.

Corporation waived the requirement of written notice of dissent because although the dissenters failed to adhere to the letter of the statute, the corporation knew of their intention to dissent and proceeded exactly as though they had complied with the statute; the corporation even filed suit requesting a judicial determination of the fair value of the dissenters shares, and thus, it suffered absolutely no prejudice as a result of their failure to provide written notice. Nat'l Parks Resort Lodge Corp. v. Perfetto, — S.W.3d —, 2018 Tenn. App. LEXIS 296 (Tenn. Ct. App. May 29, 2018).

48-23-203. Dissenters' notice.

  1. If a corporate action requiring dissenters' rights under § 48-23-102(a) becomes effective, the corporation must send a written dissenters' notice and form required by subdivision (b)(1) to all shareholders who satisfy the requirements of § 48-23-202(a) or § 48-23-202(b). In the case of a merger under § 48-21-105, the parent must deliver a dissenters' notice and form to all record shareholders who may be entitled to assert dissenters' rights.
  2. The dissenters' notice must be delivered no earlier than the date the corporate action specified in § 48-23-102(a) became effective, and no later than (10) days after such date, and must:
    1. Supply a form that:
      1. Specifies the first date of any announcement to shareholders made prior to the date the corporate action became effective of the principal terms of the proposed corporate action;
      2. If such announcement was made, requires the shareholder asserting dissenters' rights to certify whether beneficial ownership of those shares for which dissenters' rights are asserted was acquired before that date; and
      3. Requires the shareholder asserting dissenters' rights to certify that such shareholder did not vote for or consent to the transaction;
    2. State:
      1. Where the form must be sent and where certificates for certificated shares must be deposited and the date by which those certificates must be deposited, which date may not be earlier than the date for receiving the required form under subdivision (b)(2)(B);
      2. A date by which the corporation must receive the form, which date may not be fewer than forty (40) nor more than sixty (60) days after the date the subsection (a) dissenters' notice is sent, and state that the shareholder shall have waived the right to demand payment with respect to the shares unless the form is received by the corporation by such specified date;
      3. The corporation's estimate of the fair value of shares; and
      4. That, if requested in writing, the corporation will provide, to the shareholder so requesting, within ten (10) days after the date specified in subdivision (b)(2)(B) the number of shareholders who return the forms by the specified date and the total number of shares owned by them; and
    3. Be accompanied by a copy of this chapter if the corporation has not previously sent a copy of this chapter to the shareholder pursuant to § 48-23-201.

Acts 1986, ch. 887, § 13.22; 2012, ch. 1051, § 47; 2015, ch. 60, § 3.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-812, 5-813.

48-23-204. Duty to demand payment.

  1. A shareholder sent a dissenters' notice described in § 48-23-203 must demand payment, certify whether the shareholder acquired beneficial ownership of the shares before the date required to be set forth in the dissenters' notice pursuant to § 48-23-203(b)(2), and deposit the shareholder's certificates in accordance with the terms of the notice.
  2. The shareholder who demands payment and deposits the shareholder's share certificates under subsection (a) retains all other rights of a shareholder until these rights are cancelled or modified by the effectuation of the proposed corporate action.
  3. A shareholder who does not demand payment or deposit the shareholder's share certificates where required, each by the date set in the dissenters' notice, is not entitled to payment for the shareholder's shares under this chapter.
  4. A demand for payment filed by a shareholder may not be withdrawn unless the corporation with which it was filed, or the surviving corporation, consents thereto.

Acts 1986, ch. 887, § 13.23; 2012, ch. 1051, § 48.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-813.

48-23-205. Share restrictions.

  1. The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is effectuated or the restrictions released under § 48-23-207.
  2. The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are cancelled or modified by the effectuation of the proposed corporate action.

Acts 1986, ch. 887, § 13.24.

48-23-206. Payment.

  1. Except as provided in § 48-23-208, as soon as the proposed corporate action is effectuated, or upon receipt of a payment demand, whichever is later, the corporation shall pay each dissenter who complied with § 48-23-204 the amount the corporation estimates to be the fair value of each dissenter's shares, plus accrued interest.
  2. The payment must be accompanied by:
    1. The corporation's balance sheet as of the end of a fiscal year ending not more than sixteen (16) months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any;
    2. A statement of the corporation's estimate of the fair value of the shares, which estimate shall equal or exceed the corporation's estimate given pursuant to § 48-23-203(b)(2)(C);
    3. An explanation of how the interest was calculated;
    4. A statement of the dissenter's right to demand payment under § 48-23-209; and
    5. A copy of this chapter if the corporation has not previously sent a copy of this chapter to the shareholder pursuant to § 48-23-201 or § 48-23-203.

Acts 1986, ch. 887, § 13.25; 2015, ch. 60, § 4.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Valuation Date.

Date for valuation of stock interest of plaintiff, who sued for fraudulent breach of oral employment contract of closely-held corporation, was the date of termination of the plaintiff's employment. Blasingame v. American Materials, Inc., 654 S.W.2d 659, 1983 Tenn. LEXIS 639 (Tenn. 1983), superseded by statute as stated in, Wakefield v. Crawley, 6 S.W.3d 442, 1999 Tenn. LEXIS 576 (Tenn. 1999), overruled in part, Athlon Sports Communs., Inc. v. Duggan, 549 S.W.3d 107, 2018 Tenn. LEXIS 310 (Tenn. June 8, 2018).

2. “Fair Value” of Stock.

As to the method to be used in determining the “fair value” of the dissenting stockholder's stock, see Blasingame v. American Materials, Inc., 654 S.W.2d 659, 1983 Tenn. LEXIS 639 (Tenn. 1983), superseded by statute as stated in, Wakefield v. Crawley, 6 S.W.3d 442, 1999 Tenn. LEXIS 576 (Tenn. 1999), overruled in part, Athlon Sports Communs., Inc. v. Duggan, 549 S.W.3d 107, 2018 Tenn. LEXIS 310 (Tenn. June 8, 2018).

The Delaware Block method, rather than discounted cash flow method, was the appropriate method to use for finding the fair value of dissenting shareholders' preferred stock. Genesco, Inc. v. Scolaro, 871 S.W.2d 487, 1993 Tenn. App. LEXIS 579 (Tenn. Ct. App. 1993).

48-23-207. Failure to take action.

  1. If the corporation does not effectuate the proposed action that gave rise to the dissenters' rights within two (2) months after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares.
  2. If, after returning deposited certificates and releasing transfer restrictions, the corporation effectuates the proposed action, it must send a new dissenters' notice under § 48-23-203 and repeat the payment demand procedure.

Acts 1986, ch. 887, § 13.26.

48-23-208. After-acquired shares.

  1. A corporation may elect to withhold payment required by § 48-23-206 from a dissenter unless the dissenter was the beneficial owner of the shares before the date set forth in the dissenters' notice as the date of the first announcement to news media or to shareholders of the principal terms of the proposed corporate action.
  2. To the extent the corporation elects to withhold payment under subsection (a), after effectuating the proposed corporate action, it shall estimate the fair value of the shares, plus accrued interest, and shall pay this amount to each dissenter who agrees to accept it in full satisfaction of the dissenter's demand. The corporation shall send with its offer a statement of its estimate of the fair value of the shares, an explanation of how the interest was calculated, and a statement of the dissenter's right to demand payment under § 48-23-209.

Acts 1986, ch. 887, § 13.27.

48-23-209. Procedure if shareholder dissatisfied with payment or offer.

  1. A dissenter may notify the corporation in writing of the dissenter's own estimate of the fair value of the dissenter's shares and amount of interest due, and demand payment of the dissenter's estimate (less any payment under § 48-23-206), or reject the corporation's offer under § 48-23-208 and demand payment of the fair value of the dissenter's shares and interest due, if:
    1. The dissenter believes that the amount paid under § 48-23-206 or offered under § 48-23-208 is less than the fair value of the dissenter's shares or that the interest due is incorrectly calculated;
    2. The corporation fails to make payment under § 48-23-206 within two (2) months after the date set for demanding payment; or
    3. The corporation, having failed to effectuate the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within two (2) months after the date set for demanding payment.
  2. A dissenter waives the dissenter's right to demand payment under this section unless the dissenter notifies the corporation of the dissenter's demand in writing under subsection (a) within one (1) month after the corporation made or offered payment for the dissenter's shares.

Acts 1986, ch. 887, § 13.28.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-302.

Part 3
Judicial Appraisal of Shares

48-23-301. Court action.

  1. If a demand for payment under § 48-23-209 remains unsettled, the corporation shall commence a proceeding within two (2) months after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the two-month period, it shall pay each dissenter whose demand remains unsettled the amount demanded.
  2. The corporation shall commence the proceeding in a court of record having equity jurisdiction in the county where the corporation's principal office (or, if none in this state, its registered office) is located. If the corporation is a foreign corporation without a registered office in this state, it shall commence the proceeding in the county in this state where the registered office of the domestic corporation merged with or whose shares were acquired by the foreign corporation was located.
  3. The corporation shall make all dissenters (whether or not residents of this state) whose demands remain unsettled, parties to the proceeding as in an action against their shares and all parties must be served with a copy of the petition. Nonresidents may be served by registered or certified mail or by publication as provided by law.
  4. The jurisdiction of the court in which the proceeding is commenced under subsection (b) is plenary and exclusive. The court may appoint one (1) or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The dissenters are entitled to the same discovery rights as parties in other civil proceedings.
  5. Each dissenter made a party to the proceeding is entitled to judgment:
    1. For the amount, if any, by which the court finds the fair value of the dissenter's shares, plus accrued interest, exceeds the amount paid by the corporation; or
    2. For the fair value, plus accrued interest, of the dissenter's after-acquired shares for which the corporation elected to withhold payment under § 48-23-208.

Acts 1986, ch. 887, § 13.30.

Cross-References. Certified mail in lieu of registered mail, § 1-3-111.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-302.

Law Reviews.

Valuation of Dissenters' Stock Under the Appraisal Remedy — Is the Delaware Block Method Right for Tennessee? (Don S. Clardy), 62 Tenn. L. Rev. 285 (1995).

NOTES TO DECISIONS

1. Valuation.

Supreme Court of Tennessee found that trial courts were not required to use the Delaware Block method to determine the fair value of a dissenting shareholder's stock. Because the court could not determine whether a trial court's evaluation of the evidence was affected by its perception that Tennessee case law mandated the use of the Delaware Block valuation method, the court vacated the trial court's order and remanded the case for reconsideration of the valuation of the dissenting shareholders'  shares. Athlon Sports Communs., Inc. v. Duggan, 549 S.W.3d 107, 2018 Tenn. LEXIS 310 (Tenn. June 8, 2018).

Tennessee overrules Blasingame v. American Materials, Inc., 654 S.W.2d 659 (Tenn. 1983), to the extent that it implicitly mandates use of the Delaware Block method for determining the fair value of a dissenting shareholder's stock. Tennessee adopts the approach espoused in Weinberger, in which trial courts are permitted to determine fair value by using any technique or method that is generally acceptable in the financial community and admissible in court, including valuation methods that incorporate projections of future value. Athlon Sports Communs., Inc. v. Duggan, 549 S.W.3d 107, 2018 Tenn. LEXIS 310 (Tenn. June 8, 2018).

48-23-302. Court costs and counsel fees.

  1. The court in an appraisal proceeding commenced under § 48-23-301 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court. The court shall assess the costs against the corporation, except that the court may assess costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under § 48-23-209.
  2. The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable against:
    1. The corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of part 2 of this chapter; or
    2. Either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this chapter.
  3. If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded to the dissenters who were benefited.

Acts 1986, ch. 887, § 13.31.

NOTES TO DECISIONS

1. Evidence of Bad Faith.

Evidence was sufficient to find corporation's conduct was arbitrary, vexatious and in bad faith, warranting the award of attorney fees and costs to dissenting shareholder. Genesco, Inc. v. Scolaro, 871 S.W.2d 487, 1993 Tenn. App. LEXIS 579 (Tenn. Ct. App. 1993).

Decisions Under Prior Law

1. Payment of Fees.

The language in former section that “Costs and expenses of any such proceeding, including reasonable attorney fees, shall be determined and shall be assessed against the corporation…” meant that the corporation had to pay such fees as a part of the costs of the litigation. Elk Yarn Mills v. 514 Shares of Common Stock of Elk Yarn Mills, Inc., 742 S.W.2d 638, 1987 Tenn. App. LEXIS 2878 (Tenn. Ct. App. 1987).

Chapter 24
Dissolution

Part 1
Voluntary Dissolution

48-24-101. Dissolution by incorporators or initial directors.

  1. A majority of the incorporators or initial directors of a corporation that has not issued shares or has not commenced business may dissolve the corporation by delivering to the secretary of state for filing articles of dissolution and termination that set forth:
    1. The name of the corporation;
    2. The date of its incorporation;
    3. Either that:
      1. None of the corporation's shares has been issued; or
      2. The corporation has not commenced business;
    4. That no debt of the corporation remains unpaid;
    5. That the net assets of the corporation remaining after winding up have been distributed to the shareholders, if shares were issued; and
    6. That a majority of the incorporators or initial directors authorized the dissolution and the date dissolution was thus authorized.
  2. If the secretary of state finds that the articles of dissolution and termination of corporate existence comply with the requirements of subsection (a) and are accompanied by a tax clearance for termination or withdrawal relative to such corporation, then the secretary of state shall file the articles of dissolution and termination of corporate existence. Upon such filing, the existence of the corporation shall cease, except that the termination of corporate existence shall not take away or impair any remedy to or against the corporation, its directors, officers or shareholders, for any right or claim existing or any liability incurred, prior to such termination. Any such action or proceeding by or against the corporation may be prosecuted or defended by the corporation in its corporate name. The shareholders, directors, and officers have the power to take such corporate or other action as may be appropriate to protect such remedy, right, or claim.

Acts 1986, ch. 887, § 14.01; 1989, ch. 451, § 18; 2010, ch. 741, § 3.

Cross-References. Applicability of business corporation law, title 48, chs. 11-27, to corporations existing on January 1, 1988, title 48, ch. 27.

Monthly list of corporations surrendering charters, § 8-3-104.

Nonprofit corporations, dissolution, title 48, ch. 64.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-903.

Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 96.

Law Reviews.

Delaware LLCs for Tennessee Lawyers? (Richard Spore), 35 Tenn. B.J. 27 (1999).

NOTES TO DECISIONS

Decisions Under Prior Law

1. Voluntary Bankruptcy.

This provision does not restrict the authority of a director to file a voluntary petition in bankruptcy for the corporation. In re De Camp Glass Casket Co., 272 F. 558, 1921 U.S. App. LEXIS 1650 (6th Cir. Tenn. 1921), cert. denied, Hamilton v. De Camp Glass Casket Co., 256 U.S. 703, 41 S. Ct. 624, 65 L. Ed. 1179, 1921 U.S. LEXIS 1563 (1921), cert. denied, Hamilton v. De Camp Glass Casket Co., 256 U.S. 703, 41 S. Ct. 624, 65 L. Ed. 1179, 1921 U.S. LEXIS 1563 (1921).

2. Equitable Dissolution.

For cases discussing equitable dissolution of corporation due to dissension among stockholders, see Nashville Packet Co. v. Neville, 144 Tenn. 698, 235 S.W. 64, 1921 Tenn. LEXIS 65 (1921); Wood v. Myers Paper Co., 3 Tenn. App. 128, 1926 Tenn. App. LEXIS 76 (1926).

48-24-102. Dissolution by board of directors and shareholders.

  1. A corporation may be voluntarily dissolved by the written consent of its shareholders in accordance with § 48-17-104.
  2. A corporation's board of directors may propose dissolution for submission to the shareholders.
  3. For a proposal to dissolve to be adopted:
    1. The board of directors shall recommend dissolution to the shareholders unless the board of directors determines that because of conflict of interest or other special circumstances, it should make no recommendation and communicates the basis for its determination to the shareholders; and
    2. The shareholders entitled to vote shall approve the proposal to dissolve as provided in subsection (f).
  4. The board of directors may condition its submission of the proposal for dissolution on any basis.
  5. The corporation shall notify each shareholder, whether or not entitled to vote, of the proposed shareholders' meeting in accordance with § 48-17-105. The notice must also state that the purpose, or one (1) of the purposes, of the meeting is to consider dissolving the corporation.
  6. Unless the charter or the board of directors (acting pursuant to subsection (d)) requires a greater vote or a vote by voting groups, the proposal to dissolve to be adopted shall be approved by a majority of all the votes entitled to be cast on that proposal.

Acts 1986, ch. 887, § 14.02.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-901, 5-902.

Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 96.

NOTES TO DECISIONS

1. Closely Held Corporations.

In the informal procedure of a closely held corporation, where the only two stockholders are the directors, the failure of the directors to formally meet and convey their action as directors to themselves as stockholders must be disregarded as harmless. Jackson ex rel. Bohan Group v. Bohan, 861 S.W.2d 241, 1993 Tenn. App. LEXIS 275 (Tenn. Ct. App. 1993).

48-24-103. Articles of dissolution.

  1. At any time after dissolution is authorized, the corporation may dissolve by delivering to the secretary of state for filing articles of dissolution setting forth:
    1. The name of the corporation;
    2. The date dissolution was authorized;
    3. That the resolution was duly adopted by the shareholders; and
    4. A copy of the resolution or the written consent authorizing the dissolution.
  2. Unless a delayed effective date is specified in the articles of dissolution, a corporation is dissolved when the articles of dissolution are filed.

Acts 1986, ch. 887, § 14.03.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-901.

Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 96.

48-24-104. Revocation of dissolution.

  1. A corporation may revoke its dissolution at any time prior to filing the articles of termination of corporate existence by the secretary of state.
  2. Revocation of dissolution shall be authorized by shareholders in any manner that dissolution may be authorized under § 48-24-102, unless the authorization for dissolution permitted revocation by action by the board of directors alone, in which event the board of directors may revoke the dissolution without shareholder action.
  3. After the revocation of dissolution is authorized, the corporation may revoke the dissolution by delivering to the secretary of state for filing articles of revocation of dissolution that set forth:
    1. The name of the corporation;
    2. The effective date of the dissolution that was revoked;
    3. The date that the revocation of dissolution was authorized;
    4. If the corporation's board of directors (or incorporators) revoked the dissolution, a statement to that effect;
    5. If the corporation's board of directors revoked a dissolution authorized by the shareholders, a statement that revocation was permitted by action by the board of directors alone pursuant to that authorization; and
    6. If shareholder action was required to revoke the dissolution, the information required by § 48-24-103(a)(3) and (4).
  4. Revocation of dissolution is effective when the articles of revocation of dissolution are filed.
  5. When the revocation of dissolution is effective, it relates back to and takes effect as of the effective date of the dissolution and the corporation resumes carrying on its business as if dissolution had never occurred.

Acts 1986, ch. 887, § 14.04; 1989, ch. 451, § 19.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-904.

48-24-105. Effect of dissolution.

  1. A dissolved corporation continues its corporate existence but may not carry on any business, except that appropriate to wind up and liquidate its business and affairs, including:
    1. Collecting its assets;
    2. Conveying and disposing of its properties that will not be distributed in kind to its shareholders;
    3. Discharging or making provision for discharging its liabilities;
    4. Distributing its remaining property among its shareholders according to their interests; and
    5. Doing every other act necessary to wind up and liquidate its business and affairs.
  2. Dissolution of a corporation does not:
    1. Transfer title to the corporation's property;
    2. Prevent transfer of its shares or securities, although the authorization to dissolve may provide for closing the corporation's share transfer records;
    3. Subject its directors or officers to standards of conduct different from those prescribed in chapter 18 of this title;
    4. Change quorum or voting requirements for its board of directors or shareholders; change provisions for selection, resignation, or removal of its directors or officers or both; or change provisions for amending its bylaws;
    5. Prevent commencement of a proceeding by or against the corporation in its corporate name;
    6. Abate or suspend a proceeding pending by or against the corporation on the effective date of dissolution; or
    7. Terminate the authority of the registered agent of the corporation.

Acts 1986, ch. 887, § 14.05.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-901.

NOTES TO DECISIONS

1. Bankruptcy.

A corporation whose corporate charter has been revoked administratively by the Tennessee Secretary of State does have standing as a corporation to file a Chapter 11 bankruptcy petition. In re H & K Plumbing & Heating, 187 B.R. 238, 1995 Bankr. LEXIS 1427 (Bankr. W.D. Tenn. 1995).

Personal representative who was appointed to administer a decedent's estate had the authority under T.C.A. § 31-2-103 to place a corporation the decedent established into bankruptcy, even though the corporation had been dissolved, and the bankruptcy court invalidated a foreclosure sale that occurred after the corporation was placed into bankruptcy, pursuant to 11 U.S.C. § 362, even though the buyer did not know that the corporation had been placed into bankruptcy at the time he purchased property at the foreclosure sale. The corporation had the right under 11 U.S.C. § 301 to declare bankruptcy because dissolved corporations were allowed under T.C.A. § 48-24-105(a) to carry on business that was appropriate to winding up their affairs. In re Benchmark Capital, Inc., 490 B.R. 566, 2013 Bankr. LEXIS 1478 (Bankr. E.D. Tenn. Apr. 9, 2013).

Decisions Under Prior Law

1. Completion of Corporate Affairs.

A corporation could not avoid its obligations by simply dissolving; its life was prolonged until its corporate affairs were completed. Continental Ins. Co. v. Knoxville, 488 S.W.2d 50, 1972 Tenn. LEXIS 315 (Tenn. 1972).

2. Creditor's Rights.

Creditors may continue to pursue their remedies against a dissolved corporation for any right or claim existing, or any liability incurred, prior to dissolution despite the formal nonexistence of the corporation. Great American Ins. Co. v. Byrd & Watkins Constr., Inc., 630 F.2d 460, 1980 U.S. App. LEXIS 13696 (6th Cir. Tenn. 1980).

48-24-106. Known claims against dissolved corporation.

  1. A dissolved corporation may dispose of the known claims against it by following the procedure described in this section.
  2. The dissolved corporation shall notify its known claimants in writing of the dissolution at any time after its effective date. The written notice must:
    1. Describe information that must be included in a claim;
    2. State whether the claim is admitted, or not admitted, and if admitted:
      1. The amount that is admitted, which may be as of a given date; and
      2. Any interest obligation if fixed by an instrument of indebtedness;
    3. Provide a mailing address where a claim may be sent;
    4. State the deadline, which may not be fewer than four (4) months from the effective date of the written notice, by which the dissolved corporation must receive the claim; and
    5. State that, except to the extent that any claim is admitted, the claim will be barred if written notice of the claim is not received by the deadline.
  3. A claim against the dissolved corporation is barred to the extent that it is not admitted:
    1. If the dissolved corporation delivered written notice to the claimant in accordance with subsection (b) and the claimant does not deliver a written notice of the claim to the dissolved corporation by the deadline; or
    2. If the dissolved corporation delivered written notice to the claimant that the claimant's claim is rejected, in whole or in part, and the claimant does not commence a proceeding to enforce the claim within three (3) months from the effective date of the rejection notice.
  4. For purposes of this section, “claim” does not include a contingent liability or a claim based on an event occurring after the effective date of dissolution.

Acts 1986, ch. 887, § 14.06.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-909 — 5-911.

Law Reviews.

How an Insolvent Business May Avoid Bankruptcy Court (and State Court, Too) (Tisha L. Federico), 35 Tenn. B.J. 20 (1999).

48-24-107. Unknown claims against dissolved corporation.

  1. A dissolved corporation may also publish notice of its dissolution and request that persons with claims against the corporation present them in accordance with the notice.
  2. The notice must:
    1. Be published one (1) time in a newspaper of general circulation in the county where the dissolved corporation's principal office (or, if none in this state, its registered office) is or was last located;
    2. Describe the information that must be included in a claim and provide a mailing address where the claim may be sent; and
    3. State that a claim against the corporation will be barred unless a proceeding to enforce the claim is commenced within two (2) years after the publication of the notice.
  3. If the dissolved corporation publishes a newspaper notice in accordance with subsection (b), the claim of each of the following claimants is barred unless the claimant commences a proceeding to enforce the claim against the dissolved corporation within two (2) years after the publication date of the newspaper notice:
    1. A claimant who did not receive written notice under § 48-24-106;
    2. A claimant whose claim was timely sent to the dissolved corporation but not acted on; or
    3. A claimant whose claim is contingent or based on an event occurring after the effective date of dissolution.
  4. A claim may be enforced under this section:
    1. Against the dissolved corporation, to the extent of its undistributed assets; or
    2. If the assets have been distributed in liquidation, against a shareholder of the dissolved corporation to the extent of the shareholder's pro rata share of the claim or the corporate assets distributed to the shareholder in liquidation, whichever is less, but a shareholder's total liability for all claims under this section may not exceed the total amount of assets distributed to the shareholder.

Acts 1986, ch. 887, § 14.07.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-908.

Law Reviews.

How an Insolvent Business May Avoid Bankruptcy Court (and State Court, Too) (Tisha L. Federico), 35 Tenn. B.J. 20 (1999).

48-24-108. Articles of termination of corporate existence.

  1. When a corporation has distributed all its assets to its creditors and shareholders and voluntary dissolution proceedings have not been revoked, it shall deliver to the secretary of state for filing articles of termination of corporate existence. The articles shall set forth:
    1. The name of the corporation;
    2. That all the assets of the corporation have been distributed to its creditors and shareholders; and
    3. That the dissolution of the corporation has not been revoked.
  2. If the secretary of state finds that the articles of termination of corporate existence comply with the requirements of subsection (a) and are accompanied by a tax clearance for termination or withdrawal relative to such corporation, then the secretary of state shall file the articles of termination of corporate existence. Upon such filing, the existence of the corporation shall cease, except that the termination of corporate existence shall not take away or impair any remedy to or against the corporation, its directors, officers or shareholders, for any right or claim existing or any liability incurred, prior to such termination. Any such action or proceeding by or against the corporation may be prosecuted or defended by the corporation in its corporate name. The shareholders, directors, and officers have the power to take such corporate or other action as may be appropriate to protect such remedy, right, or claim.

Acts 1986, ch. 887, § 14.08; 1987, ch. 273, § 38; 2010, ch. 741, § 4.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-906.

48-24-109. Discharge or reasonable provision to be made for payment of claims — Liability of directors.

  1. Directors shall cause a dissolved corporation to discharge or make reasonable provision for the payment of claims and make distributions of assets to shareholders after payment or provision for claims.
  2. Directors of a dissolved corporation that has disposed of claims under § 48-24-106 or § 48-24-107 shall not be liable for breach of subsection (a) with respect to claims against the dissolved corporation that are barred or satisfied under § 48-24-106 or § 48-24-107.

Acts 2015, ch. 60, § 5.

Part 2
Administrative Dissolution

48-24-201. Grounds for administrative dissolution.

The secretary of state may commence a proceeding under § 48-24-202 to administratively dissolve a corporation if the:

  1. Corporation does not deliver its properly completed annual report to the secretary of state within two (2) months after it is due;
  2. Corporation is without a registered agent or registered office in this state for two (2) months or more;
  3. Name of a corporation contained in a document filed after January 1, 1988, fails to comply with § 48-14-101;
  4. Corporation does not notify the secretary of state within two (2) months that its registered agent or registered office has been changed, that its registered agent has resigned, or that its registered office has been discontinued;
  5. Corporation's period of duration stated in its charter expires; or
  6. Corporation submits to the secretary of state's office a check, bank draft, money order or other such instrument, for payment of any fee and it is dishonored upon presentation for payment.

Acts 1986, ch. 887, § 14.20; 1989, ch. 451, § 20.

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 96.

48-24-202. Procedure for and effect of administrative dissolution.

  1. If the secretary of state determines that one (1) or more grounds exist under § 48-24-201 for dissolving a corporation, the secretary of state shall serve the corporation with notice of the secretary of state's determination under §§ 48-15-104 and 48-15-105, except that such determination may be sent by first class mail.
  2. If the corporation does not correct each ground for dissolution or demonstrate to the reasonable satisfaction of the secretary of state that each ground determined by the secretary of state does not exist within two (2) months after service of the communication is perfected under §§ 48-15-104 and 48-15-105, the secretary of state shall administratively dissolve the corporation by signing a certificate of dissolution that recites the ground or grounds for dissolution and its effective date. The secretary of state shall file the original of the certificate and serve a copy on the corporation under §§ 48-15-104 and 48-15-105, except that the certificate may be sent by first class mail.
  3. A corporation administratively dissolved continues its corporate existence but may not carry on any business except that necessary to wind up and liquidate its business and affairs under § 48-24-105 and notify claimants under §§ 48-24-106 and 48-24-107.
  4. The administrative dissolution of a corporation does not terminate the authority of its registered agent.
  5. Nothing herein shall be deemed to repeal or modify § 67-4-2116 or any other provisions of law relating to the revocation of the charter of a corporation for failure to comply with the provisions thereof.

Acts 1986, ch. 887, § 14.21; 1989, ch. 451, § 21; 2012, ch. 1051, § 49.

NOTES TO DECISIONS

1. Bankruptcy.

With respect to certain limited liability company (LLC) accounts, administrative dissolution of LLC did not exclude LLC's accounts from bankruptcy estate of sole member of LLC because any assets belonging to LLC at dissolution devolved to its member trust and assets of trust were property of debtor's estate. In re Erskine, 550 B.R. 362, 2016 Bankr. LEXIS 1169 (Bankr. W.D. Tenn. Apr. 8, 2016).

48-24-203. Reinstatement following administrative dissolution.

  1. A corporation administratively dissolved under § 48-24-202 may apply to the secretary of state for reinstatement. The application must:
    1. Contain a confirmation of good standing relative to such foreign corporation;
    2. Recite the name of the corporation at its date of dissolution;
    3. State that the ground or grounds for dissolution either did not exist or have been eliminated; and
    4. State a corporate name that satisfies the requirements of § 48-14-101.
    1. If the secretary of state determines that the application contains the confirmation of good standing and information required by subsection (a), and that such information is correct, then the secretary of state shall cancel the certificate of dissolution and prepare a certificate of reinstatement that recites the secretary of state's determination and the effective date of reinstatement, file the original of the certificate, and serve a copy on the corporation under § 48-15-104.
    2. If the corporate name in subdivision (a)(4) is different than the corporate name in subdivision (a)(2), the application for reinstatement shall constitute an amendment to the charter insofar as it pertains to the corporate name.
  2. When the reinstatement is effective, it relates back to and takes effect as of the effective date of the administrative dissolution, and the corporation resumes carrying on its business as if the administrative dissolution had never occurred.

Acts 1986, ch. 887, § 14.22; 1987, ch. 273, § 39; 1991, ch. 188, § 9; 1992, ch. 771, § 1; 2010, ch. 741, §§ 5, 6; 2011, ch. 99, § 1.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-905.

48-24-204. Appeal from denial of reinstatement.

  1. If the secretary of state denies a corporation's application for reinstatement following administrative dissolution, the secretary of state shall serve the corporation under §§ 48-15-104 and 48-15-105 with a written notice that explains the reason or reasons for denial.
  2. The corporation may appeal the denial of reinstatement to the chancery court of Davidson County within thirty (30) days after service of the notice of denial is perfected. The corporation appeals by petitioning the court to set aside the dissolution and attaching to the petition copies of the secretary of state's certificate of dissolution, the corporation's application for reinstatement, and the secretary of state's notice of denial.
  3. The court may summarily order the secretary of state to reinstate the dissolved corporation or may take other action the court considers appropriate.
  4. The court's final decision may be appealed as in other civil proceedings.

Acts 1986, ch. 887, § 14.23.

48-24-205. Articles of termination following administrative dissolution or revocation.

  1. When a corporation, which has been administratively dissolved or has had its charter revoked, wishes to terminate its corporate existence, it may do so without first being reinstated by delivering to the secretary of state for filing articles of termination following administrative dissolution or revocation setting forth:
    1. The name of the corporation;
    2. The date that termination of corporate existence was authorized;
    3. That the resolution authorizing termination was duly adopted by the shareholders;
    4. A copy of the resolution or the written consent authorizing the termination; and
    5. That all the assets of the corporation have been distributed to its creditors and shareholders.
  2. If the secretary of state finds that the articles of termination following administrative dissolution or revocation comply with the requirements of subsection (a) and are accompanied by a tax clearance for termination or withdrawal relative to the corporation, then the secretary of state shall file the articles of termination of corporate existence following administrative dissolution or revocation. Upon such filing, the existence of the corporation shall cease, except that the termination of corporate existence shall not take away or impair any remedy to or against the corporation, its directors, officers or shareholders, for any right or claim existing or any liability incurred, prior to such termination. Any such action or proceeding by or against the corporation may be prosecuted or defended by the corporation in its corporate name. The shareholders, directors, and officers have the power to take such corporate or other action as may be appropriate to protect such remedy, right, or claim.

Acts 1989, ch. 451, § 22; 2010, ch. 741, § 7.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-907.

48-24-206. Reinstatement within certain amount of time — Amendment of charter — Application for reinstatement.

A corporation that has been administratively dissolved by the expiration of its period of duration may reinstate within one (1) year of the expiration of the period of duration by:

  1. Amending its charter to extend its period of duration or set the period of duration to perpetual; and
  2. Filing an application for reinstatement following administrative dissolution pursuant to § 48-24-203.

Acts 2016, ch. 688, § 1.

Part 3
Judicial Dissolution

48-24-301. Grounds for judicial dissolution.

Any court of record with proper venue in accordance with § 48-24-302 may dissolve a corporation:

  1. In a proceeding by the attorney general and reporter if it is established that the corporation:
    1. Obtained its charter through fraud;
    2. Has exceeded or abused the authority conferred upon it by law;
    3. Has violated any provision of law resulting in the forfeiture of its charter; or
    4. Has carried on, conducted, or transacted its business or affairs in a persistently fraudulent or illegal manner;

      provided, that the enumeration of these grounds for dissolution shall not exclude actions or special proceedings by the attorney general and reporter or other state officials for the dissolution of a corporation for other causes as provided in this chapter or in any other statute of this state;

  2. In a proceeding by a shareholder if it is established that:
    1. The directors are deadlocked in the management of the corporate affairs, the shareholders are unable to break the deadlock, and irreparable injury to the corporation is threatened or being suffered, or the business and affairs of the corporation can no longer be conducted to the advantage of the shareholders generally, because of the deadlock;
    2. The directors or those in control of the corporation have acted, are acting, or will act in a manner that is illegal, oppressive, or fraudulent;
    3. The shareholders are deadlocked in voting power and have failed, for a period that includes at least two (2) consecutive annual meeting dates, to elect directors; or
    4. The corporate assets are being misapplied or wasted;
  3. In a proceeding by a creditor if it is established that:
    1. The creditor's claim has been reduced to judgment, the execution on the judgment returned unsatisfied, and the corporation is insolvent; or
    2. The corporation has admitted in writing that the creditor's claim is due and owing and the corporation is insolvent; or
  4. In a proceeding by the corporation to have its voluntary dissolution continued under court supervision.

Acts 1986, ch. 887, § 14.30; 1989, ch. 451, § 23.

Textbooks. Gibson's Suits in Chancery (7th ed., Inman), § 354.

Tennessee Forms (Robinson, Ramsey and Harwell), No. 1-23.06-1.

Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, §§ 96, 97.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Suit by Stockholder.

While a stockholder who was a creditor may file a winding-up bill, the other stockholders might in the suit show that the claim was invalid, though judgment was rendered in the stockholder/creditor's favor by pro confesso against the corporation. Crutchfield v. Mutual Gaslight Co., 3 Shannon's Cases 155, 2 S.W. 658, 1886 Tenn. LEXIS 178 (1886).

2. Parties.

Stockholders were proper parties to a general creditors' bill to wind up the corporation as an insolvent concern. Sugg v. Farmers' Mut. Ins. Ass'n, 63 S.W. 226, 1901 Tenn. Ch. App. LEXIS 66 (1901).

3. Bankruptcy.

Where a corporation conveys its property to the owner of its capital stock for a nominal consideration the right to set aside the deed for fraud passes to the trustee in bankruptcy who alone can sue to subject the proceeds to the corporation's obligations. State v. Allstadt, 166 Tenn. 349, 61 S.W.2d 473, 1932 Tenn. LEXIS 140 (1933), rehearing denied, 166 Tenn. 349, 62 S.W.2d 566 (1933).

48-24-302. Procedure for judicial dissolution.

  1. Venue for a proceeding by the attorney general and reporter to dissolve a corporation lies in Davidson County. Venue for a proceeding brought by any other party named in § 48-24-301 lies in the county where the corporation's principal office (or, if none in this state, its registered office) is or was last located.
  2. It is not necessary to make shareholders parties to a proceeding to dissolve a corporation unless relief is sought against them individually.
  3. A court in a proceeding brought to dissolve a corporation may issue injunctions, appoint a receiver or custodian pendente lite with all powers and duties the court directs, take other action required to preserve the corporate assets wherever located, and carry on the business of the corporation until a full hearing can be held.
  4. In a proceeding for dissolution under § 48-24-301(2), the petitioner shall execute and file in the proceeding a bond, with sufficient surety, to cover the defendant's probable costs, including reasonable attorney fees, in defending the petition. The court shall determine the amount of the bond and may award to any party its reasonable costs, including attorney fees, if it finds for such party in a proceeding brought under § 48-24-301.

Acts 1986, ch. 887, § 14.31.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 1-34.02-1.

Law Reviews.

Rescuing the Oppressed: The Equities of Business Dissolution and Oppressive Conduct in Closely Held Corporations, 50 Tenn. B.J. 22 (2014).

48-24-303. Receivership or custodianship.

  1. A court of record having equity jurisdiction in a judicial proceeding brought to dissolve a corporation may appoint one (1) or more receivers to wind up and liquidate, or one (1) or more custodians to manage the business and affairs of the corporation. The court shall hold a hearing, after notifying all parties to the proceeding and any interested persons designated by the court, before appointing a receiver or custodian. The court appointing a receiver or custodian has exclusive jurisdiction over the corporation and all of its property wherever located.
  2. The court may appoint an individual or a domestic or foreign corporation (authorized to transact business in this state) as a receiver or custodian. The court may require the receiver or custodian to post bond, with or without sureties, in an amount the court directs.
  3. The court shall describe the powers and duties of the receiver or custodian in its appointing order, which may be amended from time to time. Among other powers:
    1. The receiver may:
      1. Dispose of all or any part of the assets of the corporation wherever located, at a public or private sale, if authorized by the court; and
      2. Sue and defend in the receiver's own name as receiver of the corporation in all courts of this state;
    2. The custodian may exercise all of the powers of the corporation, through or in place of its board of directors or officers, to the extent necessary to manage the affairs of the corporation in the best interests of its shareholders and creditors.
  4. The court during a receivership may redesignate the receiver a custodian, and during a custodianship may redesignate the custodian a receiver, if doing so is in the best interests of the corporation and its shareholders and creditors.
  5. The court from time to time during the receivership or custodianship may order compensation paid and expense disbursements or reimbursements made to the receiver or custodian and the receiver's or custodian's counsel from the assets of the corporation or proceeds from the sale of the assets.

Acts 1986, ch. 887, § 14.32.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Recovery of Collateral.

The receiver of a corporation cannot recover collateral pledged by it while a going concern though at the time the pledge was made the corporation was actually insolvent. Where assets are pledged under authority of stockholders by officers who executed renewal notes which repledged the collateral, a receiver later appointed may not attack validity of the pledge. Fact that finance committee did not authorize pledge until after creditors' bill was filed did not affect validity of pledge. Julian v. American Nat'l Bank, 21 Tenn. App. 137, 106 S.W.2d 871, 1937 Tenn. App. LEXIS 15 (Tenn. Ct. App. 1937).

48-24-304. Decree of dissolution.

  1. If after a hearing the court determines that one (1) or more grounds for judicial dissolution described in § 48-24-301 exist, it may enter a decree dissolving the corporation and specifying the effective date of the dissolution, and the clerk of the court shall deliver a certified copy of the decree to the secretary of state, who shall file it.
  2. After entering the decree of dissolution, the court shall direct the winding up and liquidation of the corporation's business and affairs in accordance with § 48-24-105 and the notification of claimants in accordance with §§ 48-24-106 and 48-24-107.

Acts 1986, ch. 887, § 14.33.

Chapter 25
Foreign Corporations

Part 1
Certificate of Authority