§ 1.01. Short title.

This title shall be known and may be cited as the "Vermont Business Corporation Act."

Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 1.02. Reservation of power.

Nothing contained in this title shall give the right to impair the obligation of any charter, or any amendment thereof, granted or made prior to November 19, 1851; nor shall the General Assembly enact any law that would so affect any charter or amendment passed prior to such date. Subject to the foregoing restriction, any act creating, continuing, altering, or renewing a corporation or body politic may be repealed by the General Assembly, as the public good requires; and any such act may be altered or amended by the General Assembly, as the public good requires, if within the exception specified in section 69 of Chapter II of the Vermont Constitution.

Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 1.20. 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. 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 this title. It may contain other information as well.
4. The document must be typewritten or printed or, if electronically transmitted, it must be in a format that can be retrieved or reproduced in typewritten or printed form or in an electronic format prescribed by the Secretary of State.
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, or by any officer of the corporation;
   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 his or her signature his or her name and the capacity in which he or she 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.
8. If the Secretary of State has prescribed a mandatory form or electronic format for the document under section 1.21 of this title, 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 one exact or conformed copy, the correct filing fee, and any penalty required by this title.
10. 1. Any of the terms of a plan or filed documents may be made dependent on facts ascertainable outside the plan or filed documents as follows: (j) (1)  Any of the terms of a plan or filed documents may be made dependent on facts ascertainable outside the plan or filed documents as follows:
       1. The manner in which the facts operate on the terms of the plan or filed document must be clearly and expressly set forth in the plan or filed document.
       2. The facts may include without limitation actions or events within the control of, or determinations made by, a part to the plan or filing the filed document or a representative of a party to the plan or filing the filed document.
    2. As used in this section:
       1. "Filed document" means a document filed with the secretary of state under any provision of this title, except chapter 15 or section 16.22 of this title.
       2. "Plan" means a plan of merger or share exchange.

          Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2007, No. 190 (Adj. Sess.), § 77, eff. June 6, 2008.

§ 1.21. Forms.

1. The Secretary of State may prescribe the form or electronic format of and furnish on request forms or specifications for formats for:
   1. Articles of incorporation. Such form shall note the information required under subsection 2.02(a) of this title, together with a summary of such information or provisions as are permitted by this title.
   2. An application for a certificate of good standing.
   3. A foreign corporation's application for a certificate of authority to transact business in this State.
   4. A foreign corporation's application for a certificate of withdrawal.
   5. The annual report.

      If the Secretary of State so requires, compliance with these forms is mandatory.

2. The Secretary of State may prescribe the form of and furnish on request forms for other documents required or permitted to be filed by this title but their use is not mandatory.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2007, No. 190 (Adj. Sess.), § 78, eff. June 6, 2008.

§ 1.22. Filing; service and copying fees.

1. The Secretary of State shall collect the following fees when the documents described in this section are delivered to the Office of the Secretary of State for filing:
   1. Articles of incorporation                                     $ 125.00      (2) Application for reserved name                                 $  20.00      (3) Notice of transfer of reserved name                             No fee      (4) Application for registered name of a foreign corpo- ration                                                               $  25.00      (5) Application for renewal of registered name of a foreign corporation                                                  $  25.00      (6) Statement of change of registered agents or      registered office, or both                                      $  25.00                                                                           and                                                                        not to                                                                        exceed                                                                     $1,000.00                                                                           per                                                                         filer                                                                           per                                                                        calen-                                                                           dar                                                                         year.      (7) Agent's statement of resignation                                No fee      (8) Amendment of articles of incorporation                        $  25.00      (9) Restatement of articles of incorporation                      $  25.00      (10) Articles of merger or share exchange                         $  50.00      (11) Articles of dissolution                                      $  20.00      (12) Articles of revocation of dissolution                        $  20.00      (13) Application for certificate of authority                     $ 125.00      (14) Application for amended certificate of authority             $  25.00      (15) Application for certificate of withdrawal                    $  20.00      (16) Annual report of a foreign corporation                       $ 200.00      (17) Annual report of a domestic corporation                      $  45.00      (18) Application for certificate of good standing                 $  25.00      (19) Any other document required or permitted to be      filed by this title                                             $  20.00
2. The Secretary of State shall collect a fee of $25.00 each time process is served on him or her under this title. The party to a proceeding causing service of process is entitled to recover this fee as costs if he or she prevails in the proceeding.
3. The Secretary of State shall collect a fee of $25.00 for copying and certifying the copy of any filed document relating to a domestic or foreign corporation.
4. When a corporation has been involuntarily terminated for failure to file its annual report, the Secretary of State shall collect, for each year the corporation failed to file its annual report, the annual report filing fee and a reinstatement fee of $25.00.

   Added 1993, No. 85 , § 2; amended 1993, No. 206 (Adj. Sess.), § 1, eff. June 14, 1994; 1997, No. 64 , § 17, eff. Jan. 1, 1998; 2003, No. 70 (Adj. Sess.), § 15, eff. March 1, 2004; 2007, No. 153 (Adj. Sess.), § 35; 2013, No. 72 , § 9.

§ 1.23. Effective time and date of document.

1. Except as provided in subsection (b) of this section, subsection 1.24(c) of this title, and section 2.03 of this title, a document accepted for filing is effective:
   1. at the date and time of filing, as evidenced by such means as the Secretary of State may use for the purpose of recording the date and time of filing; or
   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 no 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 90th day after the date it is filed.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2007, No. 190 (Adj. Sess.), § 79, eff. June 6, 2008.

§ 1.24. Correcting filed document.

1. A domestic or foreign corporation may correct a document filed by the Secretary of State if the document:
   1. is incomplete;
   2. contains an incorrect statement;
   3. was defectively executed, attested, sealed, verified, or acknowledged; or
   4. the electronic transmission of which was defective.
2. A document is corrected:
   1. by 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;
      3. correct the incorrect statement or defective execution; and
   2. by delivering the articles to the Secretary of State for filing.
3. Articles of correction are effective on the effective date of the document they correct except as to persons relying to their detriment on the uncorrected document. As to those persons, articles of correction are effective when filed.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2007, No. 190 (Adj. Sess.), § 80, eff. June 6, 2008.

§ 1.25. 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 section 1.20 of this title, the Secretary of State shall file it.
2. The Secretary of State files a document by recording it as "filed" together with his or her name and official title on the date and time of receipt, on both the document and on the record of the receipt for the filing fee. After filing a document, except as provided in sections 5.03 and 15.10 of this title, the Secretary of State shall deliver a copy of the document and filing fee receipt (or acknowledgment of receipt if no fee is required) to the domestic or foreign corporation or its representative.
3. If the Secretary of State refuses to file a document, he or she shall return it to the domestic or foreign corporation or its representative within five days after the document is delivered, together with a brief, written explanation of the reason for refusing to file the document.
4. The Secretary of State's duty to file documents under this section is ministerial. His or her filing or refusing to file a document does not:
   1. affect the validity or invalidity of the document in whole or in 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.

      Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2007, No. 190 (Adj. Sess.), § 81, eff. June 6, 2008.

§ 1.26. Appeal from Secretary of State's refusal to file document.

1. If the Secretary of State refuses to file a document delivered to his or her office for filing, the domestic or foreign corporation may appeal the refusal within 30 days after the return of the document to the Superior Court of the county of the corporation's principal office, in the case of a domestic corporation, or the corporation's registered office, in the case of a foreign corporation. The appeal is commenced by filing a civil action to compel filing the document and by attaching to the petition the document and the Secretary of State's explanation of his or her refusal to file. Such a civil action shall be tried by the court without a jury.
2. The court may summarily order the Secretary of State to file the document, sustain the Secretary's action, or take other action the court considers appropriate.
3. The court's final judgment may be appealed as in other civil actions.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 1.27. Evidentiary effect of copy of filed document.

A certificate from the Secretary of State delivered with a copy of a document filed by the Secretary of State is conclusive evidence that the document is on file with the Secretary of State.

Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2007, No. 190 (Adj. Sess.), § 82, eff. June 6, 2008.

§ 1.28. Certificate of good standing.

1. Anyone may apply to the Secretary of State to furnish a certificate of good standing for a domestic corporation or a certificate of authorization for a foreign corporation.
2. A certificate of good standing 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 law of this state, the 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 and penalties owed to this state under section 1.22 of this title have been paid if:
      1. payment is reflected in the records of the Secretary of State; and
      2. nonpayment affects the existence or authorization of the domestic or foreign corporations;
   4. that its most recent annual report required by section 16.22 of this title has been delivered to the Secretary of State;
   5. that articles of dissolution have not been filed; and
   6. other facts of records 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 good standing or authorization issued by the Secretary of State 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.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 1.29. Signing false documents.

1. No officer, director, or incorporator may sign a document, knowing that the document is false in any material respect, and intending that the document be delivered to the Secretary of State for filing.
2. A person who violates the provisions of subsection (a) of this section shall be fined not more than $1,000.00.
3. A person harmed by reliance on a false document filed in violation of the provisions of subsection (a) of this section may bring an action against the person signing and filing such document for damages and such further relief as the court deems proper.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

Cross References

Cross references. Ultra vires actions, see § 3.04 of this title.

§ 1.30. Powers.

The Secretary of State has the power reasonably necessary to perform the duties required of him or her by this title.

Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 1.40. Definitions.

As used in this title:

1. "Articles of incorporation" include amended and restated articles of incorporation, articles of merger, and special charters.
2. "Authorized shares" mean the shares of all classes a domestic or foreign corporation has authority to issue.
3. "Conspicuous" means so written that a reasonable person against whom the writing is to operate should notice it. For example, printing in italics or boldface or contrasting color, or typing in capitals or underlined, is conspicuous.
4. "Corporation" or "domestic corporation" means a corporation for profit, which is not a foreign corporation, incorporated under or subject to the provisions of this title.
5. "Deliver" or "delivery" means any method of delivery used in conventional commercial practice, including delivery by hand, mail, commercial delivery, and electronic transmission.
6. "Distribution" means a direct or indirect transfer of money or other property (except its own shares) or incurrence of indebtedness 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; or otherwise.
7. "Employee" includes an officer but not a director. A director may accept duties that make the director also an employee.
8. "Entity" includes corporation and foreign corporation; not-for-profit corporation; profit and not-for-profit unincorporated association; business trust, estate, partnership, trust, and two or more persons having a joint or common economic interest; and state, United States, and foreign government.
9. "Foreign corporation" means a corporation for profit incorporated under a law other than the law of this State.
10. "Governmental subdivision" includes authority, county, district, and municipality.
11. "Includes" denotes a partial definition.
12. "Individual" includes the estate of an individual who is incompetent or deceased.
13. "Means" denotes an exhaustive definition.
14. "Person" includes individual and entity.
15. "Principal office" means the office (in or outside this State) so designated in the annual report where the principal executive offices of a domestic or foreign corporation are located.
16. "Proceeding" includes civil suit and criminal, administrative, and investigatory action.
17. "Record date" means the date established under chapter 6 or 7 of this title on which a corporation determines the identity of shareholders and their shareholdings for purposes of this title. The determination shall be made as of the close of business on the record date unless another time for doing so is specified when the record date is fixed.
18. "Secretary" means the corporate officer to whom the board of directors has delegated responsibility under subsection 8.40(c) of this title for custody of the minutes of the meetings of the board of directors and of the shareholders and for authenticating records of the corporation.
19. "Shares" mean the units into which the proprietary interests in a corporation are divided.
20. "Shareholder" means the person in whose name shares are registered in the records of a corporation or upon presentation for registration are entitled to be registered in the records of a corporation.
21. "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.
22. "Subscriber" means a person who subscribes for shares in a corporation, whether before or after incorporation.
23. "United States" includes district, authority, bureau, commission, department, and any other agency of the United States.
24. "Voting group" means all shares of one or more classes or series that under the articles of incorporation or this title are entitled to vote and be counted together collectively on a matter at a meeting of shareholders. All shares entitled by the articles of incorporation or this title to vote generally on the matter are for that purpose a single voting group.
25. "Electronic transmission" or "electronically transmitted" means a process of communication not directly involving the physical transfer of paper that is suitable for the retention, retrieval, and reproduction of information by the recipient.
26. "Meeting" means any structured communications conducted by participants in person or through the use of electronic or telecommunications medium permitting simultaneous or sequentially structured communications for the purpose of reaching a collective agreement.
27. "Sign" or "signature" includes any manual, facsimile, conformed, or electronic signature.

    Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2007, No. 190 (Adj. Sess.), § 83, eff. June 6, 2008; 2013, No. 96 (Adj. Sess.), § 42.

§ 1.41. Notice.

1. Notice under this title must be in writing unless oral notice is authorized in the bylaws of the corporation and is reasonable under the circumstances.
2. Notice may be communicated in person; by telephone, voice mail, telegraph, teletype, facsimile, or other form of wire, wireless, or electronic communication; or by mail or private carrier or other method of delivery. If these forms of personal notice are impracticable, notice 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 to shareholders.  Written notice by a domestic or foreign corporation to its shareholder, if in a comprehensible form, is effective when:
   1. mailed first class postpaid and correctly addressed to the shareholder's address as shown in the corporation's current record of shareholders; or
   2. electronically transmitted to the shareholder in a manner authorized by the shareholder.
4. Notice to corporations.  Written notice to a domestic or foreign corporation (authorized to transact business in this State) may be addressed to:
   1. its registered agent at its registered office;
   2. the corporation or its secretary at its principal office shown in its most recent annual report; or
   3. in the case of a foreign corporation that has not yet delivered an annual report, the corporation or its secretary at its principal office shown in its application for a certificate of authority.
5. Except as provided in subsection (c) of this section, written notice, if in a comprehensible form, is effective at the earliest of the following:
   1. when received;
   2. five days after its deposit in the U.S. mail, as evidenced by the postmark, if mailed postpaid and correctly addressed;
   3. on the date shown on the return receipt, if sent by registered or certified mail, return receipt requested, and the receipt is signed by or on behalf of the addressee.
6. Oral notice is effective when communicated if communicated in a comprehensible manner.
7. If this title prescribes notice requirements for particular circumstances, those requirements govern. If articles of incorporation or bylaws prescribe notice requirements, not inconsistent with this section or other provisions of this title, those requirements govern.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2007, No. 190 (Adj. Sess.), § 84, eff. June 6, 2008.

§ 1.42. Number of shareholders.

1. For purposes of this title, the following identified as a shareholder in a corporation's current record of shareholders constitutes one shareholder:
   1. all co-owners of the same shares;
   2. a corporation, partnership, trust, estate, or other entity;
   3. the trustees, guardians, custodians, or other fiduciaries of a single trust, estate, or account.
2. For purposes of this title, shareholdings registered in substantially similar names constitute one shareholder if it is reasonable to believe that the names represent the same person. The provisions of this subsection shall not affect the voting rights of shareholders under chapter 7 of this title.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 2.01. Incorporators.

One or more natural persons of majority age may act as the incorporator or incorporators of a corporation by delivering articles of incorporation to the secretary of state for filing.

Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 2.02. Articles of incorporation.

1. The articles of incorporation shall set forth:
   1. a corporate name for the corporation that satisfies the requirements of section 4.01 of this title;
   2. the classes of shares, if any, and the number of shares in each class that the corporation is authorized to issue;
   3. the number of shares the corporation is authorized to issue;
   4. the street address of the corporation's initial registered office and the name of its initial registered agent at that office;
   5. the name and address of each incorporator;
   6. one or more classes of shares that together have unlimited voting rights; and
   7. one 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.
2. The articles of incorporation may set forth:
   1. the names and addresses of the individuals who are to serve as the initial board of directors;
   2. provisions not inconsistent with law regarding:
      1. the purpose or purposes for which the corporation is organized;
      2. managing the business and regulating the affairs of the corporation;
      3. defining, limiting, and regulating the powers of the corporation, its board of directors, and shareholders, including provisions relating to:
         1. prescribing shareholder action without a meeting under section 7.04 of this title;
         2. authorizing special voting groups of shareholders under section 7.25 of this title;
         3. prescribing the number of shareholders constituting a quorum of shareholders for voting on voting groups, under sections 7.26 and 7.27 of this title;
         4. requiring a greater than majority vote for action by voting groups of shareholders, under sections 7.27 and 10.21 of this title;
         5. the election of directors by cumulative voting under section 7.28 of this title;
         6. the election of directors by greater than plurality of vote, under section 7.28 of this title;
         7. prescribing the qualifications for directors under section 8.02 of this title;
         8. fixing or changing the number of directors, in accordance with section 8.03 of this title;
         9. the election of directors by class of share, under section 8.04 of this title;
         10. staggering the terms of directors so that all directors are not elected in the same year, in accordance with section 8.06 of this title;
         11. restricting or eliminating the power of shareholders to remove directors without cause, under section 8.08 of this title;
         12. prescribing the manner of filling a vacancy on the board of directors, under section 8.10 of this title;
         13. fixing the compensation of the board of directors, or restricting or eliminating such power, under section 8.11 of this title;
         14. action by the board of directors without a board meeting under section 8.21 of this title;
         15. notice of regular meetings of the board of directors under section 8.22 of this title;
         16. requiring a greater than majority vote for action taken at a meeting of the board of directors, under section 8.24 of this title;
         17. the creation of committees by the board of directors and the establishment of the powers of such committees under section 8.25 of this title;
         18. restricting the authority of the corporation to indemnify officers, employees, and agents of the corporation under section 8.56 of this title;
         19. limiting the power of the board of directors to amend the articles of incorporation under section 10.02 of this title;
         20. restricting the power of the board of directors to amend the bylaws of the corporation under sections 10.20 and 10.22 of this title;
         21. dispensing with the board of directors entirely, or in limited circumstances, or restricting the functions of the board, in accordance with the provisions of chapter 20 of this title;
      4. provisions establishing the designations, preferences, limitations, and relative rights of share classes, including provisions relating to:
         1. dividing shares into classes and classes of shares into series, under sections 6.01 and 6.02 of this title;
         2. redeeming shares at the option of the corporation or the shareholder, under section 6.01 of this title;
         3. restricting share dividends under section 6.23 of this title;
         4. prohibiting shares to be issued without certificates, under section 6.26 of this title;
         5. restricting the transfer of shares under section 6.27 of this title;
         6. giving shareholders preemptive rights to acquire unissued shares under section 6.30 of this title;
         7. prohibiting the reissuance of shares, under section 6.31 of this title;
         8. restricting distributions in accordance with section 6.40 of this title;
         9. permitting cumulative voting for directors under section 7.28 of this title;
         10. limiting or denying the voting rights of classes of shares under section 7.21 of this title;
         11. giving classes of shares more or less than one vote per share, under section 7.21 of this title;
      5. a par value for authorized shares or classes of shares;
      6. the imposition of personal liability on shareholders for the debts of the corporation to a specified extent and upon specified conditions.
   3. any provision that under this title is required or permitted to be set forth in the bylaws; and
   4. a provision eliminating or limiting the liability of a director to the corporation or its shareholders for money damages for any action taken, or any failure to take any action, solely as a director, based on a failure to discharge his or her own duties in accordance with section 8.30 of this title, except liability for:
      1. the amount of a financial benefit received by a director to which the director is not entitled;
      2. an intentional or reckless infliction of harm on the corporation or the shareholders;
      3. a violation of section 8.33 of this title; or
      4. an intentional or reckless criminal act.

         Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

Cross References

Cross references. Articles of association of professional corporations, see 11 V.S.A. § 802.

Articles of association of railroad corporations, see 5 V.S.A. § 3478.

§ 2.03. Incorporation.

1. Unless a delayed effective date is specified, the corporate existence begins when the Secretary of State issues a certificate of incorporation, after finding that the articles of incorporation conform to law, and that all fees imposed under section 1.22 of this title have been paid.
2. The Secretary of State's filing of the articles of incorporation 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.
3. The Secretary of State shall maintain a separate record of the number of corporations that deliver articles of incorporation to the Secretary for filing by electronic transmission.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2009, No. 78 (Adj. Sess.), § 44c, eff. April 15, 2010.

§ 2.04. Liability for preincorporation transactions.

All persons purporting to act as or on behalf of a corporation, knowing there was no incorporation under this title, are jointly and severally liable for all liabilities created while so acting.

Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 2.05. Organization of corporation.

1. After incorporation:
   1. if initial directors are named in the articles of incorporation, 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 articles, the incorporator or incorporators shall hold an organizational meeting at the call of a majority of the incorporators:
      1. to elect directors and complete the organization of the corporation; or
      2. to elect a board of directors who shall complete the organization of the corporation.
2. Action required or permitted by this title to be taken by incorporators at an organizational meeting may be taken without a meeting each time action taken is evidenced by one or more written consents describing the action taken and signed by each incorporator.
3. An organizational meeting may be held in or outside this State.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

Cross References

Cross references. Board of directors, see § 8.01 et seq. of this title.

§ 2.06. 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 provisions for managing the business and regulating the affairs of the corporation that are not inconsistent with law or the articles of incorporation, and may be stored or depicted in any tangible or electronic medium.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2009, No. 78 (Adj. Sess.), § 38, eff. April 15, 2010.

§ 3.01. Purposes.

1. Every corporation incorporated under this title has the purpose of engaging in any lawful business unless a more limited purpose is set forth in the articles of incorporation.
2. A corporation engaging in a business that is subject to regulation under another statute of this State may incorporate under this title only if permitted by, and subject to all limitations of, the other statute, including:
   1. banks, savings and loan associations, credit unions, and other financial institutions regulated under Title 8;
   2. insurance companies regulated under Title 8;
   3. public service utilities regulated under Title 30;
   4. railroad companies regulated under Title 19; and
   5. professional corporations under 11 V.S.A. chapter 3 or 4.

      Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2001, No. 77 (Adj. Sess.), § 4.

§ 3.02. General powers.

Unless its articles of incorporation provide 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 and convenient to carry out its business and affairs, including without limitation power:

1. To sue and be sued, complain and defend in its corporate name. A court or other adjudicative body shall permit a corporation to appear through a nonattorney representative if:
   1. the proposed nonattorney representative is authorized to represent the corporation;
   2. the proposed nonattorney representative demonstrates adequate legal knowledge and skills to represent the organization without unduly burdening the opposing party or the court; and
   3. the proposed nonattorney representative shares a common interest with the corporation.
2. To 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. To make and amend bylaws, not inconsistent with its articles of incorporation or with the laws of this State, for managing the business and regulating the affairs of the corporation.
4. To 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. To sell, convey, mortgage, pledge, lease, exchange, and otherwise dispose of all or any part of the property.
6. To purchase, receive, subscribe for, or otherwise acquire; own, hold, vote, use, sell, mortgage, lend, pledge, or otherwise dispose of; and deal in or with shares or other interests in, or obligations of, any other entity.
7. To make contracts, including partnership agreements, and guarantees, and incur liabilities, borrow money at such rates of interest as the corporation may determine, 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 by covenants requiring the consent of another person to an action to be taken by the corporation and by mortgage or pledge of any of its property, franchises, or income.
8. To lend money, invest and reinvest its funds, and receive and hold real and personal property as security for repayment.
9. To be a promoter, partner, member, associate, or manager of any partnership, joint venture, trust, or other entity.
10. To conduct its business, locate offices, and exercise the powers granted by this title within or outside this State.
11. To elect directors and appoint officers, employees, and agents of the corporation, define their duties, fix their compensation, and lend them money and credit.
12. To 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 its current or former directors, officers, employees, and agents.
13. To make donations for the public welfare or for charitable, scientific, or educational purposes.
14. To transact any lawful business that will aid governmental policy.
15. To make payments or donations, or do any other act, not inconsistent with law, that furthers the business and affairs of the corporation.
16. To delegate to any other person the authority to act for or in the name of the corporation.

    Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 3.03. [Reserved.].

1. Except as provided in subsection (b) of this section, 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:
   1. in a proceeding by a shareholder against the corporation to enjoin the act;
   2. in a proceeding by 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. in a proceeding by the attorney general under section 14.30 of this title.
3. In a shareholder's proceeding under subdivision (b)(1) of this section, 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.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

Cross References

Cross references. Injunctions generally, see V.R.C.P. 65.

Signing false documents, see § 1.29 of this title.

§ 4.01. Corporate head.

1. A corporate name:
   1. shall contain the word "corporation," "incorporated," "company," or "limited," or the abbreviation "corp.," "inc.," "co.," or "ltd.," or words or abbreviations of like import in another language;
   2. may not contain language stating or implying that the corporation is organized for a purpose other than that permitted by section 3.01 of this title and its articles of incorporation;
   3. shall not have the word "cooperative" or any abbreviation thereof as part of its name unless the corporation is a worker cooperative corporation organized under 11 V.S.A. chapter 8 or the articles of incorporation contain all of the provisions required of a corporation organized as a cooperative association; and
   4. shall not include any word not otherwise authorized by law.
2. Except as authorized by subsections (c) and (d) of this section, a corporate name shall be distinguishable in the records of the Secretary of State from any name granted, registered, or reserved under this chapter, or the name of any other entity, whether domestic or foreign, that is reserved, registered, or granted by or with the Secretary of State.
3. A corporation may apply to the Secretary of State for authorization to use a name that is not distinguishable in the records from one or more of the names described in subsection (b) of this section. The Secretary of State shall authorize use of the name applied for if:
   1. the other corporation or business consents to the use in writing and submits an undertaking in form satisfactory to the Secretary of State to change its name to a name that is distinguishable in the records from the name of the applying corporation; or
   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.
4. A corporation may use the name, including the fictitious name, of another domestic or foreign corporation that is used in this State if the other corporation is incorporated or authorized to transact business in this State and the proposed user corporation:
   1. has merged with the other corporation;
   2. has been formed by reorganization of the other corporation; or
   3. has acquired all or substantially all of the assets, including the corporate name, of the other corporation.

      Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 1995, No. 179 (Adj. Sess.), § 1a, eff. Jan. 1, 1997; 2015, No. 17 , § 8.

§ 4.02. Reserved name.

1. A person may reserve the exclusive use of a corporate name, including a fictitious name for a foreign corporation whose corporate name is not available, 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 is available, he or she shall reserve the name for the applicant's exclusive use for a 120-day period. Such 120-day period may be renewed no more than twice.
2. The owner of a reserved corporate name may transfer the reservation to another person by delivering to the Secretary of State a signed notice of the transfer that states the name and address of the transferee.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

Cross References

Cross references. Corporate name of foreign corporation, see § 15.06 of this title.

Filing fee, see § 1.22 of this title.

§ 4.03. Registered name.

1. A foreign corporation may register its corporate name, or its corporate name with any addition required by section 15.06 of this title, if the name is distinguishable in the records of the Secretary of State from the corporate or business names that are not available under section 4.01(b)(3) of this title.
2. A foreign corporation registers its corporate name, or its corporate name with any addition required by section 15.06 of this title, by delivering to the Secretary of State for filing an application:
   1. setting forth its corporate name, or its corporate name with any addition required by section 15.06 of this title, 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 good standing or a document of similar import from the state or country of incorporation.
3. The name is registered for the applicant's exclusive use upon the effective date of the application.
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) of this section, between October 1 and December 31 of the preceding year. The renewal application when filed renews the registration for the following calendar year.
5. A foreign corporation whose registration is effective may thereafter qualify as a foreign corporation under the registered name or consent in writing to the use of that name by a corporation thereafter incorporated under 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.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2015, No. 17 , § 9.

§ 5.01. Registered office and registered agent.

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 nonprofit domestic corporation whose business office is identical with the registered office; or
   3. a foreign corporation or nonprofit foreign corporation authorized to transact business in this State whose business office is identical with the registered office.

      Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

Cross References

Cross references. Registered office and registered agent of foreign corporation, see § 15.07 of this title.

§ 5.02. 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. the street address of its current registered office;
   3. if the current registered office is to be changed, the street address of the new registered office;
   4. the name of its current registered agent;
   5. if the current registered agent is to be changed, the name of the new registered agent and the new agent's written consent (either on the statement or attached to it) to the appointment; and
   6. 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 the agent's business office, the agent may change the street address of the registered office of any corporation for which he or she 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) of this section and recites that the corporation has been notified of the change.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

Cross References

Cross references. Change of registered office and registered agent of foreign corporation, see § 15.08 of this title.

Filing fee, see § 1.22 of this title.

§ 5.03. Resignation of registered agent.

1. A registered agent may resign his or her agency appointment by signing and delivering to the Secretary of State for filing, and the corporation at its registered office, the signed original and two exact copies of a statement of resignation. The statement may include a statement that the registered office is also discontinued.
2. After filing the statement, the Secretary of State shall mail one copy to the registered office (if not discontinued) and the other copy to the corporation at its principal office.
3. The agency appointment is terminated, and the registered office discontinued if so provided, on the 31st day after the date on which the statement is filed.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

Cross References

Cross references. Resignation of registered agent of foreign corporation, see § 15.09 of this title.

§ 5.04. Service on corporation.

1. The corporation's registered agent shall be an agent of such corporation upon whom any process, notice, or demand required or permitted by law to be served upon the corporation may be served.
2. Whenever a corporation shall fail to appoint or maintain a registered agent in this State, or whenever its registered agent cannot with reasonable diligence be found at the registered office, then the Secretary of State shall be an agent of such corporation upon whom any such process, notice or demand may be served. Service on the Secretary of State of any such process, notice, or demand shall be made by delivering to and leaving with him or her, or with any clerk having charge of the corporation department of his or her office, duplicate copies of such process, notice, or demand. In the event any such process, notice, or demand is served on the Secretary of State, he or she shall immediately cause one of the copies thereof to be forwarded by registered or certified mail, return receipt requested, addressed to the corporation at its registered office.
3. The Secretary of State shall keep a record of all processes, notices, and demands served upon the Secretary under this section, and shall record therein the time of such service and the Secretary's action with reference thereto.
4. Nothing herein contained shall limit or affect the right to serve any process, notice, or demand required or permitted by law to be served upon a corporation in any other manner now or hereafter permitted by law, or by rule.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

Cross References

Cross references. Fee for service of process on secretary of state, see § 1.22 of this title.

Service of process generally, see V.R.C.P. 4.

Service of process on foreign corporation, see § 15.10 of this title.

§ 6.01. Authorized shares.

1. The articles of incorporation must prescribe the classes of shares and the number of shares of each class that the corporation is authorized to issue. If more than one class of shares is authorized, the articles of incorporation 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 articles of incorporation. 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 section 6.02 of this title.
2. The articles of incorporation must authorize:
   1. one or more classes of shares that together have unlimited voting rights; and
   2. one 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 articles of incorporation may authorize one 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 this act;
   2. are redeemable or convertible as specified in the articles of incorporation;
      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.
4. Terms of shares may be made dependent upon facts objectively ascertainable outside the articles of incorporation in accordance with subsection 1.20(j) of this title.
5. Any of the terms of shares may vary among holders of the same class or series so long as such variations are expressly set forth in the articles of incorporation.
6. The description of the designations, preferences, limitations, and relative rights of share classes in subsection (c) of this section is not exhaustive.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2007, No. 190 (Adj. Sess.), § 85, eff. June 6, 2008.

§ 6.02. Terms of class or series determined by board of directors.

1. If the articles of incorporation so provide, the board of directors may determine, in whole or in part, the preferences, limitations, and relative rights (within the limits set forth in section 6.01 of this title) of:
   1. any class of shares before the issuance of any shares of that class; or
   2. one 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.

      Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 6.03. Issued and outstanding shares.

1. A corporation may issue the number of shares of each class or series authorized by the articles of incorporation. 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 limitations of subsection (c) of this section and to section 6.40 of this title.
3. At all times that shares of the corporation are outstanding, one or more shares that together have unlimited voting rights and one or more shares that together are entitled to receive the net assets of the corporation upon dissolution must be outstanding.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 6.04. 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;
   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 subsection 6.25(b) of this title.
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:
   1. that the scrip will become void if not exchanged for full shares before a specified date; and
   2. that the shares for which the scrip is exchangeable may be sold and the proceeds paid to the scripholders.

      Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 6.20. Subscription for shares before incorporation.

1. A subscription for shares entered into before incorporation is irrevocable for six 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, and unless the subscription agreement provides otherwise, if the debt remains unpaid more than 20 days after the corporation sends written demand for payment to the subscriber, the corporation may rescind the agreement.
5. A subscription agreement entered into after incorporation is a contract between the subscriber and the corporation subject to section 6.21 of this title.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 6.21. Issuance of shares.

1. The powers granted in this section to the board of directors may be reserved to the shareholders by the articles of incorporation.
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 performed, or other securities of the corporation.
3. Before the corporation issues shares, the board of directors must determine that the consideration received or to be received for shares to be issued is adequate. That 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. No share shall be issued until such share is fully paid.
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 are 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 part.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2007, No. 190 (Adj. Sess.), § 86, eff. June 6, 2008.

§ 6.22. 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 (section 6.21) or specified in the subscription agreement (section 6.20).
2. A shareholder of a corporation is not personally liable for the acts or debts of the corporation except that he or she may become personally liable by reason of his or her 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 to the corporation or its creditors for any unpaid portion of such consideration.
4. An executor, administrator, conservator, guardian, trustee, assignee for the benefit of creditors, or receiver shall not be personally liable to the corporation as a holder of or subscriber to shares of a corporation but the estate and funds in his or her hands shall be liable to the corporation as a holder of or subscriber to the shares of a corporation.
5. No pledgee or other holder of shares as collateral security shall be personally liable as a shareholder.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 6.23. Share dividends.

1. Unless the articles of incorporation provide otherwise, shares may be issued pro rata and without consideration to the corporation's shareholders or to the shareholders of one or more classes or series. An issuance of shares under this subsection is a share dividend.
2. Shares of one class or series may not be issued as a share dividend on shares of another class or series unless:
   1. the articles of incorporation so authorize;
   2. a majority of the votes entitled to be cast by the class or series to be issued approve 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.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 6.24. Share options.

1. A corporation may issue rights, options, or warrants for the purchase of shares or other securities of the corporation. The board of directors shall determine:
   1. the terms upon which the rights, options, or warrants are issued; and
   2. the terms, including the consideration for which the shares or other securities are to be issued.
2. The authorization by the board of directors for the corporation to issue such rights, options, or warrants constitutes authorization of the issuance of the shares or other securities for which the rights, options, or warrants are exercisable.
3. The terms and conditions of such rights, options, or warrants, including those outstanding on the effective date of this section, may include, without limitation, restrictions or conditions that:
   1. preclude or limit the exercise, transfer, or receipt of such rights, options, or warrants by any person or persons owning or offering to acquire a specified number or percentage of the outstanding shares or other securities of the corporation or by any transferee or transferees of any such person or persons; or
   2. invalidate or void such rights, options, or warrants held by any such person or persons or any such transferee or transferees.

      Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2007, No. 190 (Adj. Sess.), § 87, eff. June 6, 2008.

§ 6.25. Form and content of certificates.

1. Shares may but need not be represented by certificates. Unless this title or other 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:
   1. on its face, the name of the issuing corporation and that it is organized under the law of this State;
   2. on its face, the name of the person to whom issued; and
   3. on its face, the number and class of shares and the designation of the series, if any, the certificate represents; and
   4. on its face or on its back, the existence of restrictions on transfers of shares, if any, as provided in section 6.27 of this title.
3. If the issuing corporation is authorized to issue different classes of shares or different series within a class, the following designations, rights, preferences, and limitations shall 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:
   1. the designations, relative rights, preferences, and limitations applicable to each class; and
   2. the variations in rights, preferences, and limitations determined for each series (and the authority of the board of directors to determine variations in future series); and
   3. the corporation's right, if any, to make distributions pursuant to subdivision 6.40(c)(2) of this title which may impair preferential rights.
4. Each share certificate:
   1. must be signed (either manually or in facsimile) by two 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.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 6.26. Shares without certificates.

1. Unless the articles of incorporation or bylaws require that shares shall be represented by certificates, 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, and at least annually thereafter, the corporation shall send the shareholder a written statement of the information required on certificates by subsections 6.25(b) and (c), and, if applicable, section 6.27 of this title.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 6.27. Restriction on transfer of shares and other securities.

1. The articles of incorporation, 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 such shares agree in writing to the restriction, 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 subsection 6.26(b) of this title. 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;
   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;
   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" include a security convertible into or carrying a right to subscribe for or acquire shares.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

Cross References

Cross references. Restriction on transfer of shares of close corporation, see § 20.05 of this title.

§ 6.28. Expense of issue.

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

Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 6.30. Shareholders' preemptive rights.

1. The shareholders of a corporation do not have a preemptive right to acquire the corporation's unissued shares unless the articles of incorporation contain a statement that "the corporation elects to have preemptive rights," or words of similar import.
2. A corporation electing to have preemptive rights may include in its articles of incorporation a statement prescribing the type and extent of preemptive rights granted to the shareholders. The statement may include, modify, or exclude any of the terms provided under subdivisions (1) through (6) of this subsection. If the articles of incorporation of a corporation electing to have preemptive rights do not include a statement prescribing the preemptive rights, the following terms shall apply:
   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 his or her 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 articles of incorporation that are issued within six months from the effective date of incorporation;
      4. shares sold otherwise than for money.
   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.
   6. Shares subject to preemptive rights that are not acquired by shareholders may be issued to any person for a period of one year after being offered to shareholders at a consideration set for the exercise of preemptive rights. An offer at a lower consideration or after the expiration of one year is subject to the shareholders' preemptive rights.
3. For purposes of this section, "shares" include a security convertible into or carrying a right to subscribe for or acquire shares.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 6.31. Corporation's power to acquire its own shares.

1. A corporation may acquire its own shares and shares so acquired constitute authorized but unissued shares.
2. If the articles of incorporation prohibit the reissue of acquired shares, the number of authorized shares is reduced by the number of shares acquired, effective upon amendment of the articles of incorporation.
3. The board of directors may adopt articles of amendment under this section 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.

      Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 6.40. Distributions to shareholders.

1. A board of directors may authorize and the corporation may make distributions to its shareholders subject to restriction by the articles of incorporation and the limitation in subsection (c) of this section.
2. If the board of directors does not set 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 articles of incorporation permit 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) of this section on financial statements prepared on the basis of generally accepted accounting practices and principles, or on the basis of professional appraisals, or on the basis of any other method that is reasonable under the circumstances.
5. The effect of a distribution under subsection (c) of this section 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, as of the date the indebtedness is distributed;
   3. in all other cases, as of:
      1. the date the distribution is authorized if the payment occurs within 120 days after the date of authorization; or
      2. the date the payment is made if it occurs more than 120 days 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.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

Cross References

Cross references. Liability of directors for unlawful distributions, see § 8.33 of this title.

§ 7.01. Annual meeting.

Annual shareholders' meetings shall be held in this State, unless permitted in the bylaws of the corporation to be held outside this State. Annual meetings shall be held 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. An annual meeting may be conducted by means of any electronic or telecommunications mechanism, including video-conference telecommunication. The failure to hold an annual meeting at the time stated or fixed in accordance with a corporation's bylaws does not affect the validity of any corporate action.

Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2007, No. 190 (Adj. Sess.), § 88, eff. June 6, 2008.

§ 7.02. Special meetings.

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 articles of incorporation or bylaws; or
   2. if the holders of at least ten percent 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 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 section 7.03 or 7.07 of this title, 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 shall be held in this State, unless permitted in the bylaws of the corporation to be held outside this State. Meetings shall be held 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. A special meeting may be conducted by means of any electronic or telecommunications mechanism, including video-conference telecommunication.
4. Only business within the purpose or purposes described in the meeting notice required by subsection 7.05(c) of this title may be conducted at a special shareholders' meeting.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2007, No. 190 (Adj. Sess.), § 89, eff. June 6, 2008.

§ 7.03. Court-ordered meeting.

1. The Superior Court of 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:
   1. on application of any shareholder of the corporation entitled to participate in an annual meeting if an annual meeting was not held within the earlier of six months after the end of the corporation's fiscal year or 15 months after its last annual meeting; or
   2. on application of a shareholder who signed a demand for a special meeting valid under section 7.02 of this title, if:
      1. notice of the special meeting was not given within 30 days 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 meeting, determine the shares entitled to participate in the meeting, specify a record date for determining shareholders entitled to notice of and to 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.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 7.04. Action without meeting.

1. Unless the articles of incorporation preclude the taking of action required or permitted by this title without a shareholders' meeting, action required or permitted by this title to be taken at a shareholders' meeting may be taken without a meeting if the action is taken by all the shareholders entitled to vote on the action. Each action must be evidenced by one or more written consents describing the action taken, signed by all the shareholders entitled to vote on the action, and delivered to the corporation for inclusion in the minutes or filed with the corporate records. For purposes of this section, consent evidenced by electronic communications or an electronic record is written consent.
2. If the articles of incorporation contain specific authority to do so, action required or permitted by this title to be taken at a shareholders' meeting may be taken without a meeting if the action is taken by the holders of at least a majority of all of the shares entitled to vote on the action, and if each shareholder is given prior notice of the action proposed to be taken. Each action must be evidenced by one or more written consents describing the action taken, signed by the holders of at least a majority of all the shares and delivered to the corporation for inclusion in the minutes or filed with the corporate records. Prompt notice of any action taken by less than unanimous written consent in lieu of a meeting shall be given to all shareholders entitled to vote on such action under this title.
3. If not otherwise fixed under section 7.03 or 7.07 of this title, 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) of this section.
4. A consent signed under this section has the effect of a meeting vote and may be described as such in any document.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2007, No. 190 (Adj. Sess.), § 90, eff. June 6, 2008.

§ 7.05. 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 nor more than 60 days before the meeting date. Unless this title or the articles of incorporation require otherwise, the corporation is required to give notice only to shareholders entitled to vote at the meeting.
2. Unless this title or the articles of incorporation require 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 section 7.03 or 7.07 of this title, the record date for determining shareholders entitled to notice of and to vote at an annual or special shareholders' meeting is close of business on the day before the first notice is delivered 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 section 7.07 of this title, however, notice of the adjourned meeting must be given under this section to persons who are shareholders as of the new record date.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 7.06. Waiver of notice.

1. A shareholder may waive any notice required by this title, the articles of incorporation, 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 makes timely objection to holding the meeting or transacting business at the meeting;
   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 makes timely objection to considering the matter when it is presented, or when the shareholder thereafter becomes aware that the matter has been presented.
3. An objection made under subsection (b) of this section preserves the right of the shareholder to file a judicial action to challenge the validity of the meeting, transaction, or other matter under consideration.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 7.07. Record date.

1. The bylaws may fix or provide the manner of fixing the record date for one 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 less than 10 nor more than 70 days before the meeting or action requiring a determination of shareholders.
3. A determination of shareholders entitled to notice of or to 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 120 days after the date fixed for the original meeting.
4. If a court orders a meeting adjourned to a date more than 120 days 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.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 7.20. 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.
2. The shareholders' list must be made available for inspection by any shareholder, beginning two 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 of record and entitled to vote at that meeting, his or her agent, or attorney is entitled on written demand to inspect and, subject to the requirements of subsection 16.02(c) of this title, to copy the list, during regular business hours and at his or her expense, during the period it is available for inspection.
3. The corporation shall make the shareholders' list available at the meeting, and any shareholder of record and entitled to vote at that meeting, his or her agent, or attorney is entitled to inspect the list at any time during the meeting or at any adjournment.
4. If the corporation refuses to allow a shareholder of record and entitled to vote at that meeting, his or her agent, or attorney to inspect the shareholders' list before or at the meeting (or copy the list as permitted by subsection (b) of this section), the superior court of a 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, unless a shareholder, or his or her agent or attorney objects on the record or in writing to such refusal or failure prior to such action having been taken. In the event of such refusal or failure, and such objection, the action taken at the meeting shall be negated unless:
   1. the meeting is recessed for a period of not less than five days after the list is made available to the objecting party; or
   2. the corporation petitions and the superior court declares that the corporation's refusal or failure is in accordance with the law.

      Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 7.21. Voting entitlement of shares.

1. Except as provided in subsections (b) and (c) of this section or unless the articles of incorporation provide otherwise, each outstanding share, regardless of class, is entitled to one vote on each matter voted on at a shareholders' meeting. 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.
3. Subsection (b) of this section shall 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.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 7.22. Proxies.

1. A shareholder may vote his or her shares in person or by proxy.
2. A shareholder may appoint a proxy to vote or otherwise act for him or her by:
   1. signing an appointment form, either personally or by his or her attorney-in-fact; or
   2. by transmitting to the corporation or the corporation's duly authorized agent an appointment of a proxy by electronic transmission, including telephone or e-mail.
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 11 months unless a longer 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 section 7.31 or 20.12 of this title.
5. 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 his or her authority under the appointment.
6. An appointment made irrevocable under subsection (d) of this section is revoked 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 he or she did not know of its existence when he or she 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 section 7.24 of this title 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.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2001, No. 26 , § 1.

§ 7.23. 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.

      Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 7.24. Corporation's acceptance of votes.

1. If the name signed or delivered by electronic transmission 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 or delivered by electronic transmission 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 or delivered by electronic transmission purports to be that of an officer or agent of the entity;
   2. the name signed or delivered by electronic transmission 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 or delivered by electronic transmission 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 or delivered by electronic transmission 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 or deliver by electronic transmission for the shareholder has been presented with respect to the vote, consent, waiver, or proxy appointment;
   5. two or more persons are the shareholder as co-tenants or fiduciaries and the name signed or delivered by electronic transmission purports to be the name of at least one of the co-owners and the person signing or delivering by electronic transmission 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:
   1. the signature on it;
   2. the signatory's authority to sign for the shareholder; or
   3. the electronic transmission by which the proxy appointment was made.
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.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2001, No. 26 , § 2.

§ 7.25. 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 articles of incorporation or this title provide for a greater quorum, 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.
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 articles of incorporation or this title require a greater number of affirmative votes.
4. An amendment of the articles of incorporation adding, changing, or deleting a greater quorum or voting requirement for a voting group greater than specified in subsection (a) or (c) of this section is governed by section 7.27 of this title.
5. The election of directors is governed by section 7.28 of this title.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 7.26. Action by single and multiple voting groups.

1. If the articles of incorporation or this title provide for voting by a single voting group on a matter, action on that matter is taken when voted upon by that voting group as provided in section 7.25 of this title.
2. If the articles of incorporation or this title provide for voting by two 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 section 7.25 of this title. Action may be taken by one voting group on a matter even though no action is taken by another voting group entitled to vote on the matter.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 7.27. Greater quorum or voting requirements.

1. The articles of incorporation may provide for a greater quorum or voting requirement for shareholders (or voting groups of shareholders) than is provided for by this title.
2. An amendment to the articles of incorporation that adds, changes, or deletes a greater quorum or voting requirement 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 requirements then in effect or proposed to be adopted, whichever is greater.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 7.28. Voting for directors; cumulative voting.

1. Unless otherwise provided in the articles of incorporation, 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 articles of incorporation so provide.
3. A statement included in the articles of incorporation 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 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 his or her votes gives notice to the corporation not less than 48 hours before the time set for the meeting of his or her intent to cumulate his or her votes during the meeting, and if one 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.

      Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

Cross References

Cross references. Election of directors generally, see § 8.03 of this title.

Election of directors by certain classes of shareholders, see § 8.04 of this title.

§ 7.30. Voting trusts.

1. One 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 10 years after its effective date unless extended under subsection (c) of this section.
3. All or some of the parties to a voting trust may extend it for additional terms of not more than 10 years each by signing an extension agreement and obtaining the voting trustee's written consent to the extension. An extension is valid for 10 years from the date the first shareholder signs the extension agreement. The voting trustee must 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.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 7.31. Voting agreements.

1. Two or more shareholders may provide for the manner in which they will vote their shares by signing an agreement for that purpose. A voting agreement created under this section is not subject to the provisions of section 7.30 of this title.
2. A voting agreement created under this section is specifically enforceable.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 7.32. Shareholder agreements.

1. An agreement among the shareholders of a corporation that complies with this section is effective among the shareholders and the corporation even though it is inconsistent with one or more other provisions of this title in that it:
   1. eliminates the board of directors or restricts the discretion or powers of the board of directors;
   2. governs the authorization or making of distributions whether or not in proportion to ownership of shares, subject to the limitations in section 6.40 of this title;
   3. establishes who shall be directors or officers of the corporation, or their terms of office or manner of selection or removal;
   4. governs, in general or in regard to specific matters, the exercise or division of voting power by or between the shareholders and directors or by or among any of them, including the use of weighted voting rights or director proxies;
   5. establishes the terms and conditions of any agreement for the transfer or use of property or the provision of services between the corporation and any shareholder, director, officer, or employee of the corporation or among any of them;
   6. transfers to one or more shareholders or other persons all or part of the authority to exercise the corporate powers or to manage the business and affairs of the corporation, including the resolution of any issue about which there exists a deadlock among directors or shareholders;
   7. requires dissolution of the corporation at the request of one or more of the shareholders or upon the occurrence of a specified event; or
   8. otherwise governs the exercise of the corporate powers or the management of the business and affairs of the corporation or the relationship among the shareholders, the directors, and the corporation, or among any of them, and is not contrary to public policy.
2. An agreement authorized by this section shall be:
   1. set forth:
      1. in the articles of incorporation or bylaws and approved by all persons who are shareholders at the time of the agreement; or
      2. in a written agreement that is signed by all persons who are shareholders at the time of the agreement and is made known to the corporation;
   2. subject to amendment only by the holders of a majority of each class of the corporation's issued and outstanding capital stock, with each class voting as a separate group, unless the agreement provides otherwise; and
   3. valid for 10 years, unless the agreement provides otherwise.
3. The existence of an agreement authorized by this section shall be noted conspicuously on the front or back of each certificate for outstanding shares or on the information statement required by subsection 6.26(b) of this title. If at the time of the agreement the corporation has shares outstanding represented by certificates, the corporation shall recall the outstanding certificates and issue substitute certificates that comply with this subsection. The failure to note the existence of the agreement on the certificate or information statement shall not affect the validity of the agreement or any action taken pursuant to it. Any purchaser of shares who, at the time of purchase, did not have knowledge of the existence of the agreement shall be entitled to rescission of the purchase. A purchaser shall be deemed to have knowledge of the existence of the agreement if its existence is noted on the certificate or information statement for the shares in compliance with this subsection and, if the shares are not represented by a certificate, the information statement is delivered to the purchaser at or prior to the time of the purchase of the shares. An action to enforce the right of rescission authorized by this subsection must be commenced within the earlier of 90 days after discovery of the existence of the agreement or two years after the time of the purchase of the shares.
4. An agreement authorized by this section shall cease to be effective when the corporation becomes a public corporation. If the agreement ceases to be effective for any reason, the board of directors may, if the agreement is contained or referred to in the corporation's articles of incorporation or bylaws, adopt an amendment to the articles of incorporation or bylaws, without shareholder action, to delete the agreement and any references to it.
5. An agreement authorized by this section that limits the discretion or powers of the board of directors shall relieve the directors of, and impose upon the person or persons in whom such discretion or powers are vested, liability for acts or omissions imposed by law on directors to the extent that the discretion or powers of the directors are limited by the agreement.
6. The existence or performance of an agreement authorized by this section shall not be a ground for imposing personal liability on any shareholder for the acts or debts of the corporation, even if the agreement or its performance treats the corporation as if it were a partnership or results in failure to observe the corporate formalities otherwise applicable to the matters governed by the agreement.
7. Incorporators or subscribers for shares may act as shareholders with respect to an agreement authorized by this section if no shares have been issued when the agreement is made.

   Added 2007, No. 190 (Adj. Sess.), § 91, eff. June 6, 2008.

§ 7.40. Procedure in derivative proceedings.

1. A person may not commence a proceeding in the right of a domestic or foreign corporation unless such person was a shareholder of the corporation when the transaction complained of occurred or unless such 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 he or she 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.
4. 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 shareholder's behalf.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 8.01. Requirement for and duties of board of directors.

1. Except as provided in subsection (c) of this section, 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 articles of incorporation.
3. A close corporation may dispense with or limit the authority of a board of directors by describing in its articles of incorporation who will perform some or all of the duties of a board of directors, pursuant to section 20.09 of this title.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 8.02. Qualifications of directors.

The articles of incorporation 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 articles of incorporation or bylaws so prescribe.

Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 8.03. Number and election of directors.

1. A board of directors of a corporation which is not a close corporation dispensing with a board of directors pursuant to section 20.08 of this title must consist of one or more individuals, with the number specified in or fixed in accordance with the articles of incorporation or bylaws. The number of directors may be increased or decreased from time to time by amendment to, or in the manner provided in, the articles of incorporation or the bylaws.
2. Directors are elected at the first annual shareholders' meeting and at each annual meeting thereafter unless their terms are staggered under section 8.06 of this title.
3. The articles of incorporation or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and a maximum number of members, and shall state the manner in which the positions so created are to be filled. Prior to the issuance of shares the directors may adopt or change such a provision; subsequent to the issuance of shares only the shareholders may do so. 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. With respect to a close corporation, only the shareholders may fix or change the number of directors.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2007, No. 190 (Adj. Sess.), § 92, June 6, 2008.

§ 8.04. Election of directors by certain classes of shareholders.

If the articles of incorporation authorize dividing the shares into classes, the articles may also authorize the election of all or a specified number of directors by the holders of one or more authorized classes of shares. A class (or classes) of shares entitled to elect one or more directors is a separate voting group for purposes of the election of directors.

Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 8.05. 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 section 8.06 of this title.
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 shall be elected for the unexpired term of the director's predecessor in office.
5. Despite the expiration of a director's term, the director continues to serve until the director's successor is elected and qualifies or until there is a decrease in the number of directors.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 8.06. Staggered terms for directors.

The articles of incorporation may provide for staggering their terms by dividing the total number of directors into two, three, four, or five groups, with each group containing one-half, one-third, one-quarter, or one-fifth 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, fourth group, and fifth group, if any, expire at the third, fourth, or fifth annual shareholders' meeting after their election. At each annual shareholders' meeting held thereafter, directors shall be chosen for a term not to exceed five years, as the case may be, to succeed those whose terms expire.

Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 8.07. Resignation of directors.

1. A director may resign at any time by delivering written notice to the board of directors, its chair, or to the president or other officer responsible for recording the minutes of the meetings of the shareholders and directors of the corporation.
2. A resignation is effective when the notice is delivered unless the notice specifies a later effective date.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 8.08. Removal of directors by shareholders.

1. The shareholders may remove one or more directors with or without cause unless the articles of incorporation provide 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.
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. A director may be removed by the shareholders only at a meeting called for the purpose of removing the director and the meeting notice must state that the purpose, or one of the purposes, of the meeting is removal of the director.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 8.09. Removal of directors by judicial proceeding.

1. 1. The Superior Court 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 of the outstanding shares of any class if the court finds that: (a) (1)  The Superior Court 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 of the outstanding shares of any class if the court finds that:
      1. the director engaged in fraudulent or dishonest conduct relating to the corporation, or in a gross abuse of authority or discretion relating to the corporation; and
      2. removal is in the best interest of the corporation.
   2. The petition for removal shall be filed:
      1. in the county where the corporation's principal office is located;
      2. in the county where the corporation's registered office is located if the corporation has no principal office in this State; or
      3. in the Washington County Superior Court where the corporation has no principal office or registered office in this State.
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) of this section, they shall make the corporation a party defendant.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 8.10. Vacancy on board.

1. 1. If a vacancy occurs on the board of directors, including a vacancy resulting from an increase in the number of directors: (a) (1)  If a vacancy occurs on the board of directors, including a vacancy resulting from an increase in the number of directors:
      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. The articles of incorporation may require that the manner of filling a vacancy on the board of directors shall be limited to any one or more of the methods authorized by subdivision (1) of this subsection.
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 subsection 8.07(b) of this title or otherwise) may be filled before the vacancy occurs but the new director may not take office until the vacancy occurs.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 8.11. Compensation of directors.

Unless the articles of incorporation or bylaws provide otherwise, the board of directors may fix the compensation of directors.

Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 8.20. Meetings.

1. The board of directors may hold regular or special meetings, as defined in subdivision 1.40(26) of this title, in or outside this State.
2. 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, including an electronic, telecommunications, and video- or audio-conferencing conference telephone call, by which all directors participating may simultaneously or sequentially communicate with each other during the meeting. A director participating in a meeting by this means is deemed to be present in person at the meeting.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2007, No. 190 (Adj. Sess.), § 93; 2011, No. 52 , § 18, eff. May 27, 2011.

§ 8.21. Action without meeting.

1. Unless the articles of incorporation or bylaws preclude the taking of action required or permitted by this title without a meeting of the board of directors, action required or permitted by this title to be taken at a board of directors' meeting may be taken without a meeting if the action is taken by all members of the board. Each action must be evidenced by one or more written consents describing the action taken, signed by each director, and included in the minutes or filed with the corporate records reflecting the action taken.
2. Action taken under this section is effective when the last director signs the consent, unless the consent specifies a different effective date.
3. A consent signed under this section has the effect of a meeting vote and may be described as such in any document.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 8.22. Notice of meeting.

1. Unless the articles of incorporation 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 articles of incorporation or bylaws provide for a longer or shorter period, special meetings of the board of directors must be preceded by at least two business 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 articles of incorporation or bylaws.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 8.23. Waiver of notice.

1. A director may waive any notice required by this title, the articles of incorporation, or bylaws before or after the date and time stated in the notice. Except as provided by subsection (b) of this section, 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.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 8.24. Quorum and voting.

1. Unless the articles of incorporation 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. 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 articles of incorporation or bylaws require the vote of a greater number of directors.
3. A director who is present at a meeting of the board of directors or a committee 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 abstension to the presiding officer of the meeting before its adjournment of the meeting. The right of dissent or abstention is not available to a director who votes in favor of the action taken.

      Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 8.25. Committees.

1. Unless the articles of incorporation or bylaws provide otherwise, a board of directors may create one or more committees and appoint members of the board of directors to serve on them. Each committee must have two or more members, who serve at the pleasure of the board of directors.
2. The creation of a committee and appointment of 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 articles of incorporation or bylaws to take action under section 8.24 of this title.
3. Sections 8.20 through 8.24 of this title, 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 articles of incorporation or bylaws, each committee may exercise the authority of the board of directors under section 8.01 of this title.
5. A committee may not, however:
   1. authorize distributions;
   2. approve or propose to shareholders action that this title requires be approved by shareholders;
   3. fill vacancies on the board of directors or on any of its committees;
   4. amend articles of incorporation pursuant to section 10.02 of this title;
   5. adopt, amend, or repeal bylaws;
   6. approve a plan of merger not requiring shareholder approval;
   7. authorize or approve reacquisition of shares, except according to a formula or method prescribed by the board of directors; or
   8. 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 a 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 section 8.30 of this title.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 8.30. General standards for directors.

1. A director shall discharge his or her duties as a director, including the director's 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.
   3. In a manner the director reasonably believes to be in the best interests of the corporation. In determining what the director reasonably believes to be in the best interests of the corporation, a director of a corporation which has a class of voting stock registered under section 12 of the Securities Exchange Act of 1934, as the same may be amended from time to time, may, in addition, consider the interests of the corporation's employees, suppliers, creditors and customers, the economy of the State, region and nation, community and societal considerations, including those of any community in which any offices or facilities of the corporation are located, and any other factors the director in his or her discretion reasonably considers appropriate in determining what he or she reasonably believes to be in the best interests of the corporation, and the long-term and short-term interests of the corporation and its stockholders, and including the possibility that these interests may be best served by the continued independence of the corporation; provided that nothing in this subdivision shall affect in any way the interests that may be considered by the director of a corporation which does not have a class of voting stock registered under section 12 of the Securities Exchange Act of 1934, as the same may be amended from time to time, in determining what such director reasonably believes to be in the best interests of the corporation.
2. In discharging his or her 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 or more officers or employees 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 he or she has knowledge concerning the matter in question that makes reliance permitted by subsection (b) of this section 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 his or her office in compliance with this section.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 1997, No. 102 (Adj. Sess.), § 15a, eff. April 16, 1998.

§ 8.31 , 8.32. [Reserved].

1. A director who votes for or assents to a distribution made in violation of section 6.40 of this title or the articles of incorporation is personally liable to the corporation for the amount of the distribution that exceeds what could have been distributed without violating section 6.40 or the articles of incorporation if it is established that the director did not perform his or her duties in compliance with section 8.30 of this title.
2. A director held liable under subsection (a) of this section for an unlawful distribution is entitled to contribution:
   1. from every other director who could be held liable under subsection (a) for the unlawful distribution; and
   2. from each shareholder for the amount the shareholder accepted knowing the distribution was made in violation of section 6.40 of this title or the articles of incorporation.
3. A proceeding under this section is barred unless it is commenced within six years after the date on which the effect of the distribution was measured under section 6.40(e) of this title.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 8.40. Officers.

1. A corporation has the officers described in its bylaws or appointed by the board of directors in accordance with the bylaws.
2. The board of directors may elect individuals to fill one or more offices of the corporation. An officer may appoint one 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 assign to one of the officers responsibility for preparing the minutes of the directors' and shareholders' meetings and for authenticating and maintaining the records of the corporation required to be kept under subsections 16.01(a) and (e) of this title.
4. The same individual may simultaneously hold more than one office in a corporation.
5. [Repealed.]

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2001, No. 77 (Adj. Sess.), § 5; 2007, No. 190 (Adj. Sess.), § 94, eff. June 6, 2008.

§ 8.41. 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.

Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 8.42. [Reserved].

1. An officer may resign at any time by delivering notice to the president or other officer responsible for recording the minutes of the meetings of the shareholders and directors of the corporation. A resignation is effective when the notice is delivered unless the notice specifies 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.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 8.44. 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.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 8.50. Subchapter definitions.

In this subchapter:

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 the consummation of the transaction.
2. "Director" means an individual who is or was a director of a corporation 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" mean the reasonable costs incurred in connection with a proceeding, including reasonable attorney's 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.
5. "Official capacity" means:
   1. When used with respect to a director, the office of director in a corporation.
   2. When used with respect to an individual other than a director, as contemplated in section 8.56 of this title, 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. "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.
6. "Party" includes an individual who was, is, or is threatened to be made a named defendant or respondent in a proceeding.
7. "Proceeding" means any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative and whether formal or informal.
8. "Special legal counsel" means counsel that has never been an employee of the corporation and who has not, and whose firm has not, performed legal services for the corporation pertaining to the matter for which indemnification is sought for a period of at least two years before retention as special counsel.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 8.51. Authority to indemnify.

1. Except as provided in subsection (d) of this section, 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 director conducted himself or herself in good faith; and
   2. the director reasonably believed:
      1. in the case of conduct in the director's official capacity with the corporation, that the director's conduct was in its best interests; and
      2. in all other cases, that the director's conduct was at least not opposed to its best interests; and
   3. in the case of any proceeding brought by a governmental entity, the director had no reasonable cause to believe his or her conduct was unlawful, and the director is not finally found to have engaged in a reckless or intentional unlawful act.
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) of this section.
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.
5. Indemnification permitted under this section in connection with a proceeding by or in the right of the corporation is limited to reasonable expenses incurred in connection with the proceeding.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 8.52. Mandatory indemnification.

Unless limited by its articles of incorporation, 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.

Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 8.53. 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 his or her good faith belief that the director has met the standard of conduct described in section 8.51 of this title;
   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 did not meet the standard of conduct; and
   3. a determination is made that the facts then known to those making the determination would not preclude indemnification under this subchapter.
2. The undertaking required by subdivision (a)(2) of this section 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 section 8.55 of this title.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 8.54. Court-ordered indemnification.

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:

1. the director is entitled to mandatory indemnification under section 8.52 of this title, 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. the director is 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 section 8.51 of this title or was adjudged liable as described in subsection 8.51(d), but if the director was adjudged so liable the director's indemnification is limited to reasonable expenses incurred.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 8.55. Determination and authorization of indemnification.

1. Except as provided in section 8.53 of this title, a corporation may not indemnify a director under section 8.51 of this title prior to the final resolution of a proceeding, whether by judgment, order, settlement, conviction, plea, or otherwise, and 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 section 8.51.
2. The determination required by subsection (a) of this section, in accordance with the terms of section 8.51 of this title, 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 (1) of this subsection, 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 or more directors not at the time parties to the proceeding;
   3. by written opinion of special legal counsel:
      1. selected by the board of directors or its committee in the manner prescribed in subdivision (1) or (2) of this subsection; or
      2. if a quorum of the board of directors cannot be obtained under subdivision (1) and a committee cannot be designated under subdivision (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) of this section to select counsel.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 8.56. Indemnification of officers, employees, and agents.

Unless a corporation's articles of incorporation limit indemnification of an officer, employee, or agent of the corporation:

1. an officer of the corporation who is not a director is entitled to mandatory indemnification under section 8.52 of this title, and is entitled to apply for court-ordered indemnification under section 8.54 of this title, in each case to the same extent as a director;
2. the corporation may indemnify and advance expenses under this subchapter to an officer, employee, or agent of the corporation who is not a director to the same extent as a director.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 8.57. 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 him or her in that capacity or arising from his or her status as a director, officer, employee, or agent, whether or not the corporation would have power to indemnify him or her against the same liability under section 8.51 or 8.52 of this title.

Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 8.58. Application of subchapter.

1. A provision treating a corporation's indemnification of or advance for expenses to directors that is contained in its articles of incorporation, bylaws, a resolution of its shareholders or board of directors, or in a contract or otherwise, is valid only if and to the extent the provision is consistent with this subchapter. If articles of incorporation limit indemnification or advance for expenses, indemnification and advance for expenses are valid only to the extent consistent with the articles.
2. This subchapter 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.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 8.60. Definitions.

For purposes of this subchapter:

1. "Control" including the term "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 conflicting interest transaction" means a transaction effected or proposed to be effected by the corporation or by an entity controlled by the corporation that at the relevant time the director:
   1. was a party to; or
   2. had knowledge of and a material financial interest known to the director; or
   3. knew that a related person was a party or had a material financial interest.
3. "Fair to the corporation" means, for purposes of subdivision 8.61(b)(3) of this title, 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 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 judgment when participating in action on the authorization of the transaction.
5. "Related person" means:
   1. the director's spouse;
   2. a child, stepchild, grandchild, parent, stepparent, grandparent, sibling, step sibling, half sibling, aunt, uncle, niece, or nephew (or spouse of any thereof) of the director or of the director's spouse;
   3. an individual living in the same home as the director;
   4. an entity, other than the corporation or an entity controlled by the corporation, controlled by the director or any person specified in this subdivision;
   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 is a director;
      2. unincorporated entity of which the director is a general partner or a member of the governing body; or
      3. individual, trust, or estate for whom or of which the director 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.
6. "Relevant time" means:
   1. the time at which the directors' action respecting the transaction is taken in compliance with section 8.62 of this title; or
   2. if the transaction is not brought before the board of directors of the corporation or its committee for action under section 8.62 of this title, at the time the corporation, or an entity controlled by the corporation, becomes legally obligated to consummate the transaction.
7. "Required disclosure" means disclosure of:
   1. the existence and nature of the director's conflicting interest; and
   2. all facts known to the director respecting the subject matter of the transaction that a director free of such conflicting interest would reasonably believe to be material in deciding whether to proceed with the transaction.

      Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2007, No. 190 (Adj. Sess.), § 95, June 6, 2008.

§ 8.61. 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 of the corporation, in a proceeding by a shareholder or by or in the right of the corporation, on the ground that the director has an interest respecting the transaction, if it is not a director's conflicting interest transaction.
2. A director'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 of the corporation, in a proceeding by a shareholder, or by or in the right of the corporation, on the ground that the director has an interest respecting the transaction, if:
   1. the directors' action respecting the transaction was taken in compliance with section 8.62 of this title at any time;
   2. the shareholders' action respecting the transaction was taken in compliance with section 8.63 of this title 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.

      Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2007, No. 190 (Adj. Sess.), § 96, eff. June 6, 2008.

§ 8.62. Directors' action.

1. Directors' action respecting a director's conflicting interest transaction is effective for purposes of subdivision 8.61(b)(1) of this title if the transaction has been authorized by the affirmative vote of a majority, but no fewer than two, of the qualified directors who voted on the transaction after required disclosure by the conflicted director of information not already known by such qualified directors, or after modified disclosure in compliance with subsection (b) of this section, provided that:
   1. the qualified directors have deliberated and voted outside the presence of and 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) of this section, when a transaction is a director's conflicting interest transaction only because a related person described in subdivisions 8.60(5)(E) and (F) of this title is a party to or has a material financial interest in the transaction, the conflicted director is not obligated to make required disclosure to the extent that the director 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 discloses to the qualified directors voting on the transaction:
   1. all information required to be disclosed that is not so violative;
   2. the existence and nature of the director's conflicting interest; and
   3. the nature of the conflicted director's duty not to disclose the confidential information.
3. A majority, but no fewer than two, 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.
4. 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 articles of incorporation, 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.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2007, No. 190 (Adj. Sess.), § 97, eff. June 6, 2008.

§ 8.63. Shareholders' action.

1. Shareholders' action respecting a director's conflicting interest transaction is effective for purposes of subdivision 8.61(b)(2) of this title if a majority of the votes cast by the holders of all qualified shares is 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) of this section; and
   3. communication of the information that is the subject of required disclosure to the shareholders entitled to vote on the transaction, to the extent the information is not known by them.
2. A director who has a 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 knows are not qualified shares under subsection (c) of this section 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 subdivision 13.01(5) of this title, and a beneficial shareholder, as defined in subdivision 13.01(6) of this title.
   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) of this section is notified, are held by:
      1. a director who has a conflicting interest respecting the transaction; or
      2. a related person of the director, excluding a person described in subdivision 8.60(5)(F) of this title.
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 the provisions of subsection (e) of this section, 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) of this section solely because of a director's failure to comply with subsection (b) of this section, and if the director 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, 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 articles of incorporation, 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.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2007, No. 190 (Adj. Sess.), § 98, eff. June 6, 2008.

§ 10.01. Authority to amend.

1. A corporation may amend its articles of incorporation at anytime to add or change a provision that is required or permitted in the articles of incorporation or to delete a provision not required in the articles of incorporation. Whether a provision is required or permitted in the articles of incorporation 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 articles of incorporation, including provision relating to management, control, capital structure, dividend entitlement, or purpose or duration of the corporation.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 10.02. Amendment by board of directors.

Unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt one or more amendments to the corporation's articles of incorporation without shareholder action:

1. to extend the duration of the corporation if it was incorporated at a time when limited duration was required by law;
2. to delete the names and addresses of the initial directors;
3. to 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;
4. to 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. to change the corporate name by substituting the word "corporation," "incorporated," "company," "limited," or the abbreviation "corp.," "inc.," "co.," or "ltd.," for a similar word or abbreviation in the name, or by adding, deleting, or changing a geographical attribution for the name; or
6. to make any other change expressly permitted by this title to be made without shareholder action.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 10.03. Amendment proposed by board of directors to the shareholders.

1. A corporation's board of directors may propose one or more amendments to the articles of incorporation for submission to the shareholders.
2. For the amendment to be adopted:
   1. the board of directors must 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 communicates the basis for its determination to the shareholders with the amendment; and
   2. the shareholders entitled to vote on the amendment must approve the amendment as provided in subsection (e) of this section.
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 section 7.05 of this title. The notice of meeting must also state that the purpose, or one 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 this title, the articles of incorporation, or the board of directors (acting pursuant to subsection (c) of this section) require 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 sections 7.25 and 7.26 of this title by every other voting group entitled to vote on the amendment.

      Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 10.04. Voting on amendments by voting group.

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 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 all 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 of shares 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. increase the rights, preferences, or number of authorized shares of any class that, after giving effect to the amendment, have rights or preference with respect to distributions or to dissolution that are prior, superior, or substantially equal to the shares of the class;
   8. limit or deny an existing preemptive right of all or part of the shares of the 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 or more of the ways described in subsection (a) of this section, 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 or more series of shares to vote as separate voting groups under this section would affect those two 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 articles of incorporation provided that the shares are nonvoting shares.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 10.05. Amendment before issuance of shares.

If a corporation has not yet issued shares, its incorporators or board of directors may adopt one or more amendments to the corporation's articles of incorporation.

Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 10.06. Articles of amendment.

A corporation amending its articles of incorporation 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 the amendment if not contained in the amendment itself;
4. the date of each amendment's adoption;
5. if an amendment was adopted by the incorporators or board of directors without shareholder action, a statement to that effect and that shareholder action was not required;
6. if an amendment was approved by the shareholders:
   1. the designation, number of outstanding shares, number of votes entitled to be cast by each voting group entitled to vote separately on the amendment, and number of votes of each voting group indisputably represented at the meeting;
   2. either the total number of votes cast for and against the amendment by each voting group entitled to vote separately on the amendment or the total number of undisputed votes cast for the amendment by each voting group and a statement that the number cast for the amendment by each voting group was sufficient for approval by that voting group.

      Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

Cross References

Cross references. Filing fee, see § 1.22 of this title.

§ 10.07. Restated articles of incorporation.

1. A corporation's board of directors may restate its articles of incorporation at any time with or without shareholder action.
2. The restatement may include one or more amendments to the articles. If the restatement includes an amendment requiring shareholder approval, it must be adopted as provided in section 10.03 of this title.
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 section 7.05 of this title. The notice must also state that the purpose, or one 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 articles.
4. A corporation restating its articles of incorporation shall deliver to the Secretary of State for filing articles of restatement setting forth the name of the corporation and the text of the restated articles of incorporation together with a certificate setting forth:
   1. whether the restatement contains an amendment to the articles 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 articles requiring shareholder approval, the information required by section 10.06 of this title.
5. Duly adopted restated articles of incorporation supersede the original articles of incorporation and all amendments to them.
6. The Secretary of State may certify restated articles of incorporation, as the articles of incorporation currently in effect, without including the certificate information required by subsection (d) of this section.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

Cross References

Cross references. Filing fee, see § 1.22 of this title.

§ 10.08. Amendment pursuant to judicial reorganization.

1. A corporation's articles of incorporation 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 articles of incorporation after amendment contain only provisions required or permitted by section 2.02 of this title.
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 proceeding even though the court retains jurisdiction of the proceeding for limited purposes unrelated to consummation of the reorganization plan.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

Cross References

Cross references. Filing fee, see § 1.22 of this title.

Judicial dissolution, see § 14.30 et seq. of this title.

§ 10.09. Effect of amendment.

An amendment to articles of incorporation 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.

Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 10.20. Amendment by board of directors or shareholders.

1. A corporation's board of directors may amend or repeal the corporation's bylaws unless:
   1. the articles of incorporation or 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.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 10.21. Bylaw increasing quorum or voting requirement for shareholders.

1. If authorized by the articles of incorporation, 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 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) of this section may not be adopted, amended, or repealed by the board of directors.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 10.22. 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) of this section 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.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 11.01. Definitions.

As used in this chapter:

1. "Constituent corporation" means a constituent organization that is a corporation.
2. "Constituent organization" means an organization that is a party to a conversion, merger, share exchange, or domestication pursuant to this chapter.
3. "Conversion" means a transaction authorized by sections 11.02 through 11.07 of this title.
4. "Converted organization" means the converting organization as it continues in existence after a conversion.
5. "Converting organization" means the domestic organization that approves a plan of conversion pursuant to section 11.04 of this title or the foreign organization that approves a conversion pursuant to the law of its jurisdiction of formation.
6. "Domestic organization" means an organization whose internal affairs are governed by the law of this State.
7. "Domesticated corporation" means the corporation that exists after a domesticating corporation effects a domestication pursuant to sections 11.13 through 11.16 of this title.
8. "Domesticating corporation" means the corporation that effects a domestication pursuant to sections 11.13 through 11.16 of this title.
9. "Domestication" means a transaction authorized by sections 11.13 through 11.16 of this title.
10. "Governing statute" means the statute that governs an organization's internal affairs.
11. "Interest holder" means:
    1. a shareholder of a business corporation;
    2. a member of a nonprofit corporation;
    3. a general partner of a general partnership, including a limited liability partnership;
    4. a general partner of a limited partnership, including a limited liability partnership;
    5. a limited partner of a limited partnership, including a limited liability partnership;
    6. a member of a limited liability company;
    7. a shareholder of a general cooperative association;
    8. a member of a limited cooperative association or mutual benefit enterprise;
    9. a member of an unincorporated nonprofit association;
    10. a beneficiary or beneficial owner of a statutory trust, business trust, or common-law business trust; or
    11. any other direct holder of an interest.
12. "Merger" means a merger authorized by sections 11.08 through 11.12 of this title.
13. "Organization":
    1. means any of the following, whether a domestic or foreign organization, and regardless of whether organized for profit:
       1. a business corporation;
       2. a nonprofit corporation;
       3. a general partnership, including a limited liability partnership;
       4. a limited partnership, including a limited liability limited partnership;
       5. a limited liability company;
       6. a general cooperative association;
       7. a limited cooperative association or mutual benefit enterprise;
       8. an unincorporated nonprofit association;
       9. a statutory trust, business trust, or common-law business trust; or
       10. any other person that has:
           1. a legal existence separate from any interest holder of that person; or
           2. the power to acquire an interest in real property in its own name; and
    2. does not include:
       1. an individual;
       2. a trust with a predominantly donative purpose or a charitable trust;
       3. an association or relationship that is not an organization listed in subdivision (A) of this subdivision (13) and is not a partnership under 11 V.S.A. chapter 22 or 23, or a similar provision of law of another jurisdiction;
       4. a decedent's estate; or
       5. a government or a governmental subdivision, agency, or instrumentality.
14. "Organizational documents" means the organizational documents for a domestic or foreign organization that create the organization, govern the internal affairs of the organization, and govern relations between or among its interest holders, including:
    1. for a general partnership, its statement of partnership authority and partnership agreement;
    2. for a limited liability partnership, its statement of qualification and partnership agreement;
    3. for a limited partnership, its certificate of limited partnership and partnership agreement;
    4. for a limited liability company, its certificate or articles of organization and operating agreement, or comparable records as provided in its governing statute;
    5. for a business trust, its agreement of trust and declaration of trust;
    6. for a business corporation, its certificate or articles of incorporation, bylaws, and other agreements among its shareholders which are authorized by its governing statute, or comparable records as provided in its governing statute; and
    7. for any other organization, the basic records that create the organization and determine its internal governance and the relations among the persons that own it, have an interest in it, or are members of it.
15. "Personal liability" means:
    1. liability for a debt, obligation, or other liability of an organization which is imposed on a person:
       1. by the governing statute solely by reason of the person co-owning, having an interest in, or being a member of the organization; or
       2. by the organization's organizational documents under a provision of the governing statute authorizing those documents to make one or more specified persons liable for all or specified debts, obligations, or other liabilities of the organization solely by reason of the person or persons co-owning, having an interest in, or being a member of the organization; or
    2. an obligation of an interest holder under the organizational documents of an organization to contribute to the organization.
16. "Private organizational documents" means organizational documents or portions thereof for a domestic or foreign organization that are not part of the organization's public record, if any, and includes:
    1. the bylaws of a business corporation;
    2. the bylaws of a nonprofit corporation;
    3. the partnership agreement of a general partnership or limited liability partnership;
    4. the partnership agreement of a limited partnership or limited liability limited partnership;
    5. the operating agreement of a limited liability company;
    6. the bylaws of a general cooperative association;
    7. the bylaws of a limited cooperative association or mutual benefit enterprise;
    8. the governing principles of an unincorporated nonprofit association; and
    9. the trust instrument of a statutory trust or similar rules of a business trust or common-law business trust.
17. "Protected agreement" means:
    1. a record evidencing indebtedness and any related agreement in effect on July 1, 2017;
    2. an agreement that is binding on an organization on July 1, 2017;
    3. the organizational documents of an organization in effect on July 1, 2017; or
    4. an agreement that is binding on any of the partners, directors, managers, or interest holders of an organization on July 1, 2017.
18. "Public organizational documents" means the record of organizational documents required to be filed with the Secretary of State to form an organization, and any amendment to or restatement of that record, and includes:
    1. the articles of incorporation of a business corporation;
    2. the articles of incorporation of a nonprofit corporation;
    3. the statement of partnership authority of a general partnership;
    4. the statement of qualification of a limited liability partnership;
    5. the certificate of limited partnership of a limited partnership;
    6. the articles of organization of a limited liability company;
    7. the articles of incorporation of a general cooperative association;
    8. the articles of organization of a limited cooperative association or mutual benefit enterprise; and
    9. the certificate of trust of a statutory trust or similar record of a business trust.
19. "Record," used as a noun, means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.
20. "Share exchange" means a share exchange authorized by sections 11.08 through 11.12 of this title.
21. "Surviving organization" means an organization into which one or more other organizations are merged whether the organization preexisted the merger or was created by the merger.

    Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2015, No. 157 (Adj. Sess.), § E.1, eff. July 1, 2017.

§ 11.02. Conversion authorized.

1. By complying with sections 11.03 through 11.06 of this title, a domestic corporation may become a domestic organization that is a different type of organization.
2. By complying with sections 11.03 through 11.06 of this title, a domestic organization may become a domestic corporation.
3. By complying with sections 11.03 through 11.06 of this title applicable to foreign organizations, a foreign organization that is not a foreign corporation may become a domestic corporation if the conversion is authorized by the law of the foreign organization's jurisdiction of formation.
4. If a protected agreement contains a provision that applies to a merger of a domestic corporation but does not refer to a conversion, the provision applies to a conversion of the corporation as if the conversion were a merger until the provision is amended after July 1, 2017.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2015, No. 157 (Adj. Sess.), § E.1, eff. July 1, 2017.

§ 11.03. Plan of conversion.

1. A domestic corporation may convert to a different type of organization under section 11.02 of this title by approving a plan of conversion, and a domestic organization, other than a corporation, may convert into a domestic corporation by approving a plan of conversion. The plan shall be in a record and shall contain:
   1. the name of the converting corporation or organization;
   2. the name, jurisdiction of formation, and type of organization of the converted organization;
   3. the manner and basis for converting an interest holder's interest in the converting organization into any combination of an interest in the converted organization and other consideration;
   4. the proposed public organizational documents of the converted organization if it will be an organization with public organizational documents filed with the Secretary of State;
   5. the full text of the private organizational documents of the converted organization that are proposed to be in a record;
   6. the other terms and conditions of the conversion; and
   7. any other provision required by the law of this State or the organizational documents of the converting corporation.
2. A plan of conversion may contain any other provision not prohibited by law.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2015, No. 157 (Adj. Sess.), § E.1, eff. July 1, 2017.

§ 11.04. Approval of conversion.

Subject to section 11.17 of this title and any contractual rights, a converting organization shall approve a plan of conversion as follows:

1. a domestic corporation shall approve a plan of conversion in accordance with the procedures for approving a merger under section 11.10 of this title;
2. any other organization shall approve a plan of conversion in accordance with its governing statute and its organizational documents; provided:
   1. if its organizational documents do not address the manner for approving a conversion, then a plan of conversion shall be approved by the same vote required under the organizational documents for a merger; and
   2. if its organizational documents do not provide for approval of a merger, then by the approval of the number or percentage of interest holders required to approve a merger under the governing statute.

      Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2015, No. 157 (Adj. Sess.), § E.1, eff. July 1, 2017.

§ 11.05. Amendment or abandonment of plan of conversion.

1. A domestic corporation may amend a plan of conversion:
   1. in the same manner the corporation approved the plan, if the plan does not specify how to amend the plan; or
   2. by its directors and shareholders as provided in the plan, but a shareholder who was entitled to vote on or consent to approval of the conversion is entitled to vote on or consent to an amendment of the plan that will change:
      1. the amount or kind of consideration the shareholder may receive under the plan;
      2. the public organizational documents, if any, or private organizational documents of the converted organization in effect after the conversion, except for a change that the interest holders of the converted organization are not required to approve under its governing statute or organizational documents; or
      3. other terms or conditions of the plan if the change would adversely affect the shareholder in any material respect.
2. A domestic general or limited partnership may amend a plan of conversion:
   1. in the same manner the partnership approved the plan, if the plan does not specify how to amend the plan; or
   2. by the partners as provided in the plan, but a partner who was entitled to vote on or consent to approval of the conversion is entitled to vote on or consent to an amendment of the plan that will change:
      1. the amount or kind of consideration the partner may receive under the plan;
      2. the public organizational documents, if any, or private organizational documents of the converted organization in effect after the conversion, except for a change that the interest holders of the converted organization are not required to approve under its governing statute or organizational documents; or
      3. other terms or conditions of the plan if the change would adversely affect the partner in any material respect.
3. A domestic limited liability company may amend a plan of conversion:
   1. in the same manner the company approved the plan, if the plan does not specify how to amend the plan; or
   2. by the managers or members as provided in the plan, but a member who was entitled to vote on or consent to approval of the conversion is entitled to vote on or consent to an amendment of the plan that will change:
      1. the amount or kind of consideration the member may receive under the plan;
      2. the public organizational documents, if any, or private organizational documents of the converted organization in effect after the conversion, except for a change that the interest holders of the converted organization are not required to approve under its governing statute or organizational documents; or
      3. other terms or conditions of the plan if the change would adversely affect the member in any material respect.
4. 1. After a domestic converting organization approves a plan of conversion, and before a statement of conversion takes effect, the organization may abandon the conversion as provided in the plan. (d) (1)  After a domestic converting organization approves a plan of conversion, and before a statement of conversion takes effect, the organization may abandon the conversion as provided in the plan.
   2. Unless prohibited by the plan, the organization may abandon the plan in the same manner it approved the plan.
5. 1. A domestic converting organization that abandons a plan of conversion pursuant to subsection (d) of this section shall deliver a signed statement of abandonment to the Secretary of State for filing before the statement of conversion takes effect. (e) (1)  A domestic converting organization that abandons a plan of conversion pursuant to subsection (d) of this section shall deliver a signed statement of abandonment to the Secretary of State for filing before the statement of conversion takes effect.
   2. The statement of abandonment shall contain:
      1. the name of the converting organization;
      2. the date the Secretary of State filed the statement of conversion; and
      3. a statement that the converting organization has abandoned the conversion pursuant to this section.
   3. A statement of abandonment takes effect on filing, and on filing the conversion is abandoned and does not take effect.

      Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2015, No. 157 (Adj. Sess.), § E.1, eff. July 1, 2017.

§ 11.06. Statement of conversion; effective date of conversion.

1. A converting organization shall sign a statement of conversion and deliver it to the Secretary of State for filing.
2. A statement of conversion shall contain:
   1. the name, jurisdiction of formation, and type of organization prior to the conversion;
   2. the name, jurisdiction of formation, and type of organization following the conversion;
   3. if the converting organization is a domestic organization, a statement that the organization approved the plan of conversion in accordance with the provisions of this chapter, or, if the converting organization is a foreign organization, a statement that the organization approved the conversion in accordance with its governing statute; and
   4. the public organizational documents of the converted organization.
3. A statement of conversion may contain any other provision not prohibited by law.
4. If the converted organization is a domestic organization, its public organizational documents, if any, shall comply with the law of this State.
5. 1. If a converted organization is a domestic corporation, its conversion takes effect when the statement of conversion takes effect. (e) (1)  If a converted organization is a domestic corporation, its conversion takes effect when the statement of conversion takes effect.
   2. If a converted organization is not a domestic corporation, its conversion takes effect on the later of:
      1. the date and time provided by its governing statute; or
      2. when the statement of conversion takes effect.

         Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2015, No. 157 (Adj. Sess.), § E.1, eff. July 1, 2017.

§ 11.07. Effect of conversion.

1. When a conversion takes effect:
   1. The converted organization is:
      1. organized under and subject to the governing statute of the converted organization; and
      2. the same organization continuing without interruption as the converting organization.
   2. The property of the converting organization continues to be vested in the converted organization without transfer, assignment, reversion, or impairment.
   3. The debts, obligations, and other liabilities of the converting organization continue as debts, obligations, and other liabilities of the converted organization.
   4. Except as otherwise provided by law or the plan of conversion, the rights, privileges, immunities, powers, and purposes of the converting organization remain in the converted organization.
   5. A court or other authority may substitute the name of the converted organization for the name of the converting organization in any pending action or proceeding.
   6. The public organizational documents of the converted organization takes effect.
   7. The provisions of the organizational documents of the converted organization that are required to be in a record, if any, that were approved as part of the plan of conversion take effect.
   8. The interests in the converting organization are converted, and the interest holders of the converting organization are entitled only to the rights provided to them under the plan of conversion.
2. Except as otherwise provided in the organizational documents of a domestic converting organization, a conversion does not give rise to any rights that a shareholder, member, partner, limited partner, director, or third party would have upon a dissolution, liquidation, or winding up of the converting organization.
3. When a conversion takes effect, a person who did not have personal liability with respect to the converting organization and becomes subject to personal liability with respect to the converted organization as a result of the conversion has personal liability only to the extent provided by the governing statute of the converted organization and only for those debts, obligations, and other liabilities that the converted organization incurs after the conversion.
4. When a conversion takes effect, a person who had personal liability for a debt, obligation, or other liability of the converting organization but who does not have personal liability with respect to the converted organization is subject to the following rules:
   1. The conversion does not discharge any personal liability under this title to the extent the personal liability was incurred before the conversion took effect.
   2. The person does not have personal liability under this title for any debt, obligation, or other liability that arises after the conversion takes effect.
   3. This title continues to apply to the release, collection, or discharge of any personal liability preserved under subdivision (1) of this subsection as if the conversion had not occurred.
   4. The person has the rights of contribution from another person that are provided by this title, law other than this title, or the organizational documents of the converting organization with respect to any personal liability preserved under subdivision (1) of this subsection as if the conversion had not occurred.
5. When a conversion takes effect, a person may serve a foreign organization that is the converted organization with process in this State for the collection and enforcement of any of its debts, obligations, and other liabilities as provided in section 5.04 of this title.
6. If the converting organization is a registered foreign organization, its registration to do business in this State is canceled when the conversion takes effect.
7. A conversion does not require an organization to wind up its affairs and does not constitute or cause the dissolution of the organization.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2015, No. 157 (Adj. Sess.), § E.1, eff. July 1, 2017.

§ 11.08. Merger authorized; plan of merger.

1. A corporation organized pursuant to this title may merge with one or more other constituent organizations pursuant to this section and sections 11.09 through 11.12 of this title and a plan of merger if:
   1. the governing statute of each of the other constituent organizations authorizes the merger;
   2. the merger is not prohibited by the law of a jurisdiction that enacted any of the governing statutes; and
   3. each of the other constituent organizations complies with its governing statute in effecting the merger.
2. A plan of merger shall be in a record and shall include:
   1. the name and type of each constituent organization;
   2. the name and type of the surviving constituent organization and, if the surviving constituent organization is created by the merger, a statement to that effect;
   3. the terms and conditions of the merger, including the manner and basis for converting an interest holder's interest in each constituent organization into any combination of an interest in the surviving organization and other consideration;
   4. if the merger creates the surviving constituent organization, the surviving constituent organization's organizational documents that are proposed to be in a record; and
   5. if the merger does not create the surviving constituent organization, any amendments to the surviving constituent organization's organizational documents that are, or are proposed to be, in a record.

      Added 2015, No. 157 (Adj. Sess.), § E.1, eff. July 1, 2017.

§ 11.09. Share exchange authorized; plan of share exchange.

1. A corporation may acquire all of the outstanding shares of one or more classes or series of another corporation if the board of directors of each corporation adopts, and its shareholders, if required under section 11.10 of this title, approve a plan of share exchange.
2. The plan of share exchange shall be in a record and shall include:
   1. the name of the corporation whose shares will be acquired and the name of the acquiring corporation; and
   2. the terms and conditions of the share exchange; including the manner and basis of exchanging the shares to be acquired in exchange for shares of the acquiring corporation or other consideration.
3. The plan of share exchange may contain any other provision not prohibited by law.

   Added 2015, No. 157 (Adj. Sess.), § E.1, eff. July 1, 2017.

§ 11.10. Approval of plan of merger or share exchange.

1. Subject to section 11.17 of this title and any contractual rights, a constituent organization shall approve a plan of merger or share exchange as follows:
   1. If the constituent organization is a corporation:
      1. the board of directors must recommend the plan of merger or share exchange 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 plan; and
      2. the shareholders entitled to vote must approve the plan.
   2. If the constituent organization is not a corporation, the plan of merger or share exchange shall be approved in accordance with the organization's governing statute and organizational documents.
2. The board of directors of a constituent corporation may condition its submission of the proposed merger or share exchange on any basis.
3. For a constituent organization that is a domestic corporation:
   1. 1. The constituent organization shall notify each shareholder, whether or not entitled to vote, of the proposed shareholders' meeting in accordance with section 7.05 of this title. (1) (A) The constituent organization shall notify each shareholder, whether or not entitled to vote, of the proposed shareholders' meeting in accordance with section 7.05 of this title.
      2. The notice shall also state that the purpose, or one of the purposes, of the meeting is to consider the plan of merger or share exchange and contain or be accompanied by a copy or summary of the plan.
   2. Unless this title, the articles of incorporation, or the board of directors acting pursuant to subsection (b) of this section requires a greater vote or a vote by voting groups, the plan of merger or share exchange 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.
   3. Separate voting by voting groups is required:
      1. on a plan of merger if the plan contains a provision that, if contained in a proposed amendment to articles of incorporation, would require action by one or more separate voting groups on the proposed amendment under section 10.04 of this title; and
      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.
   4. Action by the shareholders of the surviving corporation on a plan of merger is not required if:
      1. the articles of incorporation of the surviving corporation will not differ, except for amendments enumerated in section 10.02 of this title, from its articles before the merger;
      2. each shareholder of the surviving corporation whose shares were outstanding immediately before the effective date of the merger will hold the same number of shares, with identical designations, preferences, limitations, and relative rights, immediately after;
      3. the number of voting shares outstanding immediately after the merger, plus the number of voting shares issuable as a result of the merger, either by the conversion of securities issued pursuant to the merger or the exercise of rights and warrants issued pursuant to the merger, will not exceed by more than 20 percent the total number of voting shares of the surviving corporation outstanding immediately before the merger; and
      4. the number of participating shares outstanding immediately after the merger, plus the number of participating shares issuable as a result of the merger, either by the conversion of securities issued pursuant to the merger or the exercise of rights and warrants issued pursuant to the merger, will not exceed by more than 20 percent the total number of participating shares outstanding immediately before the merger.
   5. As used in this subsection:
      1. "Participating shares" means shares that entitle their holders to participate without limitation in distributions.
      2. "Voting shares" means shares that entitle their holders to vote unconditionally in elections of directors.
4. Subject to section 11.17 of this title and any contractual rights, after a constituent organization approves a merger or share exchange, and before the organization delivers articles of merger or share exchange to the Secretary of State for filing, a constituent organization may amend the plan or abandon the merger or share exchange:
   1. as provided in the plan; or
   2. except as otherwise prohibited in the plan, in the same manner it approved the plan.

      Added 2015, No. 157 (Adj. Sess.), § E.1, eff. July 1, 2017.

§ 11.11. Filing required for merger or share exchange; effective date.

1. After each constituent organization approves a merger or share exchange, a person with appropriate authority shall sign articles of merger or share exchange on behalf of:
   1. each constituent corporation; and
   2. each other constituent organization as required by its governing statute.
2. Articles of merger under this section shall be in a record and shall include:
   1. the name and type of each constituent organization and the jurisdiction of its governing statute;
   2. the name and type of the surviving constituent organization, the jurisdiction of its governing statute, and, if the merger creates the surviving constituent organization, a statement to that effect;
   3. the date the merger takes effect under the governing statute of the surviving constituent organization;
   4. if the merger creates the surviving constituent organization, its public organizational documents;
   5. if the surviving constituent organization preexists the merger, any amendments to its public organizational documents;
   6. a statement on behalf of each constituent organization that it approved the merger as required by its governing statute;
   7. if the surviving constituent organization is a foreign constituent organization not authorized to transact business in this State, the street and mailing addresses of an office that the Secretary of State may use for service of process pursuant to subsection 5.04(b) of this title; and
   8. any additional information the governing statute of a constituent organization requires.
3. A merger takes effect under this chapter:
   1. if the surviving constituent organization is a corporation, upon the later of:
      1. compliance with subsection (f) of this section; or
      2. subject to section 1.23 of this title, as specified in the articles of merger; or
   2. if the surviving constituent organization is not a corporation, as provided by the governing statute of the surviving constituent organization.
4. Articles of share exchange under this section shall be in a record and shall include:
   1. the name and type of each constituent organization and the jurisdiction of its governing statute;
   2. the date the share exchange takes effect under the governing statute of each of the constituent organizations;
   3. a statement on behalf of each constituent organization that it approved the share exchange as required by its governing statute;
   4. if either constituent organization is a foreign organization not authorized to transact business in this State, the street and mailing addresses of an office that the Secretary of State may use for service of process pursuant to subsection 5.04(b) of this title; and
   5. any additional information the governing statute of a constituent organization requires.
5. A share exchange takes effect under this chapter upon the later of:
   1. compliance with subsection (f) of this section; or
   2. subject to section 1.23 of this title, as specified in the articles of share exchange.
6. Each constituent organization shall deliver the articles of merger or share exchange for filing in the Office of the Secretary of State.

   Added 2015, No. 157 (Adj. Sess.), § E.1, eff. July 1, 2017.

§ 11.12. Effect of merger or share exchange.

1. When a merger takes effect:
   1. the surviving constituent organization continues or comes into existence;
   2. each constituent organization that merges into the surviving constituent organization ceases to exist as a separate entity;
   3. the property of each constituent organization that ceases to exist vests in the surviving constituent organization without transfer, assignment, reversion, or impairment;
   4. the debts, obligations, and other liabilities of each constituent organization that ceases to exist continue as debts, obligations, and other liabilities of the surviving constituent organization;
   5. an action or proceeding pending by or against a constituent organization that ceases to exist continues as if the merger did not occur;
   6. except as prohibited by other law, the rights, privileges, immunities, powers, and purposes of each constituent organization that ceases to exist vest in the surviving constituent organization;
   7. except as otherwise provided in the plan of merger, the terms and conditions of the plan of merger take effect;
   8. except as otherwise agreed, if a constituent corporation ceases to exist, the merger does not dissolve the corporation for the purposes of chapter 14 of this title;
   9. if the merger creates the surviving constituent organization, its public organizational documents take effect; and
   10. if the surviving constituent organization preexists the merger, any amendments to its public organizational documents take effect.
2. 1. A surviving constituent organization that is a foreign organization consents to the jurisdiction of the courts of this State to enforce a debt, obligation, or other liability the constituent organization owes, if before the merger the constituent organization was subject to suit in this State on the debt, obligation, or other liability. (b) (1)  A surviving constituent organization that is a foreign organization consents to the jurisdiction of the courts of this State to enforce a debt, obligation, or other liability the constituent organization owes, if before the merger the constituent organization was subject to suit in this State on the debt, obligation, or other liability.
   2. A surviving constituent organization that is a foreign organization and not authorized to transact business in this State appoints the Secretary of State as its agent for service of process for the purposes of enforcing a debt, obligation, or other liability under this subsection.
   3. A person shall serve the Secretary of State under this subsection in the same manner, and the service has the same consequences, as in section 5.04 of this title.
3. When a share exchange takes effect:
   1. the shares of each acquired constituent organization are exchanged as provided in the plan of share exchange; and
   2. the former holders of the shares are entitled only to the exchange rights provided in the articles of share exchange or to their rights under chapter 13 of this title.

      Added 2015, No. 157 (Adj. Sess.), § E.1, eff. July 1, 2017.

§ 11.13. Domestication authorized.

1. A foreign corporation may become a domestic corporation pursuant to this section and sections 11.14 through 11.17 of this title and a plan of domestication if:
   1. the foreign corporation's governing statute and its organizational documents permit the domestication; and
   2. the foreign corporation complies with its governing statute and organizational documents.
2. A domestic corporation may become a foreign corporation pursuant to this section and sections 11.14 through 11.17 of this title and a plan of domestication if:
   1. its organizational documents permit the domestication; and
   2. the corporation complies with this section and sections 11.14 through 11.17 of this title and its organizational documents.
3. A plan of domestication shall be in a record and shall include:
   1. the name of the domesticating corporation before domestication and the jurisdiction of its governing statute;
   2. the name of the domesticated corporation after domestication and the jurisdiction of its governing statute;
   3. the terms and conditions of the domestication, including the manner and basis for converting an interest holder's interest in the domesticating organization into any combination of an interest in the domesticated organization and other consideration; and
   4. the organizational documents of the domesticated corporation that are, or are proposed to be, in a record.

      Added 2015, No. 157 (Adj. Sess.), § E.1, eff. July 1, 2017.

§ 11.14. Action on plan of domestication.

1. A domesticating corporation shall approve a plan of domestication as follows:
   1. if the domesticating corporation is a domestic corporation, in accordance with this chapter and the corporation's organizational documents; provided that:
      1. if its organizational documents do not specify the vote needed to approve domestication, then by the same vote required for a merger under its organizational documents; or
      2. if its organizational documents do not specify the vote required for a merger, then by the number or percentage of shareholders required to approve a merger under this chapter;
   2. if the domesticating corporation is a foreign corporation, as provided in its organizational documents and governing statute.
2. Subject to any contractual rights, after a domesticating corporation approves a domestication and before it delivers articles of domestication to the Secretary of State for filing, the domesticating corporation may amend the plan or abandon the domestication:
   1. as provided in the plan; or
   2. except as otherwise prohibited by the plan, in the same manner it approved the plan.

      Added 2015, No. 157 (Adj. Sess.), § E.1, eff. July 1, 2017.

§ 11.15. Filing required for domestication; effective date.

1. A domesticating corporation that approves a plan of domestication shall deliver to the Secretary of State for filing articles of domestication that include:
   1. a statement, as the case may be, that the corporation was domesticated from or into another jurisdiction;
   2. the name of the corporation and the jurisdiction of its governing statute prior to the domestication;
   3. the name of the corporation and the jurisdiction of its governing statute following domestication;
   4. the date the domestication takes effect under the governing statute of the domesticated company; and
   5. a statement that the corporation approved the domestication as required by the governing statute of the jurisdiction to which it is domesticating.
2. When a domesticating corporation delivers articles of domestication to the Secretary of State pursuant to subsection (a) of this section, it shall include:
   1. if the domesticating corporation will be a domestic corporation, articles of incorporation pursuant to section 2.02 of this title;
   2. if the domesticating corporation will be a foreign corporation authorized to transact business in this State, an application for a certificate of authority pursuant to section 15.03 of this title; or
   3. if the domesticating corporation will be a foreign corporation that is not authorized to transact business in this State, the street and mailing addresses of an office that the Secretary of State may use for service of process pursuant to subsection 5.04(b) of this title.
3. A domestication takes effect:
   1. when the articles of domestication of the domesticating corporation take effect, if the corporation is domesticating to this State; and
   2. according to the governing statute of jurisdiction to which the corporation is domesticating.

      Added 2015, No. 157 (Adj. Sess.), § E.1, eff. July 1, 2017.

§ 11.16. Effect of domestication.

1. When a domestication takes effect:
   1. The domesticated corporation is for all purposes the corporation that existed before the domestication.
   2. The property owned by the domesticating corporation remains vested in the domesticated corporation.
   3. The debts, obligations, and other liabilities of the domesticating corporation continue as debts, obligations, and other liabilities of the domesticated corporation.
   4. An action or proceeding pending by or against a domesticating corporation continues as if the domestication had not occurred.
   5. Except as prohibited by other law, the rights, privileges, immunities, powers, and purposes of the domesticating corporation remain vested in the domesticated corporation.
   6. Except as otherwise provided in the plan of domestication, the terms and conditions of the plan of domestication take effect.
   7. Except as otherwise agreed, the domestication does not dissolve a domesticating corporation for the purposes of this chapter 11.
2. 1. A domesticated corporation that was a foreign corporation consents to the jurisdiction of the courts of this State to enforce a debt, obligation, or other liability the domesticating corporation owes, if, before the domestication, the domesticating corporation was subject to suit in this State on the debt, obligation, or other liability. (b) (1)  A domesticated corporation that was a foreign corporation consents to the jurisdiction of the courts of this State to enforce a debt, obligation, or other liability the domesticating corporation owes, if, before the domestication, the domesticating corporation was subject to suit in this State on the debt, obligation, or other liability.
   2. A domesticated corporation that was a foreign corporation and not authorized to transact business in this State appoints the Secretary of State as its agent for service of process for purposes of enforcing a debt, obligation, or other liability under this subsection.
   3. A person shall serve the Secretary of State under this subsection in the same manner, and the service has the same consequences, as in section 5.04 of this title.
3. A corporation that domesticates in a foreign jurisdiction shall deliver to the Secretary of State for filing a statement surrendering the corporation's certificate of organization that includes:
   1. the name of the corporation;
   2. a statement that the articles of incorporation are surrendered in connection with the domestication of the company in a foreign jurisdiction;
   3. a statement that the corporation approved the domestication as required by this title; and
   4. the name of the relevant foreign jurisdiction.

      Added 2015, No. 157 (Adj. Sess.), § E.1, eff. July 1, 2017.

§ 11.17. Restriction on approval of conversion, merger, and domestication.

1. An approval or amendment of a plan of conversion, plan of merger, or plan of domestication under this chapter is ineffective without the approval of each interest holder of a surviving constituent who will have personal liability for a debt, obligation, or other liability of the organization, unless:
   1. a provision of the organization's organizational documents provides in a record that some or all of its interest holders may be subject to personal liability by a vote or consent of fewer than all of the interest holders; and
   2. 1. the interest holder voted for or consented in a record to the provision referenced in subdivision (1) of this subsection; or (2) (A) the interest holder voted for or consented in a record to the provision referenced in subdivision (1) of this subsection; or
      2. the interest holder became an interest holder after the organization adopted the provision referenced in subdivision (1) of this subsection.
2. An interest holder does not provide consent as required in subdivision (a)(2)(A) of this section merely by consenting to a provision of the organizational documents that permits the organization to amend the organizational documents with the approval of fewer than all of the interest holders.

   Added 2015, No. 157 (Adj. Sess.), § E.1, eff. July 1, 2017.

§ 11.18. Chapter not exclusive.

1. This chapter does not preclude an organization from being converted, merged, or domesticated under law other than this title.
2. This chapter does not limit the power of a corporation to acquire all or part of the shares of one or more classes or series of another corporation through means other than those included in this chapter.

   Added 2015, No. 157 (Adj. Sess.), § E.1, eff. July 1, 2017.

§ 12.01. 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 its property to a corporation all the shares of which are owned by the corporation.
2. Unless the articles of incorporation require it, approval by the shareholders of a transaction described in subsection (a) of this section is not required.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 12.02. Sale of assets other than in regular course of business.

1. A sale, lease, exchange, or other disposition of assets, other than a disposition described in section 12.01 of this title, requires approval of the corporation's shareholders if the disposition would leave the corporation without a significant continuing business activity. If a corporation retains a business activity that represented at least 25 percent of the total assets at the end of the most recently completed fiscal year and 25 percent of either income from continuing operations before taxes or revenues from continuing operations for that fiscal year, in each case of the corporation and its subsidiaries on a consolidated basis, the corporation will conclusively be deemed to have retained a significant continuing business activity.
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 section 7.05 of this title. The notice must also state that the purpose, or one 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 articles of incorporation or the board of directors (acting pursuant to subsection (c) of this section) require 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 section 6.40 of this title and not by this section.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2007, No. 190 (Adj. Sess.), § 99, eff. June 6, 2008.

§ 13.01. Definitions.

In this chapter:

1. "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer.
2. "Dissenter" means a shareholder who is entitled to dissent from corporate action under section 13.02 of this title and who exercises that right when and in the manner required by sections 13.20 through 13.28 of this title.
3. "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 unless exclusion would be inequitable.
4. "Interest" means interest from the effective date of the corporate action until the date of payment, at the average rate currently paid by the corporation on its principal bank loans or, if none, at a rate that is fair and equitable under all the circumstances.
5. "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.
6. "Beneficial shareholder" means the person who is a beneficial owner of shares held by a nominee as the record shareholder.
7. "Shareholder" means the record shareholder or the beneficial shareholder.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 13.02. Right to dissent.

1. A shareholder is entitled to dissent from, and obtain payment of the fair value of his or her shares in the event of, any of the following corporate actions:
   1. Merger.  Consummation of a plan of merger to which the corporation is a party:
      1. if shareholder approval is required for the merger by section 11.10 of this title or the articles of incorporation and the shareholder is entitled to vote on the merger; or
      2. if the corporation is a subsidiary that is merged with its parent under section 11.08 of this title.
   2. Share exchange.  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.
   3. Conversion.  Consummation of a plan of conversion pursuant to section 11.03 of this title to which the corporation is a party unless the shareholders of the corporation will have the same dissenters' rights after conversion to the converted organization as they hold before conversion.
   4. Domestication.  Consummation of a plan of domestication pursuant to section 11.14 of this title to which the corporation is a party unless the shareholders of the corporation will have the same dissenters' rights after domestication to the domesticated organization as they hold before domestication.
   5. Sale of assets.  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, including a sale 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 year after the date of sale.
   6. Amendment to articles.  An amendment of the articles of incorporation 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 so created is to be acquired for cash under section 6.04 of this title.
   7. Market exception.  Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, 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.
2. A shareholder entitled to dissent and obtain payment for his or her shares under this chapter may not challenge the corporate action creating his or her entitlement unless the action is unlawful or fraudulent with respect to the shareholder or the corporation.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2015, No. 157 (Adj. Sess.), § E.2, eff. July 1, 2017.

§ 13.03. Dissent by nominees and beneficial owners.

1. A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his or her name only if he or she dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he or she asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which the shareholder dissents and the shareholder's other shares were registered in the names of different shareholders.
2. A beneficial shareholder may assert dissenters' rights as to shares held on his or her behalf only if:
   1. he or she 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. he or she does so with respect to all shares of which he or she is the beneficial shareholder or over which he or she has power to direct the vote.

      Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 13.20. Notice of dissenters' rights.

1. If proposed corporate action creating dissenters' rights under section 13.02 of this title is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this chapter and be accompanied by a copy of this chapter.
2. If corporate action creating dissenters' rights under section 13.02 of this title is taken without a vote of shareholders, the corporation shall notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in section 13.22 of this title.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 13.21. Notice of intent to demand payment.

1. If proposed corporate action creating dissenters' rights under section 13.02 of this title is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights:
   1. must deliver to the corporation before the vote is taken written notice of his or her intent to demand payment for his or her shares if the proposed action is effectuated; and
   2. must not vote his or her shares in favor of the proposed action.
2. A shareholder who does not satisfy the requirements of subsection (a) of this section is not entitled to payment for his or her shares under this chapter.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 13.22. Dissenters' notice.

1. If proposed corporate action creating dissenters' rights under section 13.02 of this title is authorized at a shareholders' meeting, the corporation shall deliver a written dissenters' notice to all shareholders who satisfied the requirements of section 13.21 of this title.
2. The dissenters' notice must be sent no later than 10 days after the corporate action was taken, and must:
   1. state where the payment demand must be sent and where and when certificates for certificated shares must be deposited;
   2. inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received;
   3. supply a form for demanding payment that includes the date of the first announcement to news media or to shareholders of the terms of the proposed corporate action and requires that the person asserting dissenters' rights certify whether or not the person acquired beneficial ownership of the shares before that date;
   4. set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the subsection (a) notice is delivered; and
   5. be accompanied by a copy of this chapter.

      Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 13.23. Duty to demand payment.

1. A shareholder sent a dissenters' notice described in section 13.22 of this title must demand payment, certify whether he or she acquired beneficial ownership of the shares before the date required to be set forth in the dissenters' notice pursuant to subdivision 13.22(b)(3) of this title, and deposit his or her certificates in accordance with the terms of the notice.
2. The shareholder who demands payment and deposits his or her share certificates under subsection (a) of this section retains all other rights of a shareholder until these rights are cancelled or modified by the taking of the proposed corporate action.
3. A shareholder who does not demand payment or deposit his or her share certificates where required, each by the date set in the dissenters' notice, is not entitled to payment for his or her shares under this chapter.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 13.24. 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 taken or the restrictions released under section 13.26 of this title.
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 taking of the proposed corporate action.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 13.25. Payment.

1. Except as provided in section 13.27 of this title, as soon as the proposed corporate action is taken, or upon receipt of a payment demand, the corporation shall pay each dissenter who complied with section 13.23 of this title the amount the corporation estimates to be the fair value of his or her 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 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 and how such estimate was calculated;
   3. an explanation of how the interest was calculated;
   4. a statement of the dissenter's right to demand payment under section 13.28 of this title; and
   5. a copy of this chapter.

      Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 13.26. Failure to take action.

1. If the corporation does not take the proposed action within 60 days 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 takes the proposed action, it must send a new dissenters' notice under section 13.22 of this title and repeat the payment demand procedure.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 13.27. After-acquired shares.

1. A corporation may elect to withhold payment required by section 13.25 of this title 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 terms of the proposed corporate action.
2. To the extent the corporation elects to withhold payment under subsection (a) of this section, after taking 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 his or her demand. The corporation shall send with its offer a statement of its estimate and calculation 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 section 13.28 of this title.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 13.28. Procedure if shareholder dissatisfied with payment or offer.

1. A dissenter may notify the corporation in writing of his or her own estimate of the fair value of his or her shares and amount of interest due, and demand payment of his or her estimate (less any payment under section 13.25 of this title), or reject the corporation's offer under section 13.27 of this title and demand payment of the fair value of his or her shares and interest due, if:
   1. the dissenter believes that the amount paid under section 13.25 or offered under section 13.27 is less than the fair value of his or her shares or that the interest due is incorrectly calculated;
   2. the corporation fails to make payment under section 13.25 within 60 days after the date set for demanding payment; or
   3. the corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment.
2. A dissenter waives his or her right to demand payment under this section unless he or she notifies the corporation of his or her demand in writing under subsection (a) of this section within 30 days after the corporation made or offered payment for his or her shares.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 13.30. Court action.

1. If a demand for payment under section 13.28 of this title remains unsettled, the corporation shall commence a proceeding within 60 days 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 60-day period, it shall pay each dissenter whose demand remains unsettled the amount demanded.
2. The corporation shall commence the proceeding in the Superior Court of 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 complaint. 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) of this section is plenary and exclusive. The court may appoint one 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 his or her shares, plus interest, exceeds the amount paid by the corporation; or
   2. for the fair value, plus accrued interest, of his or her after-acquired shares for which the corporation elected to withhold payment under section 13.27 of this title.

      Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 13.31. Court costs and counsel fees.

1. The court in an appraisal proceeding commenced under section 13.30 of this title 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 section 13.28 of this title.
2. The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable:
   1. against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of sections 13.20 through 13.28 of this title; or
   2. against 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 the dissenters who were benefited.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 14.01. Dissolution by incorporators or initial directors.

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 that set forth:

1. the name of the corporation;
2. the date of its incorporation;
3. either:
   1. that none of the corporation's shares has been issued; or
   2. that 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.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

Cross References

Cross references. Filing fee, see § 1.22 of this title.

§ 14.02. Dissolution by board of directors and shareholders.

1. A corporation's board of directors may propose dissolution for submission to the shareholders.
2. For a proposal to dissolve to be adopted:
   1. the board of directors must 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 must approve the proposal to dissolve as provided in subsection (e) of this section.
3. The board of directors may condition its submission of the proposal for dissolution on any basis.
4. The corporation shall notify each shareholder, whether or not entitled to vote, of the proposed shareholders' meeting in accordance with section 7.05 of this title. The notice must also state that the purpose, or one of the purposes, of the meeting is to consider dissolving the corporation.
5. Unless the articles of incorporation or the board of directors (acting pursuant to subsection (c) of this section) require a greater vote or a vote by voting groups, the proposal to dissolve to be adopted must be approved by a majority of all the votes entitled to be cast on that proposal.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 14.03. Articles of dissolution; content of notice; notice to Department of Labor regarding unpaid wages.

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. if dissolution was approved by the shareholders:
      1. the number of votes entitled to be cast on the proposal to dissolve; and
      2. either the total number of votes cast for and against dissolution or the total number of undisputed votes cast for dissolution and a statement that the number cast for dissolution was sufficient for approval;
   4. if voting by voting groups was required, the information required by subdivision (3) of this subsection, separately provided for each voting group entitled to vote separately on the plan to dissolve;
   5. a statement as to the settlement of debts, the distribution of property, and the status of pending litigation;
   6. a statement whether the corporation owes any unpaid wages to its employees.
2. Subject to the provisions of section 14.09 of this title, a corporation is dissolved upon the effective date of its articles of dissolution.
3. If a corporation owes unpaid wages to its employees, it shall also file a statement to that effect with the Department of Labor.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2011, No. 124 (Adj. Sess.), § 2.

§ 14.04. Revocation of dissolution.

1. A corporation may revoke its dissolution within 120 days of its effective date.
2. Revocation of dissolution must be authorized in the same manner as the dissolution was authorized unless that authorization permitted revocation by action of 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, together with a copy of its articles 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 subdivision 14.03(a)(3) or (4) of this title.
4. Revocation of dissolution is effective upon the effective date of the articles of revocation of dissolution.
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.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 14.05. 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. 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 8 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.

      Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 14.06. 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. The provisions of section 14.07 of this title apply in the case of claims where the claimant cannot with due diligence be notified under 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 shall:
   1. describe information that must be included in a claim;
   2. provide a mailing address where a claim may be sent;
   3. state the deadline, which may not be fewer than 120 days from the effective date of the written notice, by which the dissolved corporation must receive the claim;
   4. state that the claim will be barred if not received by the deadline; and
   5. state the deadline under subdivision (c)(2) of this section for enforcing a claim rejected by the dissolved corporation.
3. A claim against the dissolved corporation is barred:
   1. if a claimant who received written notice under subsection (b) of this section does not deliver the claim to the dissolved corporation by the deadline;
   2. if a claimant whose claim was rejected by the dissolved corporation does not commence a proceeding to enforce the claim within 90 days 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, or on taxes due or assessable by the State of Vermont.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 14.07. Unknown claims against dissolved corporation.

1. A dissolved corporation may also send and 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 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, and sent to the Office of the Attorney General;
   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 and shareholders will be barred unless a proceeding to enforce the claim is commenced within five years after the publication of the notice.
3. 1. If the dissolved corporation sends notice to the Attorney General and publishes a newspaper notice in accordance with subsection (b) of this section, causes of action against a dissolved corporation, whether arising before or after the dissolution of the corporation, may be enforced only as follows: (c) (1)  If the dissolved corporation sends notice to the Attorney General and publishes a newspaper notice in accordance with subsection (b) of this section, causes of action against a dissolved corporation, whether arising before or after the dissolution of the corporation, may be enforced only as follows:
      1. Against the dissolved corporation, to the extent of its undistributed assets, including any insurance assets held by the corporation that may be available to satisfy claims.
      2. If any of the assets of the dissolved corporation have been distributed to shareholders, against shareholders of the dissolved corporation to the extent of their pro rata share of the claim or to the extent of the corporate assets distributed to them upon dissolution of the corporation, whichever is less. A shareholder's total liability under this section may not exceed the total amount of assets of the dissolved corporation distributed to the shareholder upon dissolution of the corporation.
   2. All causes of action against a dissolved corporation arising under subdivision (1)(A) of this subsection are extinguished unless the claimant commences a proceeding to enforce the cause of action against the dissolved corporation prior to the expiration of the statute of limitations applicable to the cause of action.
   3. All causes of action against a shareholder of a dissolved corporation arising under subdivision (1)(B) of this subsection are extinguished unless the claimant commences a proceeding to enforce the cause of action against that shareholder of a dissolved corporation prior to the earlier of the following:
      1. The expiration of the statute of limitations applicable to the cause of action.
      2. Five years after the effective date of the dissolution of the corporation.
4. 1. In addition to the notice published in accordance with subsections (a) through (c) of this section, a dissolved corporation may also give notice of the dissolution of the corporation to persons with claims contingent upon the occurrence or nonoccurrence of future events or otherwise conditional or unmatured, and request that such persons present such claims in accordance with the terms of such notice. Such notice shall be in substantially the form, and sent and published in the same manner, as described in subsection 14.06(b) of this title. (d) (1)  In addition to the notice published in accordance with subsections (a) through (c) of this section, a dissolved corporation may also give notice of the dissolution of the corporation to persons with claims contingent upon the occurrence or nonoccurrence of future events or otherwise conditional or unmatured, and request that such persons present such claims in accordance with the terms of such notice. Such notice shall be in substantially the form, and sent and published in the same manner, as described in subsection 14.06(b) of this title.
   2. The corporation or successor entity shall offer any claimant whose claim is contingent, conditional or unmatured, such security as the corporation or successor entity determines is sufficient to provide compensation to the claimant if the claim matures. The corporation or successor entity shall mail such offer to the claimant by certified mail, return receipt requested, within 90 days of receipt of such claim. If the claimant offered such security does not deliver in writing to the corporation or successor entity a notice rejecting the offer within 90 days after receipt of such offer for security, the claimant shall be deemed to have accepted such security as the sole source from which to satisfy his or her claim against the corporation.
5. 1. A corporation or successor entity which has given notice in accordance with subsections (a) through (d) of this section may petition the Superior Court to determine the amount and form of security that will be sufficient to provide compensation to any claimant who has rejected the offer for security made pursuant to subdivision (d)(2) of this section. (e) (1)  A corporation or successor entity which has given notice in accordance with subsections (a) through (d) of this section may petition the Superior Court to determine the amount and form of security that will be sufficient to provide compensation to any claimant who has rejected the offer for security made pursuant to subdivision (d)(2) of this section.
   2. A corporation or successor entity which has given notice in accordance with subsections (a) through (d) of this section may petition the Superior Court to determine the amount and form of security which will be sufficient to provide compensation to claimants whose claims are known to the corporation or successor entity but whose identities are unknown. The Superior Court shall appoint a guardian ad litem to represent all claimants whose identities are unknown in any proceeding brought under this subsection. The reasonable fees and expenses of such guardian, including all reasonable expert witness fees, shall be paid by the petitioner in such proceeding.
6. The giving of any notice or making of any offer pursuant to the provisions of this section shall not revive any claim then barred or constitute acknowledgment by the corporation or successor entity that any person to whom such notice is sent is a proper claimant and shall not operate as a waiver of any defense or counterclaim in respect of any claim asserted by any person to whom such notice is sent.
7. As used in this section, the term "successor entity" shall include any trust, receivership, or other legal entity governed by the laws of this State to which the remaining assets and liabilities of a dissolved corporation are transferred and which exists solely for the purposes of prosecuting and defending suits, by or against the dissolved corporation, enabling the dissolved corporation to settle and close its business, to dispose of and convey the property of the dissolved corporation, to discharge the liabilities of the dissolved corporation, and to distribute to the dissolved corporation's shareholders any remaining assets, but not for the purpose of continuing the business for which the dissolved corporation was organized.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 14.08. Payment and distribution to claimants and shareholders.

1. 1. A dissolved corporation or successor entity which has followed the procedures described in sections 14.06 and 14.07 of this title: (a) (1)  A dissolved corporation or successor entity which has followed the procedures described in sections 14.06 and 14.07 of this title:
      1. shall pay the claims made and not barred or rejected in accordance with subsections 14.06(c) and 14.07(c) of this title;
      2. shall post the security offered and not rejected pursuant to subsection 14.07(d) of this title;
      3. shall post any security ordered by the Superior Court in any proceeding under subsection 14.07(e) of this title; and
      4. shall pay or make provision for all other obligations of the corporation or such successor entity.
   2. Such claims or obligations shall be paid in full and any such provision for payment shall be made in full if there are sufficient funds. If there are insufficient funds, such claims and obligations shall be paid or provided for according to their priority, and, among claims of equal priority, ratably to the extent of funds legally available therefor. Any remaining funds shall be distributed to the shareholders of the dissolved corporation; provided, however, that such distribution shall not be made before the expiration of 90 days from the date of the last notice of rejection given pursuant to subdivision 14.07(b)(2) of this title (if any such notice is provided). In the absence of actual fraud, the judgment of the directors of the dissolved corporation or the governing persons of such successor entity as to the provision made for the payment of all obligations under subdivision (4) of this subsection shall be conclusive.
2. A dissolved corporation or successor entity which has not followed the procedures described in sections 14.06 and 14.07 of this title shall pay or make reasonable provisions to pay all claims and obligations, including all contingent, conditional, or unmatured claims known to the corporation or such successor entity and all claims which are known to the dissolved corporation or such successor entity but for which the identity of the claimant is unknown. Such claims shall be paid in full and any such provisions for payment shall be made in full if there are sufficient funds. If there are insufficient funds, such claims and obligations shall be paid or provided for according to their priority and, among claims of equal priority, ratably to the extent of funds legally available therefor. Any remaining funds shall be distributed to the shareholders of the dissolved corporation.
3. Directors of a dissolved corporation or governing persons of a successor entity which has complied with subsection (a) or (b) of this section shall not be personally liable to the claimants of the dissolved corporation.
4. As used in this section, the term "successor entity" has the meaning set forth in subsection 14.07(g) of this title.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 14.09. Tax liabilities.

1. Notwithstanding any other provisions of this chapter, a corporation's liability to the Vermont Department of Taxes for unpaid taxes and other amounts shall not be affected by the corporation's dissolution and winding up of its affairs except to the extent provided in subsections (b), (c), and (d) of this section.
2. Any corporation that has filed articles of dissolution with the Secretary of State pursuant to section 14.03 of this title may apply for a tax clearance from the Department of Taxes. Upon issuance of such a tax clearance, the applicant corporation shall have no further liability to the Department of Taxes after the effective date of the clearance for a tax liability incurred up to the date stated in the clearance, subject to the right of the Department of Taxes to review and determine the accuracy of the information provided by the corporation or its representatives and used by the Department of Taxes to process such tax clearance. The corporation will continue to be liable to the Department of Taxes for any liability incurred after the date stated in the clearance.
3. The shareholders of a dissolved corporation shall not be liable for any unpaid taxes or other amounts payable to the Department of Taxes as a result of the corporation's dissolution and winding up of its affairs except if the corporation has failed to obtain a tax clearance as provided in subsection (b) of this section or to the extent that such liabilities arose subsequent to the date stated in such tax clearance and insufficient assets are then held by the corporation to pay its tax liabilities. In such event, the shareholders of the dissolved corporation shall be severally liable for the dissolved corporation's unpaid taxes and other liabilities to the Department of Taxes in an amount equal to the lesser of the shareholder's pro rata share of the tax liability or the corporate assets distributed to him or her in liquidation, whichever is less, but a shareholder's total liability for all claims and liabilities under this chapter, including those subject to the provisions of sections 14.06 and 14.07 of this title, may not exceed the total amount of assets distributed to the shareholder.
4. The directors of a dissolved corporation shall not be liable, in such capacity, for any unpaid taxes and other liabilities of such corporation to the Department of Taxes as a result of its dissolution and winding up of its affairs pursuant to the provisions of this chapter. However, directors shall be liable if they fail to use reasonable efforts to cause the corporation to obtain the clearance described under subsection (b) of this section through the last date on which the corporation incurred any such liabilities and fail to use reasonable efforts to cause the corporation to pay or create sufficient reserves to pay such liabilities, to the extent of available corporate assets, and vote for or assent to the distribution of assets to the shareholders. Directors shall only be liable under this subsection to the extent that corporate assets otherwise available to pay tax liabilities are distributed to shareholders, and the corporation lacks sufficient assets to pay such liabilities.
5. The remedies provided to the Department of Taxes in this section shall be in addition to, and not in derogation of, any other remedies provided by law.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 14.20. Involuntary termination.

1. A corporation, which fails to file an annual report required by section 16.22 of this title, shall terminate and the Secretary of State shall notify such corporation of such termination. If, however, such terminated corporation shall file such annual report together with any fee required by law, its charter shall be reinstated by the Secretary of State.
2. When the reinstatement is effective, reinstatement shall relate back to and take effect as of the date of the corporation's termination under subsection (a) of this section as if the termination had never occurred.
3. A corporation shall lose the right to retain its corporate name if the annual report required under subsection (a) of this section is not filed on or before five years after the date when the report is due, and if another domestic or foreign corporation files articles of incorporation requesting the name of the corporation.
4. Involuntary termination of a corporation does not:
   1. prevent commencement of a proceeding against the corporation in its corporate name;
   2. abate or suspend a proceeding pending by or against the corporation on the effective date of involuntary termination; or
   3. terminate the authority of the registered agent of the corporation.

      Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 14.30. Grounds for judicial dissolution.

The Superior Court may dissolve a corporation:

1. in a proceeding by the Attorney General if it is established that:
   1. the corporation obtained its articles of incorporation through fraud; or
   2. the corporation has continued to exceed or abuse the authority conferred upon it by law;
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 either 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 consecutive annual meeting dates, to elect successors to directors whose terms have expired; 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.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 14.31. Procedure for judicial dissolution.

1. Venue for a proceeding by the Attorney General to dissolve a corporation lies in Washington County. Venue for a proceeding brought by any other party named in section 14.30 of this title 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.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 14.32. Receivership or custodianship.

1. A court in a judicial proceeding brought to dissolve a corporation may appoint one or more receivers to wind up and liquidate, or one 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
      1. may 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. may sue and defend in his or her 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, 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 his or her counsel from the assets of the corporation or proceeds from the sale of the assets.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 14.33. Decree of dissolution.

1. If after a hearing the court determines that one or more grounds for judicial dissolution described in section 14.30 of this title 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 section 14.05 of this title, the notification of claimants in accordance with sections 14.06 and 14.07 of this title, and the payment of claims in accordance with sections 14.08 and 14.09 of this title.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 14.40. Deposit with State Treasurer.

Assets of a dissolved corporation that should be transferred to a creditor, claimant, or shareholder of the corporation who cannot be found or who is not competent to receive them shall be reduced to cash and deposited with the State Treasurer or other appropriate State official for safekeeping. When the creditor, claimant, or shareholder furnishes satisfactory proof of entitlement to the amount deposited, the State Treasurer or other appropriate State official shall pay him or her or his or her representative that amount.

Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 15.01. Authority to transact business required.

1. A foreign corporation may not transact business in this State until it obtains a certificate of authority from the Secretary of State.
2. Except as otherwise provided, "doing business" or "transacting business" shall mean and include each act, power, or privilege exercised or enjoyed in this State by a foreign corporation.
3. Among others, the following activities without more do not constitute transacting business for the purpose of determining whether a corporation is required to obtain a certificate of authority under subsection (a) of this section:
   1. maintaining, defending, or settling any proceeding;
   2. holding meetings of the board of directors or shareholders or carrying on other activities concerning internal corporate affairs;
   3. maintaining bank accounts;
   4. maintaining offices or agencies for the transfer, exchange, and registration of the corporation's own securities or maintaining trustees or depositaries with respect to those securities;
   5. selling through independent contractors;
   6. soliciting or obtaining orders, whether by mail or through employees or agents or otherwise, if the orders require acceptance outside this State before they become contracts;
   7. creating or acquiring indebtedness, mortgages, and security interests in real or personal property;
   8. without limiting the generality of the other provisions of this section, making, purchasing, and servicing loans if the corporation is a foreign savings bank or a foreign corporation doing a banking business and it participates with a banking corporation or a trust company of this State;
   9. securing or collecting debts or enforcing mortgages and security interests in property securing the debts;
   10. owning real or personal property;
   11. conducting an isolated transaction that is not one in the course of repeated transactions of a like nature;
   12. transacting business in interstate commerce.
4. In addition to the requirements of subsection (a) of this section and notwithstanding subsection (c) of this section, a foreign banking corporation or trust company that does not have a place of business in this State pursuant to section 8 V.S.A. § 654 or 1352 shall obtain a certificate of authority from the Secretary of State to act as executor or trustee in this State under the last will and testament of any deceased resident of this State or of any deceased resident of another state owning property in this State. The Secretary of State shall not issue the certificate unless:
   1. by the law of the state of its incorporation the foreign banking corporation or trust company may be appointed and may accept appointment to act as executor of or trustee under the last will and testament of any deceased person in the state of its appointment; and
   2. banking corporations or trust companies of this State are permitted to act as executors or trustees in the state where such foreign banking corporation or trust company has its domicile.
5. This section shall have no applicability for the purpose of determining jurisdiction under 12 V.S.A. chapter 25 subchapter 6 or for the purpose of determining the tax liability of a corporation.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 1995, No. 142 (Adj. Sess.), § 12, eff. May 30, 1996.

§ 15.02. Consequences of transacting business without authority.

1. A foreign corporation transacting business in this State without a certificate of authority may not maintain a proceeding or raise a counterclaim, crossclaim, or affirmative defense in any court in this State until it obtains a certificate of authority.
2. The successor to a foreign corporation that transacted business in this State without a certificate of authority and the assignee of a cause of action arising out of that business may not maintain a proceeding or raise a counterclaim, crossclaim, or affirmative defense based on that cause of action in any court in this State until the foreign corporation or its successor or assignee obtains a certificate of authority.
3. A court may stay a proceeding commenced by a foreign corporation, its successor, or assignee until it determines whether the foreign corporation or its successor requires a certificate of authority. If it so determines, the court may further stay the proceeding until the foreign corporation or its successor obtains the certificate.
4. A foreign corporation that transacts business in this State without a certificate of authority is liable to the State for:
   1. a civil penalty of $50.00 for each day, not to exceed a total of $10,000.00 for each year, it transacts business in this State without a certificate of authority;
   2. an amount equal to the fees due under this title during the period it transacted business in this State without a certificate of authority; and
   3. other penalties imposed by law.
5. The Attorney General may maintain an action in the Civil Division of the Superior Court to collect the penalties imposed in this section and to restrain a foreign corporation not in compliance with this chapter from doing business within this State.
6. Notwithstanding subsections (a) and (b) of this section, the failure of a foreign corporation to obtain a certificate of authority does not impair the validity of its corporate acts, to the extent they are otherwise in compliance with law, or prevent it from defending any proceeding in this State.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2015, No. 128 (Adj. Sess.), § C.10.

§ 15.03. Application for certificate of authority.

1. A foreign corporation may apply for a certificate of authority to transact business in this State by delivering an application and the applicable filing fee to the Secretary of State for filing. The application must set forth:
   1. the name of the foreign corporation or, if its name is unavailable for use in this State, a corporate name that satisfies the requirements of section 15.06 of this title;
   2. the name of the state or country under whose law it is incorporated;
   3. its date of incorporation and period of duration;
   4. the street address of its principal office;
   5. the address of its registered office in this State and the name of its registered agent at that office; and
   6. the names and usual business addresses of its current directors and officers.
2. The foreign corporation shall deliver with the completed application a certificate of good standing (or a document of similar import) duly authenticated by the Secretary of State or other official having custody of corporate records in the state or country under whose law it is incorporated.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

Cross References

Cross references. Filing fee, see § 1.22 of this title.

§ 15.04. Amended certificate of authority.

1. A foreign corporation authorized to transact business in this State must obtain an amended certificate of authority from the Secretary of State if it changes:
   1. its corporate name;
   2. the period of its duration; or
   3. the state or country of its incorporation.
2. The requirements of section 15.03 of this title for obtaining an original certificate of authority apply to obtaining an amended certificate under this section.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 15.05. Effect of certificate of authority.

1. A certificate of authority authorizes the foreign corporation to which it is issued to transact business in this State; subject, however, to the right of the State to revoke the certificate as provided in this title, and to impose such restrictions as are required by law.
2. A foreign corporation with a valid certificate of authority has the same but no greater rights and has the same but no greater privileges as, and except as otherwise provided by this title is subject to the same duties, restrictions, penalties, and liabilities now or later imposed on, a domestic corporation of like character.
3. Except as provided in subdivision 11.07(a)(3) of this title, this title does not authorize this State to regulate the organization or internal affairs of a foreign corporation authorized to transact business in this State.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 15.06. Corporate name of foreign corporation.

1. If the corporate name of a foreign corporation does not satisfy the requirements of section 4.01 of this title, the foreign corporation to obtain or maintain a certificate of authority to transact business in this State:
   1. may add the word "corporation," "incorporated," "company," or "limited," or the abbreviation "corp.," "inc.," "co.," or "ltd.," to its corporate name for use in this State; or
   2. may use an available trade name to transact business in this State if its corporate name is unavailable and it delivers to the Secretary of State for filing a copy of the resolution of its board of directors, certified by its secretary, adopting the trade name.
2. Except as authorized by subsections (c) and (d) of this section, the corporate name, including a trade name, of a foreign corporation shall be distinguishable in the records of the Secretary of State from any name granted, registered, or reserved under this chapter, or the name of any other entity, whether domestic or foreign, that is reserved, registered, or granted by or with the Secretary of State.
3. A foreign corporation may apply to the Secretary of State for authorization to use in this State the name of another corporation incorporated or authorized to transact business in this State that is not distinguishable in the records from one or more of the names described in subsection (b) of this section, by submitting to the Secretary of State a satisfactory written form indicating the other corporation's consent and change of name.
4. A foreign corporation may use in this State the name, including the trade name, of another domestic or foreign corporation that is used in this State if the other corporation is incorporated or authorized to transact business in this State and the foreign corporation:
   1. has merged with the other corporation;
   2. has been formed by reorganization of the other corporation; or
   3. has acquired all or substantially all of the assets, including the corporate name, of the other corporation.
5. If a foreign corporation authorized to transact business in this State changes its corporate name to one that does not satisfy the requirements of section 4.01 of this title, it may not transact business in this State under the changed name until it adopts a name satisfying the requirements of section 4.01 and obtains an amended certificate of authority under section 15.04 of this title.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 1995, No. 179 (Adj. Sess.), § 1b, eff. Jan. 1, 1997; 2015, No. 17 , § 10.

§ 15.07. Registered office and registered agent of foreign corporation.

Each foreign corporation authorized to transact business in this State 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 domestic not-for-profit corporation whose business office is identical with the registered office; or
   3. a foreign corporation or foreign not-for-profit corporation authorized to transact business in this State whose business office is identical with the registered office.

      Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 15.08. Change of registered office or registered agent of foreign corporation.

1. A foreign corporation authorized to transact business in this State 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. its name;
   2. the street address of its current registered office;
   3. if the current registered office is to be changed, the street address of its new registered office;
   4. the name of its current registered agent;
   5. if the current registered agent is to be changed, the name of its new registered agent and the new agent's written consent (either on the statement or attached to it) to the appointment; and
   6. 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 his or her business office, he or she may change the street address of the registered office of any foreign corporation for which he or she 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 of change that complies with the requirements of subsection (a) of this section and recites that the corporation has been notified of the change.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

Cross References

Cross references. Filing fee, see § 1.22 of this title.

§ 15.09. Resignation of registered agent of foreign corporation.

1. The registered agent of a foreign corporation may resign his or her agency appointment by signing and delivering to the Secretary of State for filing the original and two exact or conformed copies of a statement of resignation. The statement of resignation may include a statement that the registered office is also discontinued.
2. After filing the statement, the Secretary of State shall attach the filing receipt to one copy and mail the copy and receipt to the registered office if not discontinued. The Secretary of State shall mail the other copy to the foreign corporation at its principal office address shown in its most recent annual report.
3. The agency appointment is terminated, and the registered office discontinued if so provided, on the 31st day after the date on which the statement was filed.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 15.10. Service of process on foreign corporation.

Service of process on a foreign corporation is governed by 12 V.S.A. subchapter 6, chapter 25 and by the Vermont Rules of Civil Procedure.

Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 15.20. Withdrawal of foreign corporation.

1. A foreign corporation authorized to transact business in this State may not withdraw from this State until it obtains a certificate of withdrawal from the Secretary of State.
2. A foreign corporation authorized to transact business in this State may apply for a certificate of withdrawal by delivering an application to the Secretary of State for filing. The application must set forth:
   1. the name of the foreign corporation and the name of the state or country under whose law it is incorporated;
   2. that it is not transacting business in this State and that it surrenders its authority to transact business in this State;
   3. that it revokes the authority of its registered agent to accept service on its behalf and appoints the Secretary of State as its agent for service of process in any proceeding based on a cause of action arising during the time it was authorized to transact or was transacting without authorization business in this State;
   4. a mailing address to which the Secretary of State may mail a copy of any process served on him or her under subdivision (3) of this subsection;
   5. a commitment to notify the Secretary of State for the next seven years of any change in its mailing address; and
   6. any additional information required by the Secretary of State as necessary or appropriate to determine and assess any unpaid fees due to the State under this chapter and payable by the foreign corporation.
3. After the withdrawal of the corporation is effective, service of process on the Secretary of State under this section is service on the foreign corporation. Upon receipt of process, the Secretary of State shall mail a copy of the process to the foreign corporation at the mailing address set forth under subsection (b) of this section or otherwise perfect service under section 15.10 of this title.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

Cross References

Cross references. Filing and service fees, see § 1.22 of this title.

§ 15.30. Involuntary termination.

1. The Secretary of State shall terminate the certificate of authority of a foreign corporation if:
   1. the foreign corporation fails to deliver its annual report to the Secretary of State as required by section 16.22 of this title;
   2. the foreign corporation does not pay any franchise taxes or penalties imposed by this title or other law;
   3. the foreign corporation is without a registered agent or registered office in this State;
   4. the foreign corporation fails to inform the Secretary of State under section 15.08 or 15.09 of this title that its registered agent or registered office has changed;
   5. a material misrepresentation is knowingly made in a signed document delivered to the Secretary of State for filing;
   6. the Secretary of State receives a duly authenticated certificate from the Secretary of State or other official having custody of corporation records in the state or country under whose law the foreign corporation is incorporated stating that it has been dissolved or terminated or disappeared as the result of a merger;
   7. the foreign corporation has failed to comply with subdivision 11.07(a)(3) of this title requiring it to file articles of merger where it is the survivor of a merger with a domestic corporation; or
   8. the Commissioner of Taxes notifies the Secretary of State that a foreign corporation has failed to make a return, to pay a tax, to file a bond, or to do any other act required to be done under the provisions of 32 V.S.A. chapter 211.
2. The Secretary of State shall serve the foreign corporation with written notice of termination of its certificate of authority under section 15.10 of this title, setting out each deficiency.
3. The authority of a foreign corporation to transact business in this State ceases on the date shown on the notice terminating its certificate of authority. Termination of a foreign corporation's certificate of authority does not terminate the authority of the registered agent of the corporation.
4. The Secretary of State's termination of a foreign corporation's certificate of authority appoints the Secretary of State the foreign corporation's agent for service of process in any proceeding based on a cause of action that arose during the time the foreign corporation was authorized to transact or was transacting without authorization business in this State. Service of process on the Secretary of State under this subsection is service on the foreign corporation. Upon receipt of process, the Secretary of State shall mail a copy of the process to the secretary of the foreign corporation at its principal office shown in its most recent annual report or in any subsequent communication received from the corporation stating the current mailing address of its principal office, or, if none is on file, in its application for a certificate of authority, or otherwise perfect service under section 15.10 of this title.
5. If the foreign corporation corrects each ground for termination and demonstrates to the reasonable satisfaction of the Secretary of State that each ground cited in the notice of termination does not exist, and pays to the Secretary of State a fee of $25.00 for each year it is delinquent, the secretary may cancel the termination and prepare a certificate of reinstatement, file the original of the certificate, and serve a copy on the corporation under section 15.10 of this title.
6. When the reinstatement is effective, reinstatement shall relate back to and take effect as of the effective date of the foreign corporation's involuntary termination under this section as if the involuntary termination had never occurred.
7. A foreign corporation shall lose the right to retain its registered name, if its annual report required under subsection (a) of this section is not filed on or before five years after the date that the report is due, and if another domestic or foreign corporation files a request for the name with the Secretary of State.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2019, No. 131 (Adj. Sess.), § 46.

§§ 15.31. [Reserved].

1. If the Secretary of State does not cancel the termination of a certificate of authority of a foreign corporation pursuant to section 15.30 of this title, such foreign corporation may appeal the Secretary of State's termination of its certificate of authority to the Superior Court in Washington County or in the county in which the foreign corporation's principal office in Vermont is located within 90 days after service of the notice of such termination is perfected under section 15.10 of this title. The foreign corporation appeals by petitioning the Court to set aside the termination and attaching to the petition copies of its certificate of authority and the Secretary of State's notice of termination.
2. The Court may summarily order the Secretary of State to reinstate the certificate of authority or may take any other action the court considers appropriate.
3. The Court's final decision may be appealed as in other civil proceedings.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 15.33. Involuntary termination by judicial proceeding.

Upon petition by the Attorney General, the Superior Court of Washington County may terminate the certificate of authority of a foreign corporation if it is established that the corporation has continued to exceed or abuse the authority conferred upon it under the laws of this State.

Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 16.01. Corporate powers.

1. A corporation shall keep as permanent records minutes of all meetings of its shareholders and board of directors, a record of all actions taken by the shareholders or board of directors without a meeting, and records of all actions taken by a committee of the board of directors in place of the board of directors on behalf of the corporation.
2. A corporation shall maintain appropriate accounting records.
3. A corporation or its agent shall maintain a record of its shareholders, in a form that permits preparation of a list of the names and addresses of all shareholders, in alphabetical order by class of shares showing the number and class of shares held by each.
4. A corporation shall maintain its records in written form or in another form, including electronic form, capable of conversion into written form within a reasonable time.
5. A corporation shall keep a copy of the following records at its principal office (or, if none in this State, then the registered office):
   1. its articles or restated articles of incorporation and all amendments to them currently in effect;
   2. its bylaws or restated bylaws and all amendments to them currently in effect;
   3. resolutions adopted by its board of directors creating one or more classes or series of shares, and fixing their relative rights, preferences, and limitations, if shares issued pursuant to those resolutions are outstanding;
   4. the minutes of all shareholders' meetings, and records of all action taken by shareholders without a meeting;
   5. all written or electronic communications to shareholders generally within the past three years, including the financial statements furnished for the past three years under section 16.20 of this title;
   6. a list of the names and business addresses of its current directors and officers; and
   7. its most recent annual report delivered to the Secretary of State under section 16.22 of this title.

      Added 1993, No. 85 , § 2, eff. Jan. 1, 1994; amended 2007, No. 190 (Adj. Sess.), § 100, eff. June 6, 2008.

§ 16.02. Inspection of records by shareholders.

1. A shareholder of a corporation is entitled to inspect and copy, during regular business hours at the corporation's principal office, or, if none in this State, the registered office, any of the records of the corporation described in subsection 16.01(e) of this title if the shareholder gives the corporation written notice of the shareholder's demand at least five business days before the date on which the shareholder wishes to inspect and copy. A shareholder of a close corporation as defined in section 20.02 of this title is also entitled to inspect and copy, pursuant to this subsection, such corporation's record of shareholders.
2. A shareholder of a corporation is entitled to inspect and copy, during regular business hours at a reasonable location specified by the corporation, any of the following records of the corporation if the shareholder meets the requirements of subsection (c) of this section and gives the corporation written notice of his or her demand at least five business days before the day on which he or she wishes to inspect and copy:
   1. accounting records of the corporation; and
   2. the record of shareholders.
3. A shareholder may inspect and copy the records described in subsection (b) of this section only if:
   1. the shareholder establishes that the shareholder's demand is made in good faith and for a proper purpose;
   2. the shareholder describes with reasonable particularity the shareholder's purpose and the records the shareholder desires to inspect; and
   3. the records are directly connected with the shareholder's purpose.
4. The right of inspection granted by this section may not be abolished or limited by a corporation's articles of incorporation or bylaws.
5. This section does not affect:
   1. the right of a shareholder to inspect records under section 7.20 of this title or, if the shareholder is in litigation with the corporation, to the same extent as any other litigant;
   2. the power of a court, independently of this title, to compel the production of corporate records for examination.
6. For purposes of this section, "shareholder" includes a beneficial owner whose shares are held in a voting trust or by a nominee on his or her behalf.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 16.03. Scope of inspection right.

1. A shareholder's agent or attorney has the same inspection and copying rights as the shareholder he or she represents.
2. The right to copy records under section 16.02 of this title includes, if reasonable, the right to receive copies made by photocopy, or other means.
3. The corporation may impose a reasonable charge, covering the costs of labor and material, for copies of any documents provided to the shareholder. The charge may not exceed the estimated cost of production or reproduction of the records.
4. The corporation may comply with a shareholder's demand to inspect the record of shareholders under subsection 16.02(a) and subdivision 16.02(b)(2) of this title by providing the shareholder with a list of its shareholders that was compiled no earlier than the date of the shareholder's demand.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 16.04. Court-ordered inspection.

1. If a corporation does not allow a shareholder who complies with subsection 16.02(a) of this title to inspect and copy any records required by that subsection to be available for inspection, the Superior Court of the county where the corporation's principal office (or, if none in this State, then the registered office) is located may summarily order inspection and copying of the records demanded at the corporation's expense upon application of the shareholder.
2. If the corporation does not within a reasonable time allow shareholders to inspect and copy any other record, the shareholder who complies with subsections 16.02(b) and (c) of this title may apply to the Superior Court of the county where the corporation's principal office (or, if none in this State, then the registered office) is located for an order to permit inspection and copying of the records demanded. The court shall dispose of an application under this subsection on an expedited basis.
3. If the court orders inspection and copying of the records demanded, it shall also order the corporation to pay the shareholder's costs (including reasonable counsel fees) incurred to obtain the order unless the corporation proves that it refused inspection in good faith because it had a reasonable basis for doubt about the right of the shareholder to inspect the records demanded.
4. If the court orders inspection and copying of the records demanded, it may impose reasonable restrictions on the use and distribution of the records by the demanding shareholder.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 16.20. Financial statements for shareholders.

1. A corporation shall furnish its shareholders annual financial statements, which may be consolidated or combined statements of the corporation and one or more of its subsidiaries, as appropriate, that include a balance sheet as of the end of the fiscal year, an income statement for that year, and a statement of changes in shareholders' equity for the year unless that information appears elsewhere in the financial statements. If financial statements are prepared for the corporation on the basis of generally accepted accounting principles, the annual financial statements must also be prepared on that basis.
2. If the annual financial statements are reported upon by a public accountant, his or her report must accompany them. If not, the statements must be accompanied by a statement of the president or the person responsible for the corporation's accounting records:
   1. stating his or her reasonable belief whether the statements were prepared on the basis of generally accepted accounting principles and, if not, describing the basis of preparation; and
   2. describing any respect in which the statements were not prepared on a basis of accounting consistent with the statements prepared for the preceding year.
3. A corporation shall mail the annual financial statements to each shareholder within 120 days after the close of each fiscal year. Thereafter, on written request from a shareholder who was not mailed the statements, the corporation shall mail to the shareholder the latest financial statements.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 16.21. Other reports to shareholders.

1. If a corporation indemnifies or advances expenses to a director under section 8.51, 8.52, 8.53, or 8.54 of this title in connection with a proceeding by or in the right of the corporation, the corporation shall report the indemnification or advance in writing to the shareholders with or before the notice of the next shareholders' meeting.
2. If a corporation issues or authorizes the issuance of shares for promissory notes, the corporation shall report in writing to the shareholders the number of shares authorized or issued, and the consideration received by the corporation, with or before the notice of the next shareholders' meeting.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 16.22. Annual report for Secretary of State.

1. Each domestic corporation, and each foreign corporation authorized to transact business in this State, shall deliver to the Secretary of State for filing an annual report that sets forth:
   1. the name of the corporation and the state or country under whose law it is incorporated;
   2. the address of its registered office and the name of its registered agent at that office in this State;
   3. the address of its principal office;
   4. the names and business addresses of its directors and the president, secretary, treasurer, and all other officers with policy-making authority.
2. Information in the annual report must be current as of the date the annual report is executed on behalf of the corporation.
3. The annual report shall be delivered to the Secretary of State within two and one-half months after the expiration of the corporation's fiscal year.
4. If an annual report does not contain the information required by this section, the Secretary of State shall promptly notify the reporting domestic or foreign corporation in writing and return the report to it for correction. If the report is corrected to contain the information required by this section and delivered to the Secretary of State within 30 days after the effective date of notice, it is deemed to be timely filed.
5. Listing the name of the registered agent and the address of the registered office does not effectuate a change in such agent or office unless the report also contains the requirements of section 5.02 of this title.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

Cross References

Cross references. Failure of domestic corporation to file annual report, see § 14.20 of this title.

Failure of foreign corporation to file annual report, see § 15.30 of this title.

Filing fee, see § 1.22 of this title.

§ 20.01. Law applicable.

This chapter shall apply only to close corporations organized under this chapter. The provisions of this title other than those set forth in this chapter shall apply to close corporations in the absence of a contrary or inconsistent provision in this chapter. A corporation whose status as a close corporation terminates shall immediately become subject to the obligations and rights of a general corporation as provided in this title.

Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 20.02. Close corporation defined.

A close corporation is a corporation organized under this chapter whose articles of incorporation:

1. Include the following statement: "This corporation is a close corporation".
2. Contain the provisions required by subsection 2.02(a) of this title.
3. Provide that all of the corporation's issued and outstanding stock of all classes shall be held of record by not more than a specified number of persons, not exceeding 35. The method of counting the permitted number of holders of record of the stock of a close corporation shall be that provided in section 1.42 of this title.
4. Provide that each certificate for shares shall conspicuously note the fact that the corporation is a close corporation.
5. Provide that each certificate for shares shall conspicuously note the following provisions or state that the following provisions exist and that the corporation will furnish to any shareholder upon request and without charge, a full statement of such provisions:
   1. provisions, if any, set forth in the articles of incorporation and imposing restrictions on the transfer of shares;
   2. provisions, if any, set forth in the articles of incorporation and permitting dissolution of the corporation upon the occurrence of a specified event or contingency pursuant to section 20.13 of this title;
   3. provisions, if any, set forth in the articles of incorporation and permitting the shareholders to limit the powers of the board of directors or to manage the corporation without a board of directors pursuant to section 20.08 or 20.09 of this title.
6. Provide that the corporation shall make no offering of any of its shares of any class which would constitute a "public offering" within the meaning of the U.S. Securities Act of 1933 (15 U.S.C. § 77 et seq.).
7. Provide that all of the corporation's issued and outstanding shares of all classes shall be represented by certificates and shall conform in form and content to the requirements of section 6.25 of this title.

   Added 1993, No. 85 , § 2, eff. 1, 1994.

§ 20.03. Incorporation of a close corporation.

A close corporation shall be formed in accordance with sections 2.01, 2.02, 2.03, and 2.05 of this title, except that its articles of incorporation shall also contain the provisions required by section 20.02 of this title.

Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 20.04. Election of existing corporation to become a close corporation.

1. Any corporation organized under this title may become a close corporation by executing and filing, in accordance with sections 10.01-10.09 of this title, an article of amendment to its articles of incorporation, which shall contain the provisions required by section 20.02 of this title.
2. Such amendment shall be adopted in accordance with the requirements of section 10.03 of this title, provided that it must be approved by a vote of at least two-thirds of the outstanding shares of the corporation, and provided further that if any class of shares is entitled to vote as a group, approval shall require the affirmative vote of the holders of at least two-thirds of the outstanding shares of each voting group and the affirmative vote of the holders of at least two-thirds of the total outstanding shares.
3. If the amendment is approved by the requisite vote, any shareholder who voted against the amendment shall be entitled to assert dissenters' rights as provided in sections 13.01-13.28 of this title.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 20.05. Additional articles of incorporation.

1. The articles of incorporation of a close corporation may set forth reasonable qualifications of stockholders, either by specifying classes of persons who shall be entitled to be holders of shares of any class, or by specifying classes of persons who shall not be entitled to be holders of shares of any class, or both.
2. All of the issued stock of all classes may be subject, without limitation, to one or more of the following restrictions on transfer:
   1. any or all restrictions provided in section 6.27 of this title;
   2. a restriction on the transfer of shares for the purpose of maintaining the corporation's status as an electing small business corporation under subchapter S of the U.S. Internal Revenue Code (26 U.S.C.A. § 1361 et seq.) as amended or of maintaining any other tax status or election of the corporation;
   3. a restriction on the transfer of shares for the purpose of maintaining its status as an electing close corporation under this chapter; or
   4. any other lawful restriction on transfer or registration of transfer of securities which is permitted by this chapter.

      Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 20.06. Bylaws.

A close corporation need not adopt bylaws if provisions required by law to be contained in bylaws are contained in either the articles of incorporation or a shareholder agreement authorized by section 20.07 of this title.

Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

Cross References

Cross references. Amendment of bylaws, see § 10.20 et seq. of this title.

§ 20.07. Annual meeting.

1. The annual meeting date for a close corporation is the first business day after February 1 unless its articles of incorporation, bylaws, or a shareholder agreement authorized by section 20.09 of this title fixes a different date.
2. A close corporation need not hold an annual meeting unless one or more shareholders deliver written notice to the corporation requesting a meeting at least 30 days before the meeting date determined under subsection (a) of this section.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

Cross References

Cross references. Notice of meetings, see § 7.05 of this title.

§ 20.08. Elimination of board of directors.

1. A close corporation may operate without a board of directors as required by section 8.03 of this title only if its articles of incorporation contain a statement to that effect and contain a statement that the liability of directors imposed by law is instead imposed upon each person in whom the board's power is vested.
2. An amendment to the articles of incorporation eliminating a board of directors must be approved by all the shareholders of the corporation, whether or not otherwise entitled to vote on amendments, or if no shares have been issued, by all the subscribers for shares, if any, or if none, by all the incorporators.
3. While a corporation is operating without a board of directors as authorized by subsection (a) of this section:
   1. 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, the shareholders;
   2. unless the articles of incorporation provide otherwise:
      1. action requiring director approval or both directors and shareholder approval is authorized if approved by the shareholders;
      2. action requiring a majority or greater percentage vote of the board of directors is authorized if approved by the majority or greater percentage, respectively as the case may be, of the votes of shareholders entitled to vote on the action;
   3. a shareholder is not liable for his or her act or omission, although a director would be, unless the shareholder was entitled to vote on the action;
   4. a requirement by a state or the United States that a document delivered for filing contain a statement that a specified action has been taken by the board of directors is satisfied by a statement that the corporation is a close corporation without a board of directors and that the action was approved by the shareholders lawfully acting in the place of directors; and
   5. the shareholders by resolution may appoint one or more shareholders to sign documents as "designated directors."
4. An amendment to the articles of incorporation deleting the statement eliminating a board of directors shall be approved by the holders of at least two-thirds of the votes of each voting group of the corporation, voting as separate voting groups, whether or not otherwise entitled to vote on amendments. The amendment shall also specify the number, names and addresses of the corporation's directors or describe who will perform the duties of a board under section 8.01 of this title.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 20.09. Shareholder agreements.

1. If the articles of incorporation so provide pursuant to section 20.02(5)(C) of this title, all the shareholders of a close corporation may agree in writing to regulate the exercise of the corporate powers and the management of the business and affairs of the corporation or the relationship among the shareholders of the corporation.
2. An agreement authorized by this section may:
   1. eliminate a board of directors;
   2. restrict the discretion or powers of the board or authorize director proxies or weighted voting rights; or
   3. create a relationship among the shareholders or between the shareholders and the corporation that would otherwise be appropriate only among partners.
3. If the corporation has a board of directors, an agreement authorized by this section restricting the discretion or powers of the board relieves directors of the liability imposed on directors by law, to the extent that the discretion or powers of the board are governed by the agreement. In such circumstances, liability is imposed on each person in whom the board's discretion or power is vested.
4. A provision eliminating or restricting a board of directors in an agreement authorized by this section is not effective unless the articles of incorporation contain a statement to that effect and contain a statement that the liability of directors imposed by law is instead imposed upon each person in whom the board's power is vested.
5. A provision entitling one or more shareholders to dissolve the corporation under section 20.13 of this title is effective only if a statement of this right is contained in the articles of incorporation.
6. To amend an agreement authorized by this section, all the shareholders must approve the amendment in writing unless the agreement provides otherwise.
7. Subscribers for shares may act as shareholders with respect to an agreement authorized by this section if shares are not issued when the agreement is made.
8. This section does not prohibit any other agreement between or among shareholders in a close corporation except to the extent specifically stated in this chapter.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

Cross References

Cross references. Shareholders, generally, see § 7.01 et seq. of this title.

Shares and distributions, see § 6.01 et seq. of this title.

§ 20.10. Merger or consolidation.

1. A plan of merger that if effected would terminate the close corporation status of a corporation shall be approved by a vote of at least two-thirds of the votes of the outstanding shares of such corporation, provided that if any class of shares is entitled to vote as a group, the plan of merger or consolidation shall be approved by the affirmative vote of the holders of at least two-thirds of the outstanding shares of each voting group and the affirmative vote of the holders of at least two-thirds of the total outstanding shares.
2. A plan of merger that if effected would create the surviving corporation as a close corporation shall be approved by a vote of at least two-thirds of the votes of the outstanding shares of each close corporation, provided that if any class of shares of any such corporation is entitled to vote as a group, the plan of merger or consolidation shall be approved by the affirmative vote of the holders of at least two-thirds of the outstanding shares of each voting group and the affirmative vote of the holders of at least two-thirds of the total outstanding shares.
3. If the plan of merger is approved by the required vote, any shareholder who voted against the plan shall be entitled to assert dissenters' rights as provided in sections 13.01 through 13.28 of this title.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 20.11. Limitations on continuation of close corporation status.

The status of a close corporation subject to the provisions of this chapter shall continue until:

1. the close corporation files with the Secretary of State articles of amendment deleting from its articles of incorporation any or all of the provisions required by section 20.02 of this title; or
2. one or more of the provisions or conditions required by section 20.02 of this title has been breached and neither the corporation nor any of its shareholders proceed under section 20.14 of this title to prevent the loss of status.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 20.12. Voluntary termination of close corporation status by amendment of articles of incorporation; vote required.

1. A corporation may voluntarily terminate its status as a close corporation and cease to be subject to this chapter by amending its articles of incorporation to delete any or all of the provisions required by section 20.02 of this title in addition to the provisions required by section 2.02 of this title to be stated in the articles of incorporation of a close corporation. Any such amendment shall be adopted and shall become effective in accordance with sections 10.01-10.09 of this title and shall be approved by the higher of the vote required by the articles of incorporation or by subsection (c) of this section.
2. If the amendment is approved by the required vote, any shareholder who voted against the amendment shall be entitled to assert dissenters' rights as provided in sections 13.01-13.28 of this title.
3. An amendment to terminate the status of a close corporation must be approved by a vote of at least two-thirds of the outstanding shares of the corporation, provided that if any class of shares is entitled to vote as a group, approval shall require the affirmative vote of the holders of at least two-thirds of the outstanding shares of each voting group and the affirmative vote of the holders of at least two-thirds of the total outstanding shares. The articles of incorporation of a close corporation may provide that on any amendment to terminate its status as a close corporation, a unanimous vote or any vote greater than two-thirds of the shares or of any voting group shall be required; and, if the articles of incorporation contain such a provision, that provision shall not be amended, repealed, or modified by any vote less than that so required to terminate the corporation's status as a close corporation.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 20.13. Shareholders' option to dissolve corporation.

1. The articles of incorporation of any close corporation may include a provision granting to any shareholder, or to the holders of any specified number or percentage of shares of any class, an option to have the corporation dissolved upon the occurrence of any specified event or contingency. Whenever any such option to dissolve is exercised, the shareholders exercising such option shall give written notice thereto to all other shareholders. After the expiration of 30 days following the sending of such notice, the dissolution of the corporation shall proceed as if the required number of shareholders having voting power had consented in writing to dissolution of the corporation.
2. If the articles of incorporation as originally filed do not contain a provision authorized by subsection (a) of this section, the articles of incorporation may be amended to include such provision if adopted by the affirmative vote of the holders of record of all the outstanding shares of each class of the corporation.
3. Every share certificate representing shares issued by a close corporation whose articles of incorporation authorize dissolution as permitted by this section shall conspicuously note on the face or back thereof the existence of the provision. Unless noted conspicuously on the face or back of the share certificate, the provision shall be ineffective.
4. Dissolution of a close corporation pursuant to section 14.02 of this title shall require the affirmative vote of the holders of at least two-thirds of the outstanding shares of each voting group, and the affirmative vote of the holders of at least two-thirds of the total outstanding shares.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 20.14. Involuntary termination of close corporation status; proceeding to prevent loss of status.

1. A close corporation shall notify all shareholders of any event which would render the corporation no longer eligible to organize as a close corporation under the requirements of section 20.02 of this title. Such notification shall be made within 30 days of the discovery of the event. If shareholders are not notified within one year of the discovery of the event, the corporation's status as a close corporation shall terminate. If shareholders are notified within 30 days, they shall have 120 days after discovery of the event to remedy any breach, and if remedied, the corporation's status as a close corporation shall be unaffected by the breach of any conditions under section 20.02. Commencement of a proceeding by a shareholder or by the corporation in Superior Court under subsection (b) of this section shall suspend the provisions of this subsection.
2. The Superior Court of the county in which the registered office of the corporation is located, upon the suit of the corporation or any shareholder thereof, shall have jurisdiction to issue all orders necessary to prevent the corporation from losing its status as a close corporation, or to restore its status as a close corporation by enjoining or setting aside any act or threatened act on the part of the corporation or a shareholder thereof which would be inconsistent with any of the provisions or conditions required by section 20.02 of this title to be stated in the articles of incorporation of a close corporation, unless it is an action approved in accordance with section 20.02 of this title. The superior court shall enjoin or set aside any transfer or threatened transfer of shares of a close corporation which is contrary to the terms of its articles of incorporation or of any transfer restriction permitted by subdivision 20.02(5)(A) and subsection 20.05(b) of this title.
3. A close corporation whose status has been terminated under this section may reinstate that status by correction of breach. Such reinstatement shall revive and validate all actions taken by a close corporation during its termination period, if such actions would otherwise have been legally binding on the corporation if it had never been terminated.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 20.15. Judicial dissolution.

1. The Superior Court of the county in which the registered office of the corporation is located may entertain a petition of any shareholder for involuntary dissolution of any close corporation pursuant to sections 14.30-14.33 of this title.
2. Any one or more shareholders desiring to continue the business of a close corporation may avoid the dissolution of the corporation or the appointment of a trustee or receiver under this section by electing in a written instrument filed in the proceeding to purchase the shares of stock owned by the petitioner at a price equal to their fair value. If a shareholder or shareholders making such election are unable to reach an agreement with the petitioner as to the fair value of the petitioner's shares within 30 days after the filing of such election, the court shall, upon said electing shareholders giving bond or other security in an amount fixed by the court, stay the proceeding and proceed to determine the fair value of such shares as of the close of the business on the day on which the petition for dissolution was filed. Upon determining the fair value of such shares, the court shall set forth in its order directing that the shares be purchased, the purchase price and the time within which the payment shall be made, and may decree such other terms and conditions of sale as it determines to be appropriate, including payment of the purchase price in installments over a period of time and the allocation of shares among shareholders electing to purchase them. The petitioner shall be entitled to interest at the legal rate on the purchase price of the petitioner's shares from the date of the filing of the election for a determination of fair value and all other rights of the petitioner as an owner of the shares shall terminate at such date. Upon full payment of the purchase price, under the terms and conditions specified by the court, or at such other time as may be ordered by the court, the petitioner shall surrender the shares of stock to the purchasing shareholder or shareholders.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

§ 20.16. Special voting requirements.

1. Unless a provision of this chapter specifically provides otherwise, an amendment to the articles of incorporation shall be approved by a vote of at least two-thirds of the votes of the outstanding shares of such corporation, provided that if any class of shares is entitled to vote as a group, the amendment shall be approved by the affirmative vote of at least two-thirds of the outstanding shares of such voting group and the affirmative vote of at least two-thirds of the total outstanding shares.
2. Unless the articles of incorporation provide otherwise or unless a section of this chapter specifically provides otherwise, merger, share exchange, or sale of substantially all of the assets of the corporation other than in the ordinary course of business shall be approved by a vote of at least two-thirds of the votes of the outstanding shares of such corporation, provided that if any shares are entitled to vote as a group, the action shall be approved by the affirmative vote of at least two-thirds of the outstanding shares of each voting group entitled to vote as a group and the affirmative vote of at least two-thirds of the total outstanding shares.
3. If the articles of incorporation contain specific authority to do so, approval under this section may be by a vote of at least a majority of the votes of the outstanding shares of such corporation, provided that if any shares are entitled to vote as a group, the action shall be approved by the affirmative vote of at least a majority of the outstanding shares of each voting group entitled to vote as a group and the affirmative vote of at least a majority of the total outstanding shares.

   Added 1993, No. 85 , § 2, eff. Jan. 1, 1994.

Cross References

Cross references. Voting by shareholders, see § 7.20 et seq. of this title.

§ 21.01. Short title.

This chapter shall be known and may be cited as the "Vermont Benefit Corporations Act."

Added 2009, No. 113 (Adj. Sess.), § 1, eff. July 1, 2011.

§ 21.02. Law applicable.

1. This chapter shall apply only to a domestic corporation meeting the definition of a benefit corporation in subdivision 21.03(a)(1) of this title. The provisions of this title other than those set forth in this chapter shall apply to a benefit corporation in the absence of a contrary or inconsistent provision in this chapter. A corporation whose status as a benefit corporation terminates shall immediately become subject to the obligations and rights of a general corporation as provided in this title.
2. The existence of a provision of this chapter does not of itself create any implication that a contrary or different rule of law is or would be applicable to a corporation that is not a benefit corporation. This chapter does not affect any statute or rule of law as it applies to a corporation that is not a benefit corporation.
3. A provision of the articles of incorporation or bylaws of a benefit corporation may not be inconsistent with any provision of this chapter.
4. Terms that are defined in other chapters of this title shall have the same meaning when used in this chapter, except that in this chapter, "corporation" shall have the meaning set forth in section 1.40 of this title.

   Added 2009, No. 113 (Adj. Sess.), § 1, eff. July 1, 2011.

§ 21.03. Definitions.

1. As used in this chapter:
   1. "Benefit corporation" means a corporation as defined in section 1.40 of this title whose articles of incorporation include the statement "This corporation is a benefit corporation."
   2. "Benefit director" means:
      1. a director designated as a benefit director of a benefit corporation as provided in section 21.10 of this title; or
      2. a person with one or more of the powers, duties, or rights of a benefit director to the extent provided in the articles of incorporation or shareholder agreement of a close corporation pursuant to subsection 21.10(e) of this title.
   3. "Benefit officer" means the officer of a benefit corporation, if any, designated as the benefit officer as provided in section 21.12 of this title.
   4. "General public benefit" means a material positive impact on society and the environment, as measured by a third-party standard, through activities that promote some combination of specific public benefits.
   5. "Independent" means that a person has no material relationship with a benefit corporation or any of its subsidiaries (other than the relationship of serving as the benefit director or benefit officer), either directly or as an owner or manager of an entity that has a material relationship with the benefit corporation or any of its subsidiaries. A material relationship between a person and the benefit corporation or any of its subsidiaries will be conclusively presumed to exist if:
      1. the person is, or has been within the last three years, an employee of the benefit corporation or any of its subsidiaries, other than as a benefit officer;
      2. an immediate family member of the person is, or has been within the last three years, an executive officer, other than a benefit officer, of the benefit corporation or any of its subsidiaries; or
      3. the person, or an entity of which the person is a manager or in which the person owns beneficially or of record five percent or more of the equity interests, owns beneficially or of record five percent or more of the shares of the benefit corporation.
   6. "Specific public benefit" includes:
      1. providing low income or underserved individuals or communities with beneficial products or services;
      2. promoting economic opportunity for individuals or communities beyond the creation of jobs in the normal course of business;
      3. preserving or improving the environment;
      4. improving human health;
      5. promoting the arts or sciences or the advancement of knowledge;
      6. increasing the flow of capital to entities with a public benefit purpose; and
      7. the accomplishment of any other identifiable benefit for society or the environment.
   7. "Subsidiary" of a person means an entity in which the person owns beneficially or of record 50 percent or more of the equity interests.
   8. "Third-party standard" means a recognized standard for defining, reporting, and assessing corporate social and environmental performance that:
      1. is developed by a person that is independent of the benefit corporation; and
      2. is transparent because the following information about the standard is publicly available:
         1. the factors considered when measuring the performance of a business;
         2. the relative weightings of those factors; and
         3. the identity of the persons who developed and control changes to the standard and the process by which those changes are made.
2. For purposes of subdivisions (a)(5)(C) and (7) of this section, a percentage of ownership in an entity shall be calculated as if all outstanding rights to acquire equity interests in the entity had been exercised.

   Added 2009, No. 113 (Adj. Sess.), § 1, eff. July 1, 2011; amended 2011, No. 146 (Adj. Sess.), § 1.

§ 21.04. Incorporation of a benefit corporation.

A benefit corporation shall be formed in accordance with sections 2.01, 2.02, 2.03, and 2.05 of this title, except that its articles of incorporation shall also contain the provision required by subdivision 21.03(a)(1) of this title to meet the definition of a benefit corporation.

Added 2009, No. 113 (Adj. Sess.), § 1, eff. July 1, 2011.

§ 21.05. Election of existing corporation to become a benefit corporation.

Any corporation organized under this title may become a benefit corporation by amending its articles of incorporation to add the statement required by subdivision 21.03(a)(1) of this title to meet the definition of a benefit corporation. The amendment shall be adopted and shall become effective in accordance with sections 10.01 through 10.09 of this title, except that:

1. the notice of the meeting of shareholders that will approve the amendment shall include a statement from the board of directors of the reasons why the board is proposing the amendment and the anticipated effect on shareholders of becoming a benefit corporation; and
2. the amendment shall be approved by the higher of:
   1. the vote required by the articles of incorporation; or
   2. two-thirds of the votes entitled to be cast by the outstanding shares of the corporation, provided that if any class of shares is entitled to vote as a group, approval shall also require the affirmative vote of the holders of at least two-thirds of the votes entitled to be cast by the outstanding shares of each voting group.

      Added 2009, No. 113 (Adj. Sess.), § 1, eff. July 1, 2011.

§ 21.06. Merger and share exchange.

1. A plan of merger or share exchange that if effected would terminate the benefit corporation status of a corporation shall be adopted and shall become effective in accordance with chapter 11 of this title, except that:
   1. the notice of the meeting of shareholders that will approve the plan shall include a statement from the board of directors of the reasons why the board is proposing that the surviving corporation should not be a benefit corporation and the anticipated effect on the shareholders of the surviving corporation ceasing to be a benefit corporation; and
   2. the plan shall be approved by the higher of:
      1. the vote required by the articles of incorporation; or
      2. two-thirds of the votes entitled to be cast by the outstanding shares of the corporation, provided that if any class of shares is entitled to vote as a group, approval shall also require the affirmative vote of the holders of at least two-thirds of the votes entitled to be cast by the outstanding shares of each voting group.
2. If a corporation that is not a benefit corporation is a party to a plan of merger or share exchange in which the surviving corporation is a benefit corporation, the plan of merger shall be adopted and shall become effective in accordance with chapter 11 of this title, except that:
   1. the notice of the meeting of shareholders that will approve the plan shall include a statement from the board of directors of the reasons why the board is proposing that the surviving corporation should become a benefit corporation and the effect on the shareholders of the surviving corporation becoming a benefit corporation; and
   2. the plan shall be approved in the case of the corporation that is not a benefit corporation by the higher of:
      1. the vote required by the articles of incorporation; or
      2. two-thirds of the votes entitled to be cast by the outstanding shares of the corporation, provided that if any class of shares is entitled to vote as a group, approval shall also require the affirmative vote of the holders of at least two-thirds of the votes entitled to be cast by the outstanding shares of each voting group.

         Added 2009, No. 113 (Adj. Sess.), § 1, eff. July 1, 2011.

§ 21.07. Termination of benefit corporation status by amendment of articles of incorporation; vote required.

A corporation may terminate its status as a benefit corporation and cease to be subject to this chapter by amending its articles of incorporation to delete the provision required by subdivision 21.03(a)(1) of this title to meet the definition of a benefit corporation, in addition to the provisions required by section 2.02 of this title to be stated in the articles of incorporation of a benefit corporation. The amendment shall be adopted and shall become effective in accordance with sections 10.01 through 10.09 of this title, except that:

1. the notice of the meeting of shareholders that will approve the plan shall include a statement from the board of directors of the reasons why the board is proposing the amendment and the effect of terminating the status of the corporation as a benefit corporation; and
2. the amendment shall be approved by the higher of:
   1. the vote required by the articles of incorporation; or
   2. two-thirds of the votes entitled to be cast by the outstanding shares of the corporation, provided that if any class of shares is entitled to vote as a group, approval shall also require the affirmative vote of the holders of at least two-thirds of the votes entitled to be cast by the outstanding shares of each voting group.

      Added 2009, No. 113 (Adj. Sess.), § 1, eff. July 1, 2011.

§ 21.08. Corporate purpose.

1. A benefit corporation shall have the purpose of creating general public benefit. This purpose is in addition to, and may be a limitation on, the purposes of the benefit corporation under subsection 3.01(a) of this title.
2. The articles of incorporation of a benefit corporation may identify one or more specific public benefits that are the purpose of the benefit corporation to create in addition to its purposes under subsection 3.01(a) of this title and subsection (a) of this section. The adoption of a specific public benefit purpose under this subsection does not limit the obligation of a benefit corporation to create general public benefit.
3. The creation of general and specific public benefit as provided in subsections (a) and (b) of this section is in the best interests of the benefit corporation.
4. A benefit corporation may amend its articles of incorporation to add, amend, or delete a specific public benefit. The amendment shall be adopted and shall become effective in accordance with sections 10.01 through 10.09 of this title and shall be approved by the higher of the vote required by the articles of incorporation or by subsection (e) of this section.
5. An amendment of the articles of incorporation of a benefit corporation to add, amend, or delete a specific public benefit in the articles of incorporation shall be adopted by a vote of at least two-thirds of the votes entitled to be cast by the outstanding shares of the corporation, provided that if any class of shares is entitled to vote as a group, approval shall also require the affirmative vote of the holders of at least two-thirds of the votes entitled to be cast by the outstanding shares of each voting group.

   Added 2009, No. 113 (Adj. Sess.), § 1, eff. July 1, 2011.

§ 21.09. Standard of conduct for directors.

1. Each director of a benefit corporation, in discharging his or her duties as a director, including the director's duties as a member of a committee:
   1. shall, in determining what the director reasonably believes to be in the best interests of the benefit corporation, consider the effects of any action or inaction upon:
      1. the shareholders of the benefit corporation;
      2. the employees and workforce of the benefit corporation and its subsidiaries and suppliers;
      3. the interests of customers to the extent they are beneficiaries of the general or specific public benefit purposes of the benefit corporation;
      4. community and societal considerations, including those of any community in which offices or facilities of the benefit corporation or its subsidiaries or suppliers are located;
      5. the local and global environment; and
      6. the long-term and short-term interests of the benefit corporation, including the possibility that those interests may be best served by the continued independence of the benefit corporation;
   2. may consider any other pertinent factors or the interests of any other group that the director determines are appropriate to consider;
   3. shall not be required to give priority to the interests of any particular person or group referred to in subdivision (1) or (2) of this subsection over the interests of any other person or group unless the benefit corporation has stated in its articles of incorporation its intention to give priority to interests related to the accomplishment of its general or specific public benefit purposes; and
   4. shall not be subject to a different or higher standard of care when an action or inaction might affect control of the benefit corporation.
2. The consideration of interests and factors in the manner described in subsection (a) of this section shall not constitute a violation of section 8.30 of this title.
3. A director is not liable for the failure of a benefit corporation to create general or specific public benefit.
4. A director is not liable to the benefit corporation or any person entitled to bring a benefit enforcement proceeding under section 21.13 of this title for any action or failure to take action in his or her official capacity if the director performed the duties of his or her office in compliance with section 8.30 of this title and with this section.
5. A director of a benefit corporation shall not have any duty to a person who is a beneficiary of the general or specific public benefit purposes of the benefit corporation arising only from the person's status as a beneficiary. If a benefit corporation has adopted a provision in its articles of incorporation authorized by subdivision 2.02(b)(4) of this title, the provision shall also apply to a failure by a director to discharge his or her duties in accordance with this chapter.

   Added 2009, No. 113 (Adj. Sess.), § 1, eff. July 1, 2011; amended 2011, No. 146 (Adj. Sess.), § 1.

§ 21.10. Benefit director.

1. Except as provided in subsection (e) of this section, the board of directors of a benefit corporation shall include at least one director who shall be designated a "benefit director" and shall have, in addition to all of the powers, duties, rights, and immunities of the other directors of the benefit corporation, the powers, duties, rights, and immunities provided in this section.
2. A benefit director shall be elected and may be removed in the manner provided by subchapter 1 of chapter 8 of this title and shall be an individual who is independent of the benefit corporation. A benefit director may serve as the benefit officer at the same time as serving as a benefit director. The articles of incorporation or bylaws of a benefit corporation may prescribe additional qualifications of a benefit director not inconsistent with this subsection.
3. 1. A benefit director shall be responsible for the preparation of the annual benefit report required under section 21.14 of this title. (c) (1)  A benefit director shall be responsible for the preparation of the annual benefit report required under section 21.14 of this title.
   2. A benefit director may retain an independent third party to audit the annual benefit report or conduct any other assessment of the benefit corporation's social and environmental performance.
   3. A benefit director shall prepare and shall include in the annual benefit report a statement whether, in the opinion of the benefit director:
      1. the benefit corporation acted in accordance with its general public benefit purpose and any specific public benefit purpose in all material respects during the period covered by the report; and
      2. the directors and officers acted in accordance with the requirements of subsection 21.09(a) and section 21.11 of this title, respectively.
   4. If in the opinion of the benefit director the benefit corporation failed to act in accordance with its general and any specific public benefit purposes or if its directors or officers failed to act in accordance with the requirements of subsection 21.09(a) and section 21.11 of this title, respectively, then the statement of the benefit director shall include a description of the ways in which the benefit corporation or its directors or officers failed to so act.
4. The acts and omissions of an individual in the capacity of a benefit director shall constitute for all purposes acts and omissions of that individual in the capacity of a director of the benefit corporation.
5. If the articles of incorporation of a benefit corporation that is a close corporation dispense with or restrict the discretion or powers of the board of directors pursuant to sections 20.08 and 20.09 of this title, then the articles of incorporation or the shareholder agreement shall specify the persons who shall exercise the powers, duties, and rights of the board of directors and the benefit director, as provided in this chapter. A person who exercises one or more of the powers, duties, or rights of a benefit director pursuant to this subsection:
   1. except in the case of a corporation with annual gross revenue of $5 million or more in each of the two years preceding his or her appointment, is not required to be independent of the benefit corporation;
   2. shall have the immunities of a benefit director;
   3. may share the powers, duties, and rights of a benefit director with one or more other persons; and
   4. shall not be subject to the procedures for election or removal of directors provided in subchapter 1 of chapter 8 of this title unless the person is also a director of the benefit corporation or the articles of incorporation or shareholder agreement makes those procedures applicable.
6. Regardless of whether the articles of incorporation of a benefit corporation include a provision eliminating or limiting the personal liability of directors authorized by subdivision 2.02(b)(4) of this title, a benefit director shall not be personally liable for any act or omission taken in his or her official capacity as a benefit director unless the act or omission is not in good faith, involves intentional misconduct or a knowing violation of law, or involves a transaction from which the director directly or indirectly derived an improper personal benefit.

   Added 2009, No. 113 (Adj. Sess.), § 1, eff. July 1, 2011; amended 2011, No. 146 (Adj. Sess.), § 1.

§ 21.11. Standard of conduct for officers.

1. An officer of a benefit corporation shall consider the interests and factors described in subsection 21.09(a) of this title in the manner provided in that subsection when:
   1. the officer has discretion in how to act or not act with respect to a matter; and
   2. it reasonably appears to the officer that the matter may have a material effect on:
      1. the creation of general or specific public benefit by the benefit corporation; or
      2. any of the interests or factors referred to in subdivision 21.09(a)(1) of this title.
2. The consideration of interests and factors in the manner described in subsection (a) of this section shall not constitute a violation of the fiduciary duty of an officer to the benefit corporation.
3. An officer is not liable to the benefit corporation or any person entitled to bring a benefit enforcement proceeding under section 21.13 of this title for any action or failure to take action in his or her official capacity if the officer performed the duties of the position in compliance with section 8.41 of this title and with this section.
4. An officer is not liable for the failure of a benefit corporation to create general or specific public benefit.
5. An officer of a benefit corporation shall not have any duty to a person that is a beneficiary of the general or specific public benefit purposes of the benefit corporation arising only from the person's status as a beneficiary.
6. The articles of incorporation of a benefit corporation may set forth a provision eliminating or limiting the liability of an officer to the benefit corporation or its shareholders for money damages for any action taken, or any failure to take any action, solely as an officer, based on a failure to discharge his or her own duties in accordance with this chapter, except liability for:
   1. the amount of a financial benefit received by an officer to which the officer is not entitled;
   2. an intentional or reckless infliction of harm on the benefit corporation or its shareholders; or
   3. an intentional or reckless criminal act.

      Added 2009, No. 113 (Adj. Sess.), § 1, eff. July 1, 2011; amended 2011, No. 146 (Adj. Sess.), § 1.

§ 21.12. Benefit officer.

A benefit corporation may have an officer designated the "benefit officer" who shall have the authority and shall perform the duties in the management of the benefit corporation relating to the purpose of the corporation to create public benefit as set forth with respect to the office in the bylaws or, to the extent not inconsistent with the bylaws, prescribed with respect to the office by the board of directors or by direction of an officer authorized by the board of directors to prescribe the duties of the office.

Added 2009, No. 113 (Adj. Sess.), § 1, eff. July 1, 2011.

§ 21.13. Right of action.

1. The duties of directors and officers under this chapter and the general and specific public benefit purposes of a benefit corporation may be enforced only in a benefit enforcement proceeding, and no person may bring such an action or claim against a benefit corporation or its directors or officers except as provided in this section.
2. A benefit enforcement proceeding may be commenced or maintained only by:
   1. a shareholder that would otherwise be entitled to commence or maintain a proceeding in the right of the benefit corporation on any basis;
   2. a director of the corporation;
   3. a person or group of persons that owns beneficially or of record 10 percent or more of the equity interests in an entity of which the benefit corporation is a subsidiary; or
   4. such other persons as may be specified in the articles of incorporation of the benefit corporation.
3. As used in this chapter, "benefit enforcement proceeding" means a claim or action against a director or officer for:
   1. failure to pursue the general public benefit purpose of the benefit corporation or any specific public benefit purpose set forth in its articles of incorporation; or
   2. violation of a duty or standard of conduct under this chapter.

      Added 2009, No. 113 (Adj. Sess.), § 1, eff. July 1, 2011.

§ 21.14. Annual benefit report.

1. A benefit corporation shall deliver to each shareholder, in a format approved by the directors, an annual benefit report, which shall include:
   1. 1. a statement of the specific goals or outcomes identified by the benefit corporation for creating general public benefit and any specific public benefit for the period of the benefit report; (1) (A) a statement of the specific goals or outcomes identified by the benefit corporation for creating general public benefit and any specific public benefit for the period of the benefit report;
      2. a description of the actions taken by the benefit corporation to attain the identified goals or outcomes and the extent to which the goals or outcomes were attained;
      3. a description of any circumstances that hindered the attainment of the identified goals or outcomes and the creation of general public benefit or any specific public benefit; and
      4. specific actions the benefit corporation can take to improve its social and environmental performance and attain the goals or outcomes identified for creating general public benefit and any specific public benefit;
   2. an assessment of the social and environmental performance of the benefit corporation prepared in accordance with a third-party standard that has been applied consistently with prior benefit reports or accompanied by an explanation of the reasons for any inconsistent application;
   3. a statement of specific goals or outcomes identified by the benefit corporation and approved by the shareholders for creating general public benefit and any specific public benefit for the period of the next benefit report;
   4. the name of each benefit director and the benefit officer, if any, and the address to which correspondence to each of them may be directed;
   5. the compensation paid by the benefit corporation during the year to each director in that capacity;
   6. the name of each person that owns beneficially or of record five percent or more of the shares of the benefit corporation; and
   7. the statement of a benefit director described in subsection 21.10(c) of this title.
2. A benefit corporation shall annually deliver the benefit report to each shareholder within 120 days following the end of the fiscal year of the benefit corporation or at the same time that the benefit corporation delivers any other annual report to its shareholders.
3. After reasonable opportunity for review, the shareholders of the benefit corporation shall approve or reject the annual benefit report by majority vote at the annual meeting of shareholders or at a special meeting held for that purpose.
4. A benefit corporation shall post its most recent benefit report endorsed by its shareholders on the public portion of its website, if any, except that the compensation paid to directors and any financial or proprietary information included in the benefit report may be omitted from the benefit report as posted. If a benefit corporation does not have a public website, it shall deliver a copy of its most recent benefit report on demand and without charge to any person who requests a copy.
5. If a benefit corporation is a close corporation that has dispensed with or restricted the discretion or powers of the board of directors, the annual benefit report shall describe the person or persons who exercise the powers, duties, and rights and have the immunities of the board of directors and the benefit director.

   Added 2009, No. 113 (Adj. Sess.), § 1, eff. July 1, 2011; amended 2011, No. 146 (Adj. Sess.), § 1.