AI-assisted research summary: Transfer restrictions on a corporation’s security are valid if they reasonably require notice, purchase rights, consent or approval, limits on transferees, or arrangements that maintain certain tax or corporate-status advantages.
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. Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006. Amended by: Acts 2005, 79th Leg., Ch. 64 (H.B. 1319), Sec. 49, eff. January 1, 2006. Acts 2007, 80th Leg., R.S., Ch. 688 (H.B. 1737), Sec. 71, eff. September 1, 2007.