O'Neal's Close Corporations: Law and Practice
O'Neal's Close Corporations: Law and Practice
Third Edition
by F. Hodge O'Neal and Robert B. Thompson
Published by West Group -- Clark Boardman Callaghan
Table of Contents
VOLUME 1
Chapter 1 - Distinctive Needs of Close Corporations
Section 1.01 Scope of Chapter and Treatise
Section 1.02 Definitions
Section 1.03 Size Not Determinative
Section 1.04 Distinguished from "Closed" and "Closely Held" Corporations and
"Statutory Close Corporations"
Section 1.05 Variations of Close Corporations: One-Person and Family
Corporations; Subsidiary Corporations
Section 1.06 - Joint Venture Corporations
Section 1.07 Typical Business Situations Giving Rise to Close Corporations
Section 1.08 Normal Attributes of Close Corporation
Section 1.09 Characteristics of Corporate Form Advantageous in Closely Held
Enterprise: Separate Juridical Existence and Limited Shareholder
Liability
Section 1.10 Disregarding Separate Personality of Close Corporations
Section 1.11 Officer and Director Liability for Wrongful Action Taken in Corporate
Capacity
Section 1.12 Characteristics of Corporate Form Disadvantageous to Closely Held
Enterprises
Section 1.13 Close Corporations Within Traditional Statutes Oriented Toward Large
Corporations
Section 1.14 Modifying Traditional Corporate Attributes: Free Transferability of
Shares
Section 1.15 Modifying Traditional Corporate Attributes: Centralized Control in
Board Elected by Majority
Section 1.16 Modifying Traditional Corporate Attributes: Entity Permanence and
Remedies for Dissension
Section 1.17 Modifying Traditional Corporate Norms: Corporate Formalities
Section 1.18 Statutory Close Corporation Supplements; Election to Come Under
Special Statues
Section 1.19 Number of Close Corporations Electing Statutory Close Corporation
Status
Section 1.20 Special Judicial Treatment of Close Corporations
Section 1.21 Statutory Provisions for Close Corporations: Some Criticisms and
Suggestions
Section 1.22 Overview of Different Law for Close Corporations
Section 1.23 Specialized Resources for Close Corporations
Chapter 2 - Steps Preceding Organization of a Close Corporation
Section 2.01 Scope of Chapter
Section 2.02 Lawyer's Representation of More Than One Participant in a Closely
Held Corporation
Section 2.03 Corporation or Other Business Organization
Section 2.04 Deciding Whether to Incorporate: Nontax Considerations
Section 2.05 Deciding Whether to Incorporate: Tax Considerations
Section 2.06 Corporation Taxed as Partnership: S Corporation
Section 2.07 "Section 1244 Stock" and Choice of Business Form
Section 2.08 Professional Corporation and the Choice of Business Form
Section 2.09 Statutory Close Corporation as Choice of Business Form
Section 2.10 Determining Number of Business Units to Use in Organizing
Section 2.11 Selecting State of Incorporation
Section 2.12 Choosing Name
Section 2.13 Financing and Capitalization
Section 2.14 Tax Advantages of Low Equity Capitalization; Ways of Keeping Equity
Low
Section 2.15 Dangers in Low Equity Capitalization
Section 2.16 Precautions That Strengthen Shareholders' Debt Claims Against
Corporation
Section 2.17 Possible Variations in Thin Incorporation
Section 2.18 Nontax Considerations in Choice Between Equity and Debt
Section 2.19 Applicability of Federal and State Securities Laws
Section 2.20 Deciding on the Number of Classes of Stock
Section 2.21 Possible Uses of Preferred Stock
Section 2.22 Par Value Shares; Shares Without Par Value; or Shares with Low Par
Value
Section 2.23 Initial Contributions to Corporation
Section 2.24 Getting Assets Into the Business with the Best Tax Result: Tax-Free
Incorporation
Section 2.25 Possible Disadvantages of Tax-Free Incorporation
Section 2.26 Avoiding Personal Holding Company Status
Section 2.27 Choice of Time to Incorporate; Selecting Taxable Year for Corporation
Section 2.28 Anticipating Difficulties That May Arise on Death of Shareholder
Section 2.29 Need for a Preincorporation Agreement
Chapter 3 - Molding the Corporate Form by Charter and Bylaw Provision
A. General Considerations
Section 3.01 Scope of Chapter
Section 3.02 Limiting Effect of Past Practices
Section 3.03 Necessity for Careful Drafting
B. Legal Controls on Contents of Charter
Section 3.04 Latitude Permitted by Corporation Statutes
Section 3.05 Administrative Control of Charter Clauses
C. Purpose and Powers Clauses
Section 3.06 Distinction Between Purpose and Powers Clauses
Section 3.07 Functions of Purpose Clause
Section 3.08 Current Practices Regarding Powers Clauses
Section 3.09 Dangers in Particularizing Powers
Section 3.10 Effect of Comprehensive Purpose and Powers Clauses; Use of
"Self-Denying " Clauses
D. Stock Clauses (With Emphasis on Variations and Combinations that Affect Control)
Section 3.11 Statutory Requirements and General Considerations
Section 3.12 One Class of Shares and Modifications of Traditional Pattern of
Corporation Management
Section 3.13 Control in a One-Person Company
Section 3.14 Giving Minority Interests Representation on Board of Corporation with
One Class of Stock
Section 3.15 Giving Veto Powers to Minority Shareholders in Corporation with One
Class of Stock
Section 3.16 Limitations on Voting Power of Any One Shareholder
Section 3.17 Classification of Stock and Problems of Control
Section 3.18 Nonvoting Stock and Stock with Limited Voting Rights
Section 3.19 Examples of Advantageous Use of Nonvoting Stock in Close
Corporations
Section 3.20 Caution to Observe in Using Nonvoting Stock
Section 3.21 Classification of Shares with All Shares Having Voting Rights
Section 3.22 Shares with Multiple Votes; Shares with Voting Power but No
Proprietary Rights
Section 3.23 Class Voting for Directors
Section 3.24 Precautions To Observe in Setting Up Class Voting
Section 3.25 Drafting Stock Clauses for One Class of Shares
Section 3.26 Difficulty of Drafting Clauses Setting Up Multiple Classes of Shares
Section 3.27 Designating Each Class of Stock by Set Name
Section 3.28 Ways of Grouping Stock Clauses
Section 3.29 Giving Content to Term "Preferred Stock"
Section 3.30 Stating Dividend Preferences
Section 3.31 "Participating" Preferred
Section 3.32 Cumulative and Noncumulative Dividends
Section 3.33 Stating Liquidation Preferences
Section 3.34 Making Preferred "Callable"
Section 3.35 Provision for Sinking Funds
Section 3.36 Shares with Conversion Rights and Share Warrants
Section 3.37 Voting Rights of Preferred
Section 3.38 Protecting Preferred Shareholders
Section 3.39 Strengthening Shareholders' Preemptive Rights
E. Optional Charter Clauses
Section 3.40 Scope of Subdivision
Section 3.41 Finding Statutory Basis for Optional Clauses
Section 3.42 Classes of Statutes Authorizing Optional Clauses
Section 3.43 Statutes Authorizing Particular Clauses
Section 3.44 Broadly Worded Statutes
Section 3.45 Indefinite Coverage of Broadly Worded Statutes
Section 3.46 Inconclusiveness of Decision Under One Statute as Authority in Another
Jurisdiction
Section 3.47 New York Cases
Section 3.48 Statutory Provisos Limiting Authorization to "Lawful" Provisions
Section 3.49 Requirements of "Lawfulness" and Charter Clauses Deviating from
Corporate Norms
Section 3.50 Requirements of "Lawfulness" and Charter Clauses Departing from
Common Law Rules
Section 3.51 Courts' Conclusion on Business Wisdom of Charter Clause as Affecting
Decision on Its Validity
Section 3.52 Charter Clauses Not Authorized by Statute
Section 3.53 Effect of Changing Conception of Nature of Corporation on Validity of
Optional Charter Clauses
Section 3.54 Caution Against Unquestioning Reliance on Authorities
Section 3:55 - Clauses Authorizing or Limiting Corporate Gifts to Surviving Spouse
or Dependents of Corporate Officers; Clauses Authorizing or
Restricting Dual Office Holding; Clauses Requiring Shareholder
Approval of Compensation; Clauses Giving Shareholder Power to
Dissolve Corporation
Section 3.56 Clauses Restricting Transferability of Stock
Section 3.57 Veto Provisions
Section 3.58 Clauses Requiring Cumulative Voting
Section 3.59 Clauses Empowering Shareholders to Remove Directors at Any Time
Section 3.60 Abolishing Board of Directors or Sharply Restricting Board's Powers
Section 3.61 Example of Combination of Clauses to Obtain Desired Distribution of
Control
Section 3.62 Clause Authorizing or Prohibiting Informal Operation of Corporation
Section 3.63 Clause Strengthening Shareholders' Rights to Inspect Books and
Records
Section 3.64 Clause Controlling Dividend Policy
Section 3.65 Clause on Preemptive Rights; Clauses Dealing with Corporate
Deadlocks
Section 3.66 Clause Validating Acts of Interested Directors and Officers
Section 3.67 Indemnification Clause; Provision Empowering Corporation to Purchase
Insurance to Cover Liability of Its Representatives or to Modify
Director's Duty of Care
Section 3.68 Clause Protecting Director Who Relies on Corporate Records
Section 3.69 Clause Authorizing Directors to Fix Their Own Compensation
Section 3.70 Unorthodox or "Personalized" Clause
F. Preparing the Bylaws
Section 3.71 Status of Bylaws
Section 3.72 Function of Bylaws
Section 3.73 Special Considerations in Drafting Bylaws for Close Corporation
Section 3.74 Latitude Permitted by Statutes
Section 3.75 Traditional Content of Bylaws
Section 3.76 Beintendi v. Kenton Hotel
G. Precautions That Increase Effectiveness of Charter and Bylaw Provisions
Section 3.77 Obtaining Unanimous Consent to Unusual Charter and Bylaw Provisions
Section 3.78 Protecting Charter and Bylaw Provisions Against Repeal or
Circumvention
Section 3.79 Deciding Whether to Place Provisions in Charter, in Bylaws, or in Some
Other Instrument
Section 3.80 Reference on Share Certificates to Unusual Charter or Bylaw Clauses
Chapter 4 - Charter and Bylaw Provisions Giving Shareholders a Veto Power
Section 4.01 Scope of Chapter
Section 4.02 Business Need for Veto Powers
Section 4.03 Scope of Veto Power and Variations in Business Need
Section 4.04 Methods of Providing a Veto
Section 4.05 Prerequisites Before Drafting Veto Provisions
Section 4.06 Veto of Shareholder Action - Matters on Which Shareholders
Participate
Section 4.07 - Supermajority Vote Requirements
Section 4.08 - Shares with Weighted Votes
Section 4.09 - Supermajority Quorum Requirements
Section 4.10 - Limitations on Action by Written Consent
Section 4.11 Veto of Director Action - Matters on Which Board Acts; Assuring
Shareholders of Representation on Board
Section 4.12 - Veto of Action by Executive and Other Committees
Section 4.14 Veto of Officer Action
Section 4.15 Implementation - Placement in Charter, Bylaws, or Shareholders'
Agreement
Section 4.16 - Enactment by Board of Directors or Shareholders
Section 4.17 - Enactment by Majority or Supermajority Vote
Section 4.18 - Notice on Share Certificates
Section 4.19 Using High Vote Requirements in Preference to Requirements of
Unanimity
Section 4.20 Guarding Against Repeal or Circumvention of Veto Provisions
Section 4.21 Consequences of Veto Provisions - Disadvantages and Limitations
Section 4.22 Limitation of Veto to Area of Business Need
Section 4.23 Necessity of Care in Framing Veto Provisions
Chapter 5 - Control Distribution Devices: Shareholders' Agreements, Voting Trusts, Irrevocable Proxies, and Management Contracts
A. Introduction
Section 5.01 Scope of Chapter
Section 5.02 Business Need for Shareholders' Agreements
Section 5.03 Forms Shareholders' Agreements May Take
Section 5.04 Grounds on Which Early Decision Invalidated Voting Agreements
Voting Trusts, and Irrevocable Proxies
Section 5.05 Idea that Shareholders Cannot be Partners or Joint Adventures
Inter Se
Section 5.06 Statutory Norms as Bases for Attacks on Shareholders' Agreements
Section 5.07 Modern Statutes Affecting Validity of Shareholders' Agreements
Section 5.08 Factors Affecting Validity of Shareholders' Agreements in Modern
Decisions
B. Shareholders' Agreements on Matters Traditionally Within Shareholder Domain
Section 5.09 Shareholders' Agreements to Pool Votes for Directors
Section 5.10 Agreements Giving Voting Power Disproportionate ot Shareholdings Section 5.11 Agreement to Vote Shares so as to Effectuate a Particular
Corporate Policy
Section 5.12 Shareholder's Understanding to Vote in Specified Way in
Consideration of Private Benefit
Section 5.13 Agreements Containing Irrevocable Proxies
Section 5.14 Statutes Affecting Validity of Irrevocable Proxies
Section 5.15 Voting Trusts
Section 5.16 Precautions to Observe in Drafting Voting Trust Agreements
Section 5.17 Effect of Voting Trust Statute on Validity of Other Control Agreements
Section 5.18 Respective Advantages and Disadvantages of Shareholders'
Agreements and Voting Trusts
Section 5.19 Conflict of Laws Rule Governing Validity of Shareholders' Agreements
and Voting Trusts
C. Shareholders' Agreements on Matters Traditionally Within Directors' Realm
Section 5.20 Agreements Which Limit Powers of Directors or Tend to Influence
Their Decisions
Section 5.21 Agreements Designating Corporate Officers and Determining Their
Compensation and Tenure
Section 5.22 Undertakings by Shareholders Assuring Permanent Employment by
Corporation
Section 5.23 Agreements Providing Veto Arrangements
Section 5.24 Agreements Controlling Dividend Policy or Providing for Distribution of
Corporate Assets or Profits
Section 5.25 Inclusion of Arbitration Clauses in Agreements
Section 5.26 Agreements Governing Dissolution, Buy-Outs and Other Remedies for
Deadlock
Section 5.27 Statutes Which Sanction Agreements Limiting Powers of Directors in
Statutory Close Corporations
D. Implementation of Shareholders' Agreements
Section 5.28 Removing Grounds of Attack on Agreements by Using Charter Clauses
or Carefully Complying with Statutory Requirements
Section 5.29 Placement of Shareholders' Agreements
Section 5.30 Agreements Among All Shareholders
Section 5.31 Purpose and Effect of Agreement as Determinants of Its Validity
Section 5.32 Length of Time Shareholders' Agreement or Voting Trust to Remain in
Effect as Factor Affecting Its Validity
Section 5.33 Severability of Illegal Parts of Shareholders' Agreements
Section 5.34 Desirability of Reducing Shareholders' Agreements to Writing
Section 5.35 Desirability of Causing Corporation to Become Party to Shareholders'
Agreement
Section 5.36 Assuring that Transferees of Shares Will be Informed of Shareholders'
Agreement and Will be Bound by It.
Section 5.37 Remedies Available for Breach of Valid Agreement
Section 5.38 Summary of Precautions to Observe in Drafting Shareholders'
Agreements
E. Other Types of Control Arrangements
Section 5.39 Testamentary Directions on Voting Shares
Section 5.40 Management Agreements and Other Corporate Contracts Delegating
Control
Section 5.41 Control Arrangements Utilizing Holding Company, Partnership,
or Jointly Owned Stock
Chapter 6 - Protecting the Tenure and Status of Shareholder-Employees and Key Personnel
Section 6.01 Scope of Chapter
Section 6.02 Need for Tenure and Security of Status
Section 6.03 Devices Useful in Giving an Employee Tenure and Status
Section 6.04 Giving and Employee Voting Control or Creating a Voting Trust to
Protect Him
Section 6.05 Usefulness of Term Employment Contact with Corporation in Providing
Security for Key Employees
Section 6.06 Validity of Employment Contract Extending Beyond Term of Board of
Directors
Section 6.07 Necessity of Clear Authorization to Bind Corporation to Long-Term
Employment
Section 6.08 Effect on Lifetime Employment Contracts of Various Statutes,
Particularly Those Authorizing Directors to Remove Corporate Officers
and Employees
Section 6.09 Effect on Employment Contract of Bylaw Authorizing Directors to
Remove Officers and Agents or Limiting Terms of Officers
Section 6.10 Avoiding Employment in Terms of an Elective Office
Section 6.11 What an Employment Agreement Should Contain
Section 6.12 Reasons for Reducing Employment Agreements to Writing
Section 6.13 Precautions that May Strengthen an Employment Agreement
Section 6.14 Shareholders' Agreements; Combinations of Shareholders' Agreements
and Employment Contracts
Section 6.15 Use of Irrevocable Proxy to Protect Employment
Section 6.16 Charter of Bylaw Provisions Requiring Unanimity or a High Vote to
Discharge Employee or Change His Compensation
Chapter 7 - Stock Transfer Restrictions: Buy-Out Arrangements
A. Introduction
Section 7.01 Scope of Chapter
Section 7.02 Why Transfer Restrictions May Be Needed
Section 7.03 Why Buy-Out Agreements May Be Needed
Section 7.04 General Suggestions on the Planning and Drafting Restrictions and
Buy-Outs
Section 7.05 Kinds of Restrictions on Transfers
B. Validity and Enforceability
Section 7.06 Statutes Authorizing Share Transfer Restrictions
Section 7.07 Factors Courts Consider in Determining Validity of Restrictions
Section 7.08 Validity of Consent Restraints and Similar Restrictions
Section 7.09 Validity of First Option and Similar Restraints
Section 7.10 Validity of Mandatory Buy-Outs or Redemptions
Section 7.11 Limitations if the Purchase is by the Corporation
Section 7.12 Necessity of Placing Restrictions on Share Certificates or Otherwise
Giving Notice
Section 7.13 Effect of Stock Transfer Restrictions on Non-consenting Shareholders
Section 7.14 Action By Majority Shareholders Seeking to Remove Transfer
Restrictions or Buy-Out Agreements.
Section 7.15 Application of Transfer Restrictions to Testamentary Transfers
Section 7.16 Application of Transfer Restrictions to Existing Shareholders or to
Family Members
Section 7.17 Application of Restrictions to Transfers in Divorce.
Section 7.18 Application of Transfer Restrictions to Pledges of Corporate Stock and
Other Creditor Transactions
Section 7.19 Application of Transfer Restrictions to Mergers, Sale of Assets or
Dissolution and Shareholder Petition for Involuntary Dissolution or
Relief for Oppression
Section 7.20 Fiduciary Duty as a Limit on Transfer Restrictions and Buy-Out
Agreements
Section 7.21 Federal Securities Laws: Challenges to Transfer Restrictions and
Buy-Out Agreements Based on Fraud
Section 7.22 Waiver of Restrictions or Agreements
Section 7.23 Who Speaks for the Corporation
Section 7.24 Choice of Law
Section 7.25 Enforcement of Restrictions and Agreements
C. Valuation
Section 7.26 Settings Transfer Price of Shares - General Discussion
Section 7.27 Setting Transfer Price of Shares: Use of Book Value
Section 7.28 Setting Transfer Price of Shares: Mutual Agreement on Price
Section 7.29 Setting Transfer Price of Shares: Market or Best-Offer Price
Section 7.30 Setting Transfer Price of Shares: Capitalizing Earnings
Section 7.31 Setting Transfer Price of Shares: Appraisal
Section 7.32 Setting Transfer Price of Shares: Miscellaneous Methods
Section 7.33 Setting Transfer Price of Shares: Combinations of Valuation Methods
D. Drafting and Implementation
Section 7.34 Instruments in Which Restrictive Provisions Should Be Placed
Section 7.35 Desirable Parties to a Restrictive Stock Agreement
Section 7.36 Necessity for Detailed Coverage in Drafting First Options and Other
Restrictive Provisions
Section 7.37 Fixing Time Limits Within Which Options Can Be Exercised
Section 7.38 Additional Matters to Cover in First Options
Section 7.39 Giving Option to Corporation Rather Than to Other Shareholders
Section 7.40 Use of Successive Options, Options Coupled with Obligation to
Purchase, or Successive Obligations to Purchase
Section 7.41 Combining First Options and Buy-Out Arrangements; Protecting the
Estate of a Deceased Shareholder
Section 7.42 Combining First Options, Buy-Outs or Both with Special Dissolution
Arrangements
Section 7.43 Desirability of a Disability Buy-Out
Section 7.44 Providing for Payment of Transfer Price (Including Use of Business
Insurance)
Section 7.45 Inclusion of Business Insurance in Valuation of Deceased's Interest in
the Business
Section 7.46 Corporate, Business, and Income Tax Considerations Involved in
Choice Between Shareholder Cross-Purchase Agreement and
Corporation Stock-Purchase Agreement
Section 7.47 Estate and Gift Tax Consequences of Share Transfer Restrictions and
Buy-Out Arrangements
Section 7.48 Outline and Checklist for Stock-Purchase Agreement Funded with
Insurance
VOLUME 2
Chapter 8 - Problems of Operation: Limited Liability, Separate Entity and Centralized Control
A. Introduction
Section 8.01 Scope of Chapter
Section 8.02 Disregard of Corporate Ritual and Neglect of Paperwork in Close
Corporations
B. Who Speaks for the Corporation
Section 8.03 Legal Requirements for Formal and Informal Director and
Shareholder Action
Section 8.04 Powers of Corporate Officers
Section 8.05 Ultra Vires
C. Personal Liability of Corporate Participants
Section 8.06 Failure to Disclose Corporate Principal or to Properly Specify
Corporate Capacity
Section 8.07 Liability for Corporations Not Yet Formed or Defectively Incorporated
Section 8.08 Personal Liability for Dissolved Corporations
Section 8.09 Corporate Distributions
Section 8.10 Personal Liability for Tortious or Other Wrongful Action Taken in the
Corporate Name
Section 8.11 Piercing the Corporate Veil
Section 8.12 Precautions that Strengthen the Shield of Limited Liability
D. Shareholder Disputes
Section 8.13 Oppression of Minority Shareholders
Section 8.14 Legal Principles Applicable to Squeeze-Outs; Corporate Structure and
Advance Planning to Balance Majority and Minority Rights
Section 8.15 Judicial Role in Shareholder Disputes
Section 8.16 Direct v. Derivative Suits; Individual Recovery in Derivative Suits
Section 8.17 Compelling Declaration of Dividends
Section 8.18 Dilution of Minority Shareholders' Interests Through Issuance of New
Stock
Section 8.19 Duty of Shareholder-Director-Officer To Disclose Information Affecting
Value of Shares Before Purchasing Them - State Law
Section 8.20 Remedies of Aggrieved Buyer or Seller of Shares under Federal
Legislation and Regulations
Section 8.21 Officer Authority in Intracorporate Decisions
E. Executive Compensation
Section 8.22 Difficulty of Finding Procedure to Fix Compensation of
Shareholder-Director-Officers
Section 8.23 Contingent and Deferred Compensation: Bonuses, Profit-Sharing, Stock
Options and Pension
Section 8.24 Equitable Limitations on Compensation
Section 8.25 Amount of Executive Compensation Deductible for Income Tax
Purposes
Section 8.26 Precautions Which Protect Status of Shareholder-Executives'
Compensation as Deductible Business Expense
Section 8.27 Corporate Payments to Survivors of Deceased Executives: Legality and
Tax Treatment
F. Other Operational Issues
Section 8.28 Taxation of Close Corporations - Survey of Tax Treatment and
Problems
Chapter 9 - Problems of Dissension, Deadlock and Dissolution
A. General Considerations
Section 9.01 Scope of Chapter
Section 9.02 Problems of Dissension, Oppression and Deadlock
Section 9.03 Possible Approaches to the Problems
B. Contractual Arrangements and Special Charter and Bylaw Provisions as Aids in Removing Dissension and Resolving Deadlocks
Section 9.04 Kinds of Provisions that May be Useful
Section 9.05 Use of Buy-Out Arrangements
Section 9.06 Use of Special Dissolution Provisions
Section 9.07 Voting Trusts, "Peace Treaties", Deadlock-Breaking Class of Stock,
and Miscellaneous Arrangements
C. Arbitration as a Device for Resolving Intracorporation Controversies
Section 9.08 Scope of Subdivision
Section 9.09 The Hope Which Arbitration Offers
Section 9.10 Types of Disputes in Which Arbitration Is Used
Section 9.11 Pros and Cons on Use of Arbitration
Section 9.12 Necessity of Careful Study of Statutes and Decisions
Section 9.13 Necessity of Making Provision for Arbitration in Advance
Section 9.14 Allowable Limits of Arbitration at Common Law and Under Statute
Section 9.15 Corporate Concepts and Statutory Norms Which Furnish Bases for
Challenging Arbitration Arrangements
Section 9.16 Legal Developments in New York Relating to Intracorporate Arbitration
Section 9.17 Cases Outside New York Relating to Intracorporate Arbitration
Section 9.18 Guarding Against Circumvention of Arbitration by Dissolution
Section 9.19 Guarding Against Circumvention of Arbitration by Litigation
Section 9.20 Instruments in Which Arbitration Clauses Should be Placed
Section 9.21 Desirable Parties to Arbitration Arrangements
Section 9.22 Selection of Arbitrators
Section 9.23 Drafting Arbitration Clauses
Section 9.24 Guarding Against Invalidity of Principal Contract
Section 9.25 Summary on Arbitration
D. Dissolution in Absence of Special Contractual Arrangements; Statutory and Judicial Alternatives to Dissolution
Section 9.26 Statutory and Judicial Alternatives for Corporations Wracked by
Dissention
Section 9.27 Voluntary Dissolution
Section 9.28 Dissolution-on-Deadlock Statutes
Section 9.29 Relief Based on Fraud, Waste, Oppression or Similar Conduct; Statutes
Listing Broad Grounds for Relief
Section 9.30 Reasonable Expectations as a Basis for Relief
Section 9.31 Appointment of a Receiver
Section 9.32 Alternatives to Dissolution: Provisional Director
Section 9.33 Alternatives to Dissolution: Custodian
Section 9.34 Alternatives to Dissolution: Buy-Out
Section 9.35 Alternatives to Dissolution: Judicial Ordering of Other Corporate
Action
Section 9.36 Statutory Close Corporation Provisions
Section 9.37 Relationship of Statutory Remedies with Each Other and with Equitable
Remedies
Section 9.38 Effect of Shareholders' Agreement on Statutory and Judicial Remedies
Chapter 10 - Specimen Provisions for Charters, Bylaws, Shareholders' Agreements and Other Documents
Section 10.01 Scope of Chapter
Section 10.02 Forms versus Individualized Drafting
A. Charters and Charter Clauses
Section 10.03 Skeleton Charter
Section 10.04 - Professional Corporation (Including Certain Required Certifications)
Section 10.05 Setting Up Both Common and Preferred Shares and Providing Special
Protection for Preferred
Section 10.06 Giving Preferred Shares Right to Vote on Default in Dividends
Section 10.07 Denying Preemptive Rights
Section 10.08 Creating Preemptive Rights
Section 10.09 Setting Up Two Classes of Common with Equal Rights (Except that
Each Class Elects Specified Number of Directors) and Giving Each
Class Veto Over Shareholder Action
Section 10.10 Setting Up Multiple Classes of Stock Without Destroying
Corporation's Eligibility to Elect Subchapter S Tax Status
Section 10.11 Setting Up Multiple Classes of Stock, Including Class with No
Proprietary Rights, but with Power to Elect Deadlock-Breaking
Director
Section 10.12 Providing for Election of Majority of Directors by Class A Stock and
of Minority by Class B
Section 10.13 Classifying Directors, Providing for Election of Each Class of Directors
by a Class of Shareholders, and Giving Each Class of Shareholders
Power to Name Particular Officers
Section 10.14 Laying Foundation for Imposition of Restrictions on Transfer of Stock
by Shareholders' Agreement or Bylaw Provision
Section 10.15 Imposing Restrictions on Transfer of Voting or Common Shares
Section 10.16 Restriction on Transfer of Shares in Joint Venture Corporation
Section 10.17 Placing Restrictions on Transfer of Two Classes of Common or on
Transfer of Both Common and Preferred
Section 10.18 Excepting from Restrictions a Transfer of Over Fifty Percent of Shares
Section 10.19 Providing for Redemption ("Call") of Both Preferred and Common
Stock
Section 10.20 Providing for Surrender of Shares to Corporation When Holder
Ceases to be Actively Engaged in Service of Corporation
Section 10.21 Charter Clauses Giving Each Principal Shareholder Power to Veto
Fundamental Corporate Changes and Issuance of Additional Stock
Section 10.22 Requiring Unanimity for Some Director Action and Shareholder
Approval of Other Director Action
Section 10.23 Requiring High Vote for Director Action
Section 10.24 Providing for Cumulative Voting for Directors
Section 10.25 Providing for Directors' Compensation Based on Percentage of Profits
Section 10.26 Validating Contracts and Transactions in Which Directors Have an
Interest
Section 10.27 Providing for Indemnification of Directors
Section 10.28 Requiring Declaration and Payment of Dividends in Specified
Circumstances
Section 10.29 Providing for Dividends by Classes of Stock Rather than by Shares
Section 10.30 Requiring Directors to be Shareholders and Prohibiting Director Action
While Vacancy Exists on Board
Section 10.31 Permitting Directors to Vote by Proxy
Section 10.32 Empowering Shareholders to Remove Directors Without Cause
Section 10.33 Setting High Quorum Requirements or Giving Added Powers and
Rights to Shareholders
Section 10.34 Giving Shareholder Power to Dissolve Corporation
B. Bylaws
Section 10.35 Specimen Code of Bylaws
Section 10.36 Specimen Bylaw Provisions
Section 10.37 Providing for Directors' Compensation
Section 10.38 Providing for Arbitration of Board Deadlocks
Section 10.39 Provision Authorizing Long-Term Employment Contracts
Section 10.40 Provision for Management of Corporation
Section 10.41 Restriction on Share Transfer - First Option in Corporation
Section 10.42 - First Option in Corporation and Shareholders Successively
Section 10.43 Indemnification of Directors, Officers and Employees
Section 10.44 Fixing Record Dates for Shareholder Notice, Voting and Giving of
Consents
C. Shareholder Agreements
Section 10.45 Simple Agreement Providing for Management of Corporation and for
Employment of Shareholders and Their Compensation
Section 10.46 Providing for Management, Classification of Stock, Class Voting for
Directors, Restrictions on Stock Transfers, and Dissolution on
Request of Holders of Half the Stock
Section 10.47 Agreement Not to Compete
Section 10.48 Agreement on Subchapter S Election
Section 10.49 Agreement for Statutory Close Corporation
Section 10.50 Provision for Valuing Minority Shares
Section 10.51 Specification on Assets to Be Contributed to Corporation,
Shareholders' Power to Elect Corporate Officers, High Vote
Requirements and Stock Transfer Restrictions
Section 10.52 Agreement for a Professional Corporation
Section 10.53 Reduction of Number of Directors and Setting Up Equality of Control
Between Two Shareholders
Section 10.54 Designating Directors
Section 10.55 Shareholders' Agreement Providing for Voting of Shares for Directors,
Expressing a Preference for Named Persons as Officers, Requiring
Written Consent of All for Transfer of Shares, and Providing for
Designated Action in Event of Death of One of the Shareholders
Section 10.56 Providing for Dissolution of Corporation on Request of Shareholder
Unless Other Shareholder Buys Out Interest of Dissatisfied
Shareholder, and Providing for Employment of Shareholder as
General Manager of Corporation
D. Buy-and-Sell and Stock Purchase Agreements
Section 10.57 Buy-and-Sell Agreement Between Two Shareholders
Section 10.58 Stock Purchase Agreements
Section 10.59 Stock Purchase Agreement for Professional Corporation
Section 10.60 Stock Purchase and First Option Agreement
Section 10.61 Shareholders' Agreement Restricting Transfer of Shares - First Option
in Other Shareholders
Section 10.62 Agreement by Corporation and Its Shareholders Creating Rights of
First Refusal When Shareholder Decides to Sell or Become Disabled
Section 10.63 Agreement Restricting Voluntary Transfers of Stock, Arranging for
Disposition of Shares Involuntarily Transferred, Controlling Voting of
Some Involuntarily Transferred Shares, Providing For Voting of
Shares of Employee-Shareholders Whose Employment Is Terminated,
and Designating Voting Agents to Direct Voting of Certain Shares
Section 10.64 Disability Buy-Out Agreement
Section 10.65 Amendment of Stock Redemption Agreement to Include Disability
Buy-Out
E. Miscellaneous Agreements and Other Documents
Section 10.66 Deferred Compensation Agreement
Section 10.67 Voting Trust Agreement
Section 10.68 Agreement with Creditors
Section 10.69 Long-term Employment Contract
Section 10.70 Employment Agreement for Professional Corporation
Section 10.71 Letter to Clients by Attorney Representing Multiple Parties in
Organizing a Corporation
Section 10.72 Shareholders' Arbitration Agreement
