Virginia Law

Article 7. Shares and Distributions.

A. The articles of incorporation shall set forth any classes of shares and series of shares within a class, and the number of shares of each class and series, that the corporation is authorized to issue. If more than one class or series of shares is authorized, the articles of incorporation shall prescribe a distinguishing designation for each class or series and, before the issuance of shares of a class or series, describe the terms, including the preferences, rights and limitations of that class or series. Except to the extent varied as permitted by this section or by subsection B of § 13.1-646, all shares of a class or series shall have terms, including preferences, rights, and limitations, that are identical with those of other shares of the same class or series.

B. The articles of incorporation shall authorize:

1. One or more classes or series of shares that together have full voting rights; and

2. One or more classes or series of shares, which may be the same class or classes or series as those with voting rights, that together are entitled to receive the net assets of the corporation upon dissolution.

C. The articles of incorporation may authorize one or more classes or series of shares that:

1. Have special, conditional, or limited voting rights, or no right to vote, except to the extent otherwise provided by this chapter;

2. Are redeemable or convertible as specified in the articles of incorporation:

a. At the option of the corporation, the shareholder, or another person or upon the occurrence of a specified event;

b. For cash, indebtedness, securities, or other property; and

c. At prices and in amounts specified or determined in accordance with a formula;

3. Entitle the holders to distributions, calculated in any manner, including distributions that may be cumulative, noncumulative or partially cumulative;

4. Have preference over any other class or series of shares with respect to distributions, including distributions upon the dissolution of the corporation; or

5. Entitle the holders to other specified rights, including a right that no transaction of a specified nature shall be consummated while any such shares remain outstanding except upon the assent of the holders of all or a specified portion of such shares.

D. Any of the terms of shares may be made dependent upon facts objectively ascertainable outside the articles of incorporation in accordance with subsection L of § 13.1-604.

E. Any of the terms of shares may vary among holders of the same class or series so long as such variations are expressly set forth in the articles of incorporation.

F. The description of the preferences, rights, and limitations of classes or series of shares in subsection C is not exhaustive.

Code 1950, §§ 13.1-12, 13.1-13; 1956, c. 428; 1958, c. 564; 1985, c. 522; 1990, c. 423; 2005, c. 765; 2019, c. 734.

A. If the articles of incorporation so provide, the board of directors, without shareholder action, may, by adoption of an amendment of the articles of incorporation:

1. Classify any unissued shares into one or more classes or into one or more series within one or more classes;

2. Reclassify any unissued shares of any class into one or more classes or into one or more series within one or more classes; or

3. Reclassify any unissued shares of any series of any class into one or more classes or into one or more series within one or more classes.

B. If the board of directors acts pursuant to subsection A, it shall determine the terms, including the preferences, rights and limitations, to the same extent permitted under § 13.1-638, of:

1. Any class of shares before the issuance of any shares of that class, or

2. Any series within a class before the issuance of any shares of that series.

C. Unless the articles of incorporation otherwise provide, the board of directors, without shareholder action, may, by adoption of an amendment of the articles of incorporation, delete from the articles of incorporation any provisions originally adopted by the board of directors without shareholder action fixing the terms, including the preferences, limitations, and rights of any class of shares or series within a class, provided there are no shares of such class or series then outstanding.

D. Unless the articles of incorporation otherwise provide, the board of directors of a corporation that is registered as an open-end management investment company under the federal Investment Company Act of 1940, without shareholder action, may, by adoption of an amendment of the articles of incorporation:

1. Classify any unissued shares into one or more classes or into one or more series within one or more classes; or

2. Reclassify any unissued shares of any class into one or more classes or into one or more series within one or more classes; or

3. Reclassify any unissued shares of any series of any class into one or more classes or into one or more series within one or more classes.

E. When the board of directors has adopted an amendment of the articles of incorporation pursuant to subsection A, C, or D, the corporation shall file with the Commission articles of amendment pursuant to § 13.1-710 with the addition, when the board of directors has acted pursuant to subsection A, of any determination made pursuant to subsection B.

If the Commission finds that the articles of amendment comply with the requirements of law and that all required fees have been paid, it shall issue a certificate of amendment. Shares of any class or series that are classified or reclassified under this section by the articles of amendment shall not be issued until the certificate of amendment is effective.

F. Whenever the articles of incorporation provide that the board of directors may classify or reclassify unissued shares in the manner prescribed in subsection A, the articles of incorporation shall be deemed to authorize the board of directors to adopt pursuant to this section an amendment to the articles of incorporation without shareholder action unless the articles of incorporation specifically state that shareholder action is required.

Code 1950, § 13.1-14; 1956, c. 428; 1975, c. 500; 1985, c. 522; 1988, c. 193; 2005, c. 765; 2006, c. 330; 2019, c. 734; 2021, Sp. Sess. I, c. 487.

A. A corporation may issue the number of shares of each class or series authorized by the articles of incorporation. Shares that are issued are outstanding shares until they are reacquired, redeemed, converted, or canceled.

B. The reacquisition, redemption or conversion of outstanding shares is subject to the limitations of subsection C of this section and to § 13.1-653.

C. At all times that shares of the corporation are issued and outstanding, one or more shares that together have full voting rights and one or more shares that together are entitled to receive the net assets of the corporation upon dissolution shall be outstanding.

1985, c. 522; 2019, c. 734.

A. Unless the articles of incorporation provide otherwise, a corporation may, if authorized by its board of directors, issue fractions of a share or in lieu of doing so may:

1. Pay in cash the value of fractions of a share;

2. Issue scrip in registered or bearer form entitling the holder to receive a full share upon surrendering enough scrip to equal a full share; or

3. Arrange for disposition of fractional shares held by the shareholders.

B. Each certificate representing scrip shall be conspicuously labeled "Scrip" and shall contain the applicable information required by subsection B of § 13.1-647.

C. The holder of a fractional share is entitled to exercise the rights of a shareholder, including the rights to vote and to receive distributions, including distributions upon dissolution. The holder of scrip is not entitled to any rights of a shareholder unless the scrip provides for them.

D. The board of directors may authorize the issuance of scrip subject to any condition, including that:

1. The scrip will become void if not exchanged for full shares before a specified date; and

2. The shares for which the scrip is exchangeable may be sold by the corporation and the proceeds paid to the scrip holders.

E. When a corporation is to pay in cash the value of fractions of a share such value shall be determined by the board of directors. A good faith judgment of the board of directors as to the value of a fractional share is conclusive.

Code 1950, § 13.1-21; 1956, c. 428; 1958, c. 564; 1966, c. 466; 1975, c. 500; 1984, c. 613; 1985, c. 522; 2005, c. 765; 2019, c. 734.

A. A subscription for shares entered into before incorporation is irrevocable for six months unless the subscription agreement provides a longer or shorter period or all the subscribers agree to revocation.

B. The board of directors may determine the payment terms of subscriptions for shares that were entered into before incorporation, unless the subscription agreement specifies them. A call for payment by the board of directors must be uniform so far as practicable as to all shares of the same class or series, unless the subscription agreement specifies otherwise.

C. Shares issued pursuant to subscriptions entered into before incorporation are fully paid and nonassessable when the corporation receives the consideration specified in the subscription agreement.

D. If a subscriber defaults in payment of cash or property under a subscription agreement entered into before incorporation, the corporation may collect the amount owed as any other debt. The articles of incorporation, bylaws, or the subscription agreement may prescribe other penalties for nonpayment but a subscription and the installments already paid on it may not be forfeited unless the corporation demands the amount due by written notice to the subscriber and it remains unpaid for at least 20 days after the effective date of the notice.

E. If a subscription for unissued shares is forfeited for nonpayment under subsection D, the corporation may sell the shares subscribed for. If the shares are sold by reason of any forfeiture for more than the amount due on the subscription, the corporation shall pay the excess, after deducting the expense of sale, to the subscriber or the subscriber's representative.

F. A subscription agreement entered into after incorporation is a contract between the subscriber and the corporation subject to § 13.1-643.

Code 1950, §§ 13-98, 13.1-15; 1956, c. 428; 1972, c. 580; 1975, c. 500; 1985, c. 522; 2005, c. 765; 2019, c. 734.

A. The powers granted in this section to the board of directors may be reserved to the shareholders by the articles of incorporation.

B. Any issuance of shares must be authorized by the board of directors. Shares may be issued for consideration consisting of any tangible or intangible property or benefit to the corporation, including cash, promissory notes, services performed, contracts for services to be performed, or other securities of the corporation.

C. Before the corporation issues shares, the board of directors, or if authorized by subdivision D 7 of § 13.1-689, a committee of the board of directors or a senior executive officer, shall determine that the consideration received or to be received for the shares to be issued is adequate. That determination is conclusive insofar as the adequacy of consideration for the issuance of shares relates to whether the shares are validly issued, fully paid and nonassessable. When such a determination has been made and the corporation has received the consideration, the shares issued therefor are fully paid and nonassessable.

D. The corporation may place in escrow shares issued for a contract for future services or benefits or a promissory note, or make other arrangements to restrict the transfer of the shares, and may credit distributions in respect of the shares against their purchase price, until the services are performed, the benefits are received or the note is paid. If the services are not performed, the benefits are not received, or the note is not paid, the shares escrowed or restricted and the distributions credited may be canceled in whole or part.

E. Where it cannot be determined that outstanding shares are fully paid and nonassessable, there shall be a conclusive presumption that such shares are fully paid and nonassessable if the board of directors makes a good faith determination that there is no substantial evidence that the full consideration for such shares has not been paid.

Code 1950, §§ 13-97, 13-98, 13.1-15, 13.1-17; 1956, c. 428; 1958, c. 564; 1964, c. 352; 1972, c. 580; 1975, c. 500; 1985, c. 522; 2019, c. 734.

A. A purchaser from a corporation of the corporation's own shares is not liable to the corporation or the corporation's creditors with respect to the shares except to pay the consideration for which the shares were authorized to be issued as provided in § 13.1-643 or specified in the subscription agreement.

B. A person who becomes a transferee of shares in good faith and without knowledge that the consideration determined for the shares pursuant to § 13.1-643 or specified in the subscription agreement has not been paid is not personally liable for any unpaid portion of the consideration, but the initial transferor remains liable therefor.

C. An executor, administrator, conservator, guardian, trustee, assignee for the benefit of creditors, or receiver shall not, in any event, be personally liable to the corporation as transferee of a purchaser from the corporation of the corporation's own shares but the estate of the purchaser and the purchaser's assets in the hands of such personal representative shall be so liable.

D. A shareholder is not personally liable for any liabilities of the corporation, including liabilities arising from the acts of the corporation, except to the extent provided in a provision of the articles of incorporation permitted by subdivision B 3 (e) of § 13.1-619.

E. No pledgee or other holder of shares as collateral security shall be personally liable as a shareholder.

Code 1950, §§ 13-97, 13.1-22; 1956, c. 428; 1975, c. 500; 1985, c. 522; 2019, c. 734.

A. Unless the articles of incorporation provide otherwise, shares may be issued pro rata and without consideration to the corporation's shareholders or to the shareholders of one or more classes or series of shares. An issuance of shares under this subsection is a share dividend.

B. Shares of one class or series may not be issued as a share dividend in respect of shares of another class or series unless (i) the articles of incorporation so authorize, (ii) a majority of the votes entitled to be cast by the class or series to be issued approve the issue, or (iii) there are no outstanding shares of the class or series to be issued. For purposes of this subsection, if a security convertible into or carrying a right to subscribe for or acquire shares of the class or series to be issued is outstanding, the holders shall be deemed to be holders of the class or series.

C. If the board of directors does not fix the record date for determining shareholders entitled to a share dividend, it is the date the board of directors authorizes the share dividend.

Code 1950, §§ 13-37, 13.1-19; 1956, c. 428; 1972, c. 580; 1975, c. 500; 1985, c. 522; 2019, c. 734.

A. Subject to the provisions of § 13.1-651, a corporation may issue rights, options or warrants for the purchase of shares or other securities of the corporation. Unless reserved to the shareholders in the articles of incorporation, the board of directors or, if authorized pursuant to subdivision D 7 of § 13.1-689, a committee of the board of directors or a senior executive officer, may authorize the issuance of rights, options, or warrants and determine (i) the terms and conditions upon which the rights, options, or warrants are issued and (ii) the terms, including the consideration for which the shares or other securities are to be issued. The authorization for the corporation to issue such rights, options, or warrants constitutes authorization of the issuance of the shares or other securities for which the rights, options, or warrants are exercisable.

B. Notwithstanding the provisions of subsection A of § 13.1-638, the terms and conditions of rights, options, or warrants issued by a corporation may include, without limitation, restrictions or conditions that (i) preclude or limit the exercise, transfer, or receipt thereof by designated persons or classes of persons or by any transferee or transferees of such persons or classes of persons or (ii) invalidate or void such rights, options, or warrants held by designated persons or classes of persons or by any transferee or transferees of such persons or classes of persons. Any action or determination by the board of directors or, if authorized pursuant to subdivision D 7 of § 13.1-689, a committee of the board of directors, with respect to the issuance, the terms and conditions of or the redemption of rights, options, or warrants shall be subject to the provisions of § 13.1-690 and shall be valid if taken or determined in compliance therewith.

C. The board of directors may, subject to such limitations as the board of directors may establish, authorize one or more officers to (i) designate the recipients of rights, options, warrants, or other equity compensation awards that involve the issuance of shares and (ii) determine, within an amount and subject to any other limitations established by the board of directors and, if applicable, the shareholders, the number of such rights, options, warrants, or other equity compensation awards and the terms and conditions thereof to be received by the recipients, provided that an officer may not use such authority to designate himself as a recipient of such rights, options, warrants, or other equity compensation awards.

1985, c. 522; 1986, c. 74; 1988, c. 442; 1990, c. 423; 1992, c. 472; 2005, c. 765; 2010, c. 782; 2019, c. 734.

A. Shares may but need not be represented by certificates. Unless this chapter or another statute expressly provides otherwise, the rights and obligations of shareholders are identical regardless of whether their shares are represented by certificates.

B. At a minimum each share certificate shall state on its face:

1. The name of the corporation and that it is organized under the law of the Commonwealth;

2. The name of the person to whom issued; and

3. The number and class of shares and the designation of the series, if any, the certificate represents.

C. If the corporation is authorized to issue different classes of shares or series of shares within a class, (i) the designations, rights, preferences, and limitations applicable to each class and series; (ii) any variations in rights, preferences, and limitations among the holders of the same class or series; and (iii) the authority of the board of directors to determine variations for future series shall be summarized on the front or back of each certificate for shares of such class or series. Alternatively, each certificate may state conspicuously on its front or back that the corporation will furnish the shareholder this information on request in writing and without charge.

D. Each share certificate shall be signed by two officers, who may be the same individual, designated in the bylaws or by the board of directors. Unless otherwise provided in the articles of incorporation or bylaws, any or all of the signatures on the certificate may be facsimile.

E. If the person who signed a share certificate no longer holds office when the certificate is issued, the certificate is nevertheless valid.

Code 1950, § 13.1-20; 1956, c. 428; 1958, c. 564; 1972, c. 580; 1984, c. 613; 1985, c. 522; 1986, c. 623; 1990, c. 227; 2005, c. 765; 2019, c. 734.

A. Unless the articles of incorporation or bylaws provide otherwise, the board of directors of a corporation may authorize the issuance of some or all of the shares of any or all of its classes or series without certificates. The authorization does not affect shares already represented by certificates until they are surrendered to the corporation.

B. Within a reasonable time after the issuance or transfer of shares without certificates, the corporation shall deliver to the shareholder a written statement of the information required on certificates by subsections B and C of § 13.1-647, and, if applicable, § 13.1-649.

Code 1950, § 13.1-20; 1956, c. 428; 1958, c. 564; 1972, c. 580; 1984, c. 613; 1985, c. 522; 2019, c. 734.

A. The articles of incorporation, the bylaws, an agreement among shareholders, or an agreement between shareholders and the corporation may impose restrictions on the transfer or registration of transfer of shares of the corporation. A restriction does not affect shares issued before the restriction was adopted unless the holders of the shares are parties to the restriction agreement or voted in favor of the restriction.

B. A restriction on the transfer or registration of transfer of shares is valid and enforceable against the holder or a transferee of the holder if the restriction is authorized by this section and its existence is noted conspicuously on the front or back of the certificate or is contained in the information statement required by subsection B of § 13.1-648. Unless so noted or contained, a restriction is not enforceable against a person without knowledge of the restriction.

C. A restriction on the transfer or registration of transfer of shares is authorized:

1. To maintain the corporation's status when it is dependent on the number or identity of its shareholders;

2. To preserve exemptions under federal or state securities law; or

3. For any other reasonable purpose.

D. A restriction on the transfer or registration of transfer of shares may:

1. Obligate the shareholder first to offer the corporation or other persons (separately, consecutively, or simultaneously) an opportunity to acquire the restricted shares;

2. Obligate the corporation or other persons (separately, consecutively, or simultaneously) to acquire the restricted shares;

3. Require the corporation, the holders of any class or series of its shares, or other persons to approve the transfer of the restricted shares, if the requirement is not manifestly unreasonable; or

4. Prohibit the transfer of the restricted shares to designated persons or classes of persons, if the prohibition is not manifestly unreasonable.

E. For purposes of this section, "shares" includes any warrants, rights, or options to acquire any shares or any security or other obligation of the corporation convertible into or carrying a right to subscribe for or acquire any such shares or warrants, rights, or options to acquire any such shares.

1985, c. 522; 2005, c. 765; 2015, c. 611; 2019, c. 734.

A corporation may pay the expenses of selling or underwriting its shares, and of organizing or reorganizing the corporation, from the consideration received for shares.

1985, c. 522.

A. Unless limited or denied in the articles of incorporation and subject to the limitations in subsection C, the shareholders of a corporation incorporated on or before December 31, 2005, have a preemptive right, granted on uniform terms and conditions prescribed by the board of directors to provide a fair and reasonable opportunity to exercise the right, to acquire proportional amounts of the corporation's unissued shares upon the decision of the board of directors to issue them.

B. Unless otherwise provided for in the articles of incorporation, the shareholders of a corporation incorporated after December 31, 2005, do not have a preemptive right to acquire the corporation's unissued shares.

C. Except to the extent that the articles of incorporation expressly provide otherwise, when there are preemptive rights, the following apply:

1. The shareholders of the corporation have a preemptive right, granted on uniform terms and conditions prescribed by the board of directors to provide a fair and reasonable opportunity to exercise the right, to acquire proportional amounts of the corporation's unissued shares upon the decision of the board of directors to issue them.

2. A shareholder may waive the shareholder's preemptive right. A waiver evidenced by a writing is irrevocable even though it is not supported by consideration.

3. There is no preemptive right with respect to:

a. Shares issued as compensation to officers, employees, or agents of the corporation, its subsidiaries, or affiliates;

b. Shares issued to satisfy conversion or option rights created to provide compensation to directors, officers, employees, or agents of the corporation, its subsidiaries, or affiliates;

c. Shares that are issued within six months from the effective date of the certificate of incorporation; or

d. Shares issued for consideration other than for cash.

4. Holders of shares of any class with preferential rights to distributions have no preemptive rights with respect to shares of any other class.

5. Holders of shares of any class without preferential rights to distributions have no preemptive rights with respect to shares of any class with preferential rights to distributions unless the shares with preferential rights are convertible into, or carry a right to subscribe for or acquire, shares without preferential rights.

6. Holders of shares of any class without general voting rights and without preferential rights to distributions have no preemptive rights with respect to shares of any class with general voting rights but without preferential rights to distributions.

7. Shares subject to preemptive rights that are not acquired by shareholders may be issued to any person for a period of one year after being offered to shareholders at a consideration set by the board of directors that is not lower than the consideration set for the exercise of preemptive rights. An offer at a lower consideration or after the expiration of one year is subject to the shareholders' preemptive rights.

D. For purposes of this section, "shares" includes any warrants, rights, or options to acquire any shares or any security or other obligation of the corporation convertible into or carrying a right to subscribe for or acquire any such shares or warrants, rights, or options to acquire any such shares.

Code 1950, § 13.1-23; 1956, c. 428; 1975, c. 500; 1985, c. 522; 2005, c. 765; 2019, c. 734.

A. A corporation may acquire its own shares, and shares so acquired constitute authorized but unissued shares of the same class, if any, but undesignated as to series.

B. If the articles of incorporation prohibit the reissuance of acquired shares or if the board of directors has authorized the reduction in the number of authorized shares by the number of shares acquired, the number of authorized shares shall be reduced by the number of shares acquired effective when the certificate of amendment is effective. The corporation shall deliver to the Commission for filing articles of amendment that shall set forth:

1. The name of the corporation;

2. The reduction in the number of authorized shares, itemized by class and series;

3. The total number of authorized shares, itemized by class and series, remaining after reduction of the shares; and

4. A statement that the reduction in the number of authorized shares was required by the articles of incorporation or was adopted by the board of directors without shareholder approval pursuant to this section, with the date of adoption.

C. The articles of amendment may be adopted by the board of directors without shareholder action.

D. If the Commission finds that the articles of amendment comply with the requirements of law and that all required fees have been paid, it shall issue a certificate of amendment.

Code 1950, §§ 13.1-65, 13.1-66; 1956, c. 428; 1958, c. 564; 1985, c. 522; 2005, c. 765; 2019, c. 734; 2020, c. 1226.

A. The board of directors may authorize and the corporation may make distributions to its shareholders, subject to restriction by the articles of incorporation and the limitation in subsection C.

B. The board of directors may fix the record date for determining shareholders entitled to a distribution. If the board of directors does not fix the record date for determining shareholders entitled to a distribution, other than one involving a purchase, redemption, or other acquisition of the corporation's shares, the record date is the date the board of directors authorizes the distribution.

C. No distribution may be made if, after giving it effect:

1. The corporation would not be able to pay its debts as they become due in the usual course of business; or

2. The corporation's total assets would be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution.

D. The board of directors may base a determination that a distribution is not prohibited under subsection C either on financial statements prepared on the basis of accounting practices and principles that are reasonable in the circumstances or on a fair valuation or other method that is reasonable in the circumstances. For any public corporation, reliance upon the most recent financial statements that have been prepared in accordance with generally accepted accounting principles in the United States shall be deemed to be reasonable in the circumstances if the financial statements have been audited by independent certified public accountants whose certification does not include a going concern qualification.

E. Except as provided in subsection G, the effect of a distribution under subsection C is measured:

1. In the case of a distribution by purchase, redemption, or other acquisition of the corporation's shares, as of the earlier of (i) the date cash or other property is transferred or debt to a shareholder incurred by the corporation or (ii) the date the shareholder ceases to be a shareholder with respect to the acquired shares;

2. In the case of any other distribution of indebtedness, as of the date the indebtedness is distributed; and

3. In all other cases, as of (i) the date the distribution is authorized if the payment occurs within 120 days after the date of authorization or (ii) the date payment is made if it occurs more than 120 days after the date of authorization.

F. A corporation's indebtedness to a shareholder incurred by reason of a distribution made in accordance with this section is at parity with the corporation's indebtedness to its general, unsecured creditors except to the extent subordinated by agreement.

G. Indebtedness of a corporation, including indebtedness issued as a distribution, is not considered a liability for purposes of determinations under subsection C if its terms provide that payment of principal and interest is made only if and to the extent that payment of a distribution to shareholders could then be made under this section. If such indebtedness is issued as a distribution, each payment of principal or interest is treated as a distribution, the effect of which is measured on the date the payment is actually made.

H. This section shall not apply to distributions in liquidation under Article 16 (§ 13.1-742 et seq.).

Code 1950, §§ 13-206, 13.1-4, 13.1-43, 13.1-62; 1956, c. 428; 1962, c. 14; 1979, c. 175; 1985, c. 522; 2005, c. 765; 2019, c. 734.