Small Business Taxes & Management


Restriction on Transferability of Shares

Sample text to be added to the bylaws:

Article Nine: No present or future shareholder of the corporation shall encumber or dispose of the shares of the corporation which he now owns or may acquire, except as follows:

(a) Any shareholder who desires to sell all or any part of such shares shall first offer in writing such shares for sale to the corporation at the same price and on the same terms offered to such shareholder by a bona fide prospective purchaser of such shares. The corporation shall have the option for thirty (30) days after its receipt of such written offer to accept such offer. If, within such period, the corporation shall fail to accept such offer, its option hereunder to such offer shall terminate. Thereupon, the shareholder so desiring to sell all or part of his shares shall make the same offer to all of the other then shareholders of the corporation (as a group), and shall give written notice of such offer to all of the other then shareholders. Such other shareholders shall have the option for thirty (30) days after their receipt of such offer to accept such offer in such proportions among themselves as they may agree, and if they do not agree, then each such shareholder who desires to accept such offer shall have the right to purchase such a fraction of such shares equal to the number of shares owned by the shareholder to the total number of shares owned by all shareholders who desire to accept such offer.

If no shareholder or shareholders exercise such option within the thirty-day period, then the shareholder desiring to sell shall have the right for a period ending on the sixtieth (60th) day after the expiration of the thirty-day period, to sell such shares to, and only to, the aforesaid bona fide prospective purchaser in the same quantity, at the same price, and on the same terms as were offered to the other shareholders and/or the corporation.

(b) Any shareholder may transfer any part or all of such stock by testate direction or intestate distribution at the time of his death to or for the benefit of any person or persons, or by gift to, or in trust for the benefit of, himself, his spouse, his parent or parents, or any descendent or descendants of his. In case of any such transfer, the legatees, heirs, next of kin, donees, or other transferees shall receive and hold such shares subject to the restrictions on encumbrance and disposition set forth in this Article Nine.

Sample text to be put on the stock certificate:
No shareholder may encumber or dispose of his shares except (1) by sale if such shareholder first offers his shares to the corporation, or to the other shareholders, on the same terms as such shareholder can sell to a bona fide prospective purchaser and (2) by gift, bequest, or intestate descent to, or in trust for, certain described members of such shareholder's family. The complete terms of the restriction are contained in Article Nine of the bylaws of Madison Inc.

Copyright 1999 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The information is not necessarily a complete
summary of all materials on the subject.--ISSN 1089-1536

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--Last update 06/13/99