Title 2. Corporations

CHAPTER 20. GENERAL PROVISIONS

Sec. 20.001. SIGNATURE REQUIREMENTS FOR FILING INSTRUMENTS.

(a) Unless otherwise provided by Section 3.054 or 3.060(b) or this title, a filing instrument of a corporation must be signed by an officer of the corporation.

(b) A certificate of termination, a certificate of reinstatement, a certificate of amendment to cancel an event requiring winding up, or a restated certificate of formation that contains an amendment to cancel an event requiring winding up may be signed by:

(1) one of the organizers if the winding up, the reinstatement, or the cancellation of an event requiring winding up was authorized by the organizers under Section 21.502(2) or22.302(1)(B); or

(2) one of the directors if the winding up, the reinstatement, or the cancellation of an event requiring winding up was authorized by the board of directors under Section 21.502(2) or 22.302(1)(B).

Sec. 20.002. ULTRA VIRES ACTS.

(a) Lack of capacity of a corporation may not be the basis of any claim or defense at law or in equity.

(b) An act of a corporation or a transfer of property by or to a corporation is not invalid because the act or transfer was:

(1) beyond the scope of the purpose or purposes of the corporation as expressed in the corporation's certificate of formation; or

(2) inconsistent with a limitation on the authority of an officer or director to exercise a statutory power of the corporation, as that limitation is expressed in the corporation's certificate of formation.

(c) The fact that an act or transfer is beyond the scope of the expressed purpose or purposes of the corporation or is inconsistent with an expressed limitation on the authority of an officer or director may be asserted in a proceeding:

(1) by a shareholder or member against the corporation to enjoin the performance of an act or the transfer of property by or to the corporation;

(2) by the corporation, acting directly or through a receiver, trustee, or other legal representative, or through members in a representative suit, against an officer or director or former officer or director of the corporation for exceeding that person's authority; or

(3) by the attorney general to:

(A) terminate the corporation;

(B) enjoin the corporation from performing an unauthorized act; or

(C) enforce divestment of real property acquired or held contrary to the laws of this state.

(d) If the unauthorized act or transfer sought to be enjoined under Subsection (c)(1) is being or is to be performed or made under a contract to which the corporation is a party and if each party to the contract is a party to the proceeding, the court may set aside and enjoin the performance of the contract. The court may award to the corporation or to another party to the contract, as appropriate, compensation for loss or damage resulting from the action of the court in setting aside and enjoining the performance of the contract, excluding loss of anticipated profits.

CHAPTER 21. FOR–PROFIT CORPORATIONS
SUBCHAPTER A. GENERAL PROVISIONS

Sec. 21.002. DEFINITIONS. In this chapter:

(1) "Authorized share" means a share of any class the corporation is authorized to issue.

(2) "Board of directors" includes each person who is authorized to perform the functions of the board of directors under a shareholders' agreement as authorized by this chapter.

(3) "Cancel," with respect to an authorized share of a corporation, means the restoration of an issued share to the status of an authorized but unissued share.

(4) "Consuming assets corporation" means a corporation that:

(A) is engaged in the business of exploiting assets subject to depletion or amortization;

(B) states in its certificate of formation that it is a consuming assets corporation;

(C) includes the phrase "a consuming assets corporation" as part of its official corporate name and gives the phrase equal prominence with the rest of the corporate name on the financial statements and certificates of ownership of the corporation; and

(D) includes in each of the certificates of ownership of the corporation the sentence, "This corporation is permitted by law to pay dividends out of reserves that may impair its stated capital."

(5) "Corporation" or "domestic corporation" means a domestic for–profit corporation subject to this chapter.

(6) [No Heading]

(A) "Distribution" means a transfer of property, including cash, or issuance of debt, by a corporation to its shareholders in the form of:

(i) a dividend on any class or series of its outstanding shares;

(ii) a purchase or redemption, directly or indirectly, of any of its own shares; or

(iii) a payment by the corporation in liquidation of all or a portion of its assets.

(B) The term does not include:

(i) a split–up or division of the issued shares of a class of a corporation into a larger number of shares within the same class that does not increase the stated capital of the corporation; or

(ii) a transfer of the corporation's own shares or rights to acquire its own shares.

(7) "Foreign corporation" means a for–profit corporation formed under the laws of a jurisdiction other than this state.

(8) "Investment Company Act" means the Investment Company Act of 1940 (15 U.S.C. Section 80a–1 et seq.), as amended.

(9) "Net assets" means the amount by which the total assets of a corporation exceed the total debts of the corporation.

(10) "Share dividend" means a dividend by a corporation that is payable in authorized but unissued shares or treasury shares of the corporation. The term does not include:

(A) an amendment to the corporation's certificate of formation to change the shares of a class or series, with or without par value, into the same or a different number of shares of the same or a different class or series, with or without par value; or

(B) a split–up or division of the issued shares of a class of a corporation into a larger number of shares within the same class that does not increase the stated capital of the corporation.

(11) "Stated capital" means the sum of:

(A) the par value of all shares of the corporation with par value that have been issued;

(B) the consideration, as expressed in terms of United States dollars, determined by the corporation in the manner provided by Section 21.160 for all shares of the corporation without par value that have been issued, except that part, but not all, of the consideration that:

(i) has been actually received; and

(ii) the board, by resolution adopted not later than the 60th day after the date of issuance of those shares, has allocated to surplus; and

(C) an amount not included in Paragraphs (A) and (B) that has been transferred to stated capital of the corporation, on the payment of a share dividend or on adoption by the board of directors of a resolution directing that all or part of surplus be transferred to stated capital, minus each reduction made as permitted by law.

(12) "Surplus" means the amount by which the net assets of a corporation exceed the stated capital of the corporation.

(13) "Treasury shares" means shares of a corporation that have been issued, and subsequently acquired by the corporation, that belong to the corporation and that have not been canceled. The term does not include shares held by a corporation in a fiduciary capacity, whether directly or through a trust or similar arrangement.

SUBCHAPTER B. FORMATION AND GOVERNING DOCUMENTS

Sec. 21.051. NO PROPERTY RIGHT IN CERTIFICATE OF FORMATION. A shareholder of a corporation does not have a vested property right resulting from the certificate of formation, including a provision in the certificate of formation relating to the management, control, capital structure, dividend entitlement, purpose, or duration of the corporation.

Sec. 21.052. PROCEDURES TO ADOPT AMENDMENT TO CERTIFICATE OF FORMATION.

(a) To adopt an amendment to the certificate of formation of a corporation as provided by Subchapter B, Chapter 3, the board of directors of the corporation shall:

(1) adopt a resolution stating the proposed amendment; and

(2) follow the procedures prescribed by Sections 21.053–21.055.

(b) The resolution may incorporate the proposed amendment in a restated certificate of formation that complies with Section 3.059.

(b–1) The resolution may provide that at any time before the filing of a certificate of amendment takes effect as provided by Subchapter B, Chapter 3, the board of directors may abandon the proposed amendment to the certificate of formation without further action by the shareholders of the corporation, notwithstanding authorization of the proposed amendment by the shareholders.

(c) The certificate of amendment must be filed in accordance with Chapter 4 and takes effect as provided by Subchapter B, Chapter 3.

(d) This section does not affect:

(1) the authority of the shareholders of a corporation to consent in writing to the cancellation of an event requiring winding up in accordance with Section 21.502(1); or

(2) the authority of the organizers of a corporation to adopt a resolution to cancel an event requiring winding up in accordance with Section 21.502(2).

Sec. 21.053. ADOPTION OF AMENDMENT BY BOARD OF DIRECTORS.

(a) If a corporation does not have any issued and outstanding shares, or in the case of an amendment under Subsection (b) or (c), the board of directors may adopt a proposed amendment to the corporation's certificate of formation by resolution withoutshareholder approval.

(b) Notwithstanding Section 21.054, the board of directors may adopt a proposed amendment without shareholder approval in the manner provided by Section 21.155 if the amendment to the corporation's certificate of formation relates to a series of shares established by the board under authority granted to the board in the certificate of formation as provided by Section 21.155.

(c) Notwithstanding Section 21.054 and except as otherwise provided by the certificate of formation, the board of directors of a corporation that has outstanding shares may, without shareholder approval, adopt an amendment to the corporation's certificate offormation to change the word or abbreviation in its corporate name as required by Section 5.054(a) to be a different word or abbreviation required by that section.

Sec. 21.054. ADOPTION OF AMENDMENT BY SHAREHOLDERS. If a corporation has issued and outstanding shares:

(1) a resolution described by Section 21.052 must also direct that the proposed amendment be submitted to a vote of the shareholders at a meeting; and

(2) the shareholders must approve the proposed amendment in the manner provided by Section 21.055.

Sec. 21.055. NOTICE OF AND MEETING TO CONSIDER PROPOSED AMENDMENT.

(a) Each shareholder of record entitled to vote shall be given written notice containing the proposed amendment or a summary of the changes to be effected within the time and in the manner provided by this code for giving notice of meetings to shareholders. The proposed amendment or summary may be included in the notice required to be provided for an annual meeting.

(b) At the meeting, the proposed amendment shall be adopted only on receiving the affirmative vote of shareholders entitled to vote required by Section 21.364.

(c) An unlimited number of amendments may be submitted for adoption by the shareholders at a meeting.

Sec. 21.056. RESTATED CERTIFICATE OF FORMATION.

(a) A corporation may adopt a restated certificate of formation as provided by Subchapter B, Chapter 3, by following the same procedures to amend its certificate of formation under Sections 21.052–21.055, except that:

(1) shareholder approval is not required if an amendment is not adopted; and

(2) the shareholders of a corporation may consent in writing, or the organizers of a corporation may adopt a resolution, to authorize a restated certificate of formation that contains an amendment to cancel an event requiring winding up in accordance with Section 21.502(1) or (2).

(b) The restated certificate of formation shall be filed in accordance with Chapter 4 and takes effect as provided by Subchapter B, Chapter 3.

Sec. 21.057. BYLAWS.

(a) The board of directors of a corporation shall adopt initial bylaws.

(b) The bylaws may contain provisions for the regulation and management of the affairs of the corporation that are consistent with law and the corporation's certificate of formation.

(c) A corporation's board of directors may amend or repeal bylaws or adopt new bylaws unless:

(1) the corporation's certificate of formation or this code wholly or partly reserves the power exclusively to the corporation's shareholders; or

(2) in amending, repealing, or adopting a bylaw, the shareholders expressly provide that the board of directors may not amend, repeal, or readopt that bylaw.

Sec. 21.058. DUAL AUTHORITY. Unless the certificate of formation or a bylaw adopted by the shareholders provides otherwise as to all or a part of a corporation's bylaws, a corporation's shareholders may amend, repeal, or adopt the corporation's bylaws regardless of whether the bylaws may also be amended, repealed, or adopted by the corporation's board of directors.

Sec. 21.059. ORGANIZATION MEETING.

(a) This section does not apply to a corporation created as a result of a conversion or merger the plan of which states the bylaws and names the officers of the corporation.

(b) After the filing of a certificate of formation takes effect, an organization meeting shall be held at the call of the majority of the initial board of directors or the persons named in the certificate of formation under Section 3.007(a)(4) for the purpose of adopting bylaws, electing officers, and transacting other business.

(c) Not later than the third day before the date of the meeting, the directors or other persons calling the meeting shall send notice of the time and place of the meeting to each other director or person named in the certificate of formation.

SUBCHAPTER C. SHAREHOLDERS' AGREEMENTS

Sec. 21.101. SHAREHOLDERS' AGREEMENT.

(a) The shareholders of a corporation may enter into an agreement that:

(1) restricts the discretion or powers of the board of directors;

(2) eliminates the board of directors and authorizes the business and affairs of the corporation to be managed, wholly or partly, by one or more of its shareholders or other persons;

(3) establishes the individuals who shall serve as directors or officers of the corporation;

(4) determines the term of office, manner of selection or removal, or terms or conditions of employment of a director, officer, or other employee of the corporation, regardless of the length of employment;

(5) governs the authorization or making of distributions whether in proportion to ownership of shares, subject to Section 21.303;

(6) determines the manner in which profits and losses will be apportioned;

(7) governs, in general or with regard to specific matters, the exercise or division of voting power by and between the shareholders, directors, or other persons, including use of disproportionate voting rights or director proxies;

(8) establishes the terms of an agreement for the transfer or use of property or for the provision of services between the corporation and another person, including a shareholder, director, officer, or employee of the corporation;

(9) authorizes arbitration or grants authority to a shareholder or other person to resolve any issue about which there is a deadlock among the directors, shareholders, or other persons authorized to manage the corporation;

(10) requires winding up and termination of the corporation at the request of one or more shareholders or on the occurrence of a specified event or contingency, in which case the winding up and termination of the corporation will proceed as if all of the shareholders had consented in writing to the winding up and termination as provided by Subchapter K;

(11) with regard to one or more social purposes specified in the corporation's certificate of formation, governs the exercise of corporate powers, the management of the operations and affairs of the corporation, the approval by shareholders or other persons of corporate actions, or the relationship among the shareholders, the directors, and the corporation; or

(12) otherwise governs the exercise of corporate powers, the management of the business and affairs of the corporation, or the relationship among the shareholders, the directors, and the corporation as if the corporation were a partnership or in a manner that would otherwise be appropriate only among partners and not contrary to public policy.

(b) A shareholders' agreement authorized by this section must be:

(1) contained in:

(A) the certificate of formation or bylaws if approved by all of the shareholders at the time of the agreement; or

(B) a written agreement that is:

(i) signed by all of the shareholders at the time of the agreement; and

(ii) made known to the corporation; and

(2) amended only by all of the shareholders at the time of the amendment, unless the agreement provides otherwise.

Sec. 21.102. TERM OF AGREEMENT. Any limit on the term or duration of a shareholders' agreement under this subchapter must be set forth in the agreement. A shareholders' agreement under this subchapter that was in effect before September 1, 2015, remains in effect for 10 years, unless the agreement provides otherwise.

Sec. 21.103. DISCLOSURE OF AGREEMENT; RECALL OF CERTAIN CERTIFICATES.

(a) The existence of an agreement authorized by this subchapter shall be noted conspicuously on the front or back of each certificate for outstanding shares or on the information statement required for uncertificated shares by Section 3.205.

(b) The disclosure required by this section must include the sentence, "These shares are subject to the provisions of a shareholders' agreement that may provide for management of the corporation in a manner different than in other corporations and may subject a shareholder to certain obligations or liabilities not otherwise imposed on shareholders in other corporations."

(c) A corporation that has outstanding shares represented by certificates at the time the shareholders of the corporation enter into an agreement under this subchapter shall recall the outstanding certificates and issue substitute certificates that comply with this subchapter.

(d) The failure to note the existence of the agreement on the certificate or information statement does not affect the validity of the agreement or an action taken pursuant to the agreement.

Sec. 21.104. EFFECT OF SHAREHOLDERS' AGREEMENT. A shareholders' agreement that complies with this subchapter is effective among the shareholders and between the shareholders and the corporation even if the terms of the agreement are inconsistent with this code.

Sec. 21.105. RIGHT OF RESCISSION; KNOWLEDGE OF PURCHASER OF SHARES.

(a) A purchaser of shares who does not have knowledge at the time of purchase of the existence of a shareholders' agreement authorized by this subchapter is entitled to rescind the purchase.

(b) A purchaser is considered to have knowledge of the existence of the shareholders' agreement for purposes of this section if:

(1) the existence of the agreement is noted on the certificate or information statement for the shares as required by Section 21.103; and

(2) with respect to shares that are not represented by a certificate, the information statement noting existence of the agreement is delivered to the purchaser not later than the time the shares are purchased.

(c) An action to enforce the right of rescission authorized by this section must be commenced not later than the earlier of:

(1) the 90th day after the date the existence of the shareholder agreement is discovered; or

(2) the second anniversary of the purchase date of the shares.

Sec. 21.106. AGREEMENT LIMITING AUTHORITY OF AND SUPPLANTING BOARD OF DIRECTORS; LIABILITY.

(a) A shareholders' agreement authorized by this subchapter that limits the discretion or powers of the board of directors or supplants the board of directors relieves the directors of, and imposes on a person in whom the discretion or powers of the board of directors or the management of the business and affairs of the corporation is vested, liability for an act or omission of the person in accordance with Subsection (b).

(b) A person on whom liability for an act or omission is imposed under this section is liable in the same manner and to the same extent as a director on whom liability for an act or omission is imposed by this code or other law.

Sec. 21.107. LIABILITY OF SHAREHOLDER. The existence of or a performance under a shareholders' agreement authorized by this subchapter is not a ground for imposing personal liability on a shareholder for an act or obligation of the corporation by disregarding the separate existence of the corporation or otherwise, even if the agreement or a performance under the agreement:

(1) treats the corporation as if the corporation were a partnership or in a manner that otherwise is appropriate only among partners;

(2) results in the corporation being considered a partnership for purposes of taxation; or

(3) results in failure to observe the corporate formalities otherwise applicable to the matters governed by the agreement.

Sec. 21.108. PERSONS ACTING IN PLACE OF SHAREHOLDERS. An organizer or a subscriber for shares may act as a shareholder with respect to a shareholders' agreement authorized by this subchapter if no shares have been issued when the agreement is signed.

Sec. 21.109. AGREEMENT NOT EFFECTIVE.

(a) A shareholders' agreement authorized by this subchapter ceases to be effective when shares of the corporation are:

(1) listed on a national securities exchange; or

(2) regularly traded in a market maintained by one or more members of a national or affiliated securities association.

(b) If a corporation does not have a board of directors and an agreement of the shareholders of the corporation entered into under this subchapter ceases to be effective, a board of directors shall be instituted or reinstated to govern the corporation in the manner provided by Section 21.710(c).

(c) If a shareholders' agreement that ceases to be effective is contained in or referred to by the certificate of formation or bylaws of a corporation, the board of directors of the corporation may adopt an amendment to the certificate of formation or bylaws, without shareholder action, to delete the agreement and any references to the agreement.

Sec. 21.110. OTHER SHAREHOLDER AGREEMENTS PERMITTED. This subchapter does not prohibit or impair any agreement between two or more shareholders, or between the corporation and one or more of the corporation's shareholders, permitted by Title 1, this chapter, or other law.

SUBCHAPTER D. SHARES, OPTIONS, AND CONVERTIBLE SECURITIES

Sec. 21.151. NUMBER OF AUTHORIZED SHARES. A corporation may issue the number of authorized shares stated in the corporation's certificate of formation.

Sec. 21.152. CLASSES AND SERIES OF SHARES.

(a) A corporation's certificate of formation may divide the corporation's authorized shares into one or more classes and may divide one or more classes into one or more series. If more than one class or series of shares is authorized, the certificate of formation must designate each class and series of authorized shares to distinguish that class and series from any other class or series.

(b) Shares of the same class must be of the same par value or be without par value, as stated in the certificate of formation.

(c) Shares of the same class must be identical in all respects unless the shares have been divided into one or more series. If the shares of a class have been divided into one or more series, the shares may vary between series, but all shares of the same series must be identical in all respects.

(d) A corporation's certificate of formation must authorize:

(1) one or more classes or series of shares that together have unlimited voting rights; and

(2) one or more classes or series of shares, which may be the same class or series of shares as those with voting rights, that together are entitled to receive the net assets of the corporation on winding up and termination.

Sec. 21.153. DESIGNATIONS, PREFERENCES, LIMITATIONS, AND RIGHTS OF A CLASS OR SERIES.

(a) If more than one class or series of shares is authorized under Section 21.152(d), the certificate of formation must state the designations, preferences, limitations, and relative rights, including voting rights, of each class or series.

(b) The certificate of formation may limit or deny the voting rights of, or provide special voting rights for, the shares of a class or series or the shares of a class or series held by a person or class of persons to the extent the limitation, denial, or provision is not inconsistent with this code.

(c) A designation, preference, limitation, or relative right, including a voting right, of a class or series of shares of a corporation may be made dependent on facts not contained in the certificate of formation, including future acts of the corporation, if the manner in which those facts will operate on the designation, preference, limitation, or right is clearly and expressly stated in the certificate of formation.

Sec. 21.154. CERTAIN OPTIONAL CHARACTERISTICS OF SHARES.

(a) Subject to Sections 21.152 and 21.153, if authorized by the corporation's certificate of formation, a corporation may issue shares that:

(1) are redeemable, at the option of the corporation, shareholder, or other person or on the occurrence of a designated event, subject to Sections 21.303 and 21.304;

(2) entitle the holders of the shares to cumulative, noncumulative, or partially cumulative distributions;

(3) have preferences over any or all other classes or series of shares with respect to payment of distributions;

(4) have preferences over any or all other classes or series of shares with respect to the assets of the corporation on the voluntary or involuntary winding up and termination of the corporation;

(5) are exchangeable, at the option of the corporation, shareholder, or other person or on the occurrence of a designated event, for shares, obligations, indebtedness, evidence of ownership, rights to purchase securities of the corporation or one or more other entities, or other property or for a combination of those rights, assets, or obligations, subject to Section 21.303; and

(6) are convertible into shares of any other class or series, at the option of the corporation, shareholder, or other person or on the occurrence of a designated event.

(b) Shares without par value may not be converted into shares with par value unless:

(1) at the time of conversion, the part of the corporation's stated capital represented by the shares without par value is at least equal to the aggregate par value of the shares to be converted; or

(2) the amount of any deficiency computed under Subdivision (1) is transferred from surplus to stated capital.

Sec. 21.155. SERIES OF SHARES ESTABLISHED BY BOARD OF DIRECTORS.

(a) If expressly authorized by the corporation's certificate of formation and subject to the certificate of formation, the board of directors of a corporation may establish series of unissued shares of any class by setting and determining the designations, preferences, limitations, and relative rights, including voting rights, of the shares of the series to be established to the same extent that the designations, preferences, limitations, or relative rights could be stated if fully specified in the certificate of formation.

(b) To establish a series if authorized by the certificate of formation, the board of directors must adopt a resolution specifying the designations, preferences, limitations, and relative rights, including voting rights, of the series to be established or specifying any designation, preference, limitation, or relative right that is not set and determined by the certificate of formation.

(c) If the certificate of formation does not expressly restrict the board of directors from increasing or decreasing the number of unissued shares of a series to be established under Subsection (a), the board of directors may increase or decrease the number of shares in each series to be established, except that the board of directors may not decrease the number of shares in a particular series to a number that is less than the number of shares in that series that are issued at the time of the decrease.

(d) To increase or decrease the number of shares of a series under Subsection (c), the board of directors must adopt a resolution setting and determining the new number of shares of each series in which the number of shares is increased or decreased. If the number of shares of a series is decreased, the shares by which the series is decreased will resume the status of authorized but unissued shares of the class of shares from which the series was established, unless otherwise provided by the certificate of formation or the terms of the class or series.

(e) If no shares of a series established by board resolution under Subsection (b) are outstanding because no shares of that series have been issued or no issued shares of that series remain outstanding, the board of directors by resolution may delete the series from the certificate of formation and delete any reference to the series contained in the certificate of formation. Unless otherwise provided by the certificate of formation, the shares of any series deleted from the certificate of formation under this section shall resume the status of authorized but unissued shares of the class of shares from which the series was established.

(f) If no shares of a series established by resolution of the board of directors under Subsection (b) are outstanding because no shares of that series have been issued, the board of directors may amend the designations, preferences, limitations, and relative rights, including voting rights, of the series or amend any designation, preference, limitation, or relative right that is not set and determined by the certificate of formation.

Sec. 21.156. ACTIONS WITH RESPECT TO SERIES OF SHARES.

(a) To effect an action authorized under Section 21.155, the corporation must file with the secretary of state a statement that contains:

(1) the name of the corporation;

(2) if the statement relates to the establishment of a series of shares, a copy of the resolution establishing and designating the series and setting and determining the designations, preferences, limitations, and relative rights of the series;

(3) if the statement relates to an increase or decrease in the number of shares of a series, a copy of the resolution setting and determining the new number of shares of each series in which the number of shares is increased or decreased;

(4) if the statement relates to the deletion of a series of shares and all references to the series from the certificate of formation, a copy of the resolution deleting the series and all references to the series from the certificate of formation;

(5) if the statement relates to the amendment of designations, preferences, limitations, or relative rights of shares of a series that was previously established by resolution of the board of directors, a copy of the resolution in which the amendment is specified;

(6) the date of the adoption of the resolution; and

(7) a statement that the resolution was adopted by all necessary action on the part of the corporation.

(b) On the filing of a statement described by Subsection (a), the following resolutions will become an amendment of the certificate of formation, as appropriate:

(1) the resolution establishing and designating the series and setting and determining the designations, preferences, limitations, and relative rights of the series;

(2) the resolution setting the new number of shares of each series in which the number of shares is increased or decreased;

(3) the resolution deleting a series and all references to the series from the certificate of formation; or

(4) the resolution amending the designations, preferences, limitations, and relative rights of a series.

(c) An amendment of the certificate of formation under this section is not subject to the procedure to amend the certificate of formation contained in Subchapter B.

Sec. 21.157. ISSUANCE OF SHARES.

(a) Except as provided by Section 21.158, a corporation may issue shares for consideration if authorized by the board of directors of the corporation.

(b) Shares may not be issued until the consideration, determined in accordance with this subchapter, has been paid or delivered as required in connection with the authorization of the shares. When the consideration is paid or delivered:

(1) the shares are considered to be issued;

(2) the subscriber or other person entitled to receive the shares is a shareholder with respect to the shares; and

(3) the shares are considered fully paid and nonassessable.

(c) This subsection applies only to shares issued in accordance with Subsections (a) and (b) and Sections 21.160 and 21.161 for consideration consisting, wholly or partly, of a contract for future services or benefits or a promissory note. A corporation may place the shares, although fully paid and nonassessable, in escrow, or make other arrangements to restrict the transfer of the shares, and may credit distributions made with respect to the shares against their purchase price, until the services are performed, the note is paid, or the benefits are received. If the services are not performed, the note is not paid, or the benefits are not received, the corporation may pursue remedies provided or afforded under law or in the contract or note, including causing the shares that are placed in escrow or restricted to be forfeited or returned to or reacquired by the corporation and the distributions that have been credited to be wholly or partly returned to the corporation.

Sec. 21.158. ISSUANCE OF SHARES UNDER PLAN OF MERGER OR CONVERSION.

(a) A converted corporation under a plan of conversion or a corporation created by a plan of merger may issue shares for consideration if authorized by the plan of conversion or plan of merger, as appropriate.

(b) A corporation may issue shares in the manner provided by and for consideration specified under a plan of merger or plan of conversion.

Sec. 21.159. TYPES OF CONSIDERATION FOR SHARES. Shares with or without par value may be issued for the following types of consideration:

(1) a tangible or intangible benefit to the corporation;

(2) cash;

(3) a promissory note;

(4) services performed or a contract for services to be performed;

(5) a security of the corporation or any other organization; and

(6) any other property of any kind or nature.

Sec. 21.160. DETERMINATION OF CONSIDERATION FOR SHARES.

(a) Subject to Subsection (b), consideration to be received for shares must be determined:

(1) by the board of directors;

(2) by a plan of conversion, if the shares are to be issued by a converted corporation under the plan; or

(3) by a plan of merger, if the shares are to be issued under the plan by a corporation created under the plan.

(b) If the corporation's certificate of formation reserves to the shareholders the right to determine the consideration to be received for shares without par value, the shareholders shall determine the consideration for those shares before the shares are issued. The board of directors may not determine the consideration for shares under this subsection.

(c) A corporation may dispose of treasury shares for consideration that may be determined by the board of directors.

(d) The amount of the consideration to be received for shares may be determined in accordance with Subsection (a) by the approval of a formula to determine that amount.

Sec. 21.161. AMOUNT OF CONSIDERATION FOR ISSUANCE OF CERTAIN SHARES.

(a) Consideration to be received by a corporation for the issuance of shares with par value may not be less than the par value of the shares.

(b) The part of the surplus of a corporation that is transferred to stated capital on the issuance of shares as a share distribution is considered to be the consideration for the issuance of those shares.

(c) The consideration received by a corporation for the issuance of shares on the conversion or exchange of its indebtedness or shares is:

(1) the principal of, and accrued interest on, the indebtedness exchanged or converted, or the stated capital on the issuance of the shares;

(2) the part of surplus, if any, transferred to stated capital on the issuance of the shares; and

(3) any additional consideration paid to the corporation on the issuance of the shares.

(d) The consideration received by a corporation for the issuance of shares on the exercise of rights or options is:

(1) any consideration received by the corporation for the rights or options; and

(2) any consideration received by the corporation for the issuance of shares on the exercise of the rights or options.

Sec. 21.162. VALUE AND SUFFICIENCY OF CONSIDERATION. In the absence of fraud in the transaction, the judgment of the board of directors, the shareholders, or the party approving the plan of conversion or the plan of merger, as appropriate, is conclusive in determining the value and sufficiency of the consideration received for the shares.

Sec. 21.163. ISSUANCE AND DISPOSITION OF FRACTIONAL SHARES OR SCRIP.

(a) A corporation may:

(1) issue fractions of a share, either certificated or uncertificated;

(2) arrange for the disposition of fractional interests by persons entitled to the interests;

(3) pay cash for the fair value of fractions of a share determined when the shareholders entitled to receive the fractions are determined; or

(4) subject to Subsection (b), issue scrip in registered form that entitles the holder to receive a certificate for a full share or an uncertificated full share on the surrender of the scrip aggregating a full share.

(b) The board of directors may issue scrip:

(1) on the condition that the scrip will become void if not exchanged for certificated or uncertificated full shares before a specified date;

(2) on the condition that the shares for which the scrip is exchangeable may be sold by the corporation and the proceeds from the sale of the shares may be distributed to the holders of scrip; or

(3) subject to any other condition the board of directors may determine advisable.

Sec. 21.164. RIGHTS OF HOLDERS OF FRACTIONAL SHARES OR SCRIP.

(a) A holder of a certificated or uncertificated fractional share is entitled to exercise voting rights, receive distributions, and make a claim with respect to the assets of the corporation in the event of winding up and termination.

(b) A holder of a certificate for scrip is not entitled to exercise voting rights, receive distributions, or make a claim with respect to the assets of the corporation in the event of winding up and termination unless the scrip provides for those rights.

Sec. 21.165. SUBSCRIPTIONS.

(a) A corporation may accept a subscription by notifying the subscriber in writing.

(b) A subscription to purchase shares in a corporation in the process of being formed is irrevocable for six months if the subscription is in writing and signed by the subscriber, unless the subscription provides for a longer or shorter period or all of the other subscribers agree to the revocation of the subscription.

(c) A written subscription entered into after the corporation is formed is a contract between the subscriber and the corporation.

Sec. 21.166. PREFORMATION SUBSCRIPTION.

(a) The corporation may determine the payment terms of a preformation subscription unless the payment terms are specified by the subscription. The payment terms may authorize payment in full on acceptance or by installments.

(b) Unless the subscription provides otherwise, a corporation shall make calls placed to all subscribers of similar interests for payment on preformation subscriptions uniform as far as practicable.

(c) After the corporation is formed, if a subscriber fails to pay any installment or call when due, a corporation may:

(1) collect in the same manner as any other debt the amount due on any unpaid preformation subscription; or

(2) forfeit the subscription if the installment or call remains unpaid for 20 days after written notice to the subscriber.

(d) Although the forfeiture of a subscription terminates all the rights and obligations of the subscriber, the corporation may retain any amount previously paid on the subscription.

Sec. 21.167. COMMITMENT TO PURCHASE SHARES.

(a) A person who contemplates the acquisition of shares in a corporation may commit to act in a specified manner with respect to the shares after the acquisition, including the voting of the shares or the retention or disposition of the shares. To be binding, the commitment must be in writing and be signed by the person acquiring the shares.

(b) A written commitment entered into under Subsection (a) is a contract between the shareholder and the corporation.

Sec. 21.168. STOCK RIGHTS, OPTIONS, AND CONVERTIBLE INDEBTEDNESS.

(a) Except as provided by the corporation's certificate of formation and regardless of whether done in connection with the issuance and sale of any other share or security of the corporation, a corporation may create and issue:

(1) rights or options that entitle the holders to purchase or receive from the corporation shares of any class or series or other securities; and

(2) indebtedness convertible into shares of any class or series of the corporation or other securities of the corporation.

(b) A right, option, or indebtedness described by this section shall be evidenced in the manner approved by the board of directors.

(c) Subject to the certificate of formation, a right or option described by this section must state the terms on which, the time within which, and any consideration, including a formula by which the consideration may be determined, for which the shares may be purchased or received from the corporation on the exercise of the right or option.

(d) Subject to the certificate of formation, convertible indebtedness described by this section must state the terms and conditions on which, the time within which, and the conversion ratio at which the indebtedness may be converted into shares.

Sec. 21.169. TERMS AND CONDITIONS OF RIGHTS AND OPTIONS.

(a) The terms and conditions of rights or options may include restrictions or conditions that:

(1) prohibit or limit the exercise, transfer, or receipt of the rights or options by certain persons or classes of persons, including:

(A) a person who beneficially owns or offers to acquire a specified number or percentage of the outstanding common shares, voting power, or other securities of the corporation; or

(B) a transferee of a person described by Paragraph (A); or

(2) invalidate or void the rights or options held by a person or transferee described by Subdivision (1).

(b) Rights or options created or issued before the effective date of this code that comply with this section and are not in conflict with other provisions of this code are ratified.

(c) Unless otherwise provided under the terms of rights or options or the agreement or plan under which the rights or options are issued, the authority to grant, amend, redeem, extend, or replace the rights or options on behalf of a corporation is vested exclusively in the board of directors of the corporation. A bylaw may not require the board to grant, amend, redeem, extend, or replace the rights or options.

(d) The terms of rights or options or the agreement or plan under which the rights or options are issued may provide that the board of directors by resolution may authorize one or more officers of the corporation to:

(1) designate officers and employees of the corporation or of any subsidiary of the corporation to receive rights or options created by the corporation; or

(2) determine the number of rights or options to be received under Subdivision (1).

(e) A resolution adopted under Subsection (d)(1) must specify the total number of rights or options the authorized officer or officers may award. An officer may not be designated as a recipient of any rights or options that the officer is authorized to award under Subsection (d)(1).

Sec. 21.170. CONSIDERATION FOR RIGHTS, OPTIONS, AND CONVERTIBLE INDEBTEDNESS.

(a) In the absence of fraud in the transaction, the judgment of the board of directors of a corporation as to the adequacy of the consideration received for rights, options, or convertible indebtedness is conclusive.

(b) A corporation may issue rights or options to its shareholders, officers, consultants, independent contractors, employees, or directors without consideration if, in the judgment of the board of directors, the issuance of the rights or options is in the interests of the corporation.

(c) The consideration for shares having a par value, other than treasury shares, and issued on the exercise of the rights or options may not be less than the par value of the shares.

(d) A privilege of conversion may not be conferred on, or altered with respect to, any indebtedness that would result in the corporation receiving less than the minimum consideration required to be received on issuance of the shares.

(e) The consideration for shares issued on the exercise of rights, options, or convertible indebtedness shall be determined as provided by Section 21.161.

Sec. 21.171. OUTSTANDING OR TREASURY SHARES.

(a) Shares that are issued are outstanding shares unless the shares are treasury shares or are canceled.

(b) If there are outstanding shares, one or more shares that together have unlimited voting rights and one or more shares that together are entitled to receive the net assets of the corporation on the winding up and termination of the corporation must be outstanding shares.

(c) Treasury shares are considered to be issued shares and not outstanding shares.

(d) Treasury shares may not be included in the total assets of a corporation for purposes of determining the net assets of a corporation.

Sec. 21.172. EXPENSES OF ORGANIZATION, REORGANIZATION, AND FINANCING OF CORPORATION. A corporation may pay or authorize to be paid from the consideration received by the corporation as payment for the corporation's shares the reasonable charges and expenses of the organization or reorganization of the corporation and the sale or underwriting of the shares without rendering the shares not fully paid and nonassessable.

Sec. 21.173. SUPPLEMENTAL REQUIRED RECORDS. In addition to the books and records required to be kept under Section 3.151, a corporation shall keep at its registered office or principal place of business, or at the office of its transfer agent or registrar, a record of:

(1) the original issuance of shares issued by the corporation;

(2) each transfer of those shares that have been presented to the corporation for registration of transfer;

(3) the names and addresses of all past shareholders of the corporation; and

(4) the number and class or series of shares issued by the corporation held by each current and past shareholder.

SUBCHAPTER E. SHAREHOLDER RIGHTS AND RESTRICTIONS

Sec. 21.201. REGISTERED HOLDERS AS OWNERS; SHARES HELD BY NOMINEES.

(a) Except as otherwise provided by this code and subject to Chapter 8, Business & Commerce Code, a corporation may consider the person registered as the owner of a share in the share transfer records of the corporation at a particular time, including a record date set under Section 6.101 or 6.102 or Subchapter H, as the owner of that share at that time for purposes of:

(1) voting the share;

(2) receiving distributions on the share;

(3) transferring the share;

(4) receiving notice, exercising rights of dissent, exercising or waiving a preemptive right, or giving proxies with respect to that share;

(5) entering into agreements with respect to that share in accordance with Section 6.251, 6.252, or 21.210; or

(6) any other shareholder action.

(b) A corporation may establish a procedure by which the corporation recognizes as a shareholder the beneficial owner of shares registered in the name of a nominee.

(c) A procedure established under Subsection (b) must:

(1) determine the extent of the corporation's recognition of the beneficial owner as a shareholder; and

(2) include the nominee's filing of a statement with the corporation that contains information regarding the beneficial owner.

(d) A procedure established under Subsection (b) may set forth:

(1) the types of nominees to which the procedure applies;

(2) the rights or privileges that the corporation will recognize in a beneficial owner, to the extent that the rights or privileges are not inconsistent with Section 10.361(g);

(3) the manner in which the procedure is selected by the nominee;

(4) the information that must be provided when the procedure is selected;

(5) the period for which the selection of the procedure is effective; and

(6) any other aspect of the rights and duties to be established under the procedure.

Sec. 21.202. DEFINITION OF SHARES. In Sections 21.203–21.208, "shares" includes a security:

(1) that is convertible into shares; or

(2) that carries a right to subscribe for or acquire shares.

Sec. 21.203. NO STATUTORY PREEMPTIVE RIGHT UNLESS PROVIDED BY CERTIFICATE OF FORMATION.

(a) Except as provided by Section 21.208, a shareholder of a corporation does not have a preemptive right under this subchapter to acquire the corporation's unissued or treasury shares except to the extent provided by the corporation's certificate of formation.

(b) If the certificate of formation includes a statement that the corporation "elects to have a preemptive right" or a similar statement, Section 21.204 applies to a shareholder except to the extent the certificate of formation expressly provides otherwise.

(c) This section and Sections 21.204 through 21.208 do not invalidate or impair a corporation's right or power to grant an enforceable nonstatutory preemptive right in:

(1) a contract between the corporation and a shareholder or other person; or

(2) the governing documents of the corporation.

Sec. 21.204. STATUTORY PREEMPTIVE RIGHTS.

(a) If the shareholders of a corporation have a preemptive right under this subchapter, the shareholders have a preemptive right to acquire proportional amounts of the corporation's unissued or treasury shares on the decision of the corporation's board of directors to issue the shares. The preemptive right granted under this subsection is subject to uniform terms and conditions prescribed by the board of directors to provide a fair and reasonable opportunity to exercise the preemptive right.

(b) No preemptive right exists with respect to:

(1) shares issued or granted as compensation to a director, officer, agent, or employee of the corporation or a subsidiary or affiliate of the corporation;

(2) shares issued or granted to satisfy conversion or option rights created to provide compensation to a director, officer, agent, or employee of the corporation or a subsidiary or affiliate of the corporation;

(3) shares authorized in the corporation's certificate of formation that are issued not later than the 180th day after the effective date of the corporation's formation; or

(4) shares sold, issued, or granted by the corporation for consideration other than money.

(c) A holder of a share of a class without general voting rights but with a preferential right to distributions of profits, income, or assets does not have a preemptive right with respect to shares of any class.

(d) A holder of a share of a class with general voting rights but without preferential rights to distributions of profits, income, or assets does not have a preemptive right with respect to shares of any class with preferential rights to distributions of profits, income, or assets unless the shares with preferential rights are convertible into or carry a right to subscribe for or acquire shares without preferential rights.

(e) For a one–year period after the date the shares have been offered to shareholders, shares subject to preemptive rights that are not acquired by a shareholder may be issued to a person at a consideration set by the corporation's board of directors that is not lower than the consideration set for the exercise of preemptive rights. An offer at a lower consideration or after the expiration of the period prescribed by this subsection is subject to the shareholder's preemptive rights.

Sec. 21.205. WAIVER OF PREEMPTIVE RIGHT.

(a) A shareholder may waive a preemptive right granted to the shareholder.

(b) A written waiver of a preemptive right is irrevocable regardless of whether the waiver is supported by consideration.

Sec. 21.206. LIMITATION ON ACTION TO ENFORCE PREEMPTIVE RIGHT.

(a) An action brought against a corporation, the board of directors or an officer, shareholder, or agent of the corporation, or an owner of a beneficial interest in shares of the corporation for the violation of a preemptive right of a shareholder under Sections 21.203 and 21.204 must be brought not later than the earlier of:

(1) the first anniversary of the date written notice is given to each shareholder whose preemptive right was violated; or

(2) the fourth anniversary of the latest of:

(A) the date the corporation issued the shares, securities, or rights;

(B) the date the corporation sold the shares, securities, or rights; or

(C) the date the corporation otherwise distributed the shares, securities, or rights.

(b) The notice required by Subsection (a)(1) must:

(1) be sent to the holder at the address for the holder as shown on the appropriate records of the corporation; and

(2) inform the holder that the issuance, sale, or other distribution of shares, securities, or rights violated the holder's preemptive right.

Sec. 21.207. DISPOSITION OF SHARES HAVING PREEMPTIVE RIGHTS. The transferee or successor of a share that has been transferred or otherwise disposed of by a shareholder of a corporation whose preemptive right to acquire shares in the corporation has been violated does not acquire the preemptive right, or any right or claim based on the violation, unless the previous shareholder has assigned the preemptive right to the transferee or successor.

Sec. 21.208. PREEMPTIVE RIGHT IN EXISTING CORPORATION. Subject to the certificate of formation, a shareholder of a corporation incorporated before September 1, 2003, has a preemptive right to acquire unissued or treasury shares of the corporation to the extent provided by Sections 21.204, 21.206, and 21.207. After September 1, 2003, a corporation may limit or deny the preemptive right of the shareholders of the corporation by amending the corporation's certificate of formation.

Sec. 21.209. TRANSFER OF SHARES AND OTHER SECURITIES. Except as otherwise provided by this code, the shares and other securities of a corporation are transferable in accordance with Chapter 8, Business & Commerce Code.

Sec. 21.210. RESTRICTION ON TRANSFER OF SHARES AND OTHER SECURITIES.

(a) A restriction on the transfer or registration of transfer of a security, or on the amount of a corporation's securities that may be owned by a person or group of persons, may be imposed by:

(1) the corporation's certificate of formation;

(2) the corporation's bylaws;

(3) a written agreement among two or more holders of the securities; or

(4) a written agreement among one or more holders of the securities and the corporation if:

(A) the corporation files a copy of the agreement at the principal place of business or registered office of the corporation; and

(B) the copy of the agreement is subject to the same right of examination by a shareholder of the corporation, in person or by agent, attorney, or accountant, as the books and records of the corporation.

(b) A restriction imposed under Subsection (a) is not valid with respect to a security issued before the restriction has been adopted, unless the holder of the security voted in favor of the restriction or is a party to the agreement imposing the restriction.

Sec. 21.211. VALID RESTRICTIONS ON TRANSFER.

(a) Without limiting the general powers granted by Sections 21.210 and 21.213 to impose and enforce reasonable restrictions, a restriction placed on the transfer or registration of transfer of a security of a corporation is valid if the restriction reasonably:

(1) obligates the holder of the restricted security to offer a person, including the corporation or other holders of securities of the corporation, an opportunity to acquire the restricted security within a reasonable time before the transfer;

(2) obligates the corporation, to the extent provided by this code, or another person to purchase securities that are the subject of an agreement relating to the purchase and sale of the restricted security;

(3) requires the corporation or the holders of a class of the corporation's securities to consent to a proposed transfer of the restricted security or to approve the proposed transferee of the restricted security for the purpose of preventing a violation of law;

(4) prohibits the transfer of the restricted security to a designated person or group of persons and the designation is not manifestly unreasonable;

(5) maintains the status of the corporation as an electing small business corporation under Subchapter S of the Internal Revenue Code;

(6) maintains a tax advantage to the corporation;

(7) maintains the status of the corporation as a close corporation under Subchapter O;

(8) obligates the holder of the restricted securities to sell or transfer an amount of restricted securities to a person or group of persons, including the corporation or other holders of securities of the corporation; or

(9) causes or results in the automatic sale or transfer of an amount of restricted securities to a person or group of persons, including the corporation or other holders of securities of the corporation.

(b) A restriction placed on the transfer or registration of transfer of a security of a corporation, on the amount of the corporation's securities, or on the amount of the corporation's securities that may be owned by a person or group of persons is conclusively presumed to be for a reasonable purpose if the restriction:

(1) maintains a local, state, federal, or foreign tax advantage to the corporation or its shareholders, including:

(A) maintaining the corporation's status as an electing small business corporation under Subchapter S of the Internal Revenue Code;

(B) maintaining or preserving any tax attribute, including net operating losses; or

(C) qualifying or maintaining the qualification of the corporation as a real estate investment trust under the Internal Revenue Code or regulations adopted under the Internal Revenue Code; or

(2) maintains a statutory or regulatory advantage or complies with a statutory or regulatory requirement under applicable local, state, federal, or foreign law.

Sec. 21.212. BYLAW OR AGREEMENT RESTRICTING TRANSFER OF SHARES OR OTHER SECURITIES.

(a) A corporation that has adopted a bylaw or is a party to an agreement that restricts the transfer of the shares or other securities of the corporation may file with the secretary of state, in accordance with Chapter 4, a copy of the bylaw or agreement and a statement attached to the copy that:

(1) contains the name of the corporation;

(2) states that the attached copy of the bylaw or agreement is a true and correct copy of the bylaw or agreement; and

(3) states that the filing has been authorized by the board of directors or, in the case of a corporation that is managed in some other manner under a shareholders' agreement, by the person empowered by the agreement to manage the corporation's business and affairs.

(b) After a statement described by Subsection (a) is filed with the secretary of state, the bylaws or agreement restricting the transfer of shares or other securities is a public record, and the fact that the statement has been filed may be stated on a certificate representing the restricted shares or securities if required by Section 3.202.

(c) A corporation that is a party to an agreement restricting the transfer of the shares or other securities of the corporation may make the agreement part of the corporation's certificate of formation without restating the provisions of the agreement in the certificate of formation by amending the certificate of formation. If the agreement alters any provision of the certificate of formation, the certificate of amendment shall identify the altered provision by reference or description. If the agreement is an addition to the certificate of formation, the certificate of amendment must state that fact.

(d) The certificate of amendment must:

(1) include a copy of the agreement restricting the transfer of shares or other securities;

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

(3) state that inclusion of the certificate of amendment as part of the certificate of formation has been authorized in the manner required by this code to amend the certificate of formation.

Sec. 21.213. ENFORCEABILITY OF RESTRICTION ON TRANSFER OF CERTAIN SECURITIES.

(a) A restriction placed on the transfer or registration of the transfer of a security of a corporation is specifically enforceable against the holder, or a successor or transferee of the holder, if:

(1) the restriction is reasonable and noted conspicuously on the certificate or other instrument representing the security; or

(2) with respect to an uncertificated security, the restriction is reasonable and a notation of the restriction is contained in the notice sent with respect to the security under Section 3.205.

(b) Unless noted in the manner specified by Subsection (a) with respect to a certificate or other instrument or an uncertificated security, an otherwise enforceable restriction is ineffective against a transferee for value without actual knowledge of the restriction at the time of the transfer or against a subsequent transferee, regardless of whether the transfer is for value. A restriction is specifically enforceable against a person other than a transferee for value from the time the person acquires actual knowledge of the restriction's existence.

Sec. 21.214. JOINT OWNERSHIP OF SHARES.

(a) If shares are registered on the books of a corporation in the names of two or more persons as joint owners with the right of survivorship and one of the owners dies, the corporation may record on its books and effect the transfer of the shares to a person, including the surviving joint owner, and pay any distributions made with respect to the shares, as if the surviving joint owner was the absolute owner of the shares. The recording and distribution authorized by this subsection must be made after the death of a joint owner and before the corporation receives actual written notice that a party other than a surviving joint owner is claiming an interest in the shares or distribution.

(b) The discharge of a corporation from liability under Section 21.216 and the transfer of full legal and equitable title of the shares does not affect, reduce, or limit any cause of action existing in favor of an owner of an interest in the shares or distributions against the surviving owner.

Sec. 21.215. LIABILITY FOR DESIGNATING OWNER OF SHARES. A corporation or an officer, director, employee, or agent of the corporation may not be held liable for considering the person who is registered as the owner of a share in the share transfer records of the corporation at a particular time to be the owner of the share at that time for a purpose described by Section 21.201, regardless of whether the person possesses a certificate for that share.

Sec. 21.216. LIABILITY REGARDING JOINT OWNERSHIP OF SHARES. A corporation that transfers shares or makes a distribution to a surviving joint owner under Section 21.214 before the corporation has received a written claim for the shares or distribution from another person is discharged from liability for the transfer or payment.

Sec. 21.217. LIABILITY OF ASSIGNEE OR TRANSFEREE. An assignee or transferee of certificated shares, uncertificated shares, or a subscription for shares in good faith and without knowledge that full consideration for the shares or subscription has not been paid may not be held personally liable to the corporation or a creditor of the corporation for an unpaid portion of the consideration.

Sec. 21.218. EXAMINATION OF RECORDS.

(a) In this section, a holder of a beneficial interest in a voting trust entered into under Section 6.251 is a holder of the shares represented by the beneficial interest.

(b) Subject to the governing documents and on written demand stating a proper purpose, a holder of shares of a corporation for at least six months immediately preceding the holder's demand, or a holder of at least five percent of all of the outstanding shares of a corporation, is entitled to examine and copy, at a reasonable time, the corporation's relevant books, records of account, minutes, and share transfer records. The examination may be conducted in person or through an agent, accountant, or attorney.

(c) This section does not impair the power of a court, on the presentation of proof of proper purpose by a beneficial or record holder of shares, to compel the production for examination by the holder of the books and records of accounts, minutes, and share transfer records of a corporation, regardless of the period during which the holder was a beneficial holder or record holder and regardless of the number of shares held by the person.

Sec. 21.219. ANNUAL AND INTERIM STATEMENTS OF CORPORATION.

(a) On written request of a shareholder of the corporation, a corporation shall mail to the shareholder:

(1) the annual statements of the corporation for the last fiscal year that contain in reasonable detail the corporation's assets and liabilities and the results of the corporation's operations; and

(2) the most recent interim statements, if any, that have been filed in a public record or other publication.

(b) The corporation shall be allowed a reasonable time to prepare the annual statements.

Sec. 21.220. PENALTY FOR FAILURE TO PREPARE VOTING LIST. An officer or agent of a corporation who is in charge of the corporation's share transfer records and who does not prepare the list of shareholders, keep the list on file for a 10–day period, or produce and keep the list available for inspection at the annual meeting as required by Sections 21.354 and 21.372 is liable to a shareholder who suffers damages because of the failure for the damage caused by the failure.

Sec. 21.221. PENALTY FOR FAILURE TO PROVIDE NOTICE OF MEETING. If an officer or agent of a corporation is unable to comply with the duties prescribed by Sections 21.354 and 21.372 because the officer or agent did not receive notice of a meeting of shareholders within a sufficient time before the date of the meeting, the corporation, rather than the officer or agent, is liable to a shareholder who suffers damages because of the failure for the extent of the damage caused by the failure.

Sec. 21.222. PENALTY FOR REFUSAL TO PERMIT EXAMINATION OF CERTAIN RECORDS.

(a) A corporation that refuses to allow a person to examine and make copies of account records, minutes, and share transfer records under Section 21.218 is liable to the shareholder for any cost or expense, including attorney's fees, incurred in enforcing the shareholder's rights under Section 21.218. The liability imposed on a corporation under this subsection is in addition to any other damages or remedy afforded to the shareholder by law.

(b) It is a defense to an action brought under this section that the person suing:

(1) has, within the two years preceding the date the action is brought, sold or offered for sale a list of shareholders or of holders of voting trust certificates for shares of the corporation or any other corporation;

(2) has aided or abetted a person in procuring a list of shareholders or of holders of voting trust certificates for the purpose described by Subdivision (1);

(3) has improperly used information obtained through a prior examination of the books and account records, minutes, or share transfer records of the corporation or any other corporation; or

(4) was not acting in good faith or for a proper purpose in making the person's request for examination.

Sec. 21.223. LIMITATION OF LIABILITY FOR OBLIGATIONS.

(a) A holder of shares, an owner of any beneficial interest in shares, or a subscriber for shares whose subscription has been accepted, or any affiliate of such a holder, owner, or subscriber or of the corporation, may not be held liable to the corporation or its obligees with respect to:

(1) the shares, other than the obligation to pay to the corporation the full amount of consideration, fixed in compliance with Sections 21.157–21.162, for which the shares were or are to be issued;

(2) any contractual obligation of the corporation or any matter relating to or arising from the obligation on the basis that the holder, beneficial owner, subscriber, or affiliate is or was the alter ego of the corporation or on the basis of actual or constructive fraud, a sham to perpetrate a fraud, or other similar theory; or

(3) any obligation of the corporation on the basis of the failure of the corporation to observe any corporate formality, including the failure to:

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

(B) observe any requirement prescribed by this code or the certificate of formation or bylaws of the corporation for acts to be taken by the corporation or its directors or shareholders.

(b) Subsection (a)(2) does not prevent or limit the liability of a holder, beneficial owner, subscriber, or affiliate if the obligee demonstrates that the holder, beneficial owner, subscriber, or affiliate caused the corporation to be used for the purpose of perpetrating and did perpetrate an actual fraud on the obligee primarily for the direct personal benefit of the holder, beneficial owner, subscriber, or affiliate.

Sec. 21.224. PREEMPTION OF LIABILITY. The liability of a holder, beneficial owner, or subscriber of shares of a corporation, or any affiliate of such a holder, owner, or subscriber or of the corporation, for an obligation that is limited by Section 21.223 is exclusive and preempts any other liability imposed for that obligation under common law or otherwise.

Sec. 21.225. EXCEPTIONS TO LIMITATIONS. Section 21.223 or 21.224 does not limit the obligation of a holder, beneficial owner, subscriber, or affiliate to the obligee of the corporation if that person:

(1) expressly assumes, guarantees, or agrees to be personally liable to the obligee for the obligation; or

(2) is otherwise liable to the obligee for the obligation under this code or other applicable statute.

Sec. 21.226. PLEDGEES AND TRUST ADMINISTRATORS.

(a) A pledgee or other holder of shares as collateral security is not personally liable as a shareholder.

(b) An executor, administrator, conservator, guardian, trustee, assignee for the benefit of creditors, or receiver is not personally liable as a holder of or subscriber to shares of a corporation.

(c) The estate and funds administered by an executor, administrator, conservator, guardian, trustee, assignee for the benefit of creditors, or receiver are liable for the full amount of the consideration for which the shares were or are to be issued.

SUBCHAPTER F. REDUCTIONS IN STATED CAPITAL; CANCELLATION OF TREASURY SHARES

Sec. 21.251. REDUCTION OF STATED CAPITAL BY REDEMPTION OR PURCHASE OF REDEEMABLE SHARES.

(a) At the time a corporation redeems or purchases the redeemable shares of the corporation, the redemption or purchase has the effect of:

(1) canceling the shares; and

(2) restoring the shares to the status of authorized but unissued shares, unless the corporation's certificate of formation provides that shares may not be reissued after the shares are redeemed or purchased by the corporation.

(b) If the corporation is prohibited from reissuing the shares by the certificate of formation following a redemption or purchase under Subsection (a), the number of shares of the class that the corporation is authorized to issue is reduced by the number of shares canceled.

(c) If shares redeemed or purchased by a corporation under Subsection (a) constitute all of the outstanding shares of a particular class of shares and the certificate of formation provides that the shares of the class, when redeemed and repurchased, may not be reissued, the corporation may not issue any additional shares of the class of shares.

(d) Upon the redemption or purchase of redeemable shares under this section, the stated capital of the corporation shall be reduced by that part of the stated capital that was, at the time of the redemption or purchase, represented by those redeemable shares.

Sec. 21.252. CANCELLATION OF TREASURY SHARES.

(a) A corporation, by resolution of the board of directors of the corporation, may cancel all or part of the corporation's treasury shares at any time.

(b) Upon the cancellation of treasury shares, the stated capital of the corporation shall be reduced by that part of the stated capital that was, at the time of the cancellation, represented by the canceled shares, and the canceled shares shall be restored to the status of authorized but unissued shares.

(c) This section does not prohibit a cancellation of shares or a reduction of stated capital in any other manner permitted by law.

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

(a) If all or part of the stated capital of a corporation is represented by shares without par value, the stated capital of the corporation may be reduced in the manner provided by this section.

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

(1) states the amount of the proposed reduction of the stated capital and the manner in which the reduction will be effected; and

(2) directs that the proposed reduction be submitted to a vote of the shareholders at an annual or special meeting.

(c) Each shareholder of record entitled to vote on the reduction of stated capital shall be given written notice stating that the purpose or one of the purposes of the meeting is to consider the matter of reducing the stated capital of the corporation in the amount and manner proposed by the board of directors. The notice shall be given in the time and manner provided by this code for giving notice of shareholders' meetings.

(d) The affirmative vote of the holders of at least the majority of the shares entitled to vote on the matter is required for approval of the resolution proposing the reduction of stated capital.

(e) Upon the approval of the resolution by the shareholders, the stated capital of the corporation shall be reduced as provided in the resolution.

Sec. 21.254. RESTRICTION ON REDUCTION OF STATED CAPITAL. The stated capital of a corporation may not be reduced under this subchapter if the amount of the aggregate stated capital of the corporation would be reduced to an amount equal to or less than the sum of the:

(1) aggregate preferential amounts payable on all issued shares with a preferential right to the assets of the corporation in the event of voluntary winding up and termination; and

(2) aggregate par value of all issued shares with par value but no preferential right to the assets of the corporation in the event of voluntary winding up and termination.

SUBCHAPTER G. DISTRIBUTIONS AND SHARE DIVIDENDS

Sec. 21.301. DEFINITIONS. In this subchapter:

(1) "Distribution limit," with respect to a distribution made by a corporation, other than a distribution described by Subdivision (2), means:

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

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

(a) is eliminating fractional shares;

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

(c) is paying dissenting shareholders entitled to payment for their shares under this code; or

(ii) is made by a consuming assets corporation and is not the purchase or redemption of its own shares; or

(B) the surplus of the corporation for a distribution not described by Paragraph (A).

(2) "Distribution limit," with respect to a distribution that is a purchase or redemption of its own shares by an investment company the certificate of formation of which provides that the company may purchase the company's own shares out of stated capital, means the net assets of the investment company rather than the surplus of the investment company.

(3) "Investment company" means a corporation registered as an open–end company under the Investment Company Act.

Sec. 21.302. AUTHORITY FOR DISTRIBUTIONS. The board of directors of a corporation may authorize a distribution and the corporation may make a distribution, subject to Section 21.303.

Sec. 21.303. LIMITATIONS ON DISTRIBUTIONS.

(a) A corporation may not make a distribution that violates the corporation's certificate of formation.

(b) Unless the distribution is made in compliance with Chapter 11, a corporation may not make a distribution:

(1) if the corporation would be insolvent after the distribution; or

(2) that exceeds the distribution limit.

Sec. 21.304. REDEMPTIONS.

(a) A distribution by a corporation that involves a redemption of outstanding redeemable shares of the corporation subject to redemption may be related to any or all of those shares.

(b) If less than all of the outstanding redeemable shares of a corporation subject to redemption are to be redeemed, the shares to be redeemed shall be selected for redemption:

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

(2) ratably or by lot in the manner prescribed by resolution of the corporation's board of directors, if the certificate of formation does not specify how shares are to be selected for redemption.

(c) A redemption of redeemable shares takes effect by call and written notice of the redemption of the shares.

Sec. 21.305. NOTICE OF REDEMPTION.

(a) A notice of redemption of redeemable shares of a corporation must state:

(1) the class or series of shares or part of the class or series of shares to be redeemed;

(2) the date set for redemption;

(3) the redemptive price; and

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

(b) The notice of redemption shall be sent to each holder of redeemable shares being called not later than the 21st day or earlier than the 60th day before the date set for redemption.

(c) A notice that is mailed is considered to have been sent when the notice is deposited in the United States mail, with postage prepaid, addressed to the shareholder at the shareholder's address as it appears on the share transfer records of the corporation.

(d) A corporation may give the transfer agent described by Section 21.306 irrevocable instructions to send or complete the notice of redemption.

Sec. 21.306. DEPOSIT OF MONEY FOR REDEMPTION.

(a) After the date the notice of redemption required by Section 21.305 is sent and before the day after the date set for redemption of redeemable shares of the corporation, a corporation may deposit with a bank or trust company in this or another state of the United States appointed and acting as transfer agent for the corporation an amount sufficient to redeem the shares called for redemption. The amount must be deposited as a trust fund.

(b) Unless the corporation's certificate of formation provides otherwise, if a corporation deposits money and gives payment instructions in accordance with Subsection (a) and Section 21.307(b):

(1) the shares called for redemption are considered redeemed, and distributions on those shares cease to accrue on and after the date set for redemption; and

(2) the deposit constitutes full payment of the shares called for redemption to the holders of the shares on and after the date set for redemption.

(c) Unless the certificate of formation provides otherwise, after the date a deposit is made and instructions are given under this section and Section 21.307(b), the shares called for redemption are not considered outstanding, and the holders of the shares cease to be shareholders of the shares and have no right with respect to the shares other than:

(1) the right to receive payment of the redemptive price of the shares without interest from the bank or trust company; and

(2) any right to convert those shares.

(d) Unless the certificate of formation provides otherwise, a bank or trust company receiving a deposit under this section shall pay to the corporation on demand the balance of the amount deposited if one or more holders of the shares called for redemption do not claim for redemption the amount deposited on or before the sixth anniversary of the date of the deposit. After making a payment under this subsection, the bank or trust company is relieved of all responsibility to the holders with respect to the amount deposited.

Sec. 21.307. PAYMENT OF REDEEMED SHARES.

(a) Payment of a certificated share shall be made only on the surrender of the respective share certificate.

(b) A corporation may give a transfer agent described by Section 21.306 irrevocable instructions to pay, on or after the date set for redemption of redeemable shares, the redemptive price to the respective holders of the shares as evidenced by a list of shareholders certified by an officer of the corporation.

Sec. 21.308. PRIORITY OF DISTRIBUTIONS.

(a) Except as provided by Subsection (b) or (c), a corporation's indebtedness that arises as a result of the declaration of a distribution and a corporation's indebtedness issued in a distribution are at parity with the corporation's indebtedness to its general, unsecured creditors.

(b) The indebtedness described by Subsection (a) shall be subordinated to the extent required by an agreement binding on the corporation on the date the indebtedness arises or if agreed to by the person to whom the indebtedness is owed or, with respect to indebtedness issued in a distribution, as provided by the corporation.

(c) The indebtedness described by Subsection (a) shall be secured to the extent required by an agreement binding on the corporation.

Sec. 21.309. RESERVES, DESIGNATIONS, AND ALLOCATIONS FROM SURPLUS.

(a) A corporation, by resolution of the board of directors of the corporation, may:

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

(2) designate or allocate in any manner a part or all of the corporation's surplus for a proper purpose.

(b) A corporation may increase, decrease, or abolish a reserve, designation, or allocation in the manner provided by Subsection (a).

Sec. 21.310. AUTHORITY FOR SHARE DIVIDENDS. The board of directors of a corporation may authorize a share dividend and the corporation may pay a share dividend subject to Section 21.311 and any restriction in its certificate of formation.

Sec. 21.311. LIMITATIONS ON SHARE DIVIDENDS. A corporation may not pay a share dividend in authorized but unissued shares of any class if:

(1) the surplus of the corporation is less than the amount required by Section 21.313 to be transferred to stated capital at the time the share dividend is made; or

(2) the share dividend will be made to a holder of shares of any other class or series, unless:

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

(B) the share dividend is authorized by the holders of at least a majority of the outstanding shares of the class or series in which the share dividend is to be made.

Sec. 21.312. VALUE OF SHARES ISSUED AS SHARE DIVIDENDS.

(a) A share dividend payable in authorized but unissued shares with par value shall be issued at the par value of the respective share.

(b) A share dividend payable in authorized but unissued shares without par value shall be issued at the value set by the board of directors when the share dividend is authorized.

Sec. 21.313. TRANSFER OF SURPLUS FOR SHARE DIVIDENDS.

(a) When a share dividend payable in authorized but unissued shares with par value is made by a corporation, an amount of surplus designated by the corporation's board of directors that is not less than the aggregate par value of the shares issued as a share dividend shall be transferred to stated capital.

(b) When a share dividend payable in authorized but unissued shares without par value is made by a corporation, an amount of surplus equal to the aggregate value set by the corporation's board of directors with respect to shares under Section 21.312(b) shall be transferred to stated capital.

Sec. 21.314. DETERMINATION OF SOLVENCY, NET ASSETS, STATED CAPITAL, AND SURPLUS.

(a) For purposes of this subchapter, the determination of whether a corporation is or would be insolvent and the determination of the value of a corporation's net assets, stated capital, or surplus and each of the components of net assets, stated capital, or surplus may be based on:

(1) financial statements of the corporation, including financial statements that:

(A) include subsidiary corporations or other corporations accounted for on a consolidated basis or on the equity method of accounting; or

(B) present the financial condition of the corporation in accordance with generally accepted accounting principles;

(2) financial statements prepared using the method of accounting used to file the corporation's federal income tax return or using any other accounting practices and principles that are reasonable under the circumstances;

(3) financial information, including condensed or summary financial statements, that is prepared on the same basis as financial statements described by Subdivision (1) or (2);

(4) projection, forecast, or other forward–looking information relating to the future economic performance, financial condition, or liquidity of the corporation that is reasonable under the circumstances;

(5) a fair valuation or information from any other method that is reasonable under the circumstances; or

(6) a combination of a statement, valuation, or information authorized by this section.

(b) Subsection (a) does not apply to the computation of the Texas franchise tax or any other tax imposed on a corporation under the laws of this state.

Sec. 21.315. DATE OF DETERMINATION OF SOLVENCY, NET ASSETS, STATED CAPITAL, AND SURPLUS.

(a) For purposes of this subchapter, a determination of whether a corporation is or would be insolvent after a distribution or share dividend or a determination of the value of a corporation's net assets, stated capital, or surplus, or each component of net assets, stated capital, or surplus, shall be made:

(1) on the date the distribution or share dividend is authorized by the corporation's board of directors if the distribution or share dividend is made not later than the 120th day after the date of authorization; or

(2) if the distribution or share dividend is made more than 120 days after the date of authorization:

(A) on the date designated by the corporation's board of directors if the date so designated is not earlier than 120 days before the date the distribution or share dividend is made; or

(B) on the date the distribution or share dividend is made if the corporation's board of directors does not designate a date as described in Paragraph (A).

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

(1) the incurrence by a corporation of indebtedness or a deferred payment obligation is considered to have been made on the date the indebtedness or obligation is incurred; or

(2) a requirement in the corporation's certificate of formation or other contract of the corporation to redeem, exchange, or otherwise acquire any of its own shares is considered to have been made either on the date when the provision or other contract is made or takes effect or on the date when the shares to be redeemed, exchanged, or acquired are redeemed, exchanged, or acquired, at the option of the corporation.

Sec. 21.316. LIABILITY OF DIRECTORS FOR WRONGFUL DISTRIBUTIONS.

(a) Subject to Subsection (c), the directors of a corporation who vote for or assent to a distribution by the corporation that is prohibited by Section 21. 303 are jointly and severally liable to the corporation for the amount by which the distribution exceeds the amount permitted by that section to be distributed.

(b) A director is not liable for all or part of the excess amount if a distribution of that amount would have been permitted by Section 21.303 after the date the director authorized the distribution.

(c) A director is not jointly and severally liable under Subsection (a) if, in voting for or assenting to the distribution, the director:

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

(A) the statements, valuations, or information described by Section 21.314; or

(B) other information, opinions, reports, or statements, including financial statements and other financial data, concerning the corporation or another person that are prepared or presented by:

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

(ii) a legal counsel, public accountant, investment banker, or other person relating to a matter the director reasonably believes is within the person's professional or expert competence; or

(iii) a committee of the board of directors of which the director is not a member;

(2) acting in good faith and with ordinary care, considers the assets of the corporation to be valued at least at their book value; or

(3) in determining whether the corporation made adequate provision for payment, satisfaction, or discharge of all of the corporation's liabilities and obligations, as provided by Sections 11.053 and 11.356, relies in good faith and with ordinary care on financial statements of, or other information concerning, a person who was or became contractually obligated to pay, satisfy, or discharge some or all of the corporation's liabilities or obligations.

(d) The liability imposed under Subsection (a) is the only liability of a director to the corporation or its creditors for authorizing a distribution that is prohibited by Section 21.303.

(e) This section and Sections 21.317 and 21.318 do not limit any liability imposed under Chapter 24, Business & Commerce Code, or the United States Bankruptcy Code.

Sec. 21.317. STATUTE OF LIMITATIONS ON ACTION FOR WRONGFUL DISTRIBUTION. An action may not be brought against a director of a corporation under Section 21.316 after the second anniversary of the date the alleged act giving rise to the liability occurred.

Sec. 21.318. CONTRIBUTION FROM CERTAIN SHAREHOLDERS AND DIRECTORS.

(a) A director who is held liable for a claim asserted under Section 21.316 is entitled to receive contributions from shareholders who accepted or received the wrongful distribution knowing that it was prohibited by Section 21.303 in proportion to the amounts received by the shareholders.

(b) A director who is liable for a claim asserted under Section 21.316 is entitled to receive contributions from each of the other directors who are liable with respect to that claim in an amount appropriate to achieve equity.

(c) The liability provided by Subsection (a) is the only liability of a shareholder to the corporation or a creditor of the corporation for accepting or receiving a distribution by the corporation that is prohibited by Section 21.303, except for any liability under Chapter 24, Business & Commerce Code, or the United States Bankruptcy Code.

SUBCHAPTER H. SHAREHOLDERS' MEETINGS; NOTICE TO SHAREHOLDERS; VOTING AND QUORUM

Sec. 21.351. ANNUAL MEETING.

(a) An annual meeting of the shareholders of a corporation shall be held at a time that is stated in or set in accordance with the corporation's bylaws.

(b) On the application of a shareholder who has previously submitted a written request to the corporation that an annual meeting be held, a court in the county in which the principal executive office of the corporation is located may order a meeting to be held if the annual meeting is not held or written consent instead of the annual meeting is not executed within any 13–month period, unless the meeting is not required to be held under Section 21.655.

(c) The failure to hold an annual meeting at the designated time does not result in the winding up or termination of the corporation.

Sec. 21.352. SPECIAL MEETINGS.

(a) A special meeting of the shareholders of a corporation may be called by:

(1) the president, the board of directors, or any other person authorized to call special meetings by the certificate of formation or bylaws of the corporation; or

(2) the holders of the percentage of shares specified in the certificate of formation, not to exceed 50 percent of the shares entitled to vote or, if no percentage is specified, at least 10 percent of all of the shares of the corporation entitled to vote at the proposed special meeting.

(b) Unless stated in or set in accordance with the bylaws, the record date for determining which shareholders of the corporation are entitled to call a special meeting is the date the first shareholder signs the notice of that meeting.

(c) Other than procedural matters, the only business that may be conducted at a special meeting of the shareholders is business that is within the purposes described in the notice required by Section 21.353.

Sec. 21.353. NOTICE OF MEETING.

(a) Except as provided by Section 21.456 and subject to Section 21.3531, written notice of a meeting in accordance with Section 6.051 shall be given to each shareholder entitled to vote at the meeting not later than the 10th day and not earlier than the 60th day before the date of the meeting. Notice shall be given at the direction of the president, secretary, or other person calling the meeting.

(b) The notice of a special meeting must contain a statement regarding the purpose or purposes of the meeting.

(c) If a meeting is held by means of remote communication, the notice of the meeting must include information on how to access the list of shareholders entitled to vote at the meeting required by Section 21.372.

Sec. 21.3531. NOTICE BY ELECTRONIC TRANSMISSION.

(a) On consent of a shareholder, notice from a corporation under this code, the certificate of formation, or the bylaws may be provided to the shareholder by electronic transmission. The shareholder may specify the form of electronic transmission to be used to communicate notice.

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

(1) transmitted to a facsimile number provided by the shareholder for the purpose of receiving notice;

(2) transmitted to an electronic mail address provided by the shareholder for the purpose of receiving notice;

(3) posted on an electronic network and a message is sent to the shareholder at the address provided by the shareholder for the purpose of alerting the shareholder of a posting; or

(4) communicated to the shareholder by any other form of electronic transmission consented to by the shareholder.

(c) A shareholder may revoke the shareholder's consent to receive notice by electronic transmission by providing written notice to the corporation. The shareholder's consent is considered revoked for purposes of Subsection (a) if the corporation is unable to deliver by electronic transmission two consecutive notices, and the secretary, assistant secretary, or transfer agent of the corporation, or another person responsible for delivering notice on behalf of the corporation, knows that delivery of those two electronic transmissions was unsuccessful. Inadvertent failure to treat the unsuccessful transmissions as a revocation of the shareholder's consent does not affect the validity of a meeting or other action.

(d) An affidavit of the secretary, assistant secretary, transfer agent, or other agent of a corporation stating that notice has been provided to a shareholder of the corporation by electronic transmission is, in the absence of fraud, prima facie evidence that the notice was provided under this section.

Sec. 21.354. INSPECTION OF VOTING LIST.

(a) The list of shareholders entitled to vote at the meeting prepared under Section 21.372 shall be:

(1) subject to inspection by a shareholder during regular business hours; and

(2) produced and kept open at the meeting.
(a–1) If a meeting of the shareholders is held by means of remote communication, the list must be open to inspection by a shareholder during the meeting on a reasonably accessible electronic network.

(b) The original share transfer records are prima facie evidence of which shareholders are entitled to inspect the list.

Sec. 21.355. CLOSING OF SHARE TRANSFER RECORDS. Share transfer records that are closed in accordance with Section 6.101 for the purpose of determining which shareholders are entitled to receive notice of a meeting of shareholders shall remain closed for at least 10 days immediately preceding the date of the meeting.

Sec. 21.356. RECORD DATE FOR WRITTEN CONSENT TO ACTION. The record date provided in accordance with Section 6.102(a) may not be more than 10 days after the date on which the board of directors adopts the resolution setting the record date.

Sec. 21.357. RECORD DATE FOR PURPOSE OF SHAREHOLDERS' MEETING. The record date for the purpose of determining shareholders entitled to notice of or to vote at a shareholders' meeting or any adjournment of the meeting, as provided by the directors in accordance with Section 6.101, must be at least 10 days before the date of the shareholders' meeting.

Sec. 21.358. QUORUM.

(a) Subject to Subsection (b), the holders of the majority of the shares entitled to vote at a meeting of the shareholders of a corporation that are present or represented by proxy at the meeting are a quorum for the consideration of a matter to be presented at that meeting.

(b) The certificate of formation of a corporation may provide that a quorum is present only if:

(1) the holders of a specified portion of the shares that is greater than the majority of the shares entitled to vote are represented at the meeting in person or by proxy; or

(2) the holders of a specified portion of the shares that is less than the majority but not less than one–third of the shares entitled to vote are represented at the meeting in person or by proxy.

(c) Unless provided by the certificate of formation or bylaws of the corporation, after a quorum is present at a meeting of shareholders, the shareholders may conduct business properly brought before the meeting until the meeting is adjourned. The subsequent withdrawal from the meeting of a shareholder or the refusal of a shareholder present at or represented by proxy at the meeting to vote does not negate the presence of a quorum at the meeting.

(d) Unless provided by the certificate of formation or bylaws, the shareholders of the corporation at a meeting at which a quorum is not present may adjourn the meeting until the time and to the place as may be determined by a vote of the holders of the majority of the shares who are present or represented by proxy at the meeting.

Sec. 21.359. VOTING IN ELECTION OF DIRECTORS.

(a) Subject to Subsection (b), directors of a corporation shall be elected by a plurality of the votes cast by the holders of shares entitled to vote in the election of directors at a meeting of shareholders at which a quorum is present.

(b) The certificate of formation or bylaws of a corporation may provide that a director of a corporation shall be elected only if the director receives:

(1) the vote of the holders of a specified portion, but not less than the majority, of the shares entitled to vote in the election of directors;

(2) the vote of the holders of a specified portion, but not less than the majority, of the shares entitled to vote in the election of directors and represented in person or by proxy at a meeting of shareholders at which a quorum is present; or

(3) the vote of the holders of a specified portion, but not less than the majority, of the votes cast by the holders of shares entitled to vote in the election of directors at a meeting of shareholders at which a quorum is present.

Sec. 21.360. NO CUMULATIVE VOTING RIGHT UNLESS AUTHORIZED. Except as provided by Section 21.361 or 21.362, a shareholder does not have the right to cumulate the shareholder's vote in the election of directors.

Sec. 21.361. CUMULATIVE VOTING IN ELECTION OF DIRECTORS.

(a) At each election of directors of the corporation, each shareholder entitled to vote at the election is entitled to:

(1) vote the number of shares owned by the shareholder for as many candidates as there are directors to be elected and for whose election the shareholder is entitled to vote; or

(2) if expressly authorized by a corporation's certificate of formation in general or with respect to a specified class or series of shares or group of classes or series of shares and subject to Subsections (b) and (c), cumulate votes by:

(A) giving one candidate as many votes as the total of the number of the directors to be elected multiplied by the shareholder's shares; or

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

(b) Cumulative voting permitted by the certificate of formation is permitted only in an election of directors in which a shareholder who intends to cumulate votes has given written notice of that intention to the secretary of the corporation on or before the day preceding the date of the election at which the shareholder intends to cumulate votes.

(c) All shareholders entitled to vote cumulatively may cumulate their votes if a shareholder gives the notice required by Subsection (b).

Sec. 21.362. CUMULATIVE VOTING RIGHT IN CERTAIN CORPORATIONS. Except as provided by the corporation's certificate of formation, a shareholder of a corporation incorporated before September 1, 2003, has the right to cumulatively vote the number of shares the shareholder owns in the election of directors to the extent permitted and in the manner provided by Section 21.361. A corporation may limit or deny a shareholder's right to cumulatively vote shares at any time after September 1, 2003, by amending its certificate of formation.

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

(a) Subject to Subsection (b), with respect to a matter other than the election of directors or a matter for which the affirmative vote of the holders of a specified portion of the shares entitled to vote is required by this code, the affirmative vote of the holders of the majority of the shares entitled to vote on, and who voted for, against, or expressly abstained with respect to, the matter at a shareholders' meeting of a corporation at which a quorum is present is the act of the shareholders.

(b) With respect to a matter other than the election of directors or a matter for which the affirmative vote of the holders of a specified portion of the shares entitled to vote is required by this code, the certificate of formation or bylaws of a corporation may provide that the act of the shareholders of the corporation is:

(1) the affirmative vote of the holders of a specified portion, but not less than the majority, of the shares entitled to vote on that matter;

(2) the affirmative vote of the holders of a specified portion, but not less than the majority, of the shares entitled to vote on that matter and represented in person or by proxy at a shareholders' meeting at which a quorum is present;

(3) the affirmative vote of the holders of a specified portion, but not less than the majority, of the shares entitled to vote on, and who voted for or against, the matter at a shareholders' meeting at which a quorum is present; or

(4) the affirmative vote of the holders of a specified portion, but not less than the majority, of the shares entitled to vote on, and who voted for, against, or expressly abstained with respect to, the matter at a shareholders' meeting at which a quorum is present.

Sec. 21.364. VOTE REQUIRED TO APPROVE FUNDAMENTAL ACTION.

(a) In this section, a "fundamental action" means:

(1) an amendment of a certificate of formation, including an amendment required for cancellation of an event requiring winding up in accordance with Section 11.152(b);

(2) a voluntary winding up under Chapter 11;

(3) a revocation of a voluntary decision to wind up under Section 11.151;

(4) a cancellation of an event requiring winding up under Section 11.152(a); or

(5) a reinstatement under Section 11.202.

(b) Except as otherwise provided by this code or the certificate of formation of a corporation in accordance with Section 21.365, the vote required for approval of a fundamental action by the shareholders is the affirmative vote of the holders of at least two–thirds of the outstanding shares entitled to vote on the fundamental action.

(c) If a class or series of shares is entitled to vote as a class or series on a fundamental action, the vote required for approval of the action by the shareholders is the affirmative vote of the holders of at least two–thirds of the outstanding shares in each class or series of shares entitled to vote on the action as a class or series and at least two–thirds of the outstanding shares otherwise entitled to vote on the action. Shares entitled to vote as a class or series shall be entitled to vote only as a class or series unless otherwise entitled to vote on each matter submitted to the shareholders generally or otherwise provided by the certificate of formation.

(d) Unless an amendment to the certificate of formation is undertaken by the board of directors under Section 21.155, separate voting by a class or series of shares of a corporation is required for approval of an amendment to the certificate of formation that would result in:

(1) the increase or decrease of the aggregate number of authorized shares of the class or series;

(2) the increase or decrease of the par value of the shares of the class or series, including changing shares with par value into shares without par value or changing shares without par value into shares with par value;

(3) effecting an exchange, reclassification, or cancellation of all or part of the shares of the class or series;

(4) effecting an exchange or creating a right of exchange of all or part of the shares of another class or series into the shares of the class or series;

(5) the change of the designations, preferences, limitations, or relative rights of the shares of the class or series;

(6) the change of the shares of the class or series, with or without par value, into the same or a different number of shares, with or without par value, of the same class or series or another class or series;

(7) the creation of a new class or series of shares with rights and preferences equal, prior, or superior to the shares of the class or series;

(8) increasing the rights and preferences of a class or series with rights and preferences equal, prior, or superior to the shares of the class or series;

(9) increasing the rights and preferences of a class or series with rights or preferences later or inferior to the shares of the class or series in such a manner that the rights or preferences will be equal, prior, or superior to the shares of the class or series;

(10) dividing the shares of the class into series and setting and determining the designation of the series and the variations in the relative rights and preferences between the shares of the series;

(11) the limitation or denial of existing preemptive rights or cumulative voting rights of the shares of the class or series;

(12) canceling or otherwise affecting the dividends on the shares of the class or series that have accrued but have not been declared; or

(13) the inclusion or deletion from the certificate of formation of provisions required or permitted to be included in the certificate of formation of a close corporation under Subchapter O.

(e) The vote required under Subsection (d) by a class or series of shares of a corporation is required notwithstanding that shares of that class or series do not otherwise have a right to vote under the certificate of formation.

(f) Unless otherwise provided by the certificate of formation, if the holders of the outstanding shares of a class that is divided into series are entitled to vote as a class on a proposed amendment that would affect equally all series of the class, other than a series in which no shares are outstanding or a series that is not affected by the amendment, the holders of the separate series are not entitled to separate class votes.

(g) Unless otherwise provided by the certificate of formation, a proposed amendment to the certificate of formation that would solely effect changes in the designations, preferences, limitations, or relative rights, including voting rights, of one or more series of shares of the corporation that have been established under the authority granted to the board of directors in the certificate of formation in accordance with Section 21.155 does not require the approval of the holders of the outstanding shares of a class or series other than the affected series if, after giving effect to the amendment:

(1) the preferences, limitations, or relative rights of the affected series may be set and determined by the board of directors with respect to the establishment of a new series of shares under the authority granted to the board of directors in the certificate of formation in accordance with Section 21.155; or

(2) any new series established as a result of a reclassification of the affected series are within the preferences, limitations, and relative rights that are described by Subdivision (1).

Sec. 21.365. CHANGES IN VOTE REQUIRED FOR CERTAIN MATTERS.

(a) With respect to a matter for which the affirmative vote of the holders of a specified portion of the shares entitled to vote is required by this code, the certificate of formation of a corporation may provide that the affirmative vote of the holders of a specified portion, but not less than the majority, of the shares entitled to vote on that matter is required for shareholder action on that matter.

(b) With respect to a matter for which the affirmative vote of the holders of a specified portion of the shares of a class or series is required by this code, the certificate of formation may provide that the affirmative vote of the holders of a specified portion, but not less than the majority, of the shares of that class or series is required for action of the holders of shares of that class or series on that matter.

(c) If a provision of the certificate of formation provides that the affirmative vote of the holders of a specified portion that is greater than the majority of the shares entitled to vote on a matter is required for shareholder action on that matter, the provision may not be amended, directly or indirectly, without the same affirmative vote unless otherwise provided by the certificate of formation.

(d) If a provision of the certificate of formation provides that the affirmative vote of the holders of a specified portion that is greater than the majority of the shares of a class or series is required for shareholder action on a matter, the provision may not be amended, directly or indirectly, without the same affirmative vote unless otherwise provided by the certificate of formation.

Sec. 21.366. NUMBER OF VOTES PER SHARE.

(a) Except as provided by the certificate of formation of a corporation or this code, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a shareholders' meeting.

(b) If the certificate of formation provides for more or less than one vote per share on a matter for all of the outstanding shares or for the shares of a class or series, each reference in this code or in the certificate of formation or bylaws, unless expressly stated otherwise, to a specified portion of the shares with respect to that matter refers to the portion of the votes entitled to be cast with respect to those shares under the certificate of formation.

Sec. 21.367. VOTING IN PERSON OR BY PROXY.

(a) A shareholder may vote in person or by proxy executed in writing by the shareholder.

(b) A telegram, telex, cablegram, or other form of electronic transmission, including telephonic transmission, by the shareholder, or a photographic, photostatic, facsimile, or similar reproduction of a writing executed by the shareholder, is considered an execution in writing for purposes of this section. Any electronic transmission must contain or be accompanied by information from which it can be determined that the transmission was authorized by the shareholder.

Sec. 21.368. TERM OF PROXY. A proxy is not valid after 11 months after the date the proxy is executed unless otherwise provided by the proxy.

Sec. 21.369. REVOCABILITY OF PROXY.

(a) In this section, a "proxy coupled with an interest" includes the appointment as proxy of:

(1) a pledgee;

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

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

(4) a creditor of the corporation who extended the corporation credit under terms requiring the appointment;

(5) an employee of the corporation whose employment contract requires the appointment; or

(6) a party to a voting agreement created under Section 6.252 or a shareholders' agreement created under Section 21.101.

(b) A proxy is revocable unless:

(1) the proxy form conspicuously states that the proxy is irrevocable; and

(2) the proxy is coupled with an interest.

Sec. 21.370. ENFORCEABILITY OF PROXY.

(a) An irrevocable proxy is specifically enforceable against the holder of shares or any successor or transferee of the holder if:

(1) the proxy is noted conspicuously on the certificate representing the shares subject to the proxy; or

(2) in the case of uncertificated shares, notation of the proxy is contained in the notice sent under Section 3.205 with respect to the shares subject to the proxy.

(b) An irrevocable proxy that is otherwise enforceable is ineffective against a transferee for value without actual knowledge of the existence of the irrevocable proxy at the time of the transfer or against a subsequent transferee, regardless of whether the transfer is for value, unless the proxy is:

(1) noted conspicuously on the certificate representing the shares subject to the proxy; or

(2) in the case of uncertificated shares, notation of the proxy is contained in the notice sent under Section 3.205 with respect to the shares subject to the proxy.

(c) An irrevocable proxy shall be specifically enforceable against a person who is not a transferee for value from the time the person acquires actual knowledge of the existence of the irrevocable proxy.

Sec. 21.371. PROCEDURES IN BYLAWS RELATING TO PROXIES.

(a) A corporation may establish in the corporation's bylaws procedures consistent with this code for determining the validity of proxies and determining whether shares that are held of record by a bank, broker, or other nominee are represented at a meeting of shareholders. The procedures may incorporate rules of and determinations made by a stock exchange or self–regulatory organization regulating the corporation or that bank, broker, or other nominee.

(b) The bylaws may contain one or both of the following:

(1) a provision requiring that, when solicitingproxies or consents with respect to an election of directors, the corporation include in both its proxy statement and any form of its proxy or consent, in addition to individuals nominated by the board of directors, one or more individuals nominated by a shareholder,subject to any procedures or conditions as may be provided in the bylaws; and

(2) a provision requiring that the corporation reimburse expenses incurred by a shareholder in soliciting proxies or consents with respect to an election of directors so long as the provision does not apply to any election for which the record date precedes the adoption of the bylaw provision, but subject to any procedures or conditions as may be provided in the bylaws.

Sec. 21.372. SHAREHOLDER MEETING LIST.

(a) Not later than the 11th day before the date of each meeting of the shareholders of a corporation, an officer or agent of the corporation who is in charge of the corporation's share transfer records shall prepare an alphabetical list of the shareholders entitled to vote at the meeting or at any adjournment of the meeting. The list of shareholders must:

(1) state:

(A) the address of each shareholder;

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

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

(D) the number of votes that each shareholder is entitled to if the number of votes is different from the number of shares stated under Paragraph (C); and

(2) be kept on file at the registered office or principal executive office of the corporation for at least 10 days before the date of the meeting.

(a–1) Instead of being kept on file, the list required by Subsection (a) may be kept on a reasonably accessible electronic network if the information required to gain access to the list is provided with notice of the meeting. Section 21.353(c), Section 21.354(a–1), and this subsection may not be construed to require a corporation to include any electronic contact information of a shareholder on the list. A corporation that elects to make the list available on an electronic network must take reasonable measures to ensure the information is available only to shareholders of the corporation.

(b) The original share transfer records of the corporation are prima facie evidence of the shareholders of the corporation entitled to vote at the meeting.

(c) Failure to comply with this section does not affect the validity of any action taken at a meeting of the shareholders of the corporation.

SUBCHAPTER I. BOARD OF DIRECTORS

Sec. 21.401. MANAGEMENT BY BOARD OF DIRECTORS.

(a) Except as provided by Section 21.101 or Subchapter O, the board of directors of a corporation shall:

(1) exercise or authorize the exercise of the powers of the corporation; and

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

(b) In discharging the duties of director under this code or otherwise and in considering the best interests of the corporation, a director is entitled to consider the long–term and short–term interests of the corporation and the shareholders of the corporation, including the possibility that those interests may be best served by the continued independence of the corporation.

(c) In discharging the duties of a director under this code or otherwise, a director is entitled to consider any social purposes specified in the corporation's certificate of formation.

(d) Subject to direction by the board of directors of the corporation, in discharging the duties of an officer under this code or otherwise, an officer is entitled to consider:

(1) the long–term and short–term interests of the corporation and of the corporation's shareholders, including the possibility that those interests may be best served by the continued independence of the corporation; and

(2) any social purposes specified in the corporation's certificate of formation.

(e) Nothing in this section prohibits or limits a director or officer of a corporation that does not have a social purpose specified as a purpose in the corporation's certificate of formation from considering, approving, or taking an action that promotes or has the effect of promoting a social, charitable, or environmental purpose.

Sec. 21.402. BOARD MEMBER ELIGIBILITY REQUIREMENTS. Unless the certificate of formation or bylaws of a corporation provide otherwise, a person is not required to be a resident of this state or a shareholder of the corporation to serve as a director. The certificate of formation or bylaws may prescribe other qualifications for directors.

Sec. 21.403. NUMBER OF DIRECTORS.

(a) The board of directors of a corporation may consist of one or more directors.

(b) If the corporation is to be managed by a board of directors, the number of directors shall be set by, or in the manner provided by, the certificate of formation or bylaws of the corporation, except that the number of directors on the initial board of directors must be set by the certificate of formation.

(c) The number of directors may be increased or decreased by amendment to, or as provided by, the certificate of formation or bylaws. A decrease in the number of directors may not shorten the term of an incumbent director.

(d) If the certificate of formation or bylaws do not set the number constituting the board of directors or provide for the manner in which the number of directors must be determined, the number of directors is the same as the number constituting the initial board of directors as set by the certificate of formation.

Sec. 21.404. DESIGNATION OF INITIAL BOARD OF DIRECTORS. If the corporation is to be managed by a board of directors, the certificate of formation of a corporation must state the names and addresses of the persons constituting the initial board of directors of the corporation.

Sec. 21.405. ELECTION OF BOARD OF DIRECTORS.

(a) At the first annual meeting of shareholders of a corporation and at each subsequent annual meeting of shareholders, the holders of shares entitled to vote in the election of directors shall elect directors for the term provided under Section 21.407, except as provided by Section 21.408.

(b) A corporation's certificate of formation may provide that the holders of a class or series of shares or a group of classes or series of shares are entitled to elect one or more directors of the corporation.

Sec. 21.406. SPECIAL VOTING RIGHTS OF DIRECTORS.

(a) The certificate of formation of a corporation may provide that directors, regardless of whether elected by the holders of a class or series of shares or by a group of classes or series of shares, as provided by Section 21.405, are entitled to cast more or less than one vote on all matters or on specified matters. Such a provision also applies to directors voting in any committee or subcommittee regarding all matters or the specified matters, as applicable, unless otherwise provided by the certificate of formation.

(b) Unless expressly stated otherwise, each reference in this code or in a corporation's certificate of formation or bylaws to a specified portion of the directors means the portion of the votes entitled to be cast by the directors to which the reference applies.

Sec. 21.407. TERM OF OFFICE. Except as otherwise provided by this subchapter, the term of office of a director extends from the date the director is elected and qualified or named in the corporation's certificate of formation until the next annual meeting of shareholders and until the director's successor is elected and qualified.

Sec. 21.408. SPECIAL TERMS OF OFFICE.

(a) The certificate of formation or bylaws of a corporation may provide that all or some of the board of directors may be divided into two or three classes that shall include the same or a similar number of directors as each other class and that have staggered terms of office.

(b) The terms of office of the initial directors constituting the first class expire at the first annual meeting of shareholders after the election of those directors. The terms of office of the initial directors constituting the second class expire at the second annual meeting of shareholders after election of those directors. The terms of office of the initial directors constituting the third class, if any, expire at the third annual meeting of shareholders after election of those directors. In each case, the term of office of an initial director is extended until the director's successor is elected and has qualified.

(c) If the certificate of formation or bylaws provide for staggered terms of directors, the shareholders, at each annual meeting, shall elect a number of directors equal to the number of the class of directors whose terms expire at the time of the meeting. The directors elected at an annual meeting shall hold office until the second succeeding annual meeting, if there are two classes, or until the third succeeding annual meeting, if there are three classes.

(d) Unless provided by the certificate of formation or a bylaw adopted by the shareholders, staggered terms for directors must be effected at a meeting of shareholders at which directors are elected. Staggered terms for directors may not be effected if any shareholder has the right to cumulate votes for the election of directors and the board of directors consists of fewer than nine members.

(e) Directors elected by the holders of a class or series of shares or a group of classes or series of shares in accordance with the certificate of formation shall hold office for the terms specified by the certificate of formation.

Sec. 21.409. REMOVAL OF DIRECTORS.

(a) Except as otherwise provided by the certificate of formation or bylaws of a corporation or this subchapter, the shareholders of the corporation may remove a director or the entire board of directors of the corporation, with or without cause, at a meeting called for that purpose, by a vote of the holders of a majority of the shares entitled to vote at an election of the director or directors.

(b) If the certificate of formation entitles the holders of a class or series of shares or a group of classes or series of shares to elect one or more directors, only the holders of shares of that class, series, or group may vote on the removal of a director elected by the holders of shares of that class, series, or group.

(c) If the certificate of formation permits cumulative voting and less than the entire board is to be removed, a director may not be removed if the votes cast against the removal would be sufficient to elect the director if cumulatively voted at an election of the entire board of directors, or if there are classes of directors, at an election of the class of directors of which the director is a part.

(d) In the case of a corporation the directors of which serve staggered terms, a director may not be removed except for cause unless the certificate of formation provides otherwise.

Sec. 21.4091. RESIGNATION OF DIRECTORS.

(a) Except as otherwise provided by the certificate of formation or bylaws, a director of a corporation may resign at any time by providing written notice to the corporation.

(b) The director's resignation takes effect on the date the notice is received by the corporation, unless the notice prescribes a later effective date or states that the resignation takes effect on the occurrence of a future event, such as the director's failure to receive a specified vote for reelection as a director.

(c) If the director's resignation is to take effect on a later date or on the occurrence of a future event, the resignation takes effect on the later date or when the event occurs.

(d) The director's resignation is irrevocable when it takes effect. The director's resignation is revocable before it takes effect unless the notice of resignation expressly states it is irrevocable.

Sec. 21.410. VACANCY.

(a) A vacancy occurring in the initial board of directors before the issuance of shares may be filled by the affirmative vote or written consent of the majority of the organizers or by the affirmative vote of the majority of the remaining directors, even if the remaining directors constitute less than a quorum of the board of directors.

(b) Except as provided by Subsection (e), a vacancy occurring in the board of directors after the issuance of shares may be filled by election at an annual or special meeting of shareholders called for that purpose or by the affirmative vote of the majority of the remaining directors, even if the remaining directors constitute less than a quorum of the board of directors.

(c) The term of a director elected to fill a vacancy occurring in the board of directors, including the initial directors, is the unexpired term of the director's predecessor in office.

(d) Except as provided by Subsection (e), a vacancy to be filled because of an increase in the number of directors may be filled by election at an annual or special meeting of shareholders called for that purpose or by the board of directors for a term of office continuing only until the next election of one or more directors by the shareholders. During a period between two successive annual meetings of shareholders, the board of directors may not fill more than two vacancies created by an increase in the number of directors.

(e) Unless otherwise authorized by a corporation's certificate of formation, a vacancy or a newly created vacancy in a director position that the certificate of formation entitles the holders of a class or series of shares or group of classes or series of shares to elect may be filled only:

(1) by the affirmative vote of the majority of the directors then in office elected by the class, series, or group;

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

(3) by the affirmative vote of the holders of the outstanding shares of the class, series, or group.

Sec. 21.411. NOTICE OF MEETING.

(a) Regular meetings of the board of directors of a corporation may be held with or without notice as prescribed by the corporation's bylaws.

(b) Special meetings of the board of directors shall be held with notice as prescribed by the bylaws.

(c) A notice of a board meeting is not required to specify the business to be transacted at the meeting or the purpose of the meeting, unless required by the bylaws.

(d) Notice of the date, time, place, or purpose of a regular or special meeting of the board of directors may be provided to a director by electronic transmission on consent of the director. The director may specify the form of electronic transmission to be used to communicate notice.

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

(1) transmitted to a facsimile number provided by the director for the purpose of receiving notice;

(2) transmitted to an electronic mail address provided by the director for the purpose of receiving notice;

(3) posted on an electronic network and a message is sent to the director at the address provided by the director for the purpose of alerting the director of a posting; or

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

(f) A director may revoke the director's consent to receive notice by electronic transmission by providing written notice to the corporation. The director's consent is considered revoked for purposes of Subsection (d) if the corporation is unable to deliver by electronic transmission two consecutive notices, and the secretary, assistant secretary, or transfer agent of the corporation, or another person responsible for delivering notice on behalf of the corporation, knows that delivery of those two electronic transmissions was unsuccessful. Inadvertent failure to treat the unsuccessful transmissions as a revocation of the director's consent does not affect the validity of a meeting or other action.

(g) An affidavit of the secretary, assistant secretary, transfer agent, or other agent of a corporation stating that notice has been provided to a director of the corporation by electronic transmission is, in the absence of fraud, prima facie evidence that notice was provided under Subsections (d) and (e).

Sec. 21.412. WAIVER OF NOTICE.

(a) If the bylaws of a corporation require notice of a meeting to be given to a director, a written waiver of the notice signed by the director entitled to the notice, before or after the meeting, is equivalent to the giving of the notice.

(b) The attendance of a director at a board meeting constitutes a waiver of notice of the meeting, unless the director attends the meeting for the express purpose of objecting to the transaction of business at the meeting because the meeting has not been lawfully called or convened.

(c) A waiver of notice of a board meeting is not required to specify the business to be transacted at the meeting or the purpose of the meeting, unless required by the bylaws.

Sec. 21.413. QUORUM.

(a) A quorum of the board of directors is the majority of the number of directors set or established in the manner provided by the certificate of formation or bylaws of a corporation unless the laws of this state, the certificate of formation, or the bylaws require a different number or portion.

(b) Neither the certificate of formation nor the bylaws may provide that less than one–third of the number of directors constitutes a quorum.

Sec. 21.414. DISSENT TO ACTION.

(a) A director of a corporation who is present at a meeting of the board of directors at which action has been taken is presumed to have assented to the action taken unless:

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

(2) the director has filed a written dissent to the action with the person acting as the secretary of the meeting before the meeting is adjourned; or

(3) the director has sent a written dissent by registered mail to the secretary of the corporation immediately after the meeting has been adjourned.

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

Sec. 21.415. ACTION BY DIRECTORS.

(a) The act of a majority of the directors present at a meeting at which a quorum is present at the time of the act is the act of the board of directors of a corporation, unless the act of a greater number is required by the certificate of formation or bylaws of the corporation or by this code.

(b) Unless otherwise provided by the certificate of formation or bylaws, a written consent stating the action taken and signed by all members of the board of directors is also an act of the board of directors.

Sec. 21.416. COMMITTEES OF BOARD OF DIRECTORS.

(a) If authorized by the certificate of formation or bylaws of a corporation, the board of directors of the corporation may designate:

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

(2) directors as alternate members of committees to replace absent or disqualified committee members at a committee meeting, subject to any limitations imposed by the board of directors.

(b) To the extent provided by a resolution of the board of directors designating a committee or by the certificate of formation or bylaws and subject to Subsection (c), the committee has the authority of the board of directors.

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

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

(A) establish series of shares;

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

(C) eliminate a series of shares as authorized by Section 21.155;

(2) propose a reduction of stated capital under Sections 21.253 and 21.254;

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

(4) recommend to shareholders the sale, lease, or exchange of all or substantially all of the property and assets of the corporation not made in the usual and regular course of its business;

(5) recommend to the shareholders a voluntary winding up and termination or a revocation of a voluntary winding up and termination;

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

(7) fill vacancies on the board of directors;

(8) fill vacancies on or designate alternate members of a committee of the board of directors;

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

(10) elect or remove officers of the corporation or members or alternate members of a committee of the board of directors;

(11) set the compensation of the members or alternate members of a committee of the board of directors; or

(12) alter or repeal a resolution of the board of directors that states that it may not be amended or repealed by a committee of the board of directors.

(d) A committee of the board of directors may authorize a distribution or the issuance of shares if authorized by the resolution designating the committee or the certificate of formation or bylaws.

(e) The board of directors may remove a member of a committee appointed by the board if the board determines the removal is in the best interests of the corporation. The removal of the member is without prejudice to any contract rights of the person removed. Appointment of a member of a committee does not create contract rights.

(f) The designation and delegation of authority to a committee of the board of directors does not relieve the board of directors or a director of responsibility imposed by law.

Sec. 21.417. ELECTION OF OFFICERS. The board of directors of a corporation shall elect a president and a secretary at the time and in the manner prescribed by the corporation's bylaws. Other officers, including assistant officers and agents as deemed necessary, may be elected in accordance with Section 3.103.

Sec. 21.418. CONTRACTS OR TRANSACTIONS INVOLVING INTERESTED DIRECTORS AND OFFICERS.

(a) This section applies to a contract or transaction between a corporation and:

(1) one or more directors or officers, or one or more affiliates or associates of one or more directors or officers, of the corporation; or

(2) an entity or other organization in which one or more directors or officers, or one or more affiliates or associates of one or more directors or officers, of the corporation:

(A) is a managerial official; or

(B) has a financial interest.

(b) An otherwise valid and enforceable contract or transaction described by Subsection (a) is valid and enforceable, and is not void or voidable, notwithstanding any relationship or interest described by Subsection (a), if any one of the following conditions is satisfied:

(1) the material facts as to the relationship or interest described by Subsection (a) and as to the contract or transaction are disclosed to or known by:

(A) the corporation's board of directors or a committee of the board of directors, and the board of directors or committee in good faith authorizes the contract or transaction by the approval of the majority of the disinterested directors or committee members, regardless of whether the disinterested directors or committee members constitute a quorum; or

(B) the shareholders entitled to vote on the authorization of the contract or transaction, and the contract or transaction is specifically approved in good faith by a vote of the shareholders; or

(2) the contract or transaction is fair to the corporation when the contract or transaction is authorized, approved, or ratified by the board of directors, a committee of the board of directors, or the shareholders.

(c) Common or interested directors of a corporation may be included in determining the presence of a quorum at a meeting of the corporation's board of directors, or a committee of the board of directors, that authorizes the contract or transaction.

(d) A person who has the relationship or interest described by Subsection (a) may:

(1) be present at or participate in and, if the person is a director or committee member, may vote at a meeting of the board of directors or of a committee of the board that authorizes the contract or transaction; or

(2) sign, in the person's capacity as a director or committee member, a unanimous written consent of the directors or committee members to authorize the contract or transaction.

(e) If at least one of the conditions of Subsection (b) is satisfied, neither the corporation nor any of the corporation's shareholders will have a cause of action against any of the persons described by Subsection (a) for breach of duty with respect to the making, authorization, or performance of the contract or transaction because the person had the relationship or interest described by Subsection (a) or took any of the actions authorized by Subsection (d).

SUBCHAPTER J. FUNDAMENTAL BUSINESS TRANSACTIONS

Sec. 21.451. DEFINITIONS. In this subchapter:

(1) "Participating shares" means shares that entitle the holders of the shares to participate without limitation in distributions.

(2) "Sale of all or substantially all of the assets" means the sale, lease, exchange, or other disposition, other than a pledge, mortgage, deed of trust, or trust indenture unless otherwise provided by the certificate of formation, of all or substantially all of the property and assets of a domestic corporation that is not made in the usual and regular course of the corporation's business without regard to whether the disposition is made with the goodwill of the business. The term does not include a transaction that results in the corporation directly or indirectly:

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

(B) applying a portion of the consideration received in connection with the transaction to the conduct of a business that the corporation engages in after the transaction.

(3) "Shares" includes a receipt or other instrument issued by a depository representing an interest in one or more shares or fractions of shares of a domestic or foreign corporation that are deposited with the depository.

(4) "Voting shares" means shares that entitle the holders of the shares to vote unconditionally in elections of directors.

Sec. 21.452. APPROVAL OF MERGER.

(a) A corporation that is a party to the merger under Chapter 10 must approve the merger by complying with this section.

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

(1) approves the plan of merger; and

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

(A) recommends that the plan of merger be approved by the shareholders of the corporation; or

(B) directs that the plan of merger be submitted to the shareholders for approval without recommendation if the board of directors determines for any reason not to recommend approval of the plan of merger.

(c) Except as otherwise provided by this subchapter or Chapter 10, the plan of merger shall be submitted to the shareholders of the corporation for approval as provided by this subchapter. The board of directors may place conditions on the submission of the plan of merger to the shareholders.

(d) If the board of directors approves a plan of merger required to be approved by the shareholders of the corporation but does not adopt a resolution recommending that the plan of merger be approved by the shareholders, the board of directors shall communicate to the shareholders the reason for the board's determination to submit the plan of merger without a recommendation.

(e) Except as provided by Chapter 10 or Sections 21.457 and 21.459, the shareholders of the corporation shall approve the plan of merger as provided by this subchapter.

(f) If after adoption of a resolution under Subsection (b)(2) the board of directors of the corporation determines that the plan of merger is not advisable, the plan of merger may be submitted to the shareholders of the corporation with a recommendation that the shareholders not approve the plan of merger.

(g) A plan of merger for a corporation may include a provision requiring that the plan of merger be submitted to the shareholders of the corporation regardless of whether the board of directors determines, after adopting a resolution or making a determination under this section, that the plan of merger is not advisable and recommends that the shareholders not approve the plan of merger.

Sec. 21.453. APPROVAL OF CONVERSION.

(a) A corporation must approve a conversion under Chapter 10 by complying with this section.

(b) The board of directors of the corporation shall adopt a resolution that approves the plan of conversion and:

(1) recommends that the plan of conversion be approved by the shareholders of the corporation; or

(2) directs that the plan of conversion be submitted to the shareholders for approval without recommendation if the board of directors determines for any reason not to recommend approval of the plan of conversion.

(c) The plan of conversion shall be submitted to the shareholders of the corporation for approval as provided by this subchapter. The board of directors may place conditions on the submission of the plan of conversion to the shareholders.

(d) If the board of directors approves a plan of conversion but does not adopt a resolution recommending that the plan of conversion be approved by the shareholders of the corporation, the board of directors shall communicate to the shareholders the reason for the board's determination to submit the plan of conversion without a recommendation.

(e) Except as provided by Section 21.457, the shareholders of the corporation shall approve the plan of conversion as provided by this subchapter.

(f) If after the adoption of a resolution under Subsection (b) the board of directors of the corporation determines that the plan of conversion is not advisable, the plan of conversion may be submitted to the shareholders of the corporation with a recommendation that the shareholders not approve the plan of conversion.

(g) A plan of conversion for a corporation may include a provision requiring that the plan of conversion be submitted to the shareholders of the corporation, regardless of whether the board of directors determines, after adopting a resolution or making a determination under this section, that the plan of conversion is not advisable and recommends that the shareholders not approve the plan of conversion.

Sec. 21.454. APPROVAL OF EXCHANGE.

(a) A corporation the shares of which are to be acquired in an exchange under Chapter 10 must approve the exchange by complying with this section.

(b) The board of directors shall adopt a resolution that approves the plan of exchange and:

(1) recommends that the plan of exchange be approved by the shareholders of the corporation; or

(2) directs that the plan of exchange be submitted to the shareholders for approval without recommendation if the board of directors determines for any reason not to recommend approval of the plan of exchange.

(c) The plan of exchange shall be submitted to the shareholders of the corporation for approval as provided by this subchapter. The board of directors may place conditions on the submission of the plan of exchange to the shareholders.

(d) If the board of directors approves a plan of exchange but does not adopt a resolution recommending that the plan of exchange be approved by the shareholders of the corporation, the board of directors shall communicate to the shareholders the reason for the board's determination to submit the plan of exchange to shareholders without a recommendation.

(e) Except as provided by Section 21.457, the shareholders of the corporation shall approve the plan of exchange as provided by this subchapter.

(f) If after the adoption of a resolution under Subsection (b)(2) the board of directors of the corporation determines that the plan of exchange is not advisable, the plan of exchange may be submitted to the shareholders of the corporation with a recommendation that the shareholders not approve the plan of exchange.

(g) A plan of exchange for a corporation may include a provision requiring that the plan of exchange be submitted to the shareholders of the corporation regardless of whether the board of directors determines, after adopting a resolution or making a determination under this section, that the plan of exchange is not advisable and recommends that the shareholders not approve the plan of exchange.

Sec. 21.455. APPROVAL OF SALE OF ALL OR SUBSTANTIALLY ALL OF ASSETS.

(a) Except as provided by the certificate of formation of a domestic corporation, a sale, lease, pledge, mortgage, assignment, transfer, or other conveyance of an interest in real property or other assets of the corporation does not require the approval or consent of the shareholders of the corporation unless the transaction constitutes a sale of all or substantially all of the assets of the corporation.

(b) A corporation must approve the sale of all or substantially all of its assets by complying with this section.

(c) The board of directors of the corporation shall adopt a resolution that approves the sale of all or substantially all of the assets of the corporation and:

(1) recommends that the sale of all or substantially all of the assets of the corporation be approved by the shareholders of the corporation; or

(2) directs that the sale of all or substantially all of the assets of the corporation be submitted to the shareholders for approval without recommendation if the board of directors determines for any reason not to recommend approval of the sale.

(d) The resolution proposing the sale of all or substantially all of the assets of the corporation shall be submitted to the shareholders of the corporation for approval as provided by this subchapter. The board of directors may place conditions on the submission of the proposed sale to the shareholders.

(e) If the board of directors approves the sale of all or substantially all of the assets of the corporation but does not adopt a resolution recommending that the proposed sale be approved by the shareholders of the corporation, the board of directors shall communicate to the shareholders the reason for the board's determination to submit the proposed sale to shareholders without a recommendation.

(f) The shareholders of the corporation shall approve the sale of all or substantially all of the assets of the corporation as provided by this subchapter. After the approval of the sale by the shareholders, the board of directors may abandon the sale of all or substantially all of the assets of the corporation, subject to the rights of a third party under a contract relating to the assets, without further action or approval by the shareholders.

Sec. 21.456. GENERAL PROCEDURE FOR SUBMISSION TO SHAREHOLDERS OF FUNDAMENTAL BUSINESS TRANSACTION.

(a) If a fundamental business transaction involving a corporation is required to be submitted to the shareholders of the corporation under this subchapter, the corporation shall notify each shareholder of the corporation that the fundamental business transaction is being submitted to the shareholders for approval at a meeting of shareholders as required by this subchapter, regardless of whether the shareholder is entitled to vote on the matter.

(b) If the fundamental business transaction is a merger, conversion, or interest exchange, the notice required by Subsection (a) shall contain or be accompanied by a copy or summary of the plan of merger, conversion, or interest exchange, as appropriate, and the notice required by Section 10.355.

(c) The notice of the meeting must:

(1) be given not later than the 21st day before the date of the meeting; and

(2) state that the purpose, or one of the purposes, of the meeting is to consider the fundamental business transaction.

Sec. 21.457. GENERAL VOTE REQUIREMENT FOR APPROVAL OF FUNDAMENTAL BUSINESS TRANSACTION.

(a) Except as provided by this code or the certificate of formation of a corporation in accordance with Section 21.365, the affirmative vote of the holders of at least two–thirds of the outstanding shares of the corporation entitled to vote on a fundamental business transaction is required to approve the transaction.

(b) Unless provided by the certificate of formation or Section 21.458, shares of a class or series that are not otherwise entitled to vote on matters submitted to shareholders generally are not entitled to vote for the approval of a fundamental business transaction.

(c) Except as provided by this code, if a class or series of shares of a corporation is entitled to vote on a fundamental business transaction as a class or series, in addition to the vote required under Subsection (a), the affirmative vote of the holders of at least two–thirds of the outstanding shares in each class or series of shares entitled to vote on the fundamental business transaction as a class or series is required to approve the transaction. Shares entitled to vote as a class or series shall only be entitled to vote as a class or series on the fundamental business transaction unless that class or series is otherwise entitled to vote on each matter submitted to the shareholders generally or is otherwise entitled to vote under the certificate of formation.

(d) Unless required by the certificate of formation, approval of a merger by shareholders is not required under this code for a corporation that is a party to the plan of merger unless that corporation is also a party to the merger.

Sec. 21.458. CLASS VOTING REQUIREMENTS FOR CERTAIN FUNDAMENTAL BUSINESS TRANSACTIONS.

(a) Separate voting by a class or series of shares of a corporation is required for approval of a plan of merger or conversion if:

(1) the plan of merger or conversion contains a provision that would require approval by that class or series of shares under Section 21.364 if the provision was contained in a proposed amendment to the corporation's certificate of formation; or

(2) that class or series of shares is entitled under the certificate of formation to vote as a class or series on the plan of merger or conversion.

(b) Separate voting by a class or series of shares of a corporation is required for approval of a plan of exchange if:

(1) shares of that class or series are to be exchanged under the terms of the plan of exchange; or

(2) that class or series is entitled under the certificate of formation to vote as a class or series on the plan of exchange.

(c) Separate voting by a class or series of shares of a corporation is required for approval of a sale of all or substantially all of the assets of a corporation if that class or series of shares is entitled under the certificate of formation to vote as a class or series on the sale of the corporation's assets.

Sec. 21.459. NO SHAREHOLDER VOTE REQUIREMENT FOR CERTAIN FUNDAMENTAL BUSINESS TRANSACTIONS.

(a) Unless required by the corporation's certificate of formation, a plan of merger is not required to be approved by the shareholders of a corporation if:

(1) the corporation is the sole surviving corporation in the merger;

(2) the certificate of formation of the corporation following the merger will not differ from the corporation's certificate of formation before the merger;

(3) immediately after the effective date of the merger, each shareholder of the corporation whose shares were outstanding immediately before the effective date of the merger will hold the same number of shares, with identical designations, preferences, limitations, and relative rights;

(4) the sum of the voting power of the number of voting shares outstanding immediately after the merger and the voting power of securities that may be acquired on the conversion or exercise of securities issued under the merger does not exceed by more than 20 percent the voting power of the total number of voting shares of the corporation that are outstanding immediately before the merger; and

(5) the sum of the number of participating shares that are outstanding immediately after the merger and the number of participating shares that may be acquired on the conversion or exercise of securities issued under the merger does not exceed by more than 20 percent the total number of participating shares of the corporation that are outstanding immediately before the merger.

(b) Unless required by the certificate of formation, a plan of merger effected under Section 10.005 or 10.006 does not require the approval of the shareholders of the corporation.

(c) This subsection applies only to a corporation that is a party to the merger and whose shares are, immediately before the date its board of directors approves the plan of merger, either listed on a national securities exchange or held of record by at least 2,000 shareholders. Unless required by the corporation's certificate of formation, a plan of merger is not required to be approved by the shareholders of the corporation if:

(1) the plan of merger expressly:

(A) permits or requires the merger to be effectedunder this subsection; and

(B) provides that any merger effected under this subsection shall be effected as soon as practicable following the consummation of the offer described by Subdivision (2);

(2) an organization consummates a tender or exchange offer for all of the outstanding shares of the corporation on the terms provided in the plan of merger that, absent this subsection, would be entitled to vote on the approval of the plan of merger, except that the offer may exclude shares of the corporation owned at the time of the commencement of the offer by:

(A) the corporation;

(B) the organization making the offer;

(C) any person who owns, directly or indirectly, all of the ownership interests in the organization making the offer; or

(D) any direct or indirect wholly owned subsidiary of a person described by Paragraph (A), (B), or (C);

(3) shares that are irrevocably accepted for purchase or exchange pursuant to the consummation of the offer described by Subdivision (2) and that are received by the depository before the expiration of the offer in addition to the shares that are otherwiseowned by the consummating organization equal at least the percentage of the shares, and of each class or series of those shares, of the corporation that, absent this subsection, would be required to approve the plan of merger by:

(A) Section 21.457 and, if applicable, Section 21.458; and

(B) the certificate of formation of the corporation;

(4) the organization consummating the offer described by Subdivision (2) merges with or into the corporation pursuant to the plan of merger; and

(5) each outstanding share of each class or series of the corporation that is the subject of and not irrevocably accepted for purchase or exchange in the offer described by Subdivision (2) is to be converted or exchanged in the merger into, or into the right to receive, the same amount and kind of consideration, as described by Section 10.002(a)(5), as to be paid or delivered for shares of such class or series of the corporation irrevocably accepted for purchase or exchange in the offer.

(d) In Subsection (c) and this subsection and, as applicable, in Sections 10.355(d)(3)(B), 10.355(f), and 10.356(b)(3)(E)(iv):

(1) "Consummates," "consummation, or "consummating" means irrevocably accepts for purchase or exchange shares tenderedpursuant to a tender or exchange offer.

(2) "Depository" means an agent appointed to facilitate consummation of the offer described by Subsection (c)(2).

(e) For purposes of Subsection (c)(3), "received," with respect to shares, means:

(1) physical receipt of a certificate representingshares, in the case of certificated shares; and

(2) transfer into the depository's account or an agent's message being received by the depository, in the case of uncertificated shares.

Sec. 21.460. RIGHTS OF DISSENT AND APPRAISAL. A shareholder of a domestic corporation has the rights of dissent and appraisal under Subchapter H, Chapter 10, with respect to a fundamental business transaction.

Sec. 21.461. PLEDGE, MORTGAGE, DEED OF TRUST, OR TRUST INDENTURE. Except as provided by the corporation's certificate of formation:

(1) the board of directors of a corporation may authorize a pledge, mortgage, deed of trust, or trust indenture; and

(2) an authorization or consent of shareholders is not required for the validity of the transaction or for any sale under the terms of the transaction.

Sec. 21.462. CONVEYANCE BY CORPORATION. A corporation may convey real property of the corporation when authorized by appropriate resolution of the board of directors.

SUBCHAPTER K. WINDING UP AND TERMINATION

Sec. 21.501. APPROVAL OF VOLUNTARY WINDING UP, REINSTATEMENT, OR REVOCATION OF VOLUNTARY WINDING UP. A corporation must approve a voluntary winding up in accordance with Chapter 11, a reinstatement in accordance with Section 11.202, a cancellation of an event requiring winding up under Section 11.152(a), or revocation of a voluntary decision to wind up in accordance with Section 11.151 by complying with one of the procedures prescribed by this subchapter.

Sec. 21.502. CERTAIN PROCEDURES RELATING TO WINDING UP. To approve a voluntary winding up, a reinstatement, a cancellation of an event requiring winding up, or a revocation of a voluntary decision to wind up, a corporation must follow one of the following procedures:

(1) all shareholders of the corporation must consent in writing to the winding up, the reinstatement, the cancellation of an event requiring winding up, or the revocation of a voluntary decision to wind up the corporation;

(2) if the corporation has not commenced business and has not issued any shares, a majority of the organizers or the board of directors of the corporation must adopt a resolution to wind up, to reinstate, to cancel an event requiring winding up, or to revoke a voluntary decision to wind up; or

(3)

(A) the board of directors of the corporation must adopt a resolution:

(i) recommending the winding up, reinstatement, cancellation of an event requiring winding up, or revocation of a voluntary decision to wind up the corporation; and

(ii) directing that the winding up, reinstatement, cancellation of an event requiring winding up, or revocation of a voluntary decision to wind up the corporation be submitted to the shareholders for approval at an annual or special meeting of shareholders; and

(B) the shareholders must approve the action described by Paragraph (A) in accordance with Section 21.503.

Sec. 21.503. MEETING OF SHAREHOLDERS; NOTICE.

(a) Each shareholder of record entitled to vote at a meeting described by Section 21.502(3)(A)(ii) must be given written notice stating that the purpose or one of the purposes of the meeting is to consider the winding up, reinstatement, cancellation of the event requiring winding up, or revocation of the voluntary decision to wind up the corporation. The notice must be given in the time and manner provided by Chapter 6 and this chapter for the giving of notice of shareholders' meetings.

(b) A vote of shareholders entitled to vote at the meeting shall be taken on the resolution to wind up, reinstate, cancel the event requiring winding up, or revoke the voluntary decision to wind up the corporation. The shareholders must approve the resolution by the affirmative vote required by Section 21.364.

Sec. 21.504. RESPONSIBILITY FOR WINDING UP. If a corporation determines or is required to wind up, the directors of the corporation shall manage the process of winding up the business or affairs of the corporation.

SUBCHAPTER L. DERIVATIVE PROCEEDINGS

Sec. 21.551. DEFINITIONS. In this subchapter:

(1) "Derivative proceeding" means a civil suit in the right of a domestic corporation or, to the extent provided by Section 21.562, in the right of a foreign corporation.

(2) "Shareholder" includes a beneficial owner whose shares are held in a voting trust or by a nominee on the beneficial owner's behalf.

Sec. 21.552. STANDING TO BRING PROCEEDING. A shareholder may not institute or maintain a derivative proceeding unless:

(1) the shareholder:

(A) was a shareholder of the corporation at the time of the act or omission complained of; or

(B) became a shareholder by operation of law from a person that was a shareholder at the time of the act or omission complained of; and

(2) the shareholder fairly and adequately represents the interests of the corporation in enforcing the right of the corporation.

Sec. 21.553. DEMAND.

(a) A shareholder may not institute a derivative proceeding until the 91st day after the date a written demand is filed with the corporation stating with particularity the act, omission, or other matter that is the subject of the claim or challenge and requesting that the corporation take suitable action.

(b) The waiting period required by Subsection (a) before a derivative proceeding may be instituted is not required if:

(1) the shareholder has been previously notified that the demand has been rejected by the corporation;

(2) the corporation is suffering irreparable injury; or

(3) irreparable injury to the corporation would result by waiting for the expiration of the 90–day period.

Sec. 21.554. DETERMINATION BY DIRECTORS OR INDEPENDENT PERSONS.

(a) A determination of how to proceed on allegations made in a demand or petition relating to a derivative proceeding must be made by an affirmative vote of the majority of:

(1) the independent and disinterested directors of the corporation present at a meeting of the board of directors of the corporation at which interested directors are not present at the time of the vote if the independent and disinterested directors constitute a quorum of the board of directors;

(2) a committee consisting of two or more independent and disinterested directors appointed by an affirmative vote of the majority of one or more independent and disinterested directors present at a meeting of the board of directors, regardless of whether the independent and disinterested directors constitute a quorum of the board of directors; or

(3) a panel of one or more independent and disinterested persons appointed by the court on a motion by the corporation listing the names of the persons to be appointed and stating that, to the best of the corporation's knowledge, the persons to be appointed are disinterested and qualified to make the determinations contemplated by Section 21.558.

(b) The court shall appoint a panel under Subsection (a)(3) if the court finds that the persons recommended by the corporation are independent and disinterested and are otherwise qualified with respect to expertise, experience, independent judgment, and other factors considered appropriate by the court under the circumstances to make the determinations. A person appointed by the court to a panel under this section may not be held liable to the corporation or the corporation's shareholders for an action taken or omission made by the person in that capacity, except for an act or omission constituting fraud or wilful misconduct.

Sec. 21.555. STAY OF PROCEEDING.

(a) If the domestic or foreign corporation that is the subject of a derivative proceeding commences an inquiry into the allegations made in a demand or petition and the person or group of persons described by Section 21.554 is conducting an active review of the allegations in good faith, the court shall stay a derivative proceeding until the review is completed and a determination is made by the person or group regarding what further action, if any, should be taken.

(b) To obtain a stay, the domestic or foreign corporation shall provide the court with a written statement agreeing to advise the court and the shareholder making the demand of the determination promptly on the completion of the review of the matter. A stay, on application, may be reviewed every 60 days for the continued necessity of the stay.

(c) If the review and determination made by the person or group is not completed before the 61st day after the stay is ordered by the court, the stay may be renewed for one or more additional 60–day periods if the domestic or foreign corporation provides the court and the shareholder with a written statement of the status of the review and the reasons why a continued extension of the stay is necessary.

Sec. 21.556. DISCOVERY.

(a) If a domestic or foreign corporation proposes to dismiss a derivative proceeding under Section 21.558, discovery by a shareholder after the filing of the derivative proceeding in accordance with this subchapter shall be limited to:

(1) facts relating to whether the person or group of persons described by Section 21.558 is independent and disinterested;

(2) the good faith of the inquiry and review by the person or group; and

(3) the reasonableness of the procedures followed by the person or group in conducting the review.

(b) Discovery described by Subsection (a) may not be expanded to include a fact or substantive matter regarding the act, omission, or other matter that is the subject matter of the derivative proceeding. The scope of discovery may be expanded if the court determines after notice and hearing that a good faith review of the allegations for purposes of Section 21.558 has not been made by an independent and disinterested person or group in accordance with that section.

Sec. 21.557. TOLLING OF STATUTE OF LIMITATIONS. A written demand filed with the corporation under Section 21.553 tolls the statute of limitations on the claim on which demand is made until the earlier of:

(1) the 91st day after the date of the demand; or

(2) the 31st day after the date the corporation advises the shareholder that the demand has been rejected or the review has been completed.

Sec. 21.558. DISMISSAL OF DERIVATIVE PROCEEDING.

(a) A court shall dismiss a derivative proceeding on a motion by the corporation if the person or group of persons described by Section 21.554 determines in good faith, after conducting a reasonable inquiry and based on factors the person or group considers appropriate under the circumstances, that continuation of the derivative proceeding is not in the best interests of the corporation.

(b) In determining whether the requirements of Subsection (a) have been met, the burden of proof shall be on:

(1) the plaintiff shareholder if:

(A) the majority of the board of directors consists of independent and disinterested directors at the time the determination is made;

(B) the determination is made by a panel of one or more independent and disinterested persons appointed under Section 21.554(a)(3); or

(C) the corporation presents prima facie evidence that demonstrates that the directors appointed under Section 21.554(a)(2) are independent and disinterested; or

(2) the corporation in any other circumstance.

Sec. 21.559. PROCEEDING INSTITUTED AFTER DEMAND REJECTED. If a derivative proceeding is instituted after a demand is rejected, the petition must allege with particularity facts that establish that the rejection was not made in accordance with the requirements of Sections 21.554 and 21.558.

Sec. 21.560. DISCONTINUANCE OR SETTLEMENT.

(a) A derivative proceeding may not be discontinued or settled without court approval.

(b) The court shall direct that notice be given to the affected shareholders if the court determines that a proposed discontinuance or settlement may substantially affect the interests of other shareholders.

Sec. 21.561. PAYMENT OF EXPENSES.

(a) In this section, "expenses" means reasonable expenses incurred by a party in a derivative proceeding, including:

(1) attorney's fees;

(2) costs in pursuing an investigation of the matter that was the subject of the derivative proceeding; or

(3) expenses for which the domestic or foreign corporation or a corporate defendant may be required to indemnify another person.

(b) On termination of a derivative proceeding, the court may order:

(1) the domestic or foreign corporation to pay the expenses the plaintiff incurred in the proceeding if the court finds the proceeding has resulted in a substantial benefit to the domestic or foreign corporation;

(2) the plaintiff to pay the expenses the domestic or foreign corporation or other defendant incurred in investigating and defending the proceeding if the court finds the proceeding has been instituted or maintained without reasonable cause or for an improper purpose; or

(3) a party to pay the expenses incurred by another party relating to the filing of a pleading, motion, or other paper if the court finds the pleading, motion, or other paper:

(A) was not well grounded in fact after reasonable inquiry;

(B) was not warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law; or

(C) was interposed for an improper purpose, such as to harass, cause unnecessary delay, or cause a needless increase in the cost of litigation.

Sec. 21.562. APPLICATION TO FOREIGN CORPORATIONS.

(a) In a derivative proceeding brought in the right of a foreign corporation, the matters covered by this subchapter are governed by the laws of the jurisdiction of incorporation of the foreign corporation, except for Sections 21.555, 21.560, and 21.561, which are procedural provisions and do not relate to the internal affairs of the foreign corporation.

(b) In the case of matters relating to a foreign corporation under Section 21.554, a reference to a person or group of persons described by that section refers to a person or group entitled under the laws of the jurisdiction of incorporation of the foreign corporation to review and dispose of a derivative proceeding. The standard of review of a decision made by the person or group to dismiss the derivative proceeding shall be governed by the laws of the jurisdiction of incorporation of the foreign corporation.

Sec. 21.563. CLOSELY HELD CORPORATION.

(a) In this section, "closely held corporation" means a corporation that has:

(1) fewer than 35 shareholders; and

(2) no shares listed on a national securities exchange or regularly quoted in an over–the–counter market by one or more members of a national securities association.

(b) Sections 21.552–21.559 do not apply to a closely held corporation.

(c) If justice requires:

(1) a derivative proceeding brought by a shareholder of a closely held corporation may be treated by a court as a direct action brought by the shareholder for the shareholder's own benefit; and

(2) a recovery in a direct or derivative proceeding by a shareholder may be paid directly to the plaintiff or to the corporation if necessary to protect the interests of creditors or other shareholders of the corporation.

SUBCHAPTER M. AFFILIATED BUSINESS COMBINATIONS

Sec. 21.601. DEFINITIONS. In this subchapter:

(1) "Issuing public corporation" means a domestic corporation that has:

(A) 100 or more shareholders of record as shown by the share transfer records of the corporation;

(B) a class or series of the corporation's voting shares registered under the Securities Exchange Act of 1934 (15 U.S.C. Section 77b et seq.), as amended; or

(C) a class or series of the corporation's voting shares qualified for trading on a national securities exchange.

(2) "Person" includes two or more persons acting as a partnership, limited partnership, syndicate, or other group under an agreement, arrangement, or understanding, regardless of whether in writing, to acquire, hold, vote, or dispose of a corporation's shares.

(3) "Share acquisition date" means the date a person initially becomes an affiliated shareholder of an issuing public corporation.

(4) "Subsidiary" means a domestic or foreign corporation or other entity of which a majority of the outstanding voting shares are owned, directly or indirectly, by an issuing public corporation.

(5) "Voting share" means a share of capital stock of a corporation that entitles the holder of the share to vote generally in the election of directors.

Sec. 21.602. AFFILIATED SHAREHOLDER.

(a) For purposes of this subchapter, a person, other than the issuing public corporation or a wholly owned subsidiary of the issuing public corporation, is an affiliated shareholder if the person:

(1) is the beneficial owner of 20 percent or more of the outstanding voting shares of the issuing public corporation; or

(2) during the preceding three–year period, was the beneficial owner of 20 percent or more of the outstanding voting shares of the issuing public corporation.

(b) To determine whether a person is an affiliated shareholder, the number of voting shares of the issuing public corporation considered outstanding includes shares considered beneficially owned by that person under Section 21.603, but does not include other unissued voting shares of the issuing public corporation that may be issuable under an agreement, arrangement, or understanding, or on exercise of conversion rights, warrants, or options.

Sec. 21.603. BENEFICIAL OWNER OF SHARES OR OTHER SECURITIES.

(a) For purposes of this subchapter, a person is a beneficial owner of shares or other securities if the person individually, or through an affiliate or associate, directly or indirectly beneficially owns the shares or other securities or has the right to:

(1) acquire the shares or other securities immediately or after the passage of time according to an oral or written agreement, arrangement, or understanding, or on the exercise of conversion rights, exchange rights, warrants, or options;

(2) vote the shares or other securities according to an oral or written agreement, arrangement, or understanding; or

(3) acquire, hold or dispose of, or vote the shares or other securities with another person who individually, or through an affiliate or associate, beneficially owns, directly or indirectly, the shares or other securities.

(b) A person, however, is not considered a beneficial owner of shares or other securities for purposes of this subchapter if:

(1) the shares or other securities are:

(A) tendered under a tender or exchange offer made by the person or an affiliate or associate of the person before the tendered shares or securities are accepted for purchase or exchange; or

(B) subject to an agreement, arrangement, or understanding that expressly conditions the acquisition or purchase of shares or securities on the approval of the acquisition or purchase under Section 21.606 if the person has no direct or indirect rights of ownership or voting with respect to the shares or other securities until the time the approval is obtained; or

(2) the agreement, arrangement, or understanding to vote the shares:

(A) arises solely from an immediately revocable proxy that authorizes the person named in the proxy to vote at a meeting of the shareholders that has been called when the proxy is delivered or at an adjournment of the meeting; and

(B) would not be reportable on a Schedule 13D under the Securities Exchange Act of 1934 (15 U.S.C. Section 77b et seq.), as amended, or a comparable or successor report.

Sec. 21.604. BUSINESS COMBINATION. A business combination is:
(1) a merger, share exchange, or conversion of an issuing public corporation or a subsidiary with:

(A) an affiliated shareholder;

(B) a foreign or domestic corporation or other entity that is, or after the merger, share exchange, or conversion would be, an affiliate or associate of the affiliated shareholder; or

(C) another domestic or foreign corporation or other entity, if the merger, share exchange, or conversion is caused by an affiliated shareholder, or an affiliate or associate of an affiliated shareholder, and as a result of the merger, share exchange, or conversion this subchapter does not apply to the surviving corporation or other entity;

(2) a sale, lease, exchange, mortgage, pledge, transfer, or other disposition, in one transaction or a series of transactions, including an allocation of assets under a merger, to or with the affiliated shareholder, or an affiliate or associate of the affiliated shareholder, of assets of the issuing public corporation or a subsidiary that:

(A) has an aggregate market value equal to 10 percent or more of the aggregate market value of all of the assets, determined on a consolidated basis, of the issuing public corporation;

(B) has an aggregate market value equal to 10 percent or more of the aggregate market value of all of the outstanding voting shares of the issuing public corporation; or

(C) represents 10 percent or more of the earning power or net income, determined on a consolidated basis, of the issuing public corporation;

(3) the issuance or transfer by an issuing public corporation or a subsidiary to an affiliated shareholder or an affiliate or associate of the affiliated shareholder, in one transaction or a series of transactions, of shares of the issuing public corporation or a subsidiary, except by the exercise of warrants or rights to purchase shares of the issuing public corporation offered, or a share dividend paid, pro rata to all shareholders of the issuing public corporation after the affiliated shareholder's share acquisition date;

(4) the adoption of a plan or proposal for the liquidation, winding up, or dissolution of an issuing public corporation proposed by or under any agreement, arrangement, or understanding, regardless of whether in writing, with an affiliated shareholder or an affiliate or associate of the affiliated shareholder;

(5) a reclassification of securities, including a reverse share split or a share split–up, share dividend, or other distribution of shares, a recapitalization of the issuing public corporation, a merger of the issuing public corporation with a subsidiary or pursuant to which the assets and liabilities of the issuing public corporation are allocated among two or more surviving or new domestic or foreign corporations or other entities, or any other transaction proposed by or under an agreement, arrangement, or understanding, regardless of whether in writing, with an affiliated shareholder or an affiliate or associate of the affiliated shareholder that has the effect, directly or indirectly, of increasing the proportionate ownership percentage of the outstanding shares of a class or series of voting shares or securities convertible into voting shares of the issuing public corporation that is beneficially owned by the affiliated shareholder or an affiliate or associate of the affiliated shareholder, except as a result of immaterial changes due to fractional share adjustments; or

(6) the direct or indirect receipt by an affiliated shareholder or an affiliate or associate of the affiliated shareholder of the benefit of a loan, advance, guarantee, pledge, or other financial assistance or a tax credit or other tax advantage provided by or through the issuing public corporation, except proportionately as a shareholder of the issuing public corporation.

Sec. 21.605. CONTROL.

(a) For purposes of this subchapter, a person has control of another person if the person has possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of the other person, through the ownership of equity securities, by contract, or in another manner.

(b) A person's beneficial ownership of 10 percent or more of a person's outstanding voting shares or similar interests creates a presumption that the person has control of the other person, but a person is not considered to have control of another person who holds the voting shares or similar interests in good faith and not to circumvent this part, as an agent, bank, broker, nominee, custodian, or trustee for one or more beneficial owners who do not individually or as a group have control of the person.

Sec. 21.606. THREE–YEAR MORATORIUM ON CERTAIN BUSINESS COMBINATIONS. An issuing public corporation may not, directly or indirectly, enter into or engage in a business combination with an affiliated shareholder, or any affiliate or associate of the affiliated shareholder, during the three–year period immediately following the affiliated shareholder's share acquisition date unless:

(1) the business combination or the purchase or acquisition of shares made by the affiliated shareholder on the affiliated shareholder's share acquisition date is approved by the board of directors of the issuing public corporation before the affiliated shareholder's share acquisition date; or

(2) the business combination is approved, by the affirmative vote of the holders of at least two–thirds of the outstanding voting shares of the issuing public corporation not beneficially owned by the affiliated shareholder or an affiliate or associate of the affiliated shareholder, at a meeting of shareholders called for that purpose not less than six months after the affiliated shareholder's share acquisition date. Approval may not be by written consent.

Sec. 21.607. APPLICATION OF MORATORIUM. Section 21.606 does not apply to:

(1) a business combination of an issuing public corporation if:

(A) the original articles of incorporation or original bylaws of the corporation contain a provision expressly electing not to be governed by this subchapter;

(B) before December 31, 1997, the corporation adopted an amendment to the articles of incorporation or bylaws of the corporation expressly electing not to be governed by this subchapter; or

(C) after December 31, 1997, the corporation adopts an amendment to the articles of incorporation or bylaws of the corporation, approved by the affirmative vote of the holders, other than an affiliated shareholder or an affiliate or associate of the affiliated shareholder, of at least two–thirds of the outstanding voting shares of the issuing public corporation, expressly electing not to be governed by this subchapter, except that the amendment to the articles of incorporation or bylaws takes effect 18 months after the date of the vote and does not apply to a business combination of the issuing public corporation with an affiliated shareholder whose share acquisition date is on or before the effective date of the amendment;

(2) a business combination of an issuing public corporation with an affiliated shareholder who became an affiliated shareholder inadvertently, if the affiliated shareholder:

(A) as soon as practicable divests itself of a sufficient number of the voting shares of the issuing public corporation so that the affiliated shareholder no longer is the beneficial owner, directly or indirectly, of 20 percent or more of the outstanding voting shares of the issuing public corporation; and

(B) would not at any time within the three–year period preceding the announcement date of the business combination have been an affiliated shareholder except for the inadvertent acquisition;

(3) a business combination with an affiliated shareholder who was the beneficial owner of 20 percent or more of the outstanding voting shares of the issuing public corporation on December 31, 1996, and continuously until the announcement date of the business combination;

(4) a business combination with an affiliated shareholder who became an affiliated shareholder through a transfer of shares of the issuing public corporation by will or intestate succession and continuously was an affiliated shareholder until the announcement date of the business combination; or

(5) a business combination of an issuing public corporation with a domestic wholly owned subsidiary if the domestic subsidiary is not an affiliate or associate of the affiliated shareholder for a reason other than the affiliated shareholder's beneficial ownership of voting shares in the issuing public corporation.

Sec. 21.608. EFFECT ON OTHER ACTIONS.

(a) This subchapter does not affect, directly or indirectly, the validity of another action by the board of directors of an issuing public corporation.

(b) This subchapter does not preclude the board of directors of an issuing public corporation from taking other action in accordance with law.

(c) The board of directors of an issuing public corporation does not incur liability for an election made or not made under this subchapter.

Sec. 21.609. CONFLICTING PROVISIONS. If this subchapter conflicts with another provision of this code, this subchapter controls.

Sec. 21.610. CHANGE IN VOTING REQUIREMENTS. The affirmative vote or concurrence of shareholders required for approval of an action that is required to be submitted to a vote of the shareholders under this subchapter may be increased but not decreased under Section 21.365.

SUBCHAPTER N. PROVISIONS RELATING TO INVESTMENT COMPANIES

Sec. 21.651. DEFINITION. In this subchapter, "investment company" means a corporation registered as an open–end company under the Investment Company Act.

Sec. 21.652. ESTABLISHING CLASS OR SERIES OF SHARES; CHANGE IN NUMBER OF SHARES.

(a) In addition to the actions the board may undertake under Subchapters D, E, and F, the board of directors of an investment company may:

(1) establish classes of shares and series of unissued shares of a class by setting and determining the designations, preferences, limitations, and relative rights, including voting rights, of the shares of the class or series established under this subdivision to the same extent that the designations, preferences, limitations, and relative rights could be stated if fully stated in the certificate of formation; and

(2) increase or decrease the aggregate number of shares or the number of shares of, or delete from the investment company's certificate of formation, a class or series of shares the corporation has authority to issue, unless a provision has been included in the certificate of formation of the corporation after September 1, 1993, expressly prohibiting those actions by the board of directors.

(b) The board of directors of an investment company may not:

(1) decrease the number of shares in a class or series to a number that is less than the number of shares of that class or series that are outstanding at the time; or

(2) delete from the certificate of formation a reference to a class or series that has shares outstanding at the time.

(c) To establish a class or series under this section, the board of directors must adopt a resolution stating the designation of the class or series and setting and determining the designations, preferences, limitations, and relative rights, including voting rights, of the class or series.

(d) To increase or decrease the number of shares of a class or series of shares or to delete from the certificate of formation a reference to a class or series of shares, the board of directors of an investment company must adopt a resolution setting and determining the new number of shares of each class or series in which the number of shares is increased or decreased or deleting the class or series and any reference to the class or series from the certificate of formation. The shares of a series removed from the certificate of formation shall resume the status of authorized but unissued shares of the class of shares from which the series was established unless otherwise provided by the resolution or the certificate of formation of the investment company.

Sec. 21.653. REQUIRED STATEMENT RELATING TO SHARES.

(a) Before the first issuance of shares of a class or series established or increased or decreased by resolution adopted by the board of directors of an investment company under Section 21.652, and to delete from the investment company's certificate of formation a class or series of shares and all references to the class or series contained in the certificate of formation, the investment company shall file with the secretary of state a statement that contains:

(1) the name of the investment company;

(2) if the statement relates to the establishment of a class or series of shares, a copy of the resolution establishing and designating the class or series or establishing and designating the class or series and setting and determining the preferences, limitations, and relative rights of the class or series;

(3) if the statement relates to an increase or decrease in the number of shares of a class or series, a copy of the resolution setting and determining the new number of shares of each class or series in which the number of shares is increased or decreased;

(4) if the statement relates to the deletion of a class or series of shares and all references to the class or series from the certificate of formation, a copy of the resolution deleting the class or series and all references to the class or series from the certificate of formation;

(5) the date of adoption of the resolution; and

(6) a statement that the resolution was adopted by all necessary action on the part of the investment company.

(b) After the statement described by Subsection (a) is filed, a resolution adopted under Section 21.652 becomes an amendment of the certificate of formation. An amendment of the certificate of formation described under this section is not subject to the procedure to amend the certificate of formation contained in Subchapter B.

Sec. 21.654. TERM OF OFFICE OF DIRECTORS. Unless the director resigns or is removed in accordance with the certificate of formation or bylaws of the investment company, a director of an investment company shall serve as director for the term for which the director is elected and holds office until a successor is elected and qualifies.

Sec. 21.655. MEETINGS OF SHAREHOLDERS.

(a) If provided by the certificate of formation or bylaws of an investment company, the investment company is not required to hold an annual meeting of shareholders or elect directors in a year in which an election of directors is not required under the Investment Company Act.

(b) If an investment company is required to hold a meeting of shareholders to elect directors under the Investment Company Act, the meeting shall be designated as the annual meeting of shareholders for that year.

SUBCHAPTER O. CLOSE CORPORATION

Sec. 21.701. DEFINITIONS. In this subchapter:

(1) "Close corporation" means a domestic corporation formed under this subchapter or governed by this subchapter because of Section 21.705, 21.706, or 21.707.

(2) "Close corporation provision" means a provision in the certificate of formation of a close corporation or in a shareholders' agreement of a close corporation.

(3) "Ordinary corporation" means a domestic corporation that is not a close corporation.

(4) "Shareholders' agreement" means a written agreement regulating an aspect of the business and affairs of or the relationship among the shareholders of a close corporation that has been executed under this subchapter.

Sec. 21.702. APPLICABILITY OF SUBCHAPTER.

(a) This subchapter applies only to a close corporation.

(b) This chapter applies to a close corporation to the extent not inconsistent with this subchapter.

Sec. 21.703. FORMATION OF CLOSE CORPORATION. A close corporation shall be formed in accordance with Chapter 3.

Sec. 21.704. BYLAWS OF CLOSE CORPORATION.

(a) A close corporation does not need to adopt bylaws if provisions required by law to be contained in the bylaws are contained in the certificate of formation or a shareholders' agreement.

(b) A close corporation that does not have bylaws when it terminates its status as a close corporation under Section 21.708 shall immediately adopt bylaws that comply with Section 21.057.

Sec. 21.705. ADOPTION OF AMENDMENT FOR CLOSE CORPORATION STATUS.

(a) An ordinary corporation may become a close corporation by amending its certificate of formation in accordance with Chapter 3 to conform with Section 3.008.

(b) An amendment adopting close corporation status must be approved by the affirmative vote of the holders of all of the outstanding shares of each class established by the close corporation, regardless of whether a class is entitled to vote on the amendment by the certificate of formation of the ordinary corporation.

Sec. 21.706. ADOPTION OF CLOSE CORPORATION STATUS THROUGH MERGER, EXCHANGE, OR CONVERSION.

(a) A surviving or new corporation resulting from a merger or conversion or a corporation that acquires a corporation under an exchange under Chapter 10 may become a close corporation if, as part of the plan of merger, exchange, or conversion, the certificate of formation conforms with Section 3.008.

(b) A plan of merger, exchange, or conversion adopting close corporation status must be approved by the affirmative vote of the holders of all of the outstanding ownership or membership interests, and of each class or series of ownership or membership interests, of each entity or non–code organization that is party to the merger, exchange, or conversion, regardless of whether a class or series of ownership or membership interests is entitled to vote on the plan by the certificate of formation of the corporation.

Sec. 21.707. EXISTING CLOSE CORPORATION.

(a) This section applies to an existing corporation that elected to become a close corporation before the mandatory application date of this code and has not terminated that status.

(b) A close corporation existing before the mandatory application date of this code is considered to be a close corporation under this code.

(c) A provision in the articles of incorporation of a close corporation authorized under former law is valid and enforceable if the corporation's status as a close corporation has not been terminated.

(d) An agreement among the shareholders of a close corporation in conformance with former law and Sections 21.714–21.725 before the mandatory application date of this code is considered to be a shareholders' agreement.

(e) A certificate representing the shares issued or delivered by the close corporation after the mandatory application date of this code, whether in connection with the original issue of shares or a transfer of shares, must conform with Section 21.732.

(f) In this section, "mandatory application date" has the meaning assigned by Section 401.001.

Sec. 21.708. TERMINATION OF CLOSE CORPORATION STATUS. A close corporation may terminate its status as a close corporation by:

(1) filing a statement terminating close corporation status under Section 21.709;

(2) amending the close corporation's certificate of formation under Chapter 3 by deleting from the certificate of formation the statement that it is a close corporation;

(3) engaging in a merger, interest exchange, or conversion under Chapter 10, unless the plan of merger, exchange, or conversion provides that the surviving or new corporation will continue as or become a close corporation and the plan has been approved by the affirmative vote or consent of the holders of all of the outstanding shares, and of each class and series of shares, of the close corporation, regardless of whether a class or series of shares is entitled to vote on the plan by the certificate of formation; or

(4) instituting a judicial proceeding to enforce a close corporation provision providing for the termination.

Sec. 21.709. STATEMENT TERMINATING CLOSE CORPORATION STATUS; FILING; NOTICE.

(a) If a close corporation provision specifies a time or event requiring the termination of close corporation status, regardless of whether the provision is identifiable by a person dealing with the close corporation, the termination of the close corporation status takes effect on the occurrence of the specified time or event and the filing of a statement terminating close corporation status under this section.

(b) Promptly after the time or occurrence of an event requiring termination of close corporation status, a statement terminating close corporation status shall be signed by an officer on behalf of the close corporation. A copy of the applicable close corporation provision must be included in or attached to the statement. The statement and any attachment shall be filed with the secretary of state in accordance with Chapter 4.

(c) The statement terminating close corporation status must contain:

(1) the name of the corporation;

(2) a statement that the corporation has terminated its status as a close corporation in accordance with the included or attached close corporation provision; and

(3) the time or event that caused the termination and, in the case of an event, the approximate date of the event.

(d) After a statement terminating close corporation status has been filed under this section, the certificate of formation of the close corporation is considered to be amended to delete from the certificate the statement that the corporation is a close corporation, and the corporation's status as a close corporation is terminated.

(e) The corporation shall personally deliver or mail a copy of the statement to each shareholder of the corporation. A copy of the statement is considered to have been delivered by mail under this section when the copy is deposited in the United States mail, with postage prepaid, addressed to the shareholder at the shareholder's address as it appears on the share transfer records of the corporation. The failure to deliver the copy of the statement does not affect the validity of the termination.

Sec. 21.710. EFFECT OF TERMINATION OF CLOSE CORPORATION STATUS.

(a) A close corporation that terminates its status as a close corporation and becomes an ordinary corporation is subject to this chapter as if the corporation had not elected close corporation status under this subchapter.

(b) The effect of termination of close corporation status on a shareholders' agreement is governed by Section 21.724.

(c) When the termination of close corporation status takes effect, if the close corporation's business and affairs have been managed by an entity other than a board of directors as provided by Section 21.725, governance by a board of directors is instituted or reinstated:

(1) if provided by a shareholders' agreement, in the manner stated in the agreement or by the persons named in the agreement to serve as the interim board of directors; or

(2) if each party to a shareholders' agreement agrees to elect a board of directors at a shareholders' meeting.

Sec. 21.711. SHAREHOLDERS' MEETING TO ELECT DIRECTORS. A shareholders' meeting required by Section 21.710(c)(2) shall be promptly called after the termination of close corporation status takes effect. If a meeting is not called before the 31st day after the date the termination takes effect, a shareholder may call a shareholders' meeting on the provision of notice required by Section 21.353, regardless of whether the shareholder is entitled to call a shareholders' meeting or vote at the meeting. At the meeting, the shareholders shall elect the number of directors specified in the certificate of formation or bylaws of the corporation or, in the absence of any specification, three directors.

Sec. 21.712. TERM OF OFFICE OF DIRECTORS. A director succeeding to the management of the corporation under Section 21.710(c) shall have a term of office as set forth in Section 21.408. Until a board of directors is elected, the shareholders of the corporation shall act as the corporation's board of directors, and the business and affairs of the corporation shall be conducted under Section 21.726.

Sec. 21.713. MANAGEMENT. A close corporation shall be managed:

(1) by a board of directors in the same manner an ordinary corporation would be managed under this chapter; or

(2) in the manner provided by the close corporation's certificate of formation or by a shareholders' agreement of the close corporation.

Sec. 21.714. SHAREHOLDERS' AGREEMENT.

(a) The shareholders of a close corporation may enter into one or more shareholders' agreements.

(b) The business and affairs of a close corporation or the relationships among the shareholders that may be regulated by a shareholders' agreement include:

(1) the management of the business and affairs of the close corporation by its shareholders, with or without a board of directors;

(2) the management of the business and affairs of the close corporation wholly or partly by one or more of its shareholders or other persons;

(3) buy–sell, first option, first refusal, or similar arrangements with respect to the close corporation's shares or other securities, and restrictions on the transfer of the shares or other securities, including more restrictions than those permitted by Section 21.211;

(4) the declaration and payment of dividends or other distributions in amounts authorized by Subchapter G, regardless of whether the distribution is in proportion to ownership of shares;

(5) the manner in which profits or losses shall be apportioned;

(6) restrictions placed on the rights of a transferee or assignee of shares to participate in the management or administration of the close corporation's business and affairs during the term of the shareholders' agreement;

(7) the right of one or more shareholders to cause the winding up and termination of the close corporation at will or on the occurrence of a specified event or contingency, in which case the winding up and termination of the close corporation shall proceed as if all of the shareholders of the close corporation had consented in writing to winding up and termination as provided by Chapter 11;

(8) the exercise or division of voting power either in general or with regard to specified matters by or among the shareholders of the close corporation or other persons, including:

(A) voting agreements and voting trusts that do not conform with Section 6.251 or 6.252;

(B) requiring the vote or consent of the holders of a larger or smaller number of shares than is otherwise required by this chapter or other law, including an action for termination of close corporation status;

(C) granting one or some other specified number of votes for each shareholder; and

(D) permitting an action for which this chapter requires approval by the vote of the board of directors or the shareholders of an ordinary corporation, or both, to be taken without a vote, in the manner provided by the shareholders' agreement;

(9) the terms and conditions of employment of a shareholder, director, officer, or other employee of the close corporation, regardless of the length of the period of employment;

(10) the individuals who will serve as directors, if any, and officers of the close corporation;

(11) the arbitration or mediation of issues about which the shareholders may become deadlocked in voting or about which the directors or those empowered to manage the close corporation may become deadlocked and the shareholders are unable to break the deadlock;

(12) the termination of close corporation status, including a right of dissent or other rights that may be granted to shareholders who object to the termination;

(13) qualifications of persons who are or are not entitled to be shareholders of the close corporation;

(14) amendments to or termination of the shareholders' agreement; and

(15) any provision required or permitted to be contained in the bylaws by this chapter.

Sec. 21.715. EXECUTION OF SHAREHOLDERS' AGREEMENT. A shareholders' agreement shall be executed:

(1) in the case of an existing close corporation, by each shareholder at the time of execution, regardless of whether the shareholder has voting power;

(2) in the case of an existing ordinary corporation that will adopt close corporation status under Section 21.705, by each shareholder at the time of execution, regardless of whether the shareholder has voting power; or

(3) in the case of a close corporation that is being formed under Section 21.703, by each person who is a subscriber to the corporation's shares or agrees to become a holder of the corporation's shares under the shareholders' agreement of the close corporation.

Sec. 21.716. ADOPTION OF AMENDMENT OF SHAREHOLDERS' AGREEMENT. Unless otherwise provided by a shareholders' agreement, an amendment to the shareholders' agreement of a close corporation may be adopted only by the written consent of each person who would be required to execute the shareholders' agreement if it were being executed originally at the time of adoption of the amendment, regardless of whether the person has voting power in the close corporation.

Sec. 21.717. DELIVERY OF SHAREHOLDERS' AGREEMENT.

(a) The close corporation shall deliver a complete copy of a shareholders' agreement to:

(1) each person who is bound by the shareholders' agreement;

(2) each person who is or will become a shareholder in the close corporation as provided by Section 21.715 when a certificate representing shares in the close corporation is delivered to the person; and

(3) each person to whom a certificate representing shares is issued and who has not received a complete copy of the agreement.

(b) The failure to deliver a complete copy of a shareholders' agreement as required by this section does not affect the validity or enforceability of the shareholders' agreement.

Sec. 21.718. STATEMENT OF OPERATION AS CLOSE CORPORATION.

(a) On or after the formation of a close corporation or adoption of close corporation status, a close corporation that begins to conduct its business and affairs under a shareholders' agreement that has become effective shall promptly execute and file with the secretary of state a statement of operation as a close corporation in accordance with Chapter 4.

(b) The statement required by Subsection (a) must:

(1) contain the name of the close corporation;

(2) state that the close corporation is being operated and its business and affairs are being conducted under the terms of a shareholders' agreement under this subchapter; and

(3) contain the date the operation of the corporation began.

(c) A statement of operation as a close corporation shall be executed by an officer on behalf of the corporation.

(d) On the filing of the statement of operation as a close corporation, the fact that the close corporation is being operated and its business and affairs are being conducted under the terms of a shareholders' agreement becomes a matter of public record.

Sec. 21.719. VALIDITY AND ENFORCEABILITY OF SHAREHOLDERS' AGREEMENT.

(a) A shareholders' agreement executed in accordance with Section 21.715 is valid and enforceable notwithstanding:

(1) the elimination of a board of directors;

(2) any restriction imposed on the discretion or powers of the board of directors or other person empowered to manage the close corporation; and

(3) that the effect of the shareholders' agreement is to treat the business and affairs of the close corporation as if the close corporation were a partnership or in a manner that would otherwise be appropriate only among partners.

(b) A close corporation, a shareholder of the close corporation, or a party to a shareholders' agreement may initiate a proceeding to enforce the shareholders' agreement in accordance with Section 21.756.

Sec. 21.720. PERSONS BOUND BY SHAREHOLDERS' AGREEMENT.

(a) A shareholders' agreement executed in accordance with Section 21.715 is:

(1) considered to be an agreement among all of the shareholders of the close corporation; and

(2) binding on and enforceable against each shareholder of the close corporation, regardless of whether:

(A) a particular shareholder acquired shares in the close corporation by purchase, gift, bequest, or otherwise; or

(B) the shareholder had actual knowledge of the existence of the shareholders' agreement at the time of acquiring shares.

(b) A transferee or assignee of shares of a close corporation in which there is a shareholders' agreement is bound by the agreement for all purposes, regardless of whether the transferee or assignee executed or was aware of the agreement.

Sec. 21.721. DELIVERY OF COPY OF SHAREHOLDERS' AGREEMENT TO TRANSFEREE.

(a) Before the transfer of shares of a close corporation in which there is a shareholders' agreement, the transferor shall deliver a complete copy of the shareholders' agreement to the transferee.

(b) If the transferor fails to deliver a complete copy of the shareholders' agreement:

(1) the validity and enforceability of the shareholders' agreement against each shareholder of the corporation, including the transferee, is not affected;

(2) the right, title, or interest of the transferee in the transferred shares is not adversely affected; and

(3) the transferee is entitled to obtain on demand from the transferor or from the close corporation a complete copy of the shareholders' agreement at the transferor's expense.

Sec. 21.722. EFFECT OF REQUIRED STATEMENT ON SHARE CERTIFICATE AND DELIVERY OF SHAREHOLDERS' AGREEMENT. If a certificate representing shares of a close corporation contains the statement required by Section 21.732, and a complete copy of each shareholders' agreement has been delivered as required by Section 21.717, each holder, transferee, or other person claiming an interest in the shares of the close corporation is conclusively presumed to have knowledge of a close corporation provision in effect at the time of the transfer.

Sec. 21.723. PARTY NOT BOUND BY SHAREHOLDERS' AGREEMENT ON CESSATION; LIABILITY.

(a) Notwithstanding the person's signature, a person ceases to be a party to, and bound by, a shareholders' agreement when the person ceases to be a shareholder of the close corporation unless:

(1) the person's attempted cessation was in violation of Section 21.721 or the shareholders' agreement; or

(2) the shareholders' agreement provides to the contrary.

(b) Cessation as a party to a shareholders' agreement or as a shareholder does not relieve a person of liability the person may have incurred for breach of the shareholders' agreement.

Sec. 21.724. TERMINATION OF SHAREHOLDERS' AGREEMENT.

(a) Except as provided by Subsection (b), a shareholders' agreement terminates when the close corporation terminates its status as a close corporation.

(b) If provided by the shareholders' agreement, all or part of the agreement is valid and enforceable to the extent permitted for an ordinary corporation by this chapter or other law.

Sec. 21.725. CONSEQUENCES OF MANAGEMENT BY PERSONS OTHER THAN BOARD OF DIRECTORS. Sections 21.726–21.729 apply only to a close corporation the business and affairs of which are managed wholly or partly by the shareholders of the close corporation or any other person as provided by a shareholders' agreement rather than solely by a board of directors.

Sec. 21.726. SHAREHOLDERS CONSIDERED DIRECTORS.

(a) When required by the context of this chapter, the shareholders of a close corporation described by Section 21.725 are considered to be directors of the close corporation for purposes of applying a provision of this chapter, other than a provision relating to the election and removal of directors.

(b) A requirement that an instrument filed with a governmental agency contain a statement that a specified action has been taken by the board of directors is satisfied by a statement that:

(1) the corporation is a close corporation with no board of directors; and

(2) the action was approved by the shareholders of the close corporation or the persons empowered to manage the business and affairs of the close corporation under a shareholders' agreement.

Sec. 21.727. LIABILITY OF SHAREHOLDERS. The shareholders of a close corporation described by Section 21.725 are subject to any liability imposed on a director of a corporation by this chapter or other law for a managerial act of or omission made by the shareholders or any other person empowered to manage the business and affairs of the close corporation under a shareholders' agreement and relating to the business and affairs of the close corporation, if the action is required by law to be undertaken by the board of directors.

Sec. 21.728. MODE AND EFFECT OF TAKING ACTION BY SHAREHOLDERS AND OTHERS.

(a) An action that shall or may be taken by the board of directors of an ordinary corporation as required or authorized by this chapter shall or may be taken by action of the shareholders of a close corporation described by Section 21.725 at a meeting of the shareholders or, in the manner permitted by a shareholders' agreement, this subchapter, or this chapter, without a meeting.

(b) Unless otherwise provided by the certificate of formation of the close corporation or a shareholders' agreement of the close corporation, an action is binding on a close corporation if the action is taken after:

(1) the affirmative vote of the holders of the majority of all outstanding shares entitled to vote on the action; or

(2) the consent of all of the shareholders of the close corporation, which may be proven by:

(A) the full knowledge of the action by all of the shareholders and the shareholders' failure to object to the action in a timely manner;

(B) written consent to the action in accordance with Section 6.201 or this chapter or any other writing executed by or on behalf of all of the shareholders reasonably evidencing the consent; or

(C) any other means reasonably evidencing the consent.

Sec. 21.729. LIMITATION OF SHAREHOLDER'S LIABILITY.

(a) A shareholder of a close corporation described by Section 21.725 is not liable because of a shareholders' vote or shareholder action without a vote unless the shareholder had the right to vote or consent to the action.

(b) A shareholder of a close corporation, without regard to the right to vote or consent, may not be held liable for an action taken by the shareholders or a person empowered to manage the business and affairs of the close corporation under a shareholders' agreement if the shareholder dissents from and has not voted for or consented to the action.

(c) The dissent of a shareholder may be proven by:

(1) an entry in the minutes of the meeting of shareholders;

(2) a written dissent filed with the secretary of the meeting before the adjournment of the meeting;

(3) a written dissent sent by registered mail to the secretary of the close corporation promptly after the meeting or after a written consent was obtained from the other shareholders; or

(4) any other means reasonably evidencing the dissent.

Sec. 21.730. LACK OF FORMALITIES; TREATMENT AS PARTNERSHIP. The failure of a close corporation under this subchapter to observe a usual formality or requirement prescribed for an ordinary corporation by this chapter relating to the exercise of corporate powers or the management of a corporation's business and affairs and the performance of a shareholders' agreement that treats the close corporation as if the corporation were a partnership or in a manner that otherwise is appropriate only among partners may not:

(1) be a factor in determining whether to impose personal liability on the shareholders for the close corporation's obligations by disregarding the separate entity of the close corporation or otherwise;

(2) be grounds for invalidating an otherwise valid shareholders' agreement; or

(3) affect the status of the close corporation as a corporation under this chapter or other law.

Sec. 21.731. OTHER AGREEMENTS AMONG SHAREHOLDERS PERMITTED. Sections 21.713–21.730 do not prohibit or impair any other agreement between two or more shareholders of an ordinary corporation permitted by this chapter or other law.

Sec. 21.732. CLOSE CORPORATION SHARE CERTIFICATES.

(a) In addition to a matter required or authorized by law to be stated on a certificate representing shares, each certificate representing shares issued by a close corporation must conspicuously state on the front or back of the certificate: "These shares are issued by a close corporation as defined by the Texas Business Organizations Code. Under Chapter 21 of that code, a shareholders' agreement may provide for management of a close corporation by the shareholders or in other ways different from an ordinary corporation. This may subject the holder of this certificate to certain obligations and liabilities not otherwise imposed on shareholders of an ordinary corporation. On a sale or transfer of these shares, the transferor is required to deliver to the transferee a complete copy of any shareholders' agreement."

(b) Notwithstanding this chapter and Section 3.202, the status of a corporation as a close corporation is not affected by the failure of a share certificate to contain the statement required by Subsection (a).

SUBCHAPTER P. JUDICIAL PROCEEDINGS RELATING TO CLOSE CORPORATION

Sec. 21.751. DEFINITIONS. In this subchapter:

(1) "Court" means a district court in the county in which the principal office of the close corporation is located.

(2) "Custodian" means a person appointed by a court under Section 21.761.

(3) "Provisional director" means a person appointed by a court under Section 21.758.

(4) "Shareholder" means a record or beneficial owner of shares in a close corporation, including:

(A) a person holding a beneficial interest in the shares under an inter vivos, testamentary, or voting trust; or

(B) the personal representative, as defined by the Texas Probate Code, of a record or beneficial owner.

Sec. 21.752. PROCEEDINGS AUTHORIZED. In addition to any other judicial proceeding pertaining to an ordinary corporation provided for by this chapter or other law, a close corporation or shareholder may institute a proceeding in a district court in the county in which the principal office of the close corporation is located to:

(1) enforce a close corporation provision;

(2) appoint a provisional director; or

(3) appoint a custodian.

Sec. 21.753. NOTICE; INTERVENTION.

(a) Notice of the institution of a proceeding shall be given to the close corporation, if the corporation is not a plaintiff, and to each shareholder who is not a plaintiff in the manner prescribed by law and consistent with due process of law as directed by the court.

(b) The close corporation or a shareholder of the close corporation may intervene in the proceeding.

Sec. 21.754. PROCEEDING NONEXCLUSIVE. Except as provided by Section 21.755, the right of a close corporation or a shareholder to institute a proceeding under Section 21.752 is in addition to another right or remedy the plaintiff is entitled to under law.

Sec. 21.755. UNAVAILABILITY OF JUDICIAL PROCEEDING.

(a) A shareholder may not institute a proceeding before exhausting any nonjudicial remedy contained in a close corporation provision for resolution of an issue that is in dispute unless the shareholder proves that the close corporation, the shareholders as a whole, or the shareholder will suffer irreparable harm before the nonjudicial remedy is exhausted.

(b) A shareholder may not institute a proceeding to seek damages or other monetary relief if the shareholder is entitled to dissent from a proposed action and receive the fair value of the shareholder's shares under this code or a shareholders' agreement.

Sec. 21.756. JUDICIAL PROCEEDING TO ENFORCE CLOSE CORPORATION PROVISION.

(a) In a judicial proceeding under this section, a court shall enforce a close corporation provision without regard to whether there is an adequate remedy at law.

(b) The court may enforce a close corporation provision by injunction, specific performance, or other relief the court determines to be fair and equitable under the circumstances, including:

(1) damages instead of or in addition to specific enforcement;

(2) the appointment of a provisional director or custodian;

(3) the appointment of a receiver for specific assets of the close corporation in accordance with Section 11.403;

(4) the appointment of a receiver to rehabilitate the close corporation in accordance with Section 11.404;

(5) subject to Section 21.757, the liquidation of the assets and business and involuntary termination of the close corporation and appointment of a receiver to effect the liquidation in accordance with Section 11.405; and

(6) the termination of close corporation status.

(c) The court may not order termination of close corporation status under Subsection (b)(6) unless the court determines that:

(1) any other remedy in law or equity, including appointment of a provisional director, custodian, or other type of receiver, is inadequate; and

(2) the size, the nature of the business, or the number of shareholders of the close corporation, or their relationship to one another or other similar factors, make it wholly impractical to continue close corporation status.

Sec. 21.757. LIQUIDATION; INVOLUNTARY WINDING UP AND TERMINATION; RECEIVERSHIP. Except as provided by Section 21.756, in a case in which a shareholder is entitled to wind up and terminate a close corporation under a shareholders' agreement, a court may not order liquidation, involuntary termination, or receivership under that section unless the court determines that any other remedy in law or equity, including appointment of a provisional director, custodian, or other type of receiver, is inadequate.

Sec. 21.758. APPOINTMENT OF PROVISIONAL DIRECTOR.

(a) In a judicial proceeding under this section, a court shall appoint a provisional director for a close corporation on presentation of proof that the directors or the persons empowered to manage the business and affairs of the close corporation under a shareholders' agreement are so divided with respect to the management of the business and affairs of the close corporation that the required votes or consent to take action on behalf of the close corporation cannot be obtained, resulting in the business and affairs being conducted in a manner that is not to the general advantage of the shareholders.

(b) The provisional director must be an impartial person who is not a shareholder, a party to a shareholders' agreement, a person empowered to manage the close corporation under a shareholders' agreement, or a creditor of the close corporation or of a subsidiary or affiliate of the close corporation. The court shall determine any further qualifications.

(c) A provisional director shall serve until removed by court order or by a vote of the majority of the directors or the holders of the majority of the shares with voting power, or by a vote of a different number, not fewer than the majority, of shareholders or directors if a close corporation provision requires the concurrence of a larger or different majority for action by the directors or shareholders.

Sec. 21.759. RIGHTS AND POWERS OF PROVISIONAL DIRECTOR. A provisional director has all the rights and powers of an elected director of the close corporation, or the rights of vote or consent of a shareholder and other rights and powers of shareholders or other persons who have been empowered to manage the business and affairs of the close corporation under a shareholders' agreement with the voting power provided by court order, including the right to notice of, and to vote at, meetings of directors or shareholders.

Sec. 21.760. COMPENSATION OF PROVISIONAL DIRECTOR.

(a) The compensation of a provisional director shall be determined by an agreement between the provisional director and the close corporation, subject to court approval.

(b) The court may set the compensation in the absence of an agreement or in the event of a disagreement between the provisional director and the close corporation.

Sec. 21.761. APPOINTMENT OF CUSTODIAN.

(a) In a judicial proceeding under this section, a court shall appoint a custodian for a close corporation on presentation of proof that:

(1) at a meeting held for the election of directors, the shareholders are so divided that the shareholders have failed to elect successors to directors whose terms have expired or would have expired on qualification of a successor;

(2) the business of the close corporation is suffering or is threatened with irreparable injury because the directors, or the shareholders or the persons empowered to manage the business and affairs of the close corporation under a shareholders' agreement, are so divided with respect to the management of the business and affairs of the close corporation that the required vote or consent to take action on behalf of the close corporation cannot be obtained and a remedy with respect to the deadlock in a close corporation provision has failed; or

(3) the plaintiff or intervenor has the right to wind up and terminate the close corporation under a shareholders' agreement as provided by Section 21.714.

(b) To be eligible to serve as a custodian, a person must comply with all the qualifications required to serve as a receiver under Section 11.406.

Sec. 21.762. POWERS AND DUTIES OF CUSTODIAN. A person who qualifies as a custodian has all of the powers and duties and the title of a receiver appointed under Sections 11.404–11.406. The custodian shall continue the business of the close corporation and may not liquidate the affairs or distribute the assets of the close corporation, except as provided by court order or Section 21.761(a)(3).

Sec. 21.763. TERMINATION OF CUSTODIANSHIP. If the condition requiring the appointment of a custodian is remedied other than by liquidation or winding up and termination, the court shall terminate the custodianship immediately and management of the close corporation shall be restored to the directors or shareholders of the close corporation or to the persons empowered to manage the business and affairs of the close corporation under a shareholders' agreement.

SUBCHAPTER Q. MISCELLANEOUS PROVISIONS

Sec. 21.801. SHARES AND OTHER SECURITIES ARE PERSONAL PROPERTY. Except as otherwise provided by this code, the shares and other securities of a corporation are personal property.

Sec. 21.802. PENALTIES FOR LATE FILING OF CERTAIN INSTRUMENTS.

(a) A person required under Title 1 or this title to file a change of registered office or agent, a certificate of voluntary withdrawal, or a certificate of termination for a corporation commits an offense if the person does not file the required filing with the secretary of state before the earlier of:

(1) the 30th day after the date of the change, withdrawal, or termination; or

(2) the date the filing is otherwise required by law.

(b) A person who violates Subsection (a) is liable to the state for a civil penalty in an amount not to exceed $2,500 for each violation. In determining the amount of a penalty under this subsection, the court shall consider all the circumstances giving rise to the offense. The attorney general or the prosecuting attorney in the county in which the violation occurs may bring suit to recover the civil penalty imposed under this section.

(c) The attorney general may bring an action in the name of the state to restrain or enjoin a person from violating this section.

(d) In an action or proceeding brought against a person who has not complied with this section, the plaintiff or other party bringing the suit or proceeding may recover, at the court's discretion, reasonable costs and attorney's fees incurred by locating and effecting service of process on the person. Any damages recovered must be in conjunction with a pending action or proceeding and shall be awarded as costs under the Texas Rules of Civil Procedure. This section does not create a private independent cause of action for failure to comply with this section.

(e) A person who is entitled to recover damages under Subsection (d) may request from the attorney general nonconfidential information on the other person for the purpose of effecting service of process. The attorney general shall comply with a request made under this subsection to the extent practicable.

SUBCHAPTER R. RATIFICATION OF DEFECTIVE CORPORATE ACTS OR SHARES; PROCEEDINGS

Sec. 21.901. DEFINITIONS. In this subchapter:

(1) "Corporate statute," with respect to an action or filing, means this code, the former Texas Business Corporation Act, or any predecessor statute of this state that governed the action or the filing.

(2) "Defective corporate act" means:

(A) an overissue;

(B) an election or appointment of directors that is void or voidable due to a failure of authorization; or

(C) any act or transaction purportedly taken by or on behalf of the corporation that is, and at the time the act or transaction was purportedly taken would have been, within the power of a corporation to take under the corporate statute, but is void or voidable due to a failure of authorization.

(3) "District court" means a district court in:

(A) the county in which the corporation's principal office in this state is located; or

(B) the county in which the corporation's registered office in this state is located, if the corporation does not have a principal office in this state.

(4) "Failure of authorization" means the failure to authorize or effect an act or transaction in compliance with the provisions of the corporate statute, the governing documents of the corporation, or any plan or agreement to which the corporation is a party, if and to the extent the failure would render the act or transaction void or voidable.

(5) "Overissue" means the purported issuance of:

(A) shares of a class or series in excess of the number of shares of that class or series that the corporation has the power to issue under the corporate statute at the time of issuance; or

(B) shares of any class or series that are not at the time authorized for issuance by the governing documents of the corporation.

(6) "Putative shares" means the shares of any class or series of the corporation, including shares issued on exercise of options, rights, warrants, or other securities convertible into shares of the corporation, or interests with respect to the shares that were created or issued pursuant to a defective corporate act, that:

(A) would constitute valid shares, if not for a failure of authorization; or

(B) cannot be determined by the board of directors to be valid shares.

(7) "Time of the defective corporate act" means the date and time the defective corporate act was purported to have been taken.

(8) "Validation effective time" or "effective time of the validation," with respect to any defective corporate act ratified under this subchapter, means the later of:

(A) the time at which the resolution submitted to the shareholders for adoption under Section 21.905 is adopted by the shareholders or, if no shareholder approval is required for adoption, the time at which the notice required by Section 21.911 is given; or

(B) the time at which any certificate of validation filed under Section 21.908 takes effect in accordance with Chapter 4.

(9) "Valid shares" means the shares of any class or series of the corporation that have been authorized and validly issued in accordance with the corporate statute.

Sec. 21.902. RATIFICATION OF DEFECTIVE CORPORATE ACT AND PUTATIVE SHARES. Subject to Section 21.909 or 21.910, a defective corporate act or putative shares are not void or voidable solely as a result of a failure of authorization if the act or shares are:

(1) ratified in accordance with this subchapter; or

(2) validated by the district court in a proceeding brought under Section 21.914.

Sec. 21.903. RATIFICATION OF DEFECTIVE CORPORATE ACT; ADOPTION OF RESOLUTION.

(a) To ratify a defective corporate act, the board of directors of the corporation shall adopt a resolution stating:

(1) the defective corporate act to be ratified;

(2) the time of the defective corporate act;

(3) if the defective corporate act involved the issuance of putative shares, the number and type of putative shares issued and the date or dates on which the putative shares were purportedly issued;

(4) the nature of the failure of authorization with respect to the defective corporate act to be ratified; and

(5) that the board of directors approves the ratification of the defective corporate act.

(b) The resolution may also state that, notwithstanding the adoption of the resolution by the shareholders, the board of directors may, at any time before the validation effective time, abandon the resolution without further shareholder action.

Sec. 21.904. QUORUM AND VOTING REQUIREMENTS FOR ADOPTION OF RESOLUTION.

(a) The quorum and voting requirements applicable to the adoption of a resolution under Section 21.903 are the same as the quorum and voting requirements applicable at the time of the adoption of a resolution for the type of defective corporate act proposed to be ratified.

(b) Notwithstanding Subsection (a) and except as provided by Subsection (c), if in order for a quorum to be present or to approve the defective corporate act, the presence or approval of a larger number or portion of directors or of specified directors would have been required by the governing documents of the corporation, any plan or agreement to which the corporation was a party, or any provision of the corporate statute, each as in effect at the time of the defective corporate act, then the presence or approval of the larger number or portion of such directors or of such specified directors must be required for a quorum to be present or to adopt the resolution, as applicable.

(c) The presence or approval of any director elected, appointed, or nominated by holders of any class or series of which no shares are then outstanding, or by any person that is no longer a shareholder, shall not be required for a quorum to be present or to
adopt the resolution.

Sec. 21.905. SHAREHOLDER ADOPTION OF RESOLUTION REQUIRED.
The resolution adopted under Section 21.903 must be submitted to shareholders for adoption as provided by Sections 21.906 and 21.907, unless:

(1) no other provision of the corporate statute, no provision of the corporation's governing documents, and no provision of any plan or agreement to which the corporation is a party would have required shareholder approval of the defective corporate act to be ratified, either at the time of the act or at the time when the resolution required by Section 21.903 is adopted; and

(2) the defective corporate act to be ratified did not
result from a failure to comply with Subchapter M.

Sec. 21.906. NOTICE REQUIREMENTS FOR RESOLUTION SUBMITTED
FOR SHAREHOLDER APPROVAL.

(a) If Section 21.905 requires that the resolution be submitted to the shareholders for approval, notice of the time, place, if any, and purpose of the meeting shall be given
at least 20 days before the date of the meeting to each holder of valid shares and putative shares, whether voting or nonvoting, at the address of the holder as it appears or most recently appeared, as appropriate, on the corporation's records.

(b) Notice under this section shall be given to each holder of record of valid shares and putative shares, regardless of whether the shares are voting or nonvoting, as of the time of the defective corporate act, except that notice is not required to be given to a holder whose identity or address cannot be ascertained from the corporation's records.

(c) The notice must contain:

(1) a copy of the resolution; and

(2) a statement that the following must be brought not later than the 120th day of the validation effective time:

(A) any claim that the defective corporate act or putative shares ratified under this subchapter are void or voidable due to the identified failure of authorization; or

(B) any claim that the district court, in its discretion, should declare that a ratification made in accordance with this subchapter not take effect or that it take effect only on certain conditions.

Sec. 21.907. SHAREHOLDER MEETING; QUORUM AND VOTING.

(a) At the shareholder meeting, the quorum and voting requirements applicable to the adoption of the resolution under Section 21.905 shall be the same as the quorum and voting requirements applicable at the time of such adoption by the shareholders for the type of
defective corporate act to be ratified, except as provided by this section.

(b) If the presence or approval of a larger number or portion of shares or of any class or series of shares or of specified shareholders would have been required for a quorum to be present or to approve the defective corporate act, as applicable, by the corporation's governing documents, any plan or agreement to which the corporation was a party, or any provision of the corporate statute, each as in effect at the time of the defective corporate act, then the presence or approval of the larger number or portion of shares or of the class or series of shares or of such specified shareholders shall be required for a quorum to be present or to adopt the resolution, as applicable, except that the presence or approval of shares of any class or series of which no shares are then outstanding, or of any person that is no longer a shareholder, shall not be required.

(c) The adoption of a resolution to ratify the election of a director requires the affirmative vote of the majority of shares present at the meeting and entitled to vote on the election of the director, unless the governing documents of the corporation then in effect or in effect at the time of the defective election require or required a larger number or portion of shares to elect the director, in which case the affirmative vote of the larger number or portion of shares is required to ratify the election of the director.

(d) If a failure of authorization results from the failure to comply with Subchapter M, the ratification of the defective corporate act requires the vote set forth by Section 21.606(2), regardless of whether that vote would have otherwise been required.

Sec. 21.908. CERTIFICATE OF VALIDATION.

(a) If the defective corporate act ratified under this subchapter would have required under any other provision of the corporate statute the filing of a filing instrument or other document with the filing officer, the corporation, instead of filing the filing instrument or other document otherwise required by this code, shall file a certificate of validation in accordance with Chapter 4, regardless of whether a filing instrument or other document was previously filed with respect to the defective corporate act.

(b) The certificate of validation must set forth:

(1) a copy of the resolution adopted in accordance with Sections 21.903 and 21.904, the date of adoption of the resolution by the board of directors and, if applicable, the date of adoption by the shareholders, and a statement that the resolution was adopted in accordance with this subchapter;

(2) if a filing instrument or document was previously filed with a filing officer under the corporate statute in respect of the defective corporate act, the title and date of filing of the prior filing instrument or document and any articles or certificate
of correction to the filing instrument; and

(3) the provisions that would be required under any other section of this code to be included in the filing instrument that otherwise would have been required to be filed with respect to the defective corporate act under this code.

Sec. 21.909. ADOPTION OF RESOLUTION; EFFECT ON DEFECTIVE CORPORATE ACT. On or after the validation effective time, unless determined otherwise in an action brought under Section 21.914, each defective corporate act set forth in the resolution adopted under Sections 21.903 and 21.904 may not be considered void or voidable as a result of a failure of authorization identified in the resolution, and the effect shall be retroactive to the time of the defective corporate act.

Sec. 21.910. ADOPTION OF RESOLUTION; EFFECT ON PUTATIVE SHARES. On or after the validation effective time, unless determined otherwise in an action brought under Section 21.914, each putative share or fraction of a putative share issued or purportedly issued pursuant to the defective corporate act and identified in the resolution adopted under Sections 21.903 and 21.904 may not be considered void or voidable as a result of a failure of authorization identified in the resolution and, in the absence of any failure of authorization not ratified, is considered to be an identical share or fraction of a share outstanding as of the time it was purportedly issued.

Sec. 21.911. NOTICE TO SHAREHOLDERS FOLLOWING ADOPTION OF
RESOLUTION.

(a) Notice of the adoption of a resolution under this subchapter shall be given promptly to:

(1) each holder of valid shares and putative shares, regardless of whether the shares are voting or nonvoting, as of the date the board of directors adopted the resolution; or

(2) each holder of valid shares and putative shares, regardless of whether the shares are voting or nonvoting, as of a date not later than the 60th day after the date on which the resolution is adopted, as established by the board of directors.

(b) Notice under this section shall be sent to the address
of a holder of shares described by Subsection (a)(1) or (a)(2) as the address appears or most recently appeared, as appropriate, on the records of the corporation.

(c) Notice under this section shall also be given to each holder of record of valid shares and putative shares, regardless of whether the shares are voting or nonvoting, as of the time of the defective corporate act, except that notice is not required to be
given to a holder whose identity or address cannot be ascertained from the corporation's records.

(d) The notice must contain:

(1) a copy of the resolution; and

(2) a statement that the following must be brought not later than the 120th day of the validation effective time:

(A) any claim that the defective corporate act or putative shares ratified under this subchapter are void or voidable due to the identified failure of authorization; or

(B) any claim that the district court, in its discretion, should declare that a ratification made in accordance with this subchapter not take effect or that it take effect only on certain conditions.

(e) Notwithstanding Subsections (a)–(d), notice is not required to be given under this section if notice of the resolution is given in accordance with Section 21.906.

(f) For purposes of Section 21.906 and this section, notice to holders of putative shares and notice to holders of valid shares and putative shares as of the time of the defective corporate act shall be treated as notice to holders of valid shares for purposes
of Sections 6.051, 6.052, 6.053, 21.353, and 21.3531.

Sec. 21.912. VALID SHARES OR PUTATIVE SHARES. In the absence of actual fraud in the transaction, the judgment of the board of directors of a corporation that shares of the corporation are valid shares or putative shares is conclusive, unless otherwise determined by the district court in a proceeding brought under Section 21.914.

Sec. 21.913. RATIFICATION PROCEDURES OR COURT PROCEEDINGS
CONCERNING VALIDATION NOT EXCLUSIVE.

(a) Ratification of an act or transaction under this subchapter or validation of an act or transaction as provided by Sections 21.914 through 21.917 is not the exclusive means of ratifying or validating any act or transaction taken by or on behalf of the corporation, including any defective corporate act or any issuance of putative shares or other shares.

(b) The absence or failure of ratification of an act or transaction in accordance with this subchapter or of validation of an act or transaction as provided by Sections 21.914 through 21.917 does not, of itself, affect the validity or effectiveness of any act or transaction or the issuance of any shares properly ratified under common law or otherwise, nor does it create a presumption that any such act or transaction is or was a defective corporate act or that those shares are void or voidable.

Sec. 21.914. PROCEEDING REGARDING VALIDITY OF DEFECTIVE
CORPORATE ACTS AND SHARES.

(a) The following may bring an action under this section:

(1) the corporation;

(2) any successor entity to the corporation;

(3) any member of the corporation's board of directors;

(4) any record or beneficial holder of valid shares or putative shares of the corporation;

(5) any record or beneficial holder of valid shares or putative shares as of the time a defective corporate act was ratified in accordance with this subchapter; or

(6) any other person claiming to be substantially and adversely affected by a ratification under this subchapter.

(b) Subject to Section 21.917, the district court, on application by a person described by Subsection (a), may:

(1) determine the validity and effectiveness of any defective corporate act ratified in accordance with this subchapter;

(2) determine the validity and effectiveness of the ratification of any defective corporate act in accordance with this subchapter;

(3) determine the validity and effectiveness of:

(A) any defective corporate act not ratified under this subchapter; or

(B) any defective corporate act not ratified effectively under this subchapter;

(4) determine the validity of any corporate act or transaction and of any shares, rights, or options to acquire shares; and

(5) modify or waive any of the procedures set forth in Sections 21.901 through 21.913 to ratify a defective corporate act.

(c) In connection with an action brought under this section, the district court may:

(1) declare that a ratification in accordance with and pursuant to this subchapter is not effective or that the ratification is effective only at a time or on conditions as
specified by the district court;

(2) validate and declare effective any defective corporate act or putative shares and impose conditions on such a validation;

(3) require measures to remedy or avoid harm to any person substantially and adversely affected by a ratification under this subchapter or from any order of the district court pursuant to this section, excluding any harm that would have resulted had the defective corporate act been valid when approved or effectuated;

(4) order the filing officer to accept for filing an instrument with an effective date and time as specified by the court, which may be before or subsequent to the time of the order;

(5) approve share records for the corporation that include any shares ratified in accordance with this subchapter or validated in accordance with this section and Sections 21.915 through 21.917;

(6) declare that putative shares are valid shares or require a corporation to issue and deliver valid shares in place of any putative shares;

(7) order that a meeting of holders of valid shares or putative shares be held and determine the right and power of persons to vote at the meeting;

(8) declare that a defective corporate act validated by the court is effective as of the time of the defective corporate act or at such other time as determined by the court;

(9) declare that putative shares validated by the district court are considered to be an identical valid share or a fraction of a valid share as of the time the shares were originally or purportedly issued or at such other time as determined by the district court; and

(10) make any other order regarding such matters as the court considers appropriate under the circumstances.

(d) In connection with the resolution of matters under Subsections (b) and (c), the district court may consider:

(1) whether the defective corporate act was originally approved or effectuated with the belief that the approval or effectuation was in compliance with the provisions of the corporate statute or the governing documents of the corporation;

(2) whether the corporation and the corporation's board of directors have treated the defective corporate act as a valid act or transaction and whether any person has acted in reliance on the public record that the defective corporate act was valid;

(3) whether any person will be or was harmed by the ratification or validation of the defective corporate act, excluding any harm that would have resulted had the defective
corporate act been valid when it was approved or took effect;

(4) whether any person will be harmed by the failure to ratify or validate the defective corporate act; and

(5) any other factors or considerations the district court considers just and equitable.

Sec. 21.915. EXCLUSIVE JURISDICTION. The district court
has exclusive jurisdiction to hear and determine any action brought
under Section 21.914.

Sec. 21.916. SERVICE.

(a) Service of an application filed under Section 21.914 on the registered agent of a corporation or in any other manner permitted by applicable law is considered to be
service on the corporation, and no other party need be joined in order for the district court to adjudicate the matter.

(b) If an action is brought by a corporation under Section 21.914, the district court may require that notice of the action be provided to other persons identified by the court and permit those other persons to intervene in the action.

Sec. 21.917. STATUTE OF LIMITATIONS.

(a) This section does not apply to:

(1) an action asserting that a ratification was not accomplished in accordance with this subchapter; or

(2) any person to whom notice of the ratification was
not given as required by Sections 21.906 and 21.911.

(b) Notwithstanding any other provision of this subchapter, the following may not be brought after the expiration of the 120th day of the validation effective time:

(1) an action asserting that a defective corporate act or putative shares ratified in accordance with this subchapter are void or voidable due to a failure of authorization identified in the resolution adopted in accordance with Section 21.903; or

(2) an action asserting that the district court, in its discretion, should declare that a ratification in accordance with this subchapter not take effect or that the ratification take effect only on certain conditions.

CHAPTER 22. NONPROFIT CORPORATIONS
SUBCHAPTER A. GENERAL PROVISIONS

Sec. 22.001. DEFINITIONS. In this chapter:

(1) "Board of directors" means the group of persons vested with the management of the affairs of the corporation, regardless of the name used to designate the group.

(2) "Bylaws" means the rules adopted to regulate or manage the corporation, regardless of the name used to designate the rules.

(3) "Corporation" or "domestic corporation" means a domestic nonprofit corporation subject to this chapter.

(4) "Foreign corporation" means a foreign nonprofit corporation.

(5) "Nonprofit corporation" means a corporation no part of the income of which is distributable to a member, director, or officer of the corporation, except as provided by Section 22.054.

(6) "Ordinary care" means the care that an ordinarily prudent person in a similar position would exercise under similar circumstances.

Sec. 22.002. MEETINGS BY REMOTE COMMUNICATIONS TECHNOLOGY. Subject to the provisions of this code and the certificate of formation and bylaws of a corporation, a meeting of the members of a corporation, the board of directors of a corporation, or any committee designated by the board of directors of a corporation may be held by means of a remote electronic communications system, including videoconferencing technology or the Internet, only if:

(1) each person entitled to participate in the meeting consents to the meeting being held by means of that system; and

(2) the system provides access to the meeting in a manner or using a method by which each person participating in the meeting can communicate concurrently with each other participant.

SUBCHAPTER B. PURPOSES AND POWERS

Sec. 22.051. GENERAL PURPOSES. A nonprofit corporation may be formed for any lawful purpose or purposes not expressly prohibited under this chapter or Chapter 2, including any purpose described by Section 2.002.

Sec. 22.052. DENTAL HEALTH SERVICE CORPORATION.

(a) A charitable corporation may be formed to operate a dental health service corporation that manages and coordinates the relationship between a dentist who contracts to perform dental services and a patient who will receive the services as a member of a group that contracted with the dental health service corporation to provide dental care to group members.

(b) The certificate of formation for a charitable corporation formed under this section must have attached as an exhibit:

(1) an affidavit of the organizer or organizers stating:

(A) that not less than 30 percent of the dentists legally engaged in the practice of dentistry in this state have signed a contract to perform the required dental services for a period of at least one year after incorporation; and

(B) the names and addresses of those dentists; and

(2) a certification by the State Board of Dental Examiners that:

(A) the applicants are reputable residents of this state of good moral character; and

(B) the corporation will be in the best interest of the public health.

(c) A corporation formed under this section must have at least 12 directors, including 9 directors who are licensed to practice dentistry in this state and are actively engaged in the practice of dentistry in this state.

(d) A corporation formed under this section shall maintain as participating or contracting dentists at least 30 percent of the number of dentists actually engaged in the practice of dentistry in this state. The corporation shall file annually in September with the State Board of Dental Examiners the name and address of each participating or contracting dentist.

(e) A corporation formed under this section may not:

(1) prevent a patient from selecting the licensed dentist of the patient's choice to provide dental services to the patient;

(2) deny a licensed dentist the right to participate as a contracting dentist to perform the dental services contracted for by the patient;

(3) discriminate among patients or licensed dentists regarding payment or reimbursement for the cost of performing dental services; or

(4) authorize any person to regulate, interfere with, or intervene in any manner in the diagnosis or treatment provided by a licensed dentist to a patient.

(f) A corporation formed under this section may require the attending dentist to provide a narrative oral or written description of the dental services provided to determine benefits or provide proof of treatment. The corporation may request but may not require diagnostic aids used in the course of treatment.

Sec. 22.053. DIVIDENDS PROHIBITED. Except as provided by Section 22.054, a dividend may not be paid to, and no part of the income of a corporation may be distributed to, the corporation's members, directors, or officers.

Sec. 22.054. AUTHORIZED BENEFITS AND DISTRIBUTIONS. A corporation may:

(1) pay compensation in a reasonable amount to the members, directors, or officers of the corporation for services provided;

(2) confer benefits on the corporation's members in conformity with the corporation's purposes; and

(3) make distributions to the corporation's members on winding up and termination to the extent authorized by this chapter; and

(4) make distributions of its income to the corporation's members who are nonprofit corporations organized under this code and who are exempt from income taxation under Section 501(a), Internal Revenue Code of 1986, by being listed under Section 501(c)(3) of that code, if:

(A) the distributions are made in accordance with the purpose or purposes of the corporation as stated in the certificate of formation and with the fiduciary responsibilities of the board of directors, including the duty to safeguard restricted funds for their intended purposes; and

(B) after the distributions are complete:

(i) the corporation would be able to pay the corporation's debts as they become due in the usual course of its activities; and

(ii) the corporation's total assets would at least equal the sum of its total liabilities.

Sec. 22.055. POWER TO ASSIST EMPLOYEE OR OFFICER.

(a) A corporation may lend money to or otherwise assist an employee or officer of the corporation, but not a director, if the loan or assistance may reasonably be expected to directly or indirectly benefit the corporation.

(b) A loan made to an officer must be:

(1) made for the purpose of financing the officer's principal residence; or

(2) set in an original principal amount that does not exceed:

(A) 100 percent of the officer's annual salary, if the loan is made before the first anniversary of the officer's employment; or

(B) 50 percent of the officer's annual salary, if the loan is made in any subsequent year.

Sec. 22.056. HEALTH ORGANIZATION CORPORATION.

(a) Doctors of medicine and osteopathy licensed by the Texas State Board of Medical Examiners and podiatrists licensed by the Texas State Board of Podiatric Medical Examiners may form a corporation that is jointly owned, managed, and controlled by those practitioners to perform a professional service that falls within the scope of practice of those practitioners and consists of:

(1) carrying out research in the public interest in medical science, medical economics, public health, sociology, or a related field;

(2) supporting medical education in medical schools through grants or scholarships;

(3) developing the capabilities of individuals or institutions studying, teaching, or practicing medicine, including podiatric medicine;

(4) delivering health care to the public; or

(5) instructing the public regarding medical science, public health, hygiene, or a related matter.

(b) When doctors of medicine, osteopathy, and podiatry form a corporation that is jointly owned by those practitioners, the authority of each of the practitioners is limited by the scope of practice of the respective practitioners and none can exercise control over the other's clinical authority granted by their respective licenses, either through agreements, the certificate of formation or bylaws of the corporation, directives, financial incentives, or other arrangements that would assert control over treatment decisions made by the practitioner. The Texas State Board of Medical Examiners and the Texas State Board of Podiatric Medical Examiners continue to exercise regulatory authority over their respective licenses.

Sec. 22.0561. CORPORATIONS FORMED BY PHYSICIANS AND PHYSICIAN ASSISTANTS.

(a) Physicians licensed under Subtitle B, Title 3, Occupations Code, and physician assistants licensed under Chapter 204, Occupations Code, may form a corporation to perform a professional service that falls within the scope of practice of those practitioners and consists of:

(1) carrying out research in the public interest in medical science, medical economics, public health, sociology, or a related field;

(2) supporting medical education in medical schools through grants or scholarships;

(3) developing the capabilities of individuals or institutions studying, teaching, or practicing medicine or acting as a physician assistant;

(4) delivering health care to the public; or

(5) instructing the public regarding medical science, public health, hygiene, or a related matter.

(b) A physician assistant may not be an officer of the corporation.

(c) A physician assistant may not contract with or employ a physician to be a supervising physician of the physician assistant or of any physician in the corporation.

(d) The authority of each practitioner is limited by the scope of practice of the respective practitioner. An organizer of the entity must be a physician and ensure that a physician or physicians control and manage the entity.

(e) Nothing in this section may be construed to allow the practice of medicine by someone not licensed as a physician under Subtitle B, Title 3, Occupations Code, or to allow a person not licensed as a physician to direct the activities of a physician in the practice of medicine.

(f) A physician assistant or combination of physician assistants may have only a minority ownership interest in an entity created under this section. The ownership interest of an individual physician assistant may not equal or exceed the ownership interest of any individual physician owner. A physician assistant or combination of physician assistants may not interfere with the practice of medicine by a physician owner or the supervision of physician assistants by a physician owner.

(g) The Texas Medical Board and the Texas Physician Assistant Board continue to exercise regulatory authority over their respective license holders according to applicable law. To the extent of a conflict between Subtitle B, Title 3, Occupations Code, and Chapter 204, Occupations Code, or any rules adopted under those statutes, Subtitle B, Title 3, or a rule adopted under that subtitle controls.

SUBCHAPTER C. FORMATION AND GOVERNING DOCUMENTS

Sec. 22.101. INCORPORATION OF CERTAIN ORGANIZATIONS. A religious society, a charitable, benevolent, literary, or social association, or a church may incorporate as a corporation governed by this chapter with the consent of a majority of its members. Those members shall authorize the organizers to execute the certificate of formation.

Sec. 22.102. BYLAWS.

(a) The initial bylaws of a corporation shall be adopted by the corporation's board of directors or, if the management of the corporation is vested in the corporation's members, by the members.

(b) The bylaws may contain provisions for the regulation and management of the affairs of the corporation that are consistent with law and the certificate of formation.

(c) The board of directors may amend or repeal the bylaws, or adopt new bylaws, unless:

(1) this chapter or the corporation's certificate of formation wholly or partly reserves the power exclusively to the corporation's members;

(2) the management of the corporation is vested in the corporation's members; or

(3) in amending, repealing, or adopting a bylaw, the members expressly provide that the board of directors may not amend or repeal the bylaw.

Sec. 22.103. INCONSISTENCY BETWEEN CERTIFICATE OF FORMATION AND BYLAW.

(a) A provision of a certificate of formation of a corporation that is inconsistent with a bylaw controls over the bylaw, except as provided by Subsection (b).

(b) A change in the number of directors by amendment to the bylaws controls over the number stated in the certificate of formation, unless the certificate of formation provides that a change in the number of directors may be made only by amendment to the certificate.

Sec. 22.104. ORGANIZATION MEETING.

(a) After the certificate of formation is filed, the board of directors named in the certificate of formation of a corporation shall hold an organization meeting of the board, either in or out of this state, at the call of the organizers or a majority of the directors to adopt bylaws and elect officers and for other purposes determined by the board at the meeting. The organizers or directors calling the meeting shall send notice of the time and place of the meeting to each director named in the certificate of formation not later than the third day before the date of the meeting.

(b) A first meeting of the members may be held at the call of the majority of the directors on notice provided not later than the third day before the date of the meeting. The notice must state the purposes of the meeting.

(c) If the management of a corporation is vested in the corporation's members, the members shall hold the organization meeting on the call of an organizer. An organizer who calls the meeting shall:

(1) send notice of the time and place of the meeting to each member not later than the third day before the date of the meeting;

(2) if the corporation is a church, make an oral announcement of the time and place of the meeting at a regularly scheduled worship service before the meeting; or

(3) send notice of the meeting in the manner provided by the certificate of formation.

Sec. 22.105. PROCEDURES TO ADOPT AMENDMENT TO CERTIFICATE OF FORMATION BY MEMBERS HAVING VOTING RIGHTS.

(a) Except as provided by Section 22.107(b), to amend the certificate of formation of a corporation with members having voting rights, the board of directors of the corporation must adopt a resolution specifying the proposed amendment and directing that the amendment be submitted to a vote at an annual or special meeting of the members having voting rights.

(b) Written notice containing the proposed amendment or a summary of the changes to be effected by the amendment shall be given to each member entitled to vote at the meeting within the time and in the manner provided by this chapter for giving notice of a meeting of members.

(c) The proposed amendment shall be adopted on receiving the vote required by Section 22.164.

Sec. 22.106. PROCEDURES TO ADOPT AMENDMENT TO CERTIFICATE OF FORMATION BY MANAGING MEMBERS.

(a) To be approved, a proposed amendment to the certificate of formation of a corporation the management of the affairs of which is vested in the corporation's members under Section 22.202 must be submitted to a vote at an annual, regular, or special meeting of the members.

(b) Except as otherwise provided by the certificate of formation or bylaws, notice containing the proposed amendment or a summary of the changes to be effected by the amendment shall be given to the members within the time and in the manner provided by this chapter for giving notice of a meeting of members.

(c) The proposed amendment shall be adopted on receiving the vote required by Section 22.164.

Sec. 22.107. PROCEDURES TO ADOPT AMENDMENT TO CERTIFICATE OF FORMATION BY BOARD OF DIRECTORS.

(a) If a corporation has no members or has no members with voting rights, or in the case of an amendment under Subsection (b), an amendment to the corporation's certificate of formation shall be adopted at a meeting of the board of directors on receiving the vote of directors required by Section 22.164.

(b) Except as otherwise provided by the certificate of formation, the board of directors of a corporation with members having voting rights may, without member approval, adopt amendments to the certificate of formation to:

(1) extend the duration of the corporation if the corporation was incorporated when limited duration was required by law;

(2) delete the names and addresses of the initial directors;

(3) 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; or

(4) change the corporate name by:

(A) substituting the word "corporation," "incorporated," "company," or "limited," or the abbreviation "corp.," "inc.," "co.," or "ltd.," for a similar word or abbreviation in the name; or

(B) adding, deleting, or changing a geographical attribution to the name.

Sec. 22.108. NUMBER OF AMENDMENTS SUBJECT TO VOTE AT MEETING. Any number of amendments to the corporation's certificate of formation may be submitted to and voted on by a corporation's members at any one meeting of the members.

Sec. 22.109. RESTATED CERTIFICATE OF FORMATION.

(a) A corporation may adopt a restated certificate of formation as provided by Subchapter B, Chapter 3, by following the same procedure to amend its certificate of formation provided by Sections 22.104–22.107, except that:

(1) member approval is required only if the restated certificate of formation contains an amendment; and

(2) the members may consent in writing, or the organizers of a corporation may adopt a resolution, to authorize a restated certificate of formation that contains an amendment tocancel an event requiring winding up in accordance with Section 22.302(1)(B) or 22.302(2), as applicable.

(b) A person shall file a restated certificate of formation as provided by Chapter 4, and the restated certificate of formation takes effect as provided by Subchapter B, Chapter 3.

SUBCHAPTER D. MEMBERS

Sec. 22.151. MEMBERS.

(a) A corporation may have one or more classes of members or may have no members.

(b) If the corporation has one or more classes of members, the corporation's certificate of formation or bylaws must include:

(1) a designation of each class;

(2) the manner of the election or appointment of the members of each class; and

(3) the qualifications and rights of the members of each class.

(c) A corporation may issue a certificate, card, or other instrument evidencing membership rights, voting rights, or ownership rights as authorized by the certificate of formation or bylaws.

Sec. 22.152. IMMUNITY FROM LIABILITY. The members of a corporation are not personally liable for a debt, liability, or obligation of the corporation.

Sec. 22.153. ANNUAL MEETING.

(a) Except as provided by Subsection (b), a corporation shall hold an annual meeting of the members at a time that is stated in or determined in accordance with the corporation's bylaws.

(b) If the bylaws provide for more than one regular meeting of members each year, an annual meeting is not required. If an annual meeting is not required, directors may be elected at a meeting as provided by the bylaws.

Sec. 22.154. FAILURE TO CALL ANNUAL MEETING.

(a) If the board of directors of a corporation fails to call the annual meeting of members when required, a member of the corporation may demand that the meeting be held within a reasonable time. The demand must be made in writing and sent to an officer of the corporation by registered mail.

(b) If a required annual meeting is not called before the 61st day after the date of demand, a member of the corporation may compel the holding of the meeting by legal action directed against the board of directors, and each of the extraordinary writs of common law and of courts of equity are available to the member to compel the holding of the meeting. Each member has a justiciable interest sufficient to enable the member to institute and prosecute the legal proceedings.

(c) Failure to hold a required annual meeting at the designated time does not result in the winding up and termination of the corporation.

Sec. 22.155. SPECIAL MEETINGS OF MEMBERS. A special meeting of the members of a corporation may be called by:

(1) the president;

(2) the board of directors;

(3) members having not less than one–tenth of the votes entitled to be cast at the meeting; or

(4) other officers or persons as provided by the certificate of formation or bylaws of the corporation.

Sec. 22.156. NOTICE OF MEETING.

(a) A corporation other than a church shall provide written notice of the place, date, and time of a meeting of the members of the corporation and, if the meeting is a special meeting, the purpose or purposes for which the meeting is called. The notice shall be delivered to each member entitled to vote at the meeting not later than the 10th day and not earlier than the 60th day before the date of the meeting. Notice may be delivered personally or in accordance with Section 6.051(b).

(b) Notice of a meeting of the members of a corporation that is a church is sufficient if given by oral announcement at a regularly scheduled worship service before the meeting or as otherwise provided by the certificate of formation or bylaws of the corporation.

Sec. 22.157. SPECIAL BYLAWS AFFECTING NOTICE.

(a) A corporation may provide in the corporation's bylaws that notice of an annual or regular meeting is not required.

(b) A corporation having more than 1,000 members at the time a meeting is scheduled or called may provide notice of a meeting by publication in a newspaper of general circulation in the community in which the principal office of the corporation is located, if the corporation provides for that notice in its bylaws.

Sec. 22.158. PREPARATION AND INSPECTION OF LIST OF VOTING MEMBERS.

(a) After setting a record date for the notice of a meeting, a corporation shall prepare an alphabetical list of the names of all its voting members. The list must identify:

(1) the members who are entitled to notice and the members who are not entitled to notice of the meeting;

(2) the address of each voting member; and

(3) the number of votes each voting member is entitled to cast at the meeting.

(b) Not later than the second business day after the date notice is given of a meeting for which a list was prepared in accordance with Subsection (a), and continuing through the meeting, the list of voting members must be available at the corporation's principal office or at a reasonable place in the municipality in which the meeting will be held, as identified in the notice of the meeting, for inspection by members entitled to vote at the meeting for the purpose of communication with other members concerning the meeting.

(c) A voting member or voting member's agent or attorney is entitled on written demand to inspect and, at the member's expense and subject to Section 22.351, copy the list at a reasonable time during the period the list is available for inspection.

(d) The corporation shall make the list of voting members available at the meeting. A voting member or voting member's agent or attorney is entitled to inspect the list at any time during the meeting or an adjournment of the meeting.

Sec. 22.159. QUORUM OF MEMBERS.

(a) Unless otherwise provided by the certificate of formation or bylaws of a corporation, members of the corporation holding one–tenth of the votes entitled to be cast, in person or by proxy, constitute a quorum.

(b) The vote of the majority of the votes entitled to be cast by the members present or represented by proxy at a meeting at which a quorum is present is the act of the members meeting, unless the vote of a greater number is required by law or the certificate of formation or bylaws.

(c) Unless otherwise provided by the certificate of formation or bylaws, a church incorporated before May 12, 1959, is considered to have provided in the certificate of formation or bylaws that members present at a meeting for which notice has been given constitute a quorum.

Sec. 22.160. VOTING OF MEMBERS.

(a) Each member of a corporation, regardless of class, is entitled to one vote on each matter submitted to a vote of the corporation's members, except to the extent that the voting rights of members of a class are limited, enlarged, or denied by the certificate of formation or bylaws of the corporation.

(b) A member may vote in person or, unless otherwise provided by the certificate of formation or bylaws, by proxy executed in writing by the member or the member's attorney–in–fact.

(c) Unless otherwise provided by the proxy, a proxy is revocable and expires 11 months after the date of its execution. A proxy may not be irrevocable for longer than 11 months.

(d) If authorized by the certificate of formation or bylaws of the corporation, a member vote on any matter may be conducted by mail, by facsimile transmission, by electronic message, or by any combination of those methods.

Sec. 22.161. ELECTION OF DIRECTORS.

(a) A member entitled to vote at an election of directors is entitled to vote, in person or by proxy, for as many persons as there are directors to be elected and for whose election the member has a right to vote.

(b) If expressly authorized by the corporation's certificate of formation, the member may cumulate the member's vote by:

(1) giving one candidate a number of votes equal to the number of the directors to be elected multiplied by the member's vote; or

(2) distributing the votes on the same principle among any number of the candidates.

(c) A member who intends to cumulate votes under Subsection (b) shall give written notice of the member's intention to the secretary of the corporation not later than the day preceding the date of the election.

Sec. 22.162. GREATER VOTING REQUIREMENTS UNDER CERTIFICATE OF FORMATION. If the corporation's certificate of formation requires the vote or concurrence of a greater proportion of the members of a corporation than is required by this chapter with respect to an action to be taken by the members, the certificate of formation controls.

Sec. 22.163. RECORD DATE FOR DETERMINATION OF MEMBERS.

(a) The record date for determining members of a corporation may be set as provided by Section 6.101.

(b) If a record date is not set under Section 6.101:

(1) members on the date of the meeting who are otherwise eligible to vote are entitled to vote at the meeting;

(2) members at the close of business on the business day preceding the date notice is given, or if notice is waived, at the close of business on the business day preceding the date of the meeting, are entitled to notice of a meeting of members; and

(3) members at the close of business on the later of the day the board of directors adopts the resolution relating to the action or the 60th day before the date of the action are entitled to exercise any rights regarding any other lawful action.

(c) The record date for the determination of members entitled to notice of or to vote at a meeting is effective for an adjournment of the meeting unless the board of directors of a corporation sets a new date for determining the right to notice of or to vote at the adjournment.

Sec. 22.164. VOTE REQUIRED TO APPROVE FUNDAMENTAL ACTION.

(a) In this section, "fundamental action" means:

(1) an amendment of a certificate of formation, including an amendment required for the cancellation of an event requiring winding up in accordance with Section 11.152(b);

(2) a voluntary winding up under Chapter 11;

(3) a revocation of a voluntary decision to wind up under Section 11.151;

(4) a cancellation of an event requiring winding up under Section 11.152(a);

(5) a reinstatement under Section 11.202;

(6) a distribution plan under Section 22.305;

(7) a plan of merger under Subchapter F;

(8) a sale of all or substantially all of the assets of a corporation under Subchapter F;

(9) a plan of conversion under Subchapter F; or

(10) a plan of exchange under Subchapter F.

(b) Except as otherwise provided by Subsection (c) or (d) or the certificate of formation in accordance with Section 22.162, the vote required for approval of a fundamental action is:

(1) at least two–thirds of the votes that members present in person or by proxy are entitled to cast at the meeting at which the action is submitted for a vote, if the corporation has members with voting rights;

(2) at least two–thirds of the votes of members present at the meeting at which the action is submitted for a vote, if the management of the affairs of the corporation is vested in the corporation's members under Section 22.202; or

(3) the affirmative vote of the majority of the directors in office, if the corporation has no members or has no members with voting rights.

(c) If any class of members is entitled to vote on the fundamental action as a class by the terms of the certificate of formation or the bylaws, the vote required for the approval of the fundamental action is the vote required by Subsection (b)(1) and at least two–thirds of the votes that the members of each class in person or by proxy are entitled to cast at the meeting at which the action is submitted for a vote.

(d) If the corporation has no members or has no members with voting rights and the corporation does not hold any assets and has not solicited any assets or otherwise engaged in activities, the vote required for approval of a fundamental action consisting of anamendment to the certificate of formation to cancel an event requiring winding up or any of the actions described by Subsections (a)(2) through (a)(6) is the affirmative vote of a majority of the organizers or a majority of the directors in office.

SUBCHAPTER E. MANAGEMENT

Sec. 22.201. MANAGEMENT BY BOARD OF DIRECTORS. Except as provided by Section 22.202, the affairs of a corporation are managed by a board of directors. The board of directors may be designated by any name appropriate to the customs, usages, or tenets of the corporation.

Sec. 22.202. MANAGEMENT BY MEMBERS.

(a) The certificate of formation of a corporation may vest the management of the affairs of the corporation in the members of the corporation. If the corporation has a board of directors, the corporation may limit the authority of the board to the extent provided by the certificate of formation or bylaws.

(b) A corporation is considered to have vested the management of the corporation's affairs in the board of directors of the corporation in the absence of a provision to the contrary in the certificate of formation, unless the corporation is a church organized and operating under a congregational system that:

(1) was incorporated before January 1, 1994; and

(2) has the management of its affairs vested in the corporation's members.

Sec. 22.203. BOARD MEMBER ELIGIBILITY REQUIREMENTS. A director of a corporation is not required to be a resident of this state or a member of the corporation unless the certificate of formation or a bylaw of the corporation imposes that requirement. The certificate of formation or bylaws may prescribe other qualifications for directors.

Sec. 22.204. NUMBER OF DIRECTORS.

(a) If the corporation has a board of directors, a corporation may not have fewer than three directors. The number of directors shall be set by, or in the manner provided by, the certificate of formation or bylaws of the corporation, except that the number of directors on the initial board of directors must be set by the certificate of formation.

(b) The number of directors may be increased or decreased by amendment to, or in the manner provided by, the certificate of formation or bylaws. A decrease in the number of directors may not shorten the term of an incumbent director.

(c) In the absence of a provision of the certificate of formation or a bylaw setting the number of directors or providing for the manner in which the number of directors shall be determined, the number of directors is the same as the number constituting the initial board of directors.

Sec. 22.205. DESIGNATION OF INITIAL BOARD OF DIRECTORS. If the corporation is to be managed by a board of directors, the certificate of formation of a corporation must state the names of the members of the initial board of directors of the corporation.

Sec. 22.206. ELECTION OR APPOINTMENT OF BOARD OF DIRECTORS. Directors other than the initial directors are elected, appointed, or designated in the manner provided by the certificate of formation or bylaws. If the method of election, designation, or appointment is not provided by the certificate of formation or bylaws, directors other than the initial directors are elected by the board of directors.

Sec. 22.207. ELECTION AND CONTROL BY CERTAIN ENTITIES.

(a) The board of directors of a religious, charitable, educational, or eleemosynary corporation may be affiliated with, elected, and controlled by an incorporated or unincorporated convention, conference, or association organized under the laws of this or another state, the membership of which is composed of representatives, delegates, or messengers from a church or other religious association.

(b) The board of directors of a corporation may be wholly or partly elected by one or more associations or corporations organized under the laws of this or another state if:

(1) the certificate of formation or bylaws of the corporation provide for that election; and

(2) the corporation has no members with voting rights.

Sec. 22.208. TERM OF OFFICE.

(a) Unless the director resigns or is removed, a director on the initial board of directors of a corporation holds office until the first annual election of directors or for the period specified in the certificate of formation or bylaws of the corporation. Directors other than the initial directors are elected, appointed, or designated for the terms provided by the certificate of formation or bylaws.

(b) In the absence of a provision in the certificate of formation or bylaws setting the term of office for directors, a director holds office until the next annual election of directors and until a successor is elected, appointed, or designated and qualified.

(c) A director may be removed from office as provided in Section 22.211.

Sec. 22.209. CLASSIFICATION OF DIRECTORS. Directors may be divided into classes. The terms of office of the several classes are not required to be uniform.

Sec. 22.210. EX OFFICIO MEMBER OF BOARD.

(a) The certificate of formation or bylaws of a corporation may provide that a person may be an ex officio member of the board of directors of the corporation.

(b) A person designated as an ex officio member of the board is entitled to receive notice of and to attend board meetings.

(c) An ex officio member is not entitled to vote unless the certificate of formation or bylaws authorize the member to vote. An ex officio member of the board who is not entitled to vote does not have the duties or liabilities of a director provided by this chapter.

Sec. 22.211. REMOVAL OF DIRECTOR.

(a) A director of a corporation may be removed from office under any procedure provided by the certificate of formation or bylaws of the corporation.

(b) In the absence of a provision for removal in the certificate of formation or bylaws, a director may be removed from office, with or without cause, by the persons entitled to elect, designate, or appoint the director. If the director was elected to office, removal requires an affirmative vote equal to the vote necessary to elect the director.

Sec. 22.2111. RESIGNATION OF DIRECTOR. Except as provided by the certificate of formation or bylaws, a director of a corporation may resign at any time by providing written notice to the corporation.

Sec. 22.212. VACANCY.

(a) Unless otherwise provided by the certificate of formation or bylaws of the corporation, a vacancy in the board of directors of a corporation shall be filled by the affirmative vote of the majority of the remaining directors, regardless of whether that majority is less than a quorum. A director elected to fill a vacancy is elected for the unexpired term of the member's predecessor in office.

(b) A vacancy in the board occurring because of an increase in the number of directors shall be filled by election at an annual meeting or at a special meeting of members called for that purpose. If a corporation has no members or has no members with the right to vote on the vacancy, the vacancy shall be filled as provided by the certificate of formation or bylaws.

Sec. 22.213. QUORUM.

(a) A quorum for the transaction of business by the board of directors of a corporation is the lesser of:

(1) the majority of the number of directors set by the corporation's bylaws or, in the absence of a bylaw setting the number of directors, a majority of the number of directors stated in the corporation's certificate of formation; or

(2) any number, not less than three, set as a quorum by the certificate of formation or bylaws.

(b) A director present by proxy at a meeting may not be counted toward a quorum.

Sec. 22.214. ACTION BY DIRECTORS. The act of a majority of the directors present in person or by proxy at a meeting at which a quorum is present is the act of the board of directors of a corporation, unless the act of a greater number is required by the certificate of formation or bylaws of the corporation.

Sec. 22.215. VOTING IN PERSON OR BY PROXY. A director of a corporation may vote in person or, if authorized by the certificate of formation or bylaws of the corporation, by proxy executed in writing by the director.

Sec. 22.216. TERM AND REVOCABILITY OF PROXY.

(a) A proxy expires three months after the date the proxy is executed.

(b) A proxy is revocable unless otherwise provided by the proxy or made irrevocable by law.

Sec. 22.217. NOTICE OF MEETING; WAIVER OF NOTICE.

(a) Regular meetings of the board of directors of a corporation may be held with or without notice as prescribed by the corporation's bylaws.

(b) Special meetings of the board of directors shall be held with notice as prescribed by the bylaws. Attendance of a director at a meeting constitutes a waiver of notice, unless the director attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened.

(c) Unless required by the bylaws, the business to be transacted at, or the purpose of, a regular or special meeting of the board of directors is not required to be specified in the notice or waiver of notice of the meeting.

(d) Notice may be delivered personally or in accordance with Section 6.051(b).

Sec. 22.218. MANAGEMENT COMMITTEE.

(a) If authorized by the certificate of formation or bylaws of the corporation, the board of directors of a corporation, by resolution adopted by the majority of the directors in office, may designate one or more committees to have and exercise the authority of the board in the management of the corporation to the extent provided by:

(1) the resolution;

(2) the certificate of formation; or

(3) the bylaws.

(b) A committee designated under this section must consist of at least two persons. Except as provided by Subsection (b–1), the majority of the persons on the committee must be directors. If provided by the certificate of formation or bylaws, the remaining persons on the committee are not required to be directors.

(b–1) If a corporation is a religious institution and if provided by the corporation's certificate of formation or bylaws, a committee designated under this section may be composed entirely of persons who are not directors of the corporation.

(c) The designation of a committee and the delegation of authority to the committee does not operate to relieve the board of directors, or an individual director, of any responsibility imposed on the board or director by law. A committee member who is not a director has the same responsibility with respect to the committee as a committee member who is a director.

Sec. 22.219. OTHER COMMITTEES.

(a) The board of directors of a corporation, by resolution adopted by the majority of the directors at a meeting at which a quorum is present, or the president, if authorized by a similar resolution of the board of directors or by the certificate of formation or bylaws of the corporation, may designate and appoint one or more committees that do not have the authority of the board of directors in the management of the corporation.

(b) The membership on a committee designated under this section may be limited to directors.

Sec. 22.220. ACTION WITHOUT MEETING OF DIRECTORS OR COMMITTEE.

(a) The certificate of formation or bylaws of a corporation may provide that an action required by this chapter to be taken at a meeting of the corporation's directors or an action that may be taken at a meeting of the directors or a committee may be taken without a meeting if a written consent, stating the action to be taken, is signed by the number of directors or committee members necessary to take that action at a meeting at which all of the directors or committee members are present and voting. The consent must state the date of each director's or committee member's signature.

(b) Prompt notice of the taking of an action by directors or a committee without a meeting by less than unanimous written consent shall be given to each director or committee member who did not consent in writing to the action.

Sec. 22.221. GENERAL STANDARDS FOR DIRECTORS.

(a) A director shall discharge the director's duties, including duties as a committee member, in good faith, with ordinary care, and in a manner the director reasonably believes to be in the best interest of the corporation.

(b) A director is not liable to the corporation, a member, or another person for an action taken or not taken as a director if the director acted in compliance with this section. A person seeking to establish liability of a director must prove that the director did not act:

(1) in good faith;

(2) with ordinary care; and

(3) in a manner the director reasonably believed to be in the best interest of the corporation.

Sec. 22.222. RELIGIOUS CORPORATION DIRECTOR'S GOOD FAITH RELIANCE ON CERTAIN INFORMATION. A director of a religious corporation, in the discharge of a duty imposed or power conferred on the director, including a duty imposed or power conferred as a committee member, may rely in good faith on information or on an opinion, report, or statement, including a financial statement or other financial data, concerning the corporation or another person that was prepared or presented by:

(1) a religious authority; or

(2) a minister, priest, rabbi, or other person whose position or duties in the religious organization the director believes justify reliance and confidence and whom the director believes to be reliable and competent in the matters presented.

Sec. 22.223. NOT A TRUSTEE. A director of a corporation is not considered to have the duties of a trustee of a trust with respect to the corporation or with respect to property held or administered by the corporation, including property subject to restrictions imposed by the donor or transferor of the property.

Sec. 22.224. DELEGATION OF INVESTMENT AUTHORITY.

(a) The board of directors of a corporation may:

(1) contract with an advisor who is an investment counsel or a trust company, bank, investment advisor, or investment manager; and

(2) confer on that advisor the authority to:

(A) purchase or otherwise acquire a stock, bond, security, or other investment on behalf of the corporation; and

(B) sell, transfer, or otherwise dispose of an asset or property of the corporation at a time and for a consideration the advisor considers appropriate.

(b) The board of directors may:

(1) confer on an advisor described by Subsection (a) other powers regarding the corporation's investments as the board considers appropriate; and

(2) authorize the advisor to hold title to an asset or property of the corporation, in the advisor's own name or in the name of a nominee, for the benefit of the corporation.

(c) The board of directors is not liable for an action taken or not taken by an advisor under this section if the board acted in good faith and with ordinary care in selecting the advisor. The board of directors may remove or replace the advisor, with or without cause, if the board considers that action appropriate or necessary.

Sec. 22.225. LOAN TO DIRECTOR PROHIBITED.

(a) A corporation may not make a loan to a director.

(b) The directors of a corporation who vote for or assent to the making of a loan to a director, and any officer who participates in making the loan, are jointly and severally liable to the corporation for the amount of the loan until the loan is repaid.

Sec. 22.226. DIRECTOR LIABILITY FOR CERTAIN DISTRIBUTIONS OF ASSETS.

(a) In addition to any other liability imposed by law on the directors of a corporation, the directors who vote for or assent to a distribution of assets other than in payment of the corporation's debts, when the corporation is insolvent or when distribution would render the corporation insolvent, or during the liquidation of the corporation, without the payment and discharge of or making adequate provisions for any known debt, obligation, or liability of the corporation, are jointly and severally liable to the corporation for the value of the assets distributed, to the extent that the debt, obligation, or liability is not paid and discharged.

(b) A director is not liable under this section if, in voting for or assenting to a distribution, the director:

(1) relied in good faith and with ordinary care on information or an opinion, report, or statement in accordance with Section 3.102;

(2) acting in good faith and with ordinary care, considered the assets of the corporation to be at least equal to their book value; or

(3) in determining whether the corporation made adequate provision for the discharge of all of its liabilities and obligations as provided in Section 11.053, relied in good faith and with ordinary care on financial statements of, or other information concerning, a person who was or became contractually obligated to discharge some or all of those liabilities or obligations.

Sec. 22.227. DISSENT TO ACTION.

(a) A director of a corporation who is present at a meeting of the board of directors at which action is taken on a corporate matter described by Section 22.226(a) is presumed to have assented to the action unless:

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

(2) the director has filed a written dissent to the action with the person acting as the secretary of the meeting before the meeting is adjourned; or

(3) the director has sent a written dissent by registered mail to the secretary of the corporation immediately after the meeting has been adjourned.

(b) The right to dissent under this section does not apply to a director who voted in favor of the action.

Sec. 22.228. RELIANCE ON WRITTEN OPINION OF ATTORNEY. A director is not liable under Section 22.226 or 22.227 if, in the exercise of ordinary care, the director acted in good faith and in reliance on the written opinion of an attorney for the corporation.

Sec. 22.229. RIGHT TO CONTRIBUTION. A director against whom a claim is asserted under Section 22.226 or 22.227 and who is held liable on the claim is entitled to contribution from persons who accepted or received the distribution knowing the distribution to have been made in violation of that section, in proportion to the amounts received by those persons.

Sec. 22.230. CONTRACTS OR TRANSACTIONS INVOLVING INTERESTED DIRECTORS, OFFICERS, AND MEMBERS.

(a) This section applies to a contract or transaction between a corporation and:

(1) one or more directors, officers, or members, or one or more affiliates or associates of one or more directors, officers, or members, of the corporation; or

(2) an entity or other organization in which one or more directors, officers, or members, or one or more affiliates or associates of one or more directors, officers, or members, of the corporation:

(A) is a managerial official or a member; or

(B) has a financial interest.

(b) An otherwise valid and enforceable contract or transaction is valid and enforceable, and is not void or voidable, notwithstanding any relationship or interest described by Subsection (a), if any one of the following conditions is satisfied:

(1) the material facts as to the relationship or interest and as to the contract or transaction are disclosed to or known by:

(A) the corporation's board of directors, a committee of the board of directors, or the members, and the board, the committee, or the members in good faith and with ordinary care authorize the contract or transaction by the affirmative vote of the majority of the disinterested directors, committee members or members, regardless of whether the disinterested directors, committee members or members constitute a quorum; or

(B) the members entitled to vote on the authorization of the contract or transaction, and the contract or transaction is specifically approved in good faith and with ordinary care by a vote of the members; or

(2) the contract or transaction is fair to the corporation when the contract or transaction is authorized, approved, or ratified by the board of directors, a committee of the board of directors, or the members.

(c) Common or interested directors or members of a corporation may be included in determining the presence of a quorum at a meeting of the board, a committee of the board, or members that authorizes the contract or transaction.

(d) A person who has the relationship or interest described by Subsection (a) may:

(1) be present at or participate in and, if the person is a director, member, or committee member, may vote at a meeting of the board of directors, of the members, or of a committee of the board that authorizes the contract or transaction; or

(2) sign, in the person's capacity as a director, member, or committee member, a written consent of the directors, members, or committee members to authorize the contract or transaction.

(e) If at least one of the conditions of Subsection (b) is satisfied, neither the corporation nor any of the corporation's shareholders will have a cause of action against any of the persons described by Subsection (a) for breach of duty with respect to the making, authorization, or performance of the contract or transaction because the person had the relationship or interest described by Subsection (a) or took any of the actions authorized by Subsection (d).

Sec. 22.231. OFFICERS.

(a) The officers of a corporation shall include a president and a secretary and may include one or more vice presidents, a treasurer, and other officers and assistant officers as considered necessary. Any two or more offices, other than the offices of president and secretary, may be held by the same person.

(b) A properly designated committee may perform the functions of an officer. A single committee may perform the functions of any two or more officers, including the functions of president and secretary.

(c) The officers of a corporation may be designated by other or additional titles as provided by the certificate of formation or bylaws of the corporation.

Sec. 22.232. ELECTION OR APPOINTMENT OF OFFICERS.

(a) An officer of a corporation shall be elected or appointed at the time, in the manner, and for the terms prescribed by the certificate of formation or bylaws of the corporation. The term of an officer may not exceed three years.

(b) If the certificate of formation or bylaws do not include provisions for the election or appointment of officers, the officers shall be elected or appointed annually by the board of directors or, if the management of the corporation is vested in the corporation's members, by the members.

Sec. 22.233. APPLICATION TO CHURCH. A corporation that is a church is not required to have officers as provided by this subchapter. The duties and responsibilities of the officers may be vested in the corporation's board of directors or other designated body in any manner provided for by the certificate of formation or bylaws of the corporation.

Sec. 22.234. RELIGIOUS CORPORATION OFFICER'S GOOD FAITH RELIANCE ON CERTAIN INFORMATION. An officer of a religious corporation, in the discharge of a duty imposed or power conferred on the officer, may rely in good faith and with ordinary care on information or on an opinion, report, or statement, including a financial statement or other financial data, concerning the corporation or another person that was prepared or presented by:

(1) a religious authority; or

(2) a minister, priest, rabbi, or other person whose position or duties in the religious organization the officer believes justify reliance and confidence and whom the officer believes to be reliable and competent in the matters presented.

Sec. 22.235. OFFICER LIABILITY.

(a) An officer is not liable to the corporation or any other person for an action taken or omission made by the officer in the person's capacity as an officer unless the officer's conduct was not exercised:

(1) in good faith;

(2) with ordinary care; and

(3) in a manner the officer reasonably believes to be in the best interest of the corporation.

(b) This section shall not affect the liability of the corporation for an act or omission of the officer.

SUBCHAPTER F. FUNDAMENTAL BUSINESS TRANSACTIONS

Sec. 22.251. APPROVAL OF MERGER.

(a) A domestic corporation that is a party to a merger under Chapter 10 must approve the merger by complying with this section.

(b) If the corporation that is a party to the merger has no members or has no members with voting rights, the plan of merger must be approved by the vote of directors required by Section 22.164.

(c) If the management of the affairs of the corporation that is a party to the merger is vested in its members under Section 22.202, the plan of merger:

(1) must be submitted to a vote at an annual, regular, or special meeting of the members; and

(2) must be approved by the members by the vote required by Section 22.164.

(d) If the corporation that is a party to the merger has members with voting rights:

(1) the board of directors must adopt a resolution that:

(A) approves the plan of merger; and

(B) directs that the plan be submitted to a vote at an annual or special meeting of the members having voting rights; and

(2) the members must approve the plan of merger by the vote required by Section 22.164.

Sec. 22.252. APPROVAL OF SALE OF ALL OR SUBSTANTIALLY ALL OF ASSETS.

(a) A corporation must approve the sale of all or substantially all of its assets by complying with this section.

(b) If the corporation has no members or has no members with voting rights, the sale of all or substantially all of the assets of the corporation must be authorized by the vote of directors required by Section 22.164.

(c) If the management of the affairs of the corporation is vested in its members under Section 22.202, a resolution authorizing a sale of all or substantially all of the assets of the corporation:

(1) must be submitted to a vote at an annual, regular, or special meeting of the members; and

(2) must be approved by the members by the vote required by Section 22.164.

(d) If the corporation has members with voting rights:

(1) the board of directors of the corporation must adopt a resolution that:

(A) recommends the sale; and

(B) directs that the resolution be submitted to a vote at an annual or special meeting of the members having voting rights; and

(2) the members must approve the resolution by the vote required by Section 22.164.

(e) At the meeting required by Subsection (c) or

(d), in addition to approving the resolution authorizing the sale, the members may set, or authorize the board of directors to set, the terms and conditions of the sale and the consideration to be received by the corporation for the sale by the same vote of members.

(f) After the members authorize a sale under Subsection (d), the board of directors may abandon the sale, subject to the rights of third parties under any contracts relating to the sale, without further action or approval by members.

(g) Notwithstanding Subsection (d), if a corporation is insolvent, a sale of all or substantially all of the assets of the corporation may be authorized on receiving the affirmative vote of the majority of the directors in office.

(h) The phrase "sale of all or substantially all of the assets" means the sale, lease, exchange, or other disposition, other than a pledge, mortgage, deed of trust, or trust indenture unless otherwise provided by the certificate of formation, of all or substantially all of the property and assets of a domestic corporation that is not made in the usual and regular course of the corporation's activities without regard to whether the disposition is made with the goodwill of the corporation's activities. The term does not include a transaction that results in the corporation directly or indirectly:

(1) continuing to engage in one or more activities; or

(2) applying a portion of the consideration received in connection with the transaction to the conduct of an activity that the corporation engages in after the transaction.

Sec. 22.253. MEETING OF MEMBERS; NOTICE.

(a) The corporation must give to each member entitled to vote at a meeting described by Section 22.251(c) or (d) or Section 22.252(c) or (d) a written notice stating that the purpose or one of the purposes of the meeting is to consider the plan of merger or the sale of all or substantially all of the assets of the corporation. The notice must be given in the time and manner provided by Chapter 6 and this chapter for giving notice of a meeting to members.

(b) A vote of members entitled to vote at the meeting shall be taken on the plan of merger or the resolution authorizing the sale of all or substantially all of the assets of the corporation. The members must approve the plan or resolution by the vote required by Section 22.164.

(c) For a meeting to vote on a plan of merger, the notice of the meeting must contain the plan of merger or a summary of the plan of merger.

(d) For a corporation the management of the affairs of which is vested in its members under Section 22.202, the notice of the meeting is subject to the provisions of the certificate of formation or bylaws of the corporation.

Sec. 22.254. PLEDGE, MORTGAGE, DEED OF TRUST, OR TRUST INDENTURE.

(a) Except as otherwise provided by Subsection (b) or by the corporation's certificate of formation:

(1) the board of directors of a corporation may authorize a pledge, mortgage, deed of trust, or trust indenture; and

(2) an authorization or consent of members is not required for the validity of the transaction or for any sale under the terms of the transaction.

(b) If the management of the affairs of a corporation is vested in the corporation's members under Section 22.202:

(1) the members may authorize a pledge, mortgage, deed of trust, or trust indenture in the manner provided by Section 22.252(c) for a sale of all or substantially all of the assets of a corporation; and

(2) an authorization by the board of directors is not required for the validity of the transaction or for any sale under the terms of the transaction.

Sec. 22.255. CONVEYANCE BY CORPORATION. A corporation may convey real property of the corporation when authorized by appropriate resolution of the board of directors or members.

Sec. 22.256. APPROVAL OF CONVERSION.

(a) A domestic corporation must approve a conversion under Chapter 10 by complying with this section.

(b) If the corporation has no members or has no members with voting rights, the plan of conversion must be approved by the vote of directors required by Section 22.164.

(c) If the management of the affairs of the corporation is vested in its members under Section 22.202, the plan of conversion:

(1) must be submitted to a vote at an annual, regular, or special meeting of the members; and

(2) must be approved by the members by the vote required by Section 22.164.

(d) If the corporation has members with voting rights:

(1) the board of directors must adopt a resolution that:

(A) approves the plan of conversion; and

(B) directs that the plan be submitted to a vote at an annual or special meeting of the members having voting rights; and

(2) the members must approve the plan of conversion by the vote required by Section 22.164.

Sec. 22.257. APPROVAL OF EXCHANGE.

(a) A domestic corporation must approve an exchange under Chapter 10 by complying with this section.

(b) If the corporation has no members or has no members with voting rights, the plan of exchange must be approved by the vote of directors required by Section 22.164.

(c) If the management of the affairs of the corporation is vested in its members under Section 22.202, the plan of exchange:

(1) must be submitted to a vote at an annual, regular, or special meeting of the members; and

(2) must be approved by the members by the vote required by Section 22.164.

(d) If the corporation has members with voting rights:

(1) the board of directors must adopt a resolution that:

(A) approves the plan of exchange; and

(B) directs that the plan be submitted to a vote at an annual or special meeting of the members having voting rights; and

(2) the members must approve the plan of exchange by the vote required by Section 22.164.

SUBCHAPTER G. WINDING UP AND TERMINATION

Sec. 22.301. APPROVAL OF VOLUNTARY WINDING UP, REINSTATEMENT, REVOCATION OF VOLUNTARY WINDING UP, OR DISTRIBUTION PLAN. A corporation must approve a voluntary winding up in accordance with Chapter 11, a reinstatement in accordance with Section 11.202, a cancellation of an event requiring winding up under Section 11.152(a), a revocation of a voluntary decision to wind up in accordance with Section 11.151, or a distribution plan in accordance with Section 22.305 by complying with the procedures prescribed by this subchapter.

Sec. 22.302. CERTAIN PROCEDURES FOR APPROVAL. To approve a voluntary winding up, a reinstatement, a cancellation of an event requiring winding up, a revocation of a voluntary decision to wind up, or a distribution plan, a corporation must follow the following procedures:

(1) if the corporation has no members or has no members with voting rights and the corporation:

(A) holds any assets or has solicited any assets or otherwise engaged in activities, the corporation's board of directors must adopt a resolution to wind up, to reinstate, to cancel the event requiring winding up, to revoke a voluntary decision to wind up, or to effect the distribution plan by the vote of directors required by Section 22.164(b)(3); or

(B) does not hold any assets and has not solicited any assets or otherwise engaged in activities, a majority of the organizers or the board of directors of the corporation mustadopt a resolution to wind up, to reinstate, to cancel an event requiring winding up, to revoke a voluntary decision to wind up, or to effect the distribution plan by the vote required by Section 22.164(d);

(2) if the management of the affairs of the corporation is vested in the corporation's members under Section 22.202, the winding up, reinstatement, cancellation of event requiring winding up, revocation of voluntary decision to wind up, or distribution plan:

(A) must be submitted to a vote at an annual, regular, or special meeting of members; and

(B) must be approved by the members by the vote required by Section 22.164(b)(2); or

(3) if the corporation has members with voting rights:

(A) the corporation's board of directors must approve a resolution:

(i) recommending the winding up, reinstatement, cancellation of event requiring winding up, revocation of a voluntary decision to wind up, or distribution plan; and

(ii) directing that the winding up, reinstatement, cancellation of event requiring winding up, revocation of a voluntary decision to wind up, or distribution plan of the corporation be submitted to a vote at an annual or special meeting of members; and

(B) the members must approve the action described by Paragraph (A) in accordance with Section 22.303.

Sec. 22.303. MEETING OF MEMBERS; NOTICE.

(a) The corporation must give to each member entitled to vote at a meeting described by Section 22.302(2) or (3) a written notice stating that the purpose or one of the purposes of the meeting is to consider the winding up, reinstatement, cancellation of event requiring winding up, revocation of the voluntary decision to wind up, or distribution plan of the corporation. The notice must be given in the time and manner provided by Chapter 6 and this chapter for the giving of notice of a meeting to members.

(b) A vote of members entitled to vote at the meeting shall be taken on the resolution to wind up, reinstate, cancel the event requiring winding up, revoke the voluntary decision to wind up, or effect the distribution plan of the corporation. The members must approve the resolution by the vote required under Section 22.164.

(c) For a meeting to vote on a distribution plan, the notice of the meeting must contain the proposed plan of distribution or a summary of the plan.

(d) For a corporation the management of the affairs of which is vested in its members under Section 22.202, the notice of the meeting is subject to the provisions of the certificate of formation or bylaws of the corporation.

Sec. 22.304. APPLICATION AND DISTRIBUTION OF PROPERTY.

(a) After all liabilities and obligations of a corporation in the process of winding up are paid, satisfied, and discharged in accordance with Section 11.053, the property of the corporation shall be applied and distributed as follows:

(1) property held by the corporation on a condition requiring return, transfer, or conveyance because of the winding up or termination shall be returned, transferred, or conveyed in accordance with that requirement; and

(2) unless otherwise provided by the corporation's certificate of formation, the remaining property of the corporation shall be distributed only for tax–exempt purposes to one or more organizations that are exempt under Section 501(c)(3), Internal Revenue Code, or described by Section 170(c)(1) or (2), Internal Revenue Code, under a plan of distribution adopted under this chapter.

(b) A district court of the county in which the corporation's principal office is located shall distribute to one or more organizations exempt under Section 501(c)(3), Internal Revenue Code, or described by Section 170(c)(1) or (2), Internal Revenue Code, the property of the corporation remaining after a distribution of property under the plan of distribution. The court shall make the distribution in the manner the court determines will best accomplish the general purposes for which the corporation was organized.

Sec. 22.305. DISTRIBUTION PLAN. A plan providing for the distribution of property may be adopted by a corporation in the process of winding up, and shall be adopted by a corporation to authorize a transfer or conveyance of assets for which this chapter requires a plan of distribution, in the manner provided by this subchapter.

Sec. 22.307. RESPONSIBILITY FOR WINDING UP. If a corporation determines or is required to wind up, the winding up of the corporation's affairs shall be managed by:

(1) the directors, if management of the affairs is not vested in the corporation's members under Section 22.202; or

(2) the members, if management of the affairs is vested in the corporation's members under Section 22.202.

SUBCHAPTER H. RECORDS AND REPORTS

Sec. 22.351. MEMBER'S RIGHT TO INSPECT BOOKS AND RECORDS. A member of a corporation, on written demand stating the purpose of the demand, is entitled to examine and copy at the member's expense, in person or by agent, accountant, or attorney, at any reasonable time and for a proper purpose, the books and records of the corporation relevant to that purpose.

Sec. 22.352. FINANCIAL RECORDS AND ANNUAL REPORTS.

(a) A corporation shall maintain current and accurate financial records with complete entries as to each financial transaction of the corporation, including income and expenditures, in accordance with generally accepted accounting principles.

(b) Based on the records maintained under Subsection (a), the board of directors of the corporation shall annually prepare or approve a financial report for the corporation for the preceding year. The report must conform to accounting standards as adopted by the American Institute of Certified Public Accountants and must include:

(1) a statement of support, revenue, and expenses;

(2) a statement of changes in fund balances;

(3) a statement of functional expenses; and

(4) a balance sheet for each fund.

Sec. 22.353. AVAILABILITY OF FINANCIAL INFORMATION FOR PUBLIC INSPECTION.

(a) A corporation shall keep records, books, and annual reports of the corporation's financial activity at the corporation's registered or principal office in this state for at least three years after the close of the fiscal year.

(b) The corporation shall make the records, books, and reports available to the public for inspection and copying at the corporation's registered or principal office during regular business hours. The corporation may charge a reasonable fee for preparing a copy of a record or report.

Sec. 22.354. FAILURE TO MAINTAIN FINANCIAL RECORD OR PREPARE ANNUAL REPORT; OFFENSE.

(a) A corporation commits an offense if the corporation fails to maintain a financial record, prepare an annual report, or make the record or report available to the public in the manner required by Section 22.353.

(b) An offense under this section is a Class B misdemeanor.

Sec. 22.355. EXEMPTIONS FROM CERTAIN REQUIREMENTS RELATING TO FINANCIAL RECORDS AND ANNUAL REPORTS. Sections 22.352, 22.353, and 22.354 do not apply to:

(1) a corporation that solicits funds only from members of the corporation;

(2) a corporation that does not intend to solicit and receive and does not actually raise or receive during a fiscal year contributions in an amount exceeding $10,000 from a source other than its own membership;

(3) a private or independent institution of higher education described by Section 61.003, Education Code, accredited by a recognized accrediting agency as defined by Section 61.003, Education Code, a postsecondary educational institution authorized to grant degrees under a certificate of authority issued by the Texas Higher Education Coordinating Board or a foundation chartered for the benefit of the institution or any component part of the institution, a career school or college that has received a certificate of approval from the Texas Workforce Commission, a public institution of higher education or a foundation chartered for the benefit of the institution or any component part of the institution, or an elementary or secondary school;

(4) a religious institution that is a church, an ecclesiastical or denominational organization, or another established physical place for worship at which religious services are the primary activity and are regularly conducted;

(5) a trade association or professional society the income of which is principally derived from membership dues and assessments, sales, or services;

(6) an insurer licensed and regulated by the Texas Department of Insurance; or

(7) an alumni association of a public or private institution of higher education in this state that is recognized and acknowledged as the official alumni association by the institution.

Sec. 22.356. CORPORATIONS ASSISTING STATE AGENCIES.

(a) In this section, "state agency" means:

(1) a board, commission, department, office, or other entity that is in the executive branch of state government and that was created by the constitution or a statute of this state, including an institution of higher education as defined by Section 61.003, Education Code;

(2) the legislature or a legislative agency; or

(3) the supreme court, the court of criminal appeals, a court of appeals, the state bar, or another state judicial agency.

(b) The books and records of a corporation other than a bona fide alumni association are subject to audit at the discretion of the state auditor if:

(1) the corporation's charter specifically dedicates the corporation's activities to the benefit of a particular state agency; and

(2) a board member, officer, or employee of that state agency sits on the board of directors of the corporation in other than an ex officio capacity.

(c) If the corporation's charter specifically dedicates the corporation's activities to the benefit of a particular state agency but the conditions described by Subsection (b)(2) do not exist, a corporation shall file with the secretary of state a copy of the report required by Section 22.352(b) for the preceding fiscal year not later than the 89th day after the last day of the corporation's fiscal year.

Sec. 22.357. REPORT OF DOMESTIC AND FOREIGN CORPORATIONS.

(a) The secretary of state may require a domestic corporation or a foreign corporation registered to conduct affairs in this state to file a report in accordance with Chapter 4 not more than once every four years as required by this subchapter. The report must state:

(1) the name of the corporation;

(2) the state or country under the laws of which the corporation is incorporated;

(3) the address of the registered office of the corporation in this state and the name of the registered agent at that address;

(4) if the corporation is a foreign corporation, the address of the principal office of the corporation in the state or country under the laws of which the corporation is incorporated; and

(5) the names and addresses of the directors and officers of the corporation.

(b) A corporation required to prepare a report under this section shall prepare the report on a form adopted by the secretary of state for that purpose and shall include in the report information that is accurate as of the date the report is executed. An officer or, if the corporation is in the hands of a receiver or trustee, the receiver or trustee shall sign the report on behalf of the corporation.

Sec. 22.358. NOTICE REGARDING REPORT.

(a) The secretary of state shall send written notice that the report required by Section 22.357 is due. The notice must be:

(1) addressed to the corporation; and

(2) mailed to the corporation's registered agent or to the corporation at:

(A) the last known address of the corporation as it appears on record in the office of the secretary of state; or

(B) any other known place of business of the corporation.

(b) The secretary of state shall include with the notice a report form to be prepared and filed as provided by this subchapter.

Sec. 22.359. FILING OF REPORT. A copy of the report must be filed with the secretary of state in accordance with Chapter 4 not later than the 30th day after the date notice is mailed under Section 22.358.

Sec. 22.360. FAILURE TO FILE REPORT.

(a) A domestic or foreign corporation that fails to file a report under Sections 22.357 and 22.359 when the report is due forfeits the corporation's right to conduct affairs in this state.

(b) The forfeiture takes effect, without judicial action, when the secretary of state enters on the record of the corporation kept in the office of the secretary of state:

(1) the words "right to conduct affairs forfeited"; and

(2) the date of forfeiture.

Sec. 22.361. NOTICE OF FORFEITURE. Notice of forfeiture under Section 22. 360 shall be mailed to the corporation's registered agent at the registered office or to the corporation at:

(1) the address of the principal place of business of the corporation as it appears in the certificate of formation;

(2) the last known address of the corporation as it appears on record in the office of the secretary of state; or

(3) any other known place of business of the corporation.

Sec. 22.362. EFFECT OF FORFEITURE.

(a) Unless the right of the corporation to conduct affairs in this state is revived under Section 22.363:

(1) the corporation may not maintain an action, suit, or proceeding in a court of this state; and

(2) a successor or assignee of the corporation may not maintain an action, suit, or proceeding in a court of this state on a right, claim, or demand arising from the conduct of affairs by the corporation in this state.

(b) This section does not affect the right of an assignee of the corporation as:

(1) the holder in due course of a negotiable promissory note, check, or bill of exchange; or

(2) the bona fide purchaser for value of a warehouse receipt, stock certificate, or other instrument negotiable by law.

(c) The forfeiture of the right to conduct affairs in this state does not:

(1) impair the validity of a contract or act of the corporation; or

(2) prevent the corporation from defending an action, suit, or proceeding in a court of this state.

Sec. 22.363. REVIVAL OF RIGHT TO CONDUCT AFFAIRS.

(a) A corporation may be relieved from a forfeiture under Section 22.360 by filing the required report, accompanied by the revival fee, not later than the 120th day after the date of mailing of the notice of forfeiture under Section 22.361.

(b) If a corporation complies with Subsection (a), the secretary of state shall:

(1) revive the right of the corporation to conduct affairs in this state;

(2) cancel the words regarding the forfeiture on the record of the corporation; and

(3) endorse on that record the word "revived" and the date of revival.

Sec. 22.364. FAILURE TO REVIVE; TERMINATION OR REVOCATION.

(a) The failure of a corporation that has forfeited its right to conduct affairs in this state to revive that right under Section 22.363 is grounds for:

(1) the involuntary termination of the domestic corporation; or

(2) the revocation of the foreign corporation's registration to transact business in this state.

(b) The termination or revocation takes effect, without judicial action, when the secretary of state enters on the record of the corporation filed in the office of the secretary of state the word "forfeited" and the date of forfeiture and cites this chapter as authority for that forfeiture.

Sec. 22.365. REINSTATEMENT.

(a) A corporation that is terminated or the registration of which has been revoked as provided by Section 22.364 may be relieved of the termination or revocation by filing the report required by Section 22.357, accompanied by the filing fee for the report, if the corporation has paid:

(1) all fees, taxes, penalties, and interest due and accruing before the termination or revocation; and

(2) an amount equal to the total taxes from the date of termination or revocation to the date of reinstatement that would have been payable if the corporation had not been terminated or had its registration revoked.

(b) When the report is filed and the filing fee is paid to the secretary of state, the secretary of state shall:

(1) reinstate the certificate of formation or registration without judicial action;

(2) cancel the word "forfeited" on the record; and

(3) endorse on the record kept in the secretary's office relating to the corporation the words "set aside" and the date of the reinstatement.

(c) If a termination or revocation is set aside under this section, the corporation shall determine from the secretary of state whether the name of the corporation is available. If the name of the corporation is not available at the time of reinstatement, the corporation shall amend its corporate name under this code.

SUBCHAPTER I. CHURCH BENEFITS BOARDS

Sec. 22.401. DEFINITION. In this chapter, "church benefits board" means an organization described by Section 414(e)(3)(A), Internal Revenue Code, that:

(1) has the principal purpose or function of administering or funding a plan or program to provide retirement benefits, welfare benefits, or both for the ministers or employees of a church or a conference, convention, or association of churches; and

(2) is controlled by or affiliated with a church or a conference, convention, or association of churches.

Sec. 22.402. PENSIONS AND BENEFITS. When authorized by the corporation's members or as otherwise provided by law, a domestic or foreign nonprofit corporation formed for a religious purpose may provide, directly or through a separate church benefits board, for the support and payment of benefits and pensions to:

(1) the ministers, teachers, employees, trustees, directors, or other functionaries of the corporation;

(2) the ministers, teachers, employees, trustees, directors, or other functionaries of organizations controlled by or affiliated with a church or a conference, convention, or association of churches under the jurisdiction and control of the corporation; and

(3) the spouse, children, dependents, or other beneficiaries of the persons described by Subdivisions (1) and (2).

Sec. 22.403. CONTRIBUTIONS.

(a) A church benefits board may provide for:

(1) the collection of contributions and other payments to assist in providing pensions and benefits under this subchapter; and

(2) the creation, maintenance, investment, management, and disbursement of necessary annuities, endowments, reserves, or other funds for a purpose under Subdivision (1).

(b) A church benefits board may receive payments from a trust fund or corporation that funds a church plan as defined by Section 414(e), Internal Revenue Code.

Sec. 22.404. POWER TO ACT AS TRUSTEE. A church benefits board may act as:

(1) a trustee under a lawful trust committed to the board by contract, will, or otherwise; and

(2) an agent for the performance of a lawful act relating to the purposes of the trust.

Sec. 22.405. DOCUMENTS AND AGREEMENTS. A church benefits board may provide to a program participant a certificate or agreement of participation, a debenture, or an indemnification agreement, as appropriate to accomplish the purposes of the board.

Sec. 22.406. INDEMNIFICATION. A church benefits board, or an affiliate wholly owned by the board, may agree to indemnify against damage or risk of loss:

(1) a minister, teacher, employee, trustee, functionary, or director affiliated with the board or a family member, dependent, or beneficiary of one of those persons;

(2) a church or a convention, conference, or association of churches; or

(3) an organization that is controlled by or affiliated with the board or with a church or a convention, conference, or association of churches.

Sec. 22.407. PROTECTION OF BENEFITS.

(a) Money or other benefits that have been or will be provided to a participant or a beneficiary under a plan or program provided by or through a church benefits board under this subchapter are not subject to execution, attachment, garnishment, or other process and may not be appropriated or applied as part of a judicial, legal, or equitable process or operation of a law other than a constitution to pay a debt or liability of the participant or beneficiary.

(b) This section does not apply to a qualified domestic relations order or an amount required by the church benefits board to recover costs or expenses incurred in the plan or program.

Sec. 22.408. ASSIGNMENT OF BENEFITS. An assignment or transfer or an attempt to make an assignment or transfer by a beneficiary of money, benefits, or other rights under a plan or program under this subchapter is void if:

(1) the plan or program contains a provision prohibiting the assignment or other transfer without the written consent of the church benefits board; and

(2) the beneficiary assigns or transfers or attempts to make an assignment or transfer without that consent.

Sec. 22.409. INSURANCE CODE NOT APPLICABLE. The Insurance Code does not apply to a church benefits board or a program, plan, benefit, or activity of the board or a person affiliated with the board.

CHAPTER 23. SPECIAL–PURPOSE CORPORATIONS
SUBCHAPTER A. GENERAL PROVISIONS

Sec. 23.001. DETERMINATION OF APPLICABLE LAW.

(a) A corporation created under this chapter or under a special statute outside this code, to the extent not inconsistent with a special statute regarding a particular corporation, is governed by:

(1) Title 1 and Chapter 21, if the corporation is organized for profit; and

(2) Title 1 and Chapter 22, if the corporation is organized not for profit.

(b) If a special statute does not contain any provision regarding a matter provided for in Title 1 or Chapter 21 or 22, or if the special statute specifically provides that the general laws for corporations supplement the statute, to the extent consistent with the special statute:

(1) Title 1 and Chapter 21 apply to a corporation organized for profit; and

(2) Title 1 and Chapter 22 apply to a corporation organized not for profit.

Sec. 23.002. APPLICABILITY OF FILING REQUIREMENTS. Except as otherwise provided by the special statute, a document to be filed with the secretary of state under a special statute shall be executed and filed in accordance with Chapter 4.

Sec. 23.003. DOMESTIC CORPORATION ORGANIZED UNDER SPECIAL STATUTE. A corporation organized under a special statute other than this code is not considered a "domestic corporation" formed under this code, although this code may apply to the corporation.

SUBCHAPTER B. BUSINESS DEVELOPMENT CORPORATIONS

Sec. 23.051. DEFINITIONS. In this subchapter:

(1) "Corporation" means a business development corporation organized under this subchapter.

(2) "Financial institution" means a banking corporation or trust company, savings and loan association, governmental agency, insurance company, or related corporation, partnership, foundation, or other institution engaged primarily in lending or investing funds.

(3) "Loan limit" means the maximum amount permitted to be outstanding at one time on loans made by a member to a corporation.

(4) "Member" means a financial institution authorized to do business in this state that undertakes to lend money to a corporation.

Sec. 23.052. ORGANIZERS. Subject to The Securities Act (Article 581–1 et seq., Vernon's Texas Civil Statutes), 25 or more persons, the majority of whom must be residents of this state, may form a business development corporation to promote, develop, and advance the prosperity and economic welfare of this state.

Sec. 23.053. PURPOSES.

(a) A business development corporation may be organized as a:

(1) for–profit corporation under Chapter 21; or

(2) nonprofit corporation under Chapter 22.

(b) In accordance with Section 3.005(a)(3), the certificate of formation of a business development corporation must state that the purposes of the corporation are to:

(1) promote, stimulate, develop, and advance the business prosperity and economic welfare of this state and the residents of this state;

(2) encourage and assist, through loans, investments, or other business transactions, new business and industry in this state;

(3) rehabilitate and assist existing industry in this state;

(4) stimulate and assist in the expansion of business activity that will tend to promote the business development and maintain the economic stability of this state, provide maximum opportunities for employment, encourage thrift, and improve the standard of living of the residents of this state;

(5) cooperate and act in conjunction with other public or private organizations in the promotion and advancement of industrial, commercial, agricultural, and recreational developments in this state; and

(6) provide financing for the promotion, development, and conduct of business activity in this state.

Sec. 23.054. POWERS.

(a) The powers of a corporation include, in addition to the powers conferred on the corporation by Chapters 2 and 21 or 22, as applicable, the power to:

(1) elect, appoint, and employ officers, agents, and employees;

(2) make contracts and incur liabilities for a purpose of the corporation;

(3) borrow money on a secured or unsecured basis to carry out a purpose of the corporation;

(4) issue for the purpose of borrowing money a bond, debenture, note, or other evidence of indebtedness, whether secured or unsecured;

(5) secure an evidence of indebtedness by mortgage, pledge, deed of trust, or other lien on a property, franchise, right, or privilege of the corporation, or any part of or interest in those items, without securing shareholder or member approval;

(6) make a secured or unsecured loan and establish and regulate the terms and conditions of that loan and the charges for interest or service connected with that loan;

(7) purchase, receive, hold, lease, or otherwise acquire, and sell, convey, transfer, lease, or otherwise dispose of, property and exercise those rights and privileges incidental and appurtenant to the acquisition or disposal of the property and to the use of the property, including any property acquired by the corporation periodically in the satisfaction of a debt or enforcement of an obligation;

(8) acquire improved or unimproved real property to construct an industrial plant or other business establishment on the property or dispose of the real property for the construction of an industrial plant or other business establishment;

(9) acquire, construct or reconstruct, alter, repair, maintain, operate, sell, convey, transfer, lease, or otherwise dispose of an industrial plant or business establishment;

(10) protect the corporation's position as creditor by acquiring the goodwill, business, rights, property, including a share, bond, debenture, note, other evidence of indebtedness, other asset, or any part of an asset or interest in an asset, of a person to whom the corporation loaned money and assume, undertake, or pay an obligation, debt, or liability of the person;

(11) mortgage, pledge, or otherwise encumber any property, right, or thing of value, acquired under Subdivision (7), (8), (9), or (10), as security for the payment of a part of the purchase price;

(12) promote the establishment of local development corporations in the various communities of this state, enter into agreements with those local development corporations, and cooperate with, assist, or otherwise encourage the local foundations; and

(13) participate with a properly authorized federal lending agency in the making of loans.

(b) A corporation may approve an application for a loan under Subsection (a)(6) only if the applicant demonstrates that:

(1) the applicant applied for the loan through ordinary banking channels; and

(2) the loan has been refused by at least two banks or other financial institutions.

Sec. 23.055. STATEWIDE OPERATION. A corporation organized under this subchapter is a state development company as defined by Section 103, Small Business Investment Act of 1958 (15 U.S.C. Section 662), as amended, or similar federal legislation, and may operate on a statewide basis.

Sec. 23.056. CERTIFICATE OF FORMATION.

(a) The certificate of formation of a corporation must state:

(1) the name of the corporation;

(2) the purpose or purposes for which the corporation is organized as required by Section 23.053; and

(3) any other information required by:

(A) Chapter 4; and

(B) Chapter 21 or 22, as applicable.

(b) The name of a corporation must include the words "Business Development Corporation."

Sec. 23.057. MANAGEMENT BY BOARD OF DIRECTORS; NUMBER OF DIRECTORS.

(a) The organization, control, and management of a corporation are vested in a board of directors. The board must consist of not fewer than 15 and not more than 21 directors.

(b) The board of directors may exercise any power of the corporation not conferred on the shareholders or members by law or by the corporation's bylaws.

Sec. 23.058. ELECTION OR APPOINTMENT OF DIRECTORS.

(a) The organizers of a corporation shall name the directors constituting the initial board of directors of the corporation. Directors other than the initial directors shall be elected at each annual meeting of the corporation. If an annual meeting is not held at the time designated by the bylaws of the corporation, the directors shall be elected at a special meeting held in lieu of the annual meeting.

(b) At an annual meeting or special meeting held in lieu of the annual meeting, the members of the corporation shall elect two–thirds of the directors, and the shareholders of the corporation shall elect the remaining directors.

Sec. 23.059. TERM OF OFFICE; VACANCY.

(a) A director of a corporation holds office until the next annual election of directors and until a successor is elected and qualified, unless the director is removed at an earlier date in accordance with the corporation's bylaws.

(b) A vacancy in the office of a director elected by the members shall be filled by the directors elected by the members, and a vacancy in the office of a director elected by the shareholders shall be filled by the directors elected by the shareholders.

Sec. 23.060. OFFICERS. The board of directors of a corporation shall appoint a president, a treasurer, and any other agent or officer of the corporation and shall fill each vacancy other than a vacancy on the board.

Sec. 23.061. PARTICIPATION AS OWNER.

(a) An individual, corporation, or other organization authorized to conduct business in this state, including a public utility company, insurance and casualty company, or foreign corporation licensed to do business in this state, or a trust may acquire, purchase, hold, sell, assign, transfer, mortgage, pledge, or otherwise dispose of a bond, security, or other evidence of indebtedness created by, or shares of, the corporation.

(b) An owner of shares of the corporation may exercise any right, power, or privilege of that ownership, including the right to vote.

Sec. 23.062. FINANCIAL INSTITUTION AS MEMBER OF CORPORATION.

(a) A financial institution may become a member of a corporation and may make loans to the corporation as provided by this chapter.

(b) A financial institution may request membership in the corporation by applying to the corporation's board of directors in the manner prescribed by the board. Membership in the corporation takes effect on the board's acceptance of the application.

(c) A financial institution that is a member of a corporation may acquire, purchase, hold, sell, assign, transfer, mortgage, pledge, or otherwise dispose of a bond, security, or other evidence of indebtedness created by, or a share of, the corporation. As owner of shares of the corporation, a financial institution may exercise any right, power, or privilege of that ownership, including the right to vote. A member of a corporation may not acquire shares of the corporation in an amount greater than 10 percent of the member's loan limit. The amount of shares of the corporation that a member may acquire is in addition to the amount of shares of corporations that the member may otherwise acquire.

(d) A financial institution that is not a member of the corporation may not acquire any shares of the corporation.

Sec. 23.063. WITHDRAWAL OF MEMBER.

(a) On written notice to the corporation's board of directors, a member may withdraw from a corporation on the date stated in the notice. The date of a member's withdrawal must be at least six months after the date notice is given under this subsection.

(b) A member is not obligated to make a loan to the corporation pursuant to a call made after the date of the member's withdrawal from the corporation, but a member shall fulfill any obligation that has accrued or for which a commitment has been made before the withdrawal date.

Sec. 23.064. POWERS OF SHAREHOLDERS AND MEMBERS. The shareholders and members of a corporation may:

(1) determine the number of directors and elect the directors as provided by Section 23.058;

(2) make, amend, and repeal bylaws of the corporation; or

(3) exercise any other power of the corporation that is conferred on the shareholders and members by the bylaws.

Sec. 23.065. VOTING BY SHAREHOLDER OR MEMBER.

(a) Each shareholder of a corporation has one vote, in person or by proxy, for each share held by the shareholder.

(b) Each member of a corporation has one vote in person or by proxy.

(c) A member with a loan limit that exceeds $1,000 has one additional vote, in person or by proxy, for each additional $1,000 the member may have outstanding on loans to the corporation at any one time as determined under Section 23.068.

Sec. 23.066. LOAN TO CORPORATION.

(a) When called on by a corporation to make a loan to the corporation, a member of the corporation shall make the loan on those terms and conditions periodically approved by the board of directors.

(b) A loan made to the corporation by a member shall be evidenced by a bond, debenture, note, or other evidence of indebtedness of the corporation that:

(1) is freely transferable at any time; and

(2) accrues interest at a rate of not less than one–fourth of one percent more than the rate of interest determined by the board of directors to be the prime rate prevailing on the date of issuance on unsecured commercial loans.

Sec. 23.067. PROHIBITED LOAN.

(a) A member may not make a loan to a corporation if, immediately after the loan would be made, the total amount of the obligations of the corporation would exceed 50 times the capital of the corporation.

(b) For purposes of this section, the capital of the corporation includes the amount of the outstanding shares of the corporation, whether common or preferred, and the earned or paid–in surplus of the corporation.

Sec. 23.068. LOAN LIMITS.

(a) A loan limit shall be established at the $1,000 amount nearest to the amount computed in accordance with this section.

(b) The total amount outstanding on loans made to a corporation by a member at any one time, when added to the amount of the investment in the shares of the corporation then held by the member, may not exceed:

(1) 20 percent of the total amount then outstanding on loans to the corporation by all members, including outstanding amounts validly called for a loan but not yet loaned; or

(2) the following limit, to be determined as of the time the member becomes a member of the corporation, or at any time requested by a member on the basis of the audited balance sheet of the member at the close of its fiscal year immediately preceding its application for membership or, in the case of an insurance company, its last annual statement to the Texas Department of Insurance:

(A) an amount equal to the lesser of $750,000 or two percent of the capital and surplus of a commercial bank or trust company;

(B) an amount equal to one percent of the total outstanding loans made by a savings and loan association;

(C) an amount equal to one percent of the capital and unassigned surplus of a stock insurance company other than a fire insurance company;

(D) an amount equal to one percent of the unassigned surplus of a mutual insurance company other than a fire insurance company;

(E) an amount equal to one–tenth of one percent of the assets of a fire insurance company; or

(F) the limits approved by the board of directors of the corporation for a government pension fund or other financial institution.

(c) Subject to Subsection (b), each call made by the corporation shall be prorated among the members of the corporation in substantially the same proportion that the adjusted loan limit of each member bears to the aggregate of the adjusted loan limits of all members.

(d) For purposes of Subsection (c), the adjusted loan limit of a member is the amount of the member's loan limit, reduced by the balance of outstanding loans made by the member to the corporation and the investment in shares of the corporation held by the member at the time of the call.

Sec. 23.069. SURPLUS.

(a) A corporation shall set apart as earned surplus not less than 10 percent of the corporation's net earnings each year until the surplus, with any unimpaired surplus paid in, is equal to one–half of the amount paid in on the shares then outstanding. The surplus shall be kept to secure against losses and contingencies. If the surplus becomes impaired, the surplus shall be reimbursed in the manner provided for its accumulation.

(b) Net earnings and surplus shall be determined by the board of directors after providing for the required reserves as the directors consider advisable. A good faith determination of net earnings and surplus by the directors under this subsection is conclusive.

Sec. 23.070. DEPOSITORY.

(a) A corporation may deposit the corporation's funds in a banking institution that has been designated as a depository by a vote of the majority of the directors present at an authorized meeting of the board of directors of the corporation, excluding a director who is an officer or director of the designated depository.

(b) The corporation may not receive money on deposit.

Sec. 23.071. ANNUAL REPORT; PROVISION OF REQUIRED INFORMATION.

(a) A corporation shall annually make a report of its condition to the banking commissioner and the Texas Department of Insurance.

(b) A corporation shall provide any information that is required by the secretary of state.

SUBCHAPTER C. GRAND LODGES

Sec. 23.101. FORMATION.

(a) An institution or order, by resolution or other consent of its members, may incorporate under this subchapter if the institution or order is:

(1) the grand lodge of Texas, Ancient, Free and Accepted Masons;

(2) the Grand Royal Arch Chapter of Texas;

(3) the Grand Commandery of Knights Templars of Texas;

(4) the grand lodge of the Independent Order of Odd Fellows of Texas; or

(5) another similar institution or order organized for charitable or benevolent purposes.

(b) A corporation formed under this subchapter shall file a certificate of formation in accordance with Chapter 4 that complies with this subchapter.

Sec. 23.102. APPLICABILITY OF CHAPTER 22. If this subchapter does not contain any provision regarding a matter provided for in Chapter 22, to the extent consistent with this subchapter, Chapter 22 applies to a corporation formed under this subchapter.

Sec. 23.103. DURATION. A grand body that incorporates under this subchapter may provide in the grand body's certificate of formation for the expiration of its corporate powers at the end of a stated number of years. If the certificate of formation does not provide for the duration of the grand body, the grand body has perpetual existence. The grand body may by its corporate name have perpetual succession of its officers and members.

Sec. 23.104. SUBORDINATE LODGES.

(a) The incorporation of a grand body includes each of its subordinate lodges or bodies holding a warrant or charter under the grand body.

(b) A subordinate body has all of the rights of other corporations under and by the name given to the grand body in the warrant or charter issued to the grand body to which it is attached. Those rights shall be provided for in the charter of the grand body.

(c) A subordinate body is subject to the jurisdiction and control of its respective grand body, and the warrant or charter of the subordinate body may be revoked by the grand body.

Sec. 23.105. TRUSTEES AND DIRECTORS. A grand body and a subordinate of the grand body may elect trustees and directors or may appoint trustees or directors from among their officers.

Sec. 23.106. FRANCHISE TAXES. A corporation formed under this subchapter is not subject to or required to pay a franchise tax, except that a corporation is exempt from the franchise tax imposed by Chapter 171, Tax Code, only if the corporation is exempted by that chapter.

Sec. 23.107. GENERAL POWERS. A grand body and a subordinate of the grand body may take action as directed or provided by law in the case of other corporations and may make constitutions and bylaws to govern their affairs.

Sec. 23.108. AUTHORITY REGARDING PROPERTY.

(a) A grand body or subordinate body may acquire and hold property as necessary or convenient for a site on which to erect a building for the use and occupancy of the body and to erect homes and schools for members' widows or orphans or elderly, disabled, or indigent members and may sell or mortgage the property.

(b) A conveyance must be executed by the presiding officer and attested to by the secretary with the seal.

(c) The authority of a subordinate body to sell or to mortgage property is subject to the conditions periodically prescribed or established by the grand body to which the subordinate is attached.

Sec. 23.109. AUTHORITY REGARDING LOANS.

(a) A grand body incorporated under this subchapter may:

(1) loan money held and owned by the grand body for charitable purposes, for the endowment of any of the institutions of the grand body, or otherwise; and

(2) secure loans by taking and receiving liens on real property or by another method elected by the grand body.

(b) On sale of real property secured by a lien, a grand body may become the purchaser of the real property and hold title to the property.

Sec. 23.110. WINDING UP AND TERMINATION OF SUBORDINATE BODY.

(a) On the winding up and termination of a subordinate body attached to a grand body, all property and rights existing in the subordinate body pass to and vest in the grand body to which it was attached, subject to the payment of any debt owed by the subordinate body.

(b) Notwithstanding a grand body's liability for the debt of a subordinate body under Subsection (a), the grand body is not liable for an amount greater than the actual cash value of the subordinate body's effects or authority.