The Vermont Statutes Online

Title 11A: Vermont Business Corporations

Chapter 006: Shares and Distributions

• Subchapter 001: Shares

• § 6.01. Authorized shares

  (a) The articles of incorporation must prescribe the classes of shares and the number of shares of each class that the corporation is authorized to issue. If more than one class of shares is authorized, the articles of incorporation must prescribe a distinguishing designation for each class and, prior to the issuance of shares of a class, the preferences, limitations, and relative rights of that class must be described in the articles of incorporation. All shares of a class must have preferences, limitations, and relative rights identical with those of other shares of the same class except to the extent otherwise permitted by section 6.02 of this title.

  (b) The articles of incorporation must authorize:

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

  (2) one or more classes of shares (which may be the same class or classes as those with voting rights) that together are entitled to receive the net assets of the corporation upon dissolution:

  (c) The articles of incorporation may authorize one or more classes of shares that:

  (1) have special, conditional, or limited voting rights, or no right to vote, except to the extent prohibited by this act;

  (2) are redeemable or convertible as specified in the articles of incorporation;

  (A) at the option of the corporation, the shareholder, or another person or upon the occurrence of a designated event;

  (B) for cash, indebtedness, securities, or other property;

  (C) in a designated amount or in an amount determined in accordance with a designated formula or by reference to extrinsic data or events;

  (3) entitle the holders to distributions calculated in any manner, including dividends that may be cumulative, noncumulative, or partially cumulative;

  (4) have preference over any other class of shares with respect to distributions, including dividends and distributions upon the dissolution of the corporation.

  (d) Terms of shares may be made dependent upon facts objectively ascertainable outside the articles of incorporation in accordance with subsection 1.20(j) of this title.

  (e) Any of the terms of shares may vary among holders of the same class or series so long as such variations are expressly set forth in the articles of incorporation.

  (f) The description of the designations, preferences, limitations, and relative rights of share classes in subsection (c) of this section is not exhaustive. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994; amended 2007, No. 190 (Adj. Sess.), § 85, eff. June 6, 2008.)

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

  (a) If the articles of incorporation so provide, the board of directors may determine, in whole or in part, the preferences, limitations, and relative rights (within the limits set forth in section 6.01 of this title) of:

  (1) any class of shares before the issuance of any shares of that class; or

  (2) one or more series within a class before the issuance of any shares of that series.

  (b) Each series of a class must be given a distinguishing designation.

  (c) All shares of a series must have preferences, limitations, and relative rights identical with those of other shares of the same series and, except to the extent otherwise provided in the description of the series, with those of other series of the same class.

  (d) Before issuing any shares of a class or series created under this section, the corporation must deliver to the Secretary of State for filing articles of amendment, which are effective without shareholder action, that set forth:

  (1) the name of the corporation;

  (2) the text of the amendment determining the terms of the class or series of shares;

  (3) the date it was adopted; and

  (4) a statement that the amendment was duly adopted by the board of directors. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 6.03. Issued and outstanding shares

  (a) A corporation may issue the number of shares of each class or series authorized by the articles of incorporation. Shares that are issued are outstanding shares until they are reacquired, redeemed, converted, or cancelled.

  (b) The reacquisition, redemption, or conversion of outstanding shares is subject to the limitations of subsection (c) of this section and to section 6.40 of this title.

  (c) At all times that shares of the corporation are outstanding, one or more shares that together have unlimited voting rights and one or more shares that together are entitled to receive the net assets of the corporation upon dissolution must be outstanding. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 6.04. Fractional shares

  (a) A corporation may:

  (1) issue fractions of a share or pay in money the value of fractions of a share;

  (2) arrange for disposition of fractional shares by the shareholders;

  (3) issue scrip in registered or bearer form entitling the holder to receive a full share upon surrendering enough scrip to equal a full share.

  (b) Each certificate representing scrip must be conspicuously labeled “scrip” and must contain the information required by subsection 6.25(b) of this title.

  (c) The holder of a fractional share is entitled to exercise the rights of a shareholder, including the right to vote, to receive dividends, and to participate in the assets of the corporation upon liquidation. The holder of scrip is not entitled to any of these rights unless the scrip provides for them.

  (d) The board of directors may authorize the issuance of scrip subject to any condition considered desirable, including:

  (1) that the scrip will become void if not exchanged for full shares before a specified date; and

  (2) that the shares for which the scrip is exchangeable may be sold and the proceeds paid to the scripholders. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• Subchapter 002: Issuance of Shares

• § 6.20. Subscription for shares before incorporation

  (a) A subscription for shares entered into before incorporation is irrevocable for six months unless the subscription agreement provides a longer or shorter period or all the subscribers agree to revocation.

  (b) The board of directors may determine the payment terms of subscriptions for shares that were entered into before incorporation, unless the subscription agreement specifies them. A call for payment by the board of directors must be uniform so far as practicable as to all shares of the same class or series, unless the subscription agreement specifies otherwise.

  (c) Shares issued pursuant to subscriptions entered into before incorporation are fully paid and nonassessable when the corporation receives the consideration specified in the subscription agreement.

  (d) If a subscriber defaults in payment of money or property under a subscription agreement entered into before incorporation, the corporation may collect the amount owed as any other debt. Alternatively, and unless the subscription agreement provides otherwise, if the debt remains unpaid more than 20 days after the corporation sends written demand for payment to the subscriber, the corporation may rescind the agreement.

  (e) A subscription agreement entered into after incorporation is a contract between the subscriber and the corporation subject to section 6.21 of this title. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 6.21. Issuance of shares

  (a) The powers granted in this section to the board of directors may be reserved to the shareholders by the articles of incorporation.

  (b) The board of directors may authorize shares to be issued for consideration consisting of any tangible or intangible property or benefit to the corporation, including cash, promissory notes, services performed, contracts for services performed, or other securities of the corporation.

  (c) Before the corporation issues shares, the board of directors must determine that the consideration received or to be received for shares to be issued is adequate. That determination by the board of directors is conclusive insofar as the adequacy of consideration for the issuance of shares relates to whether the shares are validly issued, fully paid, and nonassessable.

  (d) When the corporation receives the consideration for which the board of directors authorized the issuance of shares, the shares issued therefor are fully paid and nonassessable. No share shall be issued until such share is fully paid.

  (e) The corporation may place in escrow shares issued for a contract for future services or benefits or a promissory note, or make other arrangements to restrict the transfer of the shares, and may credit distributions in respect of the shares against their purchase price, until the services are performed, the note is paid, or the benefits are received. If the services are not performed, the note is not paid, or the benefits are not received, the shares escrowed or restricted and the distributions credited may be cancelled in whole or part. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994; amended 2007, No. 190 (Adj. Sess.), § 86, eff. June 6, 2008.)

• § 6.22. Liability of shareholders

  (a) A purchaser from a corporation of its own shares is not liable to the corporation or its creditors with respect to the shares except to pay the consideration for which the shares were authorized to be issued (section 6.21) or specified in the subscription agreement (section 6.20).

  (b) A shareholder of a corporation is not personally liable for the acts or debts of the corporation except that he or she may become personally liable by reason of his or her own acts or conduct.

  (c) Any person becoming an assignee or transferee of shares or of a subscription for shares in good faith and without knowledge or notice that the full consideration therefor has not been paid shall not be personally liable to the corporation or its creditors for any unpaid portion of such consideration.

  (d) An executor, administrator, conservator, guardian, trustee, assignee for the benefit of creditors, or receiver shall not be personally liable to the corporation as a holder of or subscriber to shares of a corporation but the estate and funds in his or her hands shall be liable to the corporation as a holder of or subscriber to the shares of a corporation.

  (e) No pledgee or other holder of shares as collateral security shall be personally liable as a shareholder. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 6.23. Share dividends

  (a) Unless the articles of incorporation provide otherwise, shares may be issued pro rata and without consideration to the corporation’s shareholders or to the shareholders of one or more classes or series. An issuance of shares under this subsection is a share dividend.

  (b) Shares of one class or series may not be issued as a share dividend on shares of another class or series unless:

  (1) the articles of incorporation so authorize;

  (2) a majority of the votes entitled to be cast by the class or series to be issued approve the issue; or

  (3) there are no outstanding shares of the class or series to be issued.

  (c) If the board of directors does not fix the record date for determining shareholders entitled to a share dividend, it is the date the board of directors authorizes the share dividend. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 6.24. Share options

  (a) A corporation may issue rights, options, or warrants for the purchase of shares or other securities of the corporation. The board of directors shall determine:

  (1) the terms upon which the rights, options, or warrants are issued; and

  (2) the terms, including the consideration for which the shares or other securities are to be issued.

  (b) The authorization by the board of directors for the corporation to issue such rights, options, or warrants constitutes authorization of the issuance of the shares or other securities for which the rights, options, or warrants are exercisable.

  (c) The terms and conditions of such rights, options, or warrants, including those outstanding on the effective date of this section, may include, without limitation, restrictions or conditions that:

  (1) preclude or limit the exercise, transfer, or receipt of such rights, options, or warrants by any person or persons owning or offering to acquire a specified number or percentage of the outstanding shares or other securities of the corporation or by any transferee or transferees of any such person or persons; or

  (2) invalidate or void such rights, options, or warrants held by any such person or persons or any such transferee or transferees. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994; amended 2007, No. 190 (Adj. Sess.), § 87, eff. June 6, 2008.)

• § 6.25. Form and content of certificates

  (a) Shares may but need not be represented by certificates. Unless this title or other statute expressly provides otherwise, the rights and obligations of shareholders are identical whether or not their shares are represented by certificates.

  (b) At a minimum each share certificate must state:

  (1) on its face, the name of the issuing corporation and that it is organized under the law of this State;

  (2) on its face, the name of the person to whom issued; and

  (3) on its face, the number and class of shares and the designation of the series, if any, the certificate represents; and

  (4) on its face or on its back, the existence of restrictions on transfers of shares, if any, as provided in section 6.27 of this title.

  (c) If the issuing corporation is authorized to issue different classes of shares or different series within a class, the following designations, rights, preferences, and limitations shall be summarized on the front or back of each certificate. Alternatively, each certificate may state conspicuously on its front or back that the corporation will furnish the shareholder this information on request in writing and without charge:

  (1) the designations, relative rights, preferences, and limitations applicable to each class; and

  (2) the variations in rights, preferences, and limitations determined for each series (and the authority of the board of directors to determine variations in future series); and

  (3) the corporation’s right, if any, to make distributions pursuant to subdivision 6.40(c)(2) of this title which may impair preferential rights.

  (d) Each share certificate:

  (1) must be signed (either manually or in facsimile) by two officers designated in the bylaws or by the board of directors; and

  (2) may bear the corporate seal or its facsimile.

  (e) If the person who signed (either manually or in facsimile) a share certificate no longer holds office when the certificate is issued, the certificate is nevertheless valid. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 6.26. Shares without certificates

  (a) Unless the articles of incorporation or bylaws require that shares shall be represented by certificates, the board of directors of a corporation may authorize the issue of some or all of the shares of any or all of its classes or series without certificates. The authorization does not affect shares already represented by certificates until they are surrendered to the corporation.

  (b) Within a reasonable time after the issue or transfer of shares without certificates, and at least annually thereafter, the corporation shall send the shareholder a written statement of the information required on certificates by subsections 6.25(b) and (c), and, if applicable, section 6.27 of this title. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

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

  (a) The articles of incorporation, bylaws, an agreement among shareholders, or an agreement between shareholders and the corporation may impose restrictions on the transfer or registration of transfer of shares of the corporation. A restriction does not affect shares issued before the restriction was adopted unless the holders of such shares agree in writing to the restriction, or voted in favor of the restriction.

  (b) A restriction on the transfer or registration of transfer of shares is valid and enforceable against the holder or a transferee of the holder if the restriction is authorized by this section and its existence is noted conspicuously on the front or back of the certificate or is contained in the information statement required by subsection 6.26(b) of this title. Unless so noted, a restriction is not enforceable against a person without knowledge of the restriction.

  (c) A restriction on the transfer or registration of transfer of shares is authorized:

  (1) to maintain the corporation’s status when it is dependent on the number or identity of its shareholders;

  (2) to preserve exemptions under federal or state securities law;

  (3) for any other reasonable purpose.

  (d) A restriction on the transfer or registration of transfer of shares may:

  (1) obligate the shareholder first to offer the corporation or other persons (separately, consecutively, or simultaneously) an opportunity to acquire the restricted shares;

  (2) obligate the corporation or other persons (separately, consecutively, or simultaneously) to acquire the restricted shares;

  (3) require the corporation, the holders of any class of its shares, or another person to approve the transfer of the restricted shares, if the requirement is not manifestly unreasonable;

  (4) prohibit the transfer of the restricted shares to designated persons or classes of persons, if the prohibition is not manifestly unreasonable.

  (e) For purposes of this section, “shares” include a security convertible into or carrying a right to subscribe for or acquire shares. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 6.28. Expense of issue

  A corporation may pay the reasonable expenses of selling or underwriting its shares, and of organizing or reorganizing the corporation, from the consideration received for shares. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• Subchapter 003: Subsequent Acquisition of Shares

• § 6.30. Shareholders’ preemptive rights

  (a) The shareholders of a corporation do not have a preemptive right to acquire the corporation’s unissued shares unless the articles of incorporation contain a statement that “the corporation elects to have preemptive rights,” or words of similar import.

  (b) A corporation electing to have preemptive rights may include in its articles of incorporation a statement prescribing the type and extent of preemptive rights granted to the shareholders. The statement may include, modify, or exclude any of the terms provided under subdivisions (1) through (6) of this subsection. If the articles of incorporation of a corporation electing to have preemptive rights do not include a statement prescribing the preemptive rights, the following terms shall apply:

  (1) The shareholders of the corporation have a preemptive right, granted on uniform terms and conditions prescribed by the board of directors to provide a fair and reasonable opportunity to exercise the right, to acquire proportional amounts of the corporation’s unissued shares upon the decision of the board of directors to issue them.

  (2) A shareholder may waive his or her preemptive right. A waiver evidenced by a writing is irrevocable even though it is not supported by consideration.

  (3) There is no preemptive right with respect to:

  (A) shares issued as compensation to directors, officers, agents, or employees of the corporation, its subsidiaries or affiliates;

  (B) shares issued to satisfy conversion or option rights created to provide compensation to directors, officers, agents, or employees of the corporation, its subsidiaries or affiliates;

  (C) shares authorized in articles of incorporation that are issued within six months from the effective date of incorporation;

  (D) shares sold otherwise than for money.

  (4) Holders of shares of any class without general voting rights but with preferential rights to distributions or assets have no preemptive rights with respect to shares of any class.

  (5) Holders of shares of any class with general voting rights but without preferential rights to distributions or assets have no preemptive rights with respect to shares of any class with preferential rights to distributions or assets unless the shares with preferential rights are convertible into or carry a right to subscribe for or acquire shares without preferential rights.

  (6) Shares subject to preemptive rights that are not acquired by shareholders may be issued to any person for a period of one year after being offered to shareholders at a consideration set for the exercise of preemptive rights. An offer at a lower consideration or after the expiration of one year is subject to the shareholders’ preemptive rights.

  (c) For purposes of this section, “shares” include a security convertible into or carrying a right to subscribe for or acquire shares. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 6.31. Corporation’s power to acquire its own shares

  (a) A corporation may acquire its own shares and shares so acquired constitute authorized but unissued shares.

  (b) If the articles of incorporation prohibit the reissue of acquired shares, the number of authorized shares is reduced by the number of shares acquired, effective upon amendment of the articles of incorporation.

  (c) The board of directors may adopt articles of amendment under this section without shareholder action and deliver them to the Secretary of State for filing. The articles must set forth:

  (1) the name of the corporation;

  (2) the reduction in the number of authorized shares, itemized by class and series; and

  (3) the total number of authorized shares, itemized by class and series, remaining after reduction of the shares. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• Subchapter 004: Distributions

• § 6.40. Distributions to shareholders

  (a) A board of directors may authorize and the corporation may make distributions to its shareholders subject to restriction by the articles of incorporation and the limitation in subsection (c) of this section.

  (b) If the board of directors does not set the record date for determining shareholders entitled to a distribution (other than one involving a repurchase or reacquisition of shares), it is the date the board of directors authorizes the distribution.

  (c) No distribution may be made if, after giving it effect:

  (1) the corporation would not be able to pay its debts as they become due in the usual course of business; or

  (2) the corporation’s total assets would be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution.

  (d) The board of directors may base a determination that a distribution is not prohibited under subsection (c) of this section on financial statements prepared on the basis of generally accepted accounting practices and principles, or on the basis of professional appraisals, or on the basis of any other method that is reasonable under the circumstances.

  (e) The effect of a distribution under subsection (c) of this section is measured:

  (1) in the case of distribution by purchase, redemption, or other acquisition of the corporation’s shares, as of the earlier of:

  (A) the date money or other property is transferred or debt incurred by the corporation; or

  (B) the date the shareholder ceases to be a shareholder with respect to the acquired shares;

  (2) in the case of any other distribution of indebtedness, as of the date the indebtedness is distributed;

  (3) in all other cases, as of:

  (A) the date the distribution is authorized if the payment occurs within 120 days after the date of authorization; or

  (B) the date the payment is made if it occurs more than 120 days after the date of authorization.

  (f) A corporation’s indebtedness to a shareholder incurred by reason of a distribution made in accordance with this section is at parity with the corporation’s indebtedness to its general, unsecured creditors except to the extent subordinated by agreement. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)