Corporate Stock-Transfer Restriction and Certificate-Legend Requirements in District of Columbia
At a glance
| Governing law, security, holder, and scope | D.C. Code §§ 29-304.26 to -304.27, 28:1-202, and 28:8-204; ordinary domestic corporation; transfer/registration restrictions; holder, shareholder, transferee, person, and registered owner; shares include convertible and subscription/acquisition-right securities |
|---|---|
| Authorized instrument, actor, and adoption | Articles of incorporation, bylaws, agreement among shareholders, or agreement between shareholders and corporation; no separate adopting actor, filing, or shareholder-count condition stated beyond earlier-share party/vote rule (§ 29-304.27(a)) |
| Existing shares, holder consent, and effect | Earlier-issued share unaffected unless holder is restriction-agreement party or voted for restriction; no separate knowledge, surrender, amendment, or renewed-assent route stated (§ 29-304.27(a)) |
| Offer, purchase, consent, and prohibited-transferee terms | First offer; corporation/other-person acquisition obligation; corporation, class holders, or another person may approve if not manifestly unreasonable; designated-person/class prohibition if not manifestly unreasonable (§ 29-304.27(d)) |
| Ownership cap, automatic transfer, tax, and regulatory routes | Shareholder-number/identity status and federal/state securities-exemption purposes authorized; no separate ownership cap, automatic transfer, tax-attribute, REIT, or general regulatory-compliance form stated (§ 29-304.27(c)-(d)) |
| Reasonableness, manifest unreasonableness, and public policy | Other purpose must be reasonable; approval requirement and designated-person/class prohibition must not be manifestly unreasonable; no separate overall public-policy test or conclusive-purpose rule stated (§ 29-304.27(c)-(d)) |
| Certificate legend, uncertificated notice, and actual knowledge | Restriction's existence conspicuously on certificate front/back or in § 29-304.26(b) written statement sent within reasonable time; omission protects person without knowledge. UCC knowledge means actual knowledge (§§ 29-304.27(b), 28:1-202(b), 28:8-204) |
| Transferee, successor, fiduciary, and stated legal effect | Authorized, noticed restriction valid and enforceable against holder or holder's transferee; missing corporate or UCC notice protects person without knowledge. No separate successor/fiduciary class, rescission, void-transfer rule, or fixed damages stated (§§ 29-304.27(b), 28:8-204) |
| UCC, securities, public-company, valuation, and fiduciary boundaries | D.C. Code § 28:8-204 independently governs issuer-restriction notice; preserving federal/state securities-law exemptions is authorized. Other Article 8, securities-registration, public-company, valuation, funding, tax, fiduciary, and remedy issues remain outside scope |
Requirements one by one
Authorized records and earlier-issued shares
D.C. Code § 29-304.27(a) permits a restriction in the articles of incorporation, bylaws, an agreement among shareholders, or an agreement between shareholders and the corporation. A share issued before adoption is unaffected unless its holder is a party to the restriction agreement or voted for the restriction.
For this section, “shares” includes a security convertible into or carrying a right to subscribe for or acquire shares (§ 29-304.27(e)). The section does not state a minimum number of shareholders for the agreement route; the separate earlier-share party-or-vote rule controls its effect on already-issued shares.
Permitted purposes and forms
Section 29-304.27(c) authorizes restrictions used to maintain a corporate status dependent on shareholder number or identity, preserve a federal or state securities-law exemption, or serve another reasonable purpose.
The permitted forms are a first offer to the corporation or other people; an obligation for the corporation or other people to acquire the shares; approval by the corporation, holders of a class, or another person; and a prohibition involving designated people or classes. The offer and acquisition routes may operate separately, consecutively, or simultaneously. Approval and designated- person terms must not be manifestly unreasonable (§ 29-304.27(d)).
The surveyed provision does not separately prescribe an ownership percentage cap, automatic-transfer mechanism, tax-attribute or REIT route, purchase price, valuation formula, funding method, or remedy.
Corporate and UCC notice rules
An authorized restriction is valid and enforceable against the holder or the holder's transferee when its existence is noted conspicuously on the front or back of the certificate or included in the written information statement for uncertificated shares. Without that notice, it is not enforceable against a person without knowledge of the restriction (§ 29-304.27(b)).
Unless the articles or bylaws provide otherwise, D.C. Code § 29-304.26 lets the board authorize some or all classes or series without certificates. Existing certificates remain until surrender. Within a reasonable time after an uncertificated issue or transfer, the corporation sends the shareholder the applicable certificate and restriction information.
The District's UCC defines “knowledge” as actual knowledge in § 28:1-202(b). Section 28:8-204 independently makes an issuer-imposed restriction ineffective against a person without actual knowledge unless a certificated security conspicuously notes it or the registered owner of an uncertificated security was notified.
What trips people up
Earlier-share assent and transferee notice are separate gates. Party status or a favorable vote determines whether an after-adopted restriction affects an earlier-issued share. Certificate or information-statement notice, and the person's knowledge, determine enforcement against a later person.
The certificate may state that the restriction exists. Section 29-304.27(b) does not require the complete restriction to be printed on the certificate; it requires conspicuous notation of the restriction's existence.
The corporate notice is not a universal securities legend. Preserving a federal or state securities-law exemption is an authorized purpose. Federal and state restricted-securities notices, other UCC Article 8 rules, intermediary systems, and transfer-agent procedures remain separate.
Common questions
May a D.C. restriction appear in the bylaws?
Yes. Section 29-304.27(a) expressly names the bylaws, along with the articles and the two shareholder-agreement routes. The earlier-share party-or-vote rule still applies.
May the corporation be required to buy restricted shares?
Yes. Section 29-304.27(d)(2) permits a restriction obligating the corporation or other people, separately, consecutively, or simultaneously, to acquire the shares. It does not set the trigger, price, valuation method, funding, or remedy.
Does the statute reach convertible securities?
Yes. Section 29-304.27(e) includes a security convertible into or carrying a right to subscribe for or acquire shares.
Can D.C. shares be issued without certificates?
Yes, unless the articles or bylaws provide otherwise. Section 29-304.26 preserves existing certificates until surrender and requires the written information statement after an uncertificated issuance or transfer.
Statutes and sources
- D.C. Code § 29-304.27(a)-(b) — authorized records, earlier-share assent, conspicuous certificate or information-statement notice, knowledge, and holder/transferee enforcement. Official D.C. Law Library text, accessed August 26, 2026.
- D.C. Code § 29-304.27(c)-(e) — authorized purposes, enumerated forms, manifest-unreasonableness limits, and covered convertible or subscription- right securities. Official D.C. Law Library text, accessed August 26, 2026.
- D.C. Code § 29-304.26(a)-(b) — board authorization of uncertificated shares, surrender of existing certificates, and written information statement. Official D.C. Law Library text, accessed August 26, 2026.
- D.C. Code § 28:1-202(b) — UCC actual knowledge. Official D.C. Law Library text, accessed August 26, 2026.
- D.C. Code § 28:8-204 — UCC effectiveness rule for issuer-imposed restrictions on certificated and uncertificated securities. Official D.C. Law Library text, accessed August 26, 2026.
Source links
Every statute quoted above, linked, with the date we checked it.
What does District of Columbia law mean for your facts?
You just read the general rule. Ask your own question and see which parts of current District of Columbia law apply to your situation, with citations you can check.
Opens in Ezel Pro.
- Starts from the statutes this survey is built on
- Cites every source it relies on, so you can verify it
- Chat, drafting and research in one workspace