Article by Thomas J. Andre, Jr.
Restrictions on the transfer of shares of closely held corporations serve numerous purposes. Commonly, they are designed to allow existing shareholders a measure of control over the identity of the shareholding group, either by making it more difficult for unwanted outsiders to purchase an interest in the enterprise or, in some cases, making it more difficult for key personnel to leave the corporation. In addition, share transfer restrictions may be utilized to maintain an existing pattern of control, or to prevent one or more shareholders from obtaining control by purchase of shares from other shareholders. Share transfer restrictions, moreover, may be a useful aid in estate planning, or to maintain a Subchapter S election.
Transfer restrictions have been regularly employed in Louisiana for over a century. The early cases, while occasionally recognizing the purposes served by restrictions, rarely addressed their validity. Some courts seemed to assume that at least some restraints were valid, while others stated that a restraint "could not have the effect of rendering the stock inalienable." Still other courts implied that transfer restrictions could not be imposed. Many of the resulting uncertainties should have been eliminated by the adoption of the Louisiana Business Corporation Law (LBCL). Instead, several recent cases have added to the confusion. The purpose of this article is to analyze the state of the law of transfer restrictions in Louisiana and to suggest some possible approaches that might be taken to clarify present law.
About the Author
Thomas J. Andre, Jr. Professor of Law, Tulane University School of Law; B.A. 1963, Cornell University; LL.B. 1966, Tulane University; LL.M. 1967, Columbia University.
Citation
53 Tul. L. Rev. 776 (1979)