Corporate Stock-Transfer Restriction and Certificate-Legend Requirements in Texas

At a glance

Requirements one by one

Four authorized instruments and the existing-security gate

Section 21.210(a) authorizes a restriction in the certificate of formation, bylaws, a written agreement among at least two holders, or a written agreement between holders and the corporation. The corporation-holder route has an extra records condition: a copy must be kept at the principal place of business or registered office and remain subject to shareholder examination like the corporation's books and records (§ 21.210(a)).

For a security already issued when the restriction is adopted, Section 21.210(b) requires the holder either to have voted for the restriction or to be a party to the agreement. Notice on a later certificate does not replace that existing-holder validity condition (§ 21.210(a)-(b)).

Texas expressly lists the restriction families

Section 21.211(a) covers a reasonable prior offer, a corporation or third-person purchase obligation, law-compliance approval of a transfer or transferee, and a designated-person or group prohibition that is not manifestly unreasonable. It also recognizes S-corporation and other tax purposes, close-corporation status, a required sale or transfer, and an automatic sale or transfer (§ 21.211(a)).

The safe harbor is broader than a bare tax-election clause. A restriction on transfer, registration, the amount of securities, or the amount one person or group may own is conclusively presumed reasonable when it maintains a local, state, federal, or foreign tax advantage or tax attribute, qualifies or maintains a REIT, preserves a statutory or regulatory advantage, or complies with an applicable legal requirement (§ 21.211(a)-(b)).

Certificate and uncertificated-interest notice

Section 3.202(d) permits three certificate formats: the front may state or summarize the restriction; the back may state it with a conspicuous front reference; or the certificate may conspicuously identify the restriction's specified document and the free-copy or filed-document route. If the entity uses the free-copy route but does not provide the document within a reasonable time, it may not enforce its rights under the restriction (§ 3.202(d)-(e)).

For an uncertificated interest, Section 3.205 generally requires the certificate information in a written or electronic notice after issuance or transfer. The notice may be omitted when the governing documents contain the information and the owner receives a copy. Section 21.213 then makes a reasonable restriction with the required certificate or uncertificated notation specifically enforceable against the holder, successor, or transferee (§ 21.213(a)-(b); § 3.205).

Optional public filing is a separate step

A corporation may file a restrictive bylaw or agreement with the Secretary of State along with a true-and-correct-copy statement and board or alternative manager authorization. Filing makes the restriction a public record, and the certificate may state that filing fact when Section 3.202 requires it (§ 21.212(a)-(b)). The optional filing does not erase Section 21.213's separate certificate or uncertificated-notice rule.

What trips people up

Missing notation has a two-stage effect. An otherwise enforceable restriction is ineffective against a transferee for value who lacked actual knowledge at the transfer and against every later transferee, even if the later transfer was not for value. A person other than a transferee for value becomes subject to specific enforcement when that person acquires actual knowledge (§ 21.213(b)).

The ordinary-corporation list is not the ceiling for a statutory close corporation. Its shareholder agreement may include buy-sell, first-option, first-refusal, and transfer restrictions beyond those permitted by Section 21.211 (§ 21.714(b)(3)). That special branch should not be imported into an ordinary corporation without the separate close-corporation status and agreement requirements.

Texas also sends ordinary transferability to Business & Commerce Code Chapter 8 (§ 21.209). The corporation-statute authorization and notice rules do not answer Article 8 priority, protected-purchaser, adverse-claim, or intermediary questions.

Common questions

Can a Texas restriction trigger an automatic transfer?

Yes. Section 21.211(a)(9) expressly recognizes a restriction that causes or results in an automatic sale or transfer to a person or group, including the corporation or other security holders. The statute's authorization does not supply the trigger, price, valuation, funding, or remedy terms.

Must the corporation provide a referenced restriction document?

If a certificate uses Section 3.202(d)(3)(A)'s specified-document route, it must say that the entity will provide a free copy to the certificate record holder on written request to the principal place of business. Failure to provide it within a reasonable time prevents the entity from enforcing its rights under the restriction (§ 3.202(e)).

Can the same class have both certificates and uncertificated interests?

Yes. Section 3.201(b) permits both forms in the same class or series when the governing document or governing-authority resolution authorizes uncertificated interests. A certificated interest changes form only after its certificate is surrendered (§§ 3.201(b), 3.202(d)-(e), and 3.205).

Statutes and sources

• Tex. Bus. Orgs. Code §§ 21.209-.213 — UCC boundary, authorized instruments, existing-security assent, permitted restriction types, tax and regulatory safe harbors, optional public filing, notice, knowledge, and transferee effect. Official Texas Legislative Council text, accessed August 25, 2026.
• Tex. Bus. Orgs. Code §§ 3.201-.205 — certificated and uncertificated forms, certificate restriction formats, free-copy consequence, and written or electronic owner notice. Official Texas Legislative Council text, accessed August 25, 2026.
• Tex. Bus. Orgs. Code § 21.714(b)(3) — separate close-corporation route for broader transfer restrictions. Official Texas Legislative Council text, accessed August 25, 2026.