Close Corporations.

Ala. Code tit. 10A, ch. 30, art. 2

in effect

Ala. Code § 10A-30-2.01 Article Applicable to Close Corporations; Applicability of Chapter.

10A-30-2.01. Article Applicable to Close Corporations; Applicability of Chapter. (a) This article applies to all close corporations, as defined in Section 10A-30-2.02. (b) All provisions of this article shall be applicable to all close corporations as defined in Section 10A-30-2.02 except insofar as this article otherwise provides. (c) Neither election to become, nor operation as, a close corporation shall deprive any shareholder of such corporation of the limitation of liability provided under the Alabama Business Corporation Law. (d) This chapter shall apply only to close corporations formed in accordance with Section 10A-30-2.03 before January 1, 1995, or electing to become a close corporation pursuant to Section 10A-30-2.04 before January 1, 1995, and which has not voluntarily terminated its status as a close corporation or otherwise ceased to be a close corporation to which the provisions of this article apply before January 1, 1995. (Acts 1980, No. 80-633, p. 1094, §161; Acts 1994, No. 94-245, p. 457, §4; §10-2A-300; amended and renumbered by Act 2009-513, p. 967, §372; Act 2019-94, §2.)

Ala. Code § 10A-30-2.02 “Close Corporation” Defined; Contents of Certificate of Formation; Number of Shareholders; Applicable to Corporations Formed as Close Corporations or Electing Close Corporation Status Prior to January 1, 1995.

10A-30-2.02. “Close Corporation” Defined; Contents of Certificate of Formation; Number of Shareholders; Applicable to Corporations Formed as Close Corporations or Electing Close Corporation Status Prior to January 1, 1995. (a) A close corporation is a corporation organized under former Chapter 2A of former Title 10 whose certificate of formation contains the provisions required by former Section 10-2A-91 or a successor statute, including Section 10A-2-2.02 and, in addition, provide that: (1) The corporation is a close corporation authorized by this article; (2) All of the issued shares of all classes shall be subject to one or more of the restrictions on transfer permitted by former Section 10-2A-41 or a successor statute, including Section 10A-2-6.27; and (3) For purposes of determining the number of holders of record of the stock of a close corporation, stock which is held in joint or common tenancy or by the entireties shall be treated as held by one shareholder. (b) The certificate of formation of a close corporation may set forth the qualifications of shareholders, either by specifying classes of persons who shall be entitled to be holders of record 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. (c) All of the corporation’s issued shares of all classes, exclusive of treasury shares, shall be held of record by not more than a specified number of persons, not exceeding 30. (Acts 1980, No. 80-633, p. 1094, §162; §10-2A-301; amended and renumbered by Act 2009-513, p. 967, §372.)

Ala. Code § 10A-30-2.03 Formation of a Close Corporation; Applicable to Corporations Formed as Close Corporations Before January 1, 1995.

10A-30-2.03. Formation of a Close Corporation; Applicable to Corporations Formed as Close Corporations Before January 1, 1995. A close corporation which was formed in accordance with former Sections 10-2A-90 through 10-2A-96 must have been authorized by the affirmative vote of all holders of and subscribers to shares of the corporation, and: (1) The certificate of formation contains a heading stating the name of the corporation and that it is a close corporation; and (2) The certificate of formation contains the provisions required by Section 10A-30-2.02; and (3) Each certificate for shares conspicuously notes the fact that the corporation is a close corporation and make reference to the restriction on transfer of shares set forth in the certificate of formation. (Acts 1980, No. 80-633, p. 1094, §163; §10-2A-302; amended and renumbered by Act 2009-513, p. 967, §372; Act 2019-94, §2.)

Ala. Code § 10A-30-2.04 Voluntary Termination of Close Corporation Status by Amendment of Certificate of Formation; Vote Required; Applicable to Corporations Formed as Close Corporations or Electing Close Corporation Status Prior to January 1, 1995.

10A-30-2.04. Voluntary Termination of Close Corporation Status by Amendment of Certificate of Formation; Vote Required; Applicable to Corporations Formed as Close Corporations or Electing Close Corporation Status Prior to January 1, 1995. (a) A corporation may voluntarily terminate its status as a close corporation and cease to be subject to this article by amending its certificate of formation to delete therefrom the additional provisions required or permitted by Section 10A-30-2.02 to be stated in the certificate of formation of close corporations except such provisions as are permitted by the Alabama Business Corporation Law which the corporation chooses to retain. Any such amendment shall be adopted and shall become effective in accordance with the Alabama Business Corporation Law, except that it must be approved by a vote of the holders of record of at least one-third of the shares of each class of stock of the corporation which are outstanding. (b) The certificate of formation of a close corporation may provide that on any amendment to terminate its status as a close corporation, a vote greater than one-third or a vote of all shares of any class shall be required; and if the certificate of incorporation contains such a provision, that provision shall not be amended, repealed, or modified by any vote less than that required to terminate the corporation’s status as a close corporation. (Acts 1980, No. 80-633, p. 1094, §165; §10-2A-304; amended and renumbered by Act 2009-513, p. 967, §374; Act 2019-94, §2.)

Ala. Code § 10A-30-2.05 Issuance or Transfer of Shares of a Close Corporation in Breach of Qualifying Conditions; Applicable to Corporations Formed as Close Corporations or Electing Close Corporation Status Prior to January 1, 1995.

10A-30-2.05. Issuance or Transfer of Shares of a Close Corporation in Breach of Qualifying Conditions; Applicable to Corporations Formed as Close Corporations or Electing Close Corporation Status Prior to January 1, 1995. (a) If shares of a close corporation are issued or transferred to any person who is not entitled under any provision of the certificate of formation permitted by Section 10A-30-2.02 to be a holder of record of shares of the corporation, and if the certificate for shares conspicuously notes the qualifications of the persons entitled to be holders of record thereof, such person is conclusively presumed to have notice of the fact of his or her ineligibility to be a shareholder. (b) If a certificate for shares of any close corporation conspicuously notes the fact of a restriction on transfer of shares of the corporation and the restriction is one which is permitted by the Alabama Business Corporation Law, the transferee of the shares is conclusively presumed to have notice of the fact that he or she has acquired shares in violation of the restriction, if such acquisition violates the restriction. (c) Whenever any person to whom shares of a close corporation have been issued or transferred has, or is conclusively presumed under this section to have notice either that he or she is a person not eligible to be a holder of shares of the corporation, or that the transfer of shares is in violation of a restriction on transfer of shares, the corporation may, at its option, refuse to register transfer of the shares into the name of the transferee in addition to any remedies which may be available under the Alabama Business Corporation Law. (d) The provisions of subsection (c) shall not be applicable if the transfer of shares even though otherwise contrary to subsections (a) or (b), has been consented to by all the shareholders of the close corporation, or if the close corporation has amended its certificate of formation in accordance with Section 10A-30-2.04. (e) The term “transfer,” as used in this section, is not limited to a transfer for value. (f) The provisions of this section do not in any way impair any rights of a transferee regarding any right to rescind the transaction or to recover under any applicable warranty express or implied. (Acts 1980, No. 80-633, p. 1094, §166; §10-2A-305; amended and renumbered by Act 2009-513, p. 967, §374; Act 2019-94, §2.)

Ala. Code § 10A-30-2.06 Corporate Option Where a Restriction on Transfer of Shares Is Held Invalid; Applicable to Corporations Formed as Close Corporations or Electing Close Corporation Status Prior to January 1, 1995.

10A-30-2.06. Corporate Option Where a Restriction on Transfer of Shares Is Held Invalid; Applicable to Corporations Formed as Close Corporations or Electing Close Corporation Status Prior to January 1, 1995. If a restriction on transfer of shares of a close corporation is held not to be authorized by the Alabama Business Corporation Law, the corporation shall nevertheless have an option for a period of 30 days after the judgment setting aside the restriction becomes final, to acquire the restricted shares at a price which is agreed upon by the parties or if no agreement is reached as to price, then at the fair value as determined by the circuit court of the county in which the corporation has its registered office or any court in such place having jurisdiction. In order to determine fair value, the court may appoint an appraiser to receive evidence and report to the court his or her findings and recommendation as to fair value. The appraiser shall have such powers and shall proceed, so far as applicable, in the same manner as appraisers appointed under Article 13 of Chapter 2A. (Acts 1980, No. 80-633, p. 1094, §167; §10-2A-306; amended and renumbered by Act 2009-513, p. 967, §374; Act 2019-94, §2.)

Ala. Code § 10A-30-2.07 Agreements Restricting Discretion of Directors; Applicable to Corporations Formed as Close Corporations or Electing Close Corporation Status Prior to January 1, 1995.

10A-30-2.07. Agreements Restricting Discretion of Directors; Applicable to Corporations Formed as Close Corporations or Electing Close Corporation Status Prior to January 1, 1995. A written agreement among the shareholders of a close corporation holding a majority of the outstanding shares entitled to vote, whether solely among themselves or with a party not a shareholder, is not invalid, as between the parties to the agreement, on the ground that it so relates to the conduct of the business and affairs of the corporation as to restrict or interfere with the discretion or powers of the board of directors. The effect of any such agreement shall be to relieve the directors and impose upon the shareholders who are parties to the agreement the liability for managerial acts or omissions which is imposed on directors to the extent and so long as the discretion or powers of the board in its management of corporate affairs is controlled by such agreement. (Acts 1980, No. 80-633, p. 1094, §168; §10-2A-307; amended and renumbered by Act 2009-513, p. 967, §374.)

Ala. Code § 10A-30-2.08 Management by Shareholders; Applicable to Corporations Formed as Close Corporations or Electing Close Corporation Status Prior to January 1, 1995.

10A-30-2.08. Management by Shareholders; Applicable to Corporations Formed as Close Corporations or Electing Close Corporation Status Prior to January 1, 1995. The certificate of formation of a close corporation may provide that the business of the corporation shall be managed by the shareholders of the corporation rather than by a board of directors. So long as this provision continues in effect: (1) No meeting of shareholders need be called to elect directors; (2) Unless the context clearly requires otherwise, the shareholders of the corporation shall be deemed to be directors for purposes of applying provisions of this article; and (3) The shareholders of the corporation shall be subject to all liabilities of directors. Such a provision may be inserted in the certificate of formation by amendment if all incorporators and subscribers or all holders of record of all of the outstanding shares, whether or not having voting power, authorize such a provision. An amendment to the certificate of formation to delete such a provision shall be adopted by a vote of the holders of record of not less than one-third of all outstanding shares of the corporation, whether or not otherwise entitled to vote. If the certificate of formation contains a provision authorized by this section, the existence of such provision shall be noted conspicuously on the face or back of every certificate for shares issued by such corporation. (Acts 1980, No. 80-633, p. 1094, §169; §10-2A-308; amended and renumbered by Act 2009-513, p. 967, §374.)

Ala. Code § 10A-30-2.09 Appointment of Custodian for Close Corporation; Applicable to Corporations Formed as Close Corporations or Electing Close Corporation Status Prior to January 1, 1995.

10A-30-2.09. Appointment of Custodian for Close Corporation; Applicable to Corporations Formed as Close Corporations or Electing Close Corporation Status Prior to January 1, 1995. (a) The circuit court of the county in which the corporation has its registered office or any court in such place having jurisdiction, upon application of any shareholder, may appoint one or more persons to be custodians, and, if the corporation is insolvent, to be receivers, of any close corporation when: (1) Pursuant to Section 10A-30-2.08, the business and affairs of the corporation are managed by the shareholders and they are so divided that the business of the corporation is suffering or is threatened with irreparable injury and any remedy with respect to such deadlock provided in the governing documents or in any written agreement of the shareholders has failed; or (2) The petitioning shareholder has the right to the dissolution of the corporation under a provision of the certificate of formation permitted by Section 10A-30-2.12. (b) In lieu of appointing a custodian for a close corporation under this section, the court may appoint a provisional director, whose powers and status shall be as provided in Section 10A-30-2.10 if the court determines that it would be in the best interest of the corporation. The appointment shall not preclude any subsequent order of the court appointing a custodian for such corporation. (c) A custodian appointed under this section shall have all the powers of a receiver or custodian appointed under the Alabama Business Corporation Law, but the authority of the custodian is to continue the business of the corporation and not to liquidate its affairs and distribute its assets, except when the court shall otherwise order. (Acts 1980, No. 80-633, p. 1094, §170; §10-2A-309; amended and renumbered by Act 2009-513, p. 967, §374; Act 2019-94, §2.)

Ala. Code § 10A-30-2.10 Appointment of a Provisional Director in Certain Cases; Applicable to Corporations Formed as Close Corporations or Electing Close Corporation Status Prior to January, 1 1995.

10A-30-2.10. Appointment of a Provisional Director in Certain Cases; Applicable to Corporations Formed as Close Corporations or Electing Close Corporation Status Prior to January, 1 1995. (a) Notwithstanding any contrary provision of the governing documents or agreement of the shareholders, the circuit court of the county in which the registered office of the corporation is located may appoint a provisional director for a close corporation if the directors are so divided respecting the management of the corporation’s business and affairs that the votes required for action by the board of directors cannot be obtained with the consequence that the business and affairs of the corporation can no longer be conducted to the advantage of the shareholders generally. (b) An application for relief under this section must be filed (1) by at least one-half of the number of directors then in office, or (2) by the holders of at least one-third of all shares then entitled to elect directors, or, (3) if there be more than one class of shares then entitled to elect one or more directors, by the holders of two-thirds of the shares of any such class; but the certificate of formation of a close corporation may provide that a lesser proportion of the directors or of the shareholders or of a class of shareholders may apply for relief under this section. (c) A provisional director shall be an impartial person who is neither a shareholder nor a creditor of the corporation or of any subsidiary or affiliate of the corporation, and whose further qualifications, if any, may be determined by the circuit court of the county. A provisional director is not a receiver of the corporation and does not have the title and powers of a custodian or receiver. A provisional director shall have all the rights and powers of a duly elected director of the corporation, including the right to notice of and to vote at meetings of directors until such time as he or she shall be removed by order of the circuit court of the county or by the holders of a majority of all shares then entitled to vote to elect directors or by the holders of two-thirds of the shares of that class of voting shares which filed the application for appointment of a provisional director. His or her compensation shall be determined by agreement between him or her and the corporation subject to approval of the circuit court of the county, which may fix his or her compensation in the absence of agreement or in the event of disagreement between the provisional director and the corporation. (d) Even though the requirements of subsection (b) relating to the number of directors or shareholders who may petition for appointment of a provisional director are not satisfied, the circuit court of the county may nevertheless appoint a provisional director if permitted by subsection (b) of Section 10A-30-2.09. (Acts 1980, No. 80-633, p. 1094, §171; §10-2A-310; amended and renumbered by Act 2009-513, p. 967, §374.)

Ala. Code § 10A-30-2.11 Shareholders’ Agreements; Applicable to Corporations Formed as Close Corporations or Electing Close Corporation Status Prior to January 1, 1995.

10A-30-2.11. Shareholders’ Agreements; Applicable to Corporations Formed as Close Corporations or Electing Close Corporation Status Prior to January 1, 1995. No written agreement among shareholders of a close corporation, nor any provision of the governing documents of the corporation, which agreement or provision relates to any phase of the affairs of such corporation, including but not limited to the management of its business or declaration and payment of dividends or other division of profits or the election of directors or officers or the employment of shareholders by the corporation or the arbitration of disputes, shall be invalid on the ground that it is an attempt by the parties to the agreement or by the shareholders of the corporation to treat the corporation as if it were a partnership or to arrange relations among the shareholders or between the shareholders and the corporation in a manner that would be appropriate only among partners. (Acts 1980, No. 80-633, p. 1094, §172; §10-2A-311; amended and renumbered by Act 2009-513, p. 967, §374.)

Ala. Code § 10A-30-2.12 Shareholders’ Option to Dissolve Corporation; Applicable to Corporations Formed as Close Corporations or Electing Close Corporation Status Prior to January 1, 1995.

10A-30-2.12. Shareholders’ Option to Dissolve Corporation; Applicable to Corporations Formed as Close Corporations or Electing Close Corporation Status Prior to January 1, 1995. (a) The certificate of formation 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 of shares, an option to have the corporation dissolved at will or upon the occurrence of any specified event or contingency. Whenever any such option to dissolve is exercised, the shareholders exercising the option shall give written notice thereof to all other shareholders. After the expiration of 30 days following the sending of the 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 as provided by the Alabama Business Corporation Law. (b) If the certificate of formation as originally filed does not contain a provision authorized by subsection (a), the certificate of formation may be amended to include such provision if adopted by the affirmative vote of the holders of all the outstanding shares, whether or not entitled to vote, unless the certificate of formation specifically authorizes such an amendment by a vote which shall be not less than two-thirds of all the outstanding shares whether or not entitled to vote. (c) Each certificate for shares in any corporation whose certificate of formation authorizes dissolution as permitted by this section shall conspicuously note on the face thereof the existence of the provision. Unless noted conspicuously on the face of the certificate for shares the provision is ineffective. (Acts 1980, No. 80-633, p. 1094, §173; §10-2A-312; amended and renumbered by Act 2009-513, p. 967, §374; Act 2019-94, §2.)

Ala. Code § 10A-30-2.13 Effect of the Close Corporation Provisions on Other Laws; Applicable to Corporations Formed as Close Corporations or Electing Close Corporation Status Prior to January 1, 1995.

10A-30-2.13. Effect of the Close Corporation Provisions on Other Laws; Applicable to Corporations Formed as Close Corporations or Electing Close Corporation Status Prior to January 1, 1995. This article shall not be deemed to repeal any statute or rule of law which is or would be applicable to any corporation which is governed by the Alabama Business Corporation Law but is not a close corporation. (Acts 1980, No. 80-633, p. 1094, §174; §10-2A-313; amended and renumbered by Act 2009-513, p. 967, §374; Act 2019-94, §2.)

Source: Alabama Legislature (alison.legislature.state.al.us)URL: https://alison.legislature.state.al.us/code-of-alabamaFetched: 10/20/2026