The Vermont Statutes Online

Title 11A: Vermont Business Corporations

Chapter 020: Close Corporations

• § 20.01. Law applicable

  This chapter shall apply only to close corporations organized under this chapter. The provisions of this title other than those set forth in this chapter shall apply to close corporations in the absence of a contrary or inconsistent provision in this chapter. A corporation whose status as a close corporation terminates shall immediately become subject to the obligations and rights of a general corporation as provided in this title. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 20.02. Close corporation defined

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

  (1) Include the following statement: “This corporation is a close corporation”.

  (2) Contain the provisions required by subsection 2.02(a) of this title.

  (3) Provide that all of the corporation’s issued and outstanding stock of all classes shall be held of record by not more than a specified number of persons, not exceeding 35. The method of counting the permitted number of holders of record of the stock of a close corporation shall be that provided in section 1.42 of this title.

  (4) Provide that each certificate for shares shall conspicuously note the fact that the corporation is a close corporation.

  (5) Provide that each certificate for shares shall conspicuously note the following provisions or state that the following provisions exist and that the corporation will furnish to any shareholder upon request and without charge, a full statement of such provisions:

  (A) provisions, if any, set forth in the articles of incorporation and imposing restrictions on the transfer of shares;

  (B) provisions, if any, set forth in the articles of incorporation and permitting dissolution of the corporation upon the occurrence of a specified event or contingency pursuant to section 20.13 of this title;

  (C) provisions, if any, set forth in the articles of incorporation and permitting the shareholders to limit the powers of the board of directors or to manage the corporation without a board of directors pursuant to section 20.08 or 20.09 of this title.

  (6) Provide that the corporation shall make no offering of any of its shares of any class which would constitute a “public offering” within the meaning of the U.S. Securities Act of 1933 (15 U.S.C. § 77 et seq.).

  (7) Provide that all of the corporation’s issued and outstanding shares of all classes shall be represented by certificates and shall conform in form and content to the requirements of section 6.25 of this title. (Added 1993, No. 85, § 2, eff. 1, 1994.)

• § 20.03. Incorporation of a close corporation

  A close corporation shall be formed in accordance with sections 2.01, 2.02, 2.03, and 2.05 of this title, except that its articles of incorporation shall also contain the provisions required by section 20.02 of this title. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

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

  (a) Any corporation organized under this title may become a close corporation by executing and filing, in accordance with sections 10.01-10.09 of this title, an article of amendment to its articles of incorporation, which shall contain the provisions required by section 20.02 of this title.

  (b) Such amendment shall be adopted in accordance with the requirements of section 10.03 of this title, provided that it must be approved by a vote of at least two-thirds of the outstanding shares of the corporation, and provided further that if any class of shares is entitled to vote as a group, approval shall require the affirmative vote of the holders of at least two-thirds of the outstanding shares of each voting group and the affirmative vote of the holders of at least two-thirds of the total outstanding shares.

  (c) If the amendment is approved by the requisite vote, any shareholder who voted against the amendment shall be entitled to assert dissenters’ rights as provided in sections 13.01-13.28 of this title. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 20.05. Additional articles of incorporation

  (a) The articles of incorporation of a close corporation may set forth reasonable qualifications of stockholders, either by specifying classes of persons who shall be entitled to be holders of shares of any class, or by specifying classes of persons who shall not be entitled to be holders of shares of any class, or both.

  (b) All of the issued stock of all classes may be subject, without limitation, to one or more of the following restrictions on transfer:

  (1) any or all restrictions provided in section 6.27 of this title;

  (2) a restriction on the transfer of shares for the purpose of maintaining the corporation’s status as an electing small business corporation under subchapter S of the U.S. Internal Revenue Code (26 U.S.C.A. § 1361 et seq.) as amended or of maintaining any other tax status or election of the corporation;

  (3) a restriction on the transfer of shares for the purpose of maintaining its status as an electing close corporation under this chapter; or

  (4) any other lawful restriction on transfer or registration of transfer of securities which is permitted by this chapter. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 20.06. Bylaws

  A close corporation need not adopt bylaws if provisions required by law to be contained in bylaws are contained in either the articles of incorporation or a shareholder agreement authorized by section 20.07 of this title. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 20.07. Annual meeting

  (a) The annual meeting date for a close corporation is the first business day after February 1 unless its articles of incorporation, bylaws, or a shareholder agreement authorized by section 20.09 of this title fixes a different date.

  (b) A close corporation need not hold an annual meeting unless one or more shareholders deliver written notice to the corporation requesting a meeting at least 30 days before the meeting date determined under subsection (a) of this section. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 20.08. Elimination of board of directors

  (a) A close corporation may operate without a board of directors as required by section 8.03 of this title only if its articles of incorporation contain a statement to that effect and contain a statement that the liability of directors imposed by law is instead imposed upon each person in whom the board’s power is vested.

  (b) An amendment to the articles of incorporation eliminating a board of directors must be approved by all the shareholders of the corporation, whether or not otherwise entitled to vote on amendments, or if no shares have been issued, by all the subscribers for shares, if any, or if none, by all the incorporators.

  (c) While a corporation is operating without a board of directors as authorized by subsection (a) of this section:

  (1) all corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation managed under the direction of, the shareholders;

  (2) unless the articles of incorporation provide otherwise:

  (A) action requiring director approval or both directors and shareholder approval is authorized if approved by the shareholders;

  (B) action requiring a majority or greater percentage vote of the board of directors is authorized if approved by the majority or greater percentage, respectively as the case may be, of the votes of shareholders entitled to vote on the action;

  (3) a shareholder is not liable for his or her act or omission, although a director would be, unless the shareholder was entitled to vote on the action;

  (4) a requirement by a state or the United States that a document delivered for filing contain a statement that a specified action has been taken by the board of directors is satisfied by a statement that the corporation is a close corporation without a board of directors and that the action was approved by the shareholders lawfully acting in the place of directors; and

  (5) the shareholders by resolution may appoint one or more shareholders to sign documents as “designated directors.”

  (d) An amendment to the articles of incorporation deleting the statement eliminating a board of directors shall be approved by the holders of at least two-thirds of the votes of each voting group of the corporation, voting as separate voting groups, whether or not otherwise entitled to vote on amendments. The amendment shall also specify the number, names and addresses of the corporation’s directors or describe who will perform the duties of a board under section 8.01 of this title. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 20.09. Shareholder agreements

  (a) If the articles of incorporation so provide pursuant to section 20.02(5)(C) of this title, all the shareholders of a close corporation may agree in writing to regulate the exercise of the corporate powers and the management of the business and affairs of the corporation or the relationship among the shareholders of the corporation.

  (b) An agreement authorized by this section may:

  (1) eliminate a board of directors;

  (2) restrict the discretion or powers of the board or authorize director proxies or weighted voting rights; or

  (3) create a relationship among the shareholders or between the shareholders and the corporation that would otherwise be appropriate only among partners.

  (c) If the corporation has a board of directors, an agreement authorized by this section restricting the discretion or powers of the board relieves directors of the liability imposed on directors by law, to the extent that the discretion or powers of the board are governed by the agreement. In such circumstances, liability is imposed on each person in whom the board’s discretion or power is vested.

  (d) A provision eliminating or restricting a board of directors in an agreement authorized by this section is not effective unless the articles of incorporation contain a statement to that effect and contain a statement that the liability of directors imposed by law is instead imposed upon each person in whom the board’s power is vested.

  (e) A provision entitling one or more shareholders to dissolve the corporation under section 20.13 of this title is effective only if a statement of this right is contained in the articles of incorporation.

  (f) To amend an agreement authorized by this section, all the shareholders must approve the amendment in writing unless the agreement provides otherwise.

  (g) Subscribers for shares may act as shareholders with respect to an agreement authorized by this section if shares are not issued when the agreement is made.

  (h) This section does not prohibit any other agreement between or among shareholders in a close corporation except to the extent specifically stated in this chapter. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 20.10. Merger or consolidation

  (a) A plan of merger that if effected would terminate the close corporation status of a corporation shall be approved by a vote of at least two-thirds of the votes of the outstanding shares of such corporation, provided that if any class of shares is entitled to vote as a group, the plan of merger or consolidation shall be approved by the affirmative vote of the holders of at least two-thirds of the outstanding shares of each voting group and the affirmative vote of the holders of at least two-thirds of the total outstanding shares.

  (b) A plan of merger that if effected would create the surviving corporation as a close corporation shall be approved by a vote of at least two-thirds of the votes of the outstanding shares of each close corporation, provided that if any class of shares of any such corporation is entitled to vote as a group, the plan of merger or consolidation shall be approved by the affirmative vote of the holders of at least two-thirds of the outstanding shares of each voting group and the affirmative vote of the holders of at least two-thirds of the total outstanding shares.

  (c) If the plan of merger is approved by the required vote, any shareholder who voted against the plan shall be entitled to assert dissenters’ rights as provided in sections 13.01 through 13.28 of this title. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 20.11. Limitations on continuation of close corporation status

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

  (1) the close corporation files with the Secretary of State articles of amendment deleting from its articles of incorporation any or all of the provisions required by section 20.02 of this title; or

  (2) one or more of the provisions or conditions required by section 20.02 of this title has been breached and neither the corporation nor any of its shareholders proceed under section 20.14 of this title to prevent the loss of status. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

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

  (a) A corporation may voluntarily terminate its status as a close corporation and cease to be subject to this chapter by amending its articles of incorporation to delete any or all of the provisions required by section 20.02 of this title in addition to the provisions required by section 2.02 of this title to be stated in the articles of incorporation of a close corporation. Any such amendment shall be adopted and shall become effective in accordance with sections 10.01-10.09 of this title and shall be approved by the higher of the vote required by the articles of incorporation or by subsection (c) of this section.

  (b) If the amendment is approved by the required vote, any shareholder who voted against the amendment shall be entitled to assert dissenters’ rights as provided in sections 13.01-13.28 of this title.

  (c) An amendment to terminate the status of a close corporation must be approved by a vote of at least two-thirds of the outstanding shares of the corporation, provided that if any class of shares is entitled to vote as a group, approval shall require the affirmative vote of the holders of at least two-thirds of the outstanding shares of each voting group and the affirmative vote of the holders of at least two-thirds of the total outstanding shares. The articles of incorporation of a close corporation may provide that on any amendment to terminate its status as a close corporation, a unanimous vote or any vote greater than two-thirds of the shares or of any voting group shall be required; and, if the articles of incorporation contain such a provision, that provision shall not be amended, repealed, or modified by any vote less than that so required to terminate the corporation’s status as a close corporation. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 20.13. Shareholders’ option to dissolve corporation

  (a) The articles of incorporation of any close corporation may include a provision granting to any shareholder, or to the holders of any specified number or percentage of shares of any class, an option to have the corporation dissolved upon the occurrence of any specified event or contingency. Whenever any such option to dissolve is exercised, the shareholders exercising such option shall give written notice thereto to all other shareholders. After the expiration of 30 days following the sending of such notice, the dissolution of the corporation shall proceed as if the required number of shareholders having voting power had consented in writing to dissolution of the corporation.

  (b) If the articles of incorporation as originally filed do not contain a provision authorized by subsection (a) of this section, the articles of incorporation may be amended to include such provision if adopted by the affirmative vote of the holders of record of all the outstanding shares of each class of the corporation.

  (c) Every share certificate representing shares issued by a close corporation whose articles of incorporation authorize dissolution as permitted by this section shall conspicuously note on the face or back thereof the existence of the provision. Unless noted conspicuously on the face or back of the share certificate, the provision shall be ineffective.

  (d) Dissolution of a close corporation pursuant to section 14.02 of this title shall require the affirmative vote of the holders of at least two-thirds of the outstanding shares of each voting group, and the affirmative vote of the holders of at least two-thirds of the total outstanding shares. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

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

  (a) A close corporation shall notify all shareholders of any event which would render the corporation no longer eligible to organize as a close corporation under the requirements of section 20.02 of this title. Such notification shall be made within 30 days of the discovery of the event. If shareholders are not notified within one year of the discovery of the event, the corporation’s status as a close corporation shall terminate. If shareholders are notified within 30 days, they shall have 120 days after discovery of the event to remedy any breach, and if remedied, the corporation’s status as a close corporation shall be unaffected by the breach of any conditions under section 20.02. Commencement of a proceeding by a shareholder or by the corporation in Superior Court under subsection (b) of this section shall suspend the provisions of this subsection.

  (b) The Superior Court of the county in which the registered office of the corporation is located, upon the suit of the corporation or any shareholder thereof, shall have jurisdiction to issue all orders necessary to prevent the corporation from losing its status as a close corporation, or to restore its status as a close corporation by enjoining or setting aside any act or threatened act on the part of the corporation or a shareholder thereof which would be inconsistent with any of the provisions or conditions required by section 20.02 of this title to be stated in the articles of incorporation of a close corporation, unless it is an action approved in accordance with section 20.02 of this title. The superior court shall enjoin or set aside any transfer or threatened transfer of shares of a close corporation which is contrary to the terms of its articles of incorporation or of any transfer restriction permitted by subdivision 20.02(5)(A) and subsection 20.05(b) of this title.

  (c) A close corporation whose status has been terminated under this section may reinstate that status by correction of breach. Such reinstatement shall revive and validate all actions taken by a close corporation during its termination period, if such actions would otherwise have been legally binding on the corporation if it had never been terminated. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 20.15. Judicial dissolution

  (a) The Superior Court of the county in which the registered office of the corporation is located may entertain a petition of any shareholder for involuntary dissolution of any close corporation pursuant to sections 14.30-14.33 of this title.

  (b) Any one or more shareholders desiring to continue the business of a close corporation may avoid the dissolution of the corporation or the appointment of a trustee or receiver under this section by electing in a written instrument filed in the proceeding to purchase the shares of stock owned by the petitioner at a price equal to their fair value. If a shareholder or shareholders making such election are unable to reach an agreement with the petitioner as to the fair value of the petitioner’s shares within 30 days after the filing of such election, the court shall, upon said electing shareholders giving bond or other security in an amount fixed by the court, stay the proceeding and proceed to determine the fair value of such shares as of the close of the business on the day on which the petition for dissolution was filed. Upon determining the fair value of such shares, the court shall set forth in its order directing that the shares be purchased, the purchase price and the time within which the payment shall be made, and may decree such other terms and conditions of sale as it determines to be appropriate, including payment of the purchase price in installments over a period of time and the allocation of shares among shareholders electing to purchase them. The petitioner shall be entitled to interest at the legal rate on the purchase price of the petitioner’s shares from the date of the filing of the election for a determination of fair value and all other rights of the petitioner as an owner of the shares shall terminate at such date. Upon full payment of the purchase price, under the terms and conditions specified by the court, or at such other time as may be ordered by the court, the petitioner shall surrender the shares of stock to the purchasing shareholder or shareholders. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 20.16. Special voting requirements

  (a) Unless a provision of this chapter specifically provides otherwise, an amendment to the articles of incorporation shall be approved by a vote of at least two-thirds of the votes of the outstanding shares of such corporation, provided that if any class of shares is entitled to vote as a group, the amendment shall be approved by the affirmative vote of at least two-thirds of the outstanding shares of such voting group and the affirmative vote of at least two-thirds of the total outstanding shares.

  (b) Unless the articles of incorporation provide otherwise or unless a section of this chapter specifically provides otherwise, merger, share exchange, or sale of substantially all of the assets of the corporation other than in the ordinary course of business shall be approved by a vote of at least two-thirds of the votes of the outstanding shares of such corporation, provided that if any shares are entitled to vote as a group, the action shall be approved by the affirmative vote of at least two-thirds of the outstanding shares of each voting group entitled to vote as a group and the affirmative vote of at least two-thirds of the total outstanding shares.

  (c) If the articles of incorporation contain specific authority to do so, approval under this section may be by a vote of at least a majority of the votes of the outstanding shares of such corporation, provided that if any shares are entitled to vote as a group, the action shall be approved by the affirmative vote of at least a majority of the outstanding shares of each voting group entitled to vote as a group and the affirmative vote of at least a majority of the total outstanding shares. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)