17-7201. Laws applicable to close corporations. (a) K.S.A. 17-7201 through 17-7216, and amendments thereto, apply to all close corporations, as defined in K.S.A. 17-7202, and amendments thereto. Unless a corporation elects to become a close corporation under the foregoing sections in the manner prescribed therein, it shall be subject in all respects to the provisions of this code, except the provisions of K.S.A. 17-7201 through 17-7216, and amendments thereto.

(b) All provisions of this code shall be applicable to all close corporations, as defined in K.S.A. 17-7202, and amendments thereto, except as otherwise provided in K.S.A. 17-7201 through 17-7216, and amendments thereto.

History: L. 1972, ch. 52, § 125; L. 2016, ch. 110, § 106; July 1.

17-7202. Close corporation defined; contents of articles of incorporation; effect of joint held stock. (a) A close corporation is a corporation organized under this act whose articles of incorporation contain the provisions required by K.S.A. 17-6002, and amendments thereto, and, in addition, provide that:

(1) All of the corporation's issued stock of all classes, exclusive of treasury shares, shall be held of record by not more than a specified number of persons, not exceeding 35; and

(2) all of the issued stock of all classes shall be subject to one or more of the restrictions on transfer permitted by K.S.A. 17-6426, and amendments thereto; and

(3) the corporation shall make no offering of any of its stock of any class which would constitute a "public offering" within the meaning of the United States securities act of 1933, as it may be amended from time to time.

(b) The articles of incorporation of a close corporation may set forth the qualifications of stockholders, either by specifying classes of persons who shall be entitled to be holders of record of stock of any class, or by specifying classes of persons who shall not be entitled to be holders of stock of any class, or both.

(c) 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 stockholder.

History: L. 1972, ch. 52, § 126; L. 2004, ch. 143, § 77; January 1, 2005.

17-7203. Formation of close corporation. A close corporation shall be formed in accordance with K.S.A. 17-6001 and 17-6002 and K.S.A. 17-7908 through 17-7910, and amendments thereto, except that:

(a) Its articles of incorporation shall contain a heading stating the name of the corporation and that it is a close corporation; and

(b) its articles of incorporation shall contain the provisions required by K.S.A. 17-7202, and amendments thereto.

History: L. 1972, ch. 52, § 127; L. 2016, ch. 110, § 107; July 1.

17-7204. Election of existing corporation to become close corporation. Any corporation organized under the Kansas general corporation code may become a close corporation under K.S.A. 17-7201 through 17-7216, and amendments thereto, by executing and filing, in accordance with K.S.A. 17-7908 through 17-7910, and amendments thereto, a certificate of amendment of its articles of incorporation which shall contain: (a) A statement that it elects to become a close corporation; (b) the provisions required by K.S.A. 17-7202, and amendments thereto, to appear in the articles of incorporation of a close corporation; and (c) a heading stating the name of the corporation and that it is a close corporation. Such amendment shall be adopted in accordance with the requirements of K.S.A. 17-6601 or 17-6602, and amendments thereto, except that it must be approved by a vote of the holders of record of at least 2/3 of the shares of each class of stock of the corporation which are outstanding.

History: L. 1972, ch. 52, § 128; L. 1973, ch. 100, § 16; L. 1998, ch. 189, § 21; L. 2000, ch. 39, § 42; L. 2016, ch. 110, § 108; July 1.

17-7205. Limitations on continuation of close corporation status. A close corporation continues to be such and to be subject to the provisions of K.S.A. 17-7201 through 17-7216, and amendments thereto, until:

(a) It files with the secretary of state a certificate of amendment deleting from its articles of incorporation the provisions required or permitted by K.S.A. 17-7202, and amendments thereto, to be stated in the articles of incorporation to qualify it as a close corporation; or

(b) any one of the provisions or conditions required or permitted by K.S.A. 17-7202, and amendments thereto, to be stated in the articles of incorporation to qualify a corporation as a close corporation has been breached, in fact, and neither the corporation nor any of its stockholders takes the steps required by K.S.A. 17-7208, and amendments thereto, to prevent such loss of status or to remedy such breach.

History: L. 1972, ch. 52, § 129; L. 2016, ch. 110, § 109; July 1.

17-7206. Voluntary termination of status as close corporation; amendment of articles of incorporation; vote required. (a) A corporation may voluntarily terminate its status as a close corporation and cease to be subject to the provisions of this code relating thereto by amending its articles of incorporation to delete therefrom the additional provisions required or permitted by K.S.A. 17-7202, and amendments thereto, to be stated in the articles of incorporation of a close corporation. Any such amendment shall be adopted and shall become effective in accordance with K.S.A. 17-6602, and amendments thereto, except that it must be approved by vote of the holders of record of at least 2/3 of the shares of each class of stock of the corporation which are outstanding.

(b) The articles of incorporation of a close corporation may provide that on any amendment to terminate its status as a close corporation, a vote greater than 2/3 or a vote of all shares of any class shall be required; and if the articles of incorporation contain such a provision, that provision shall not be amended, repealed or modified by any vote less than such greater vote.

History: L. 1972, ch. 52, § 130; L. 2016, ch. 110, § 110; July 1.

17-7207. Issuance or transfer of stock of close corporation in breach of restrictions or conditions thereon; effect; conclusive presumptions; transfer defined; applicability and effect of section. (a) If stock of a close corporation is issued or transferred to any person who is not entitled under any provision of the articles of incorporation permitted by K.S.A. 17-7202(b), and amendments thereto, to be a holder of record of stock of such corporation, and if the certificate for such stock conspicuously notes or the corporation has notified the registered owner of uncertificated stock pursuant to K.S.A. 17-6401(f), and amendments thereto, of the qualifications of the persons entitled to be holders of record thereof, such person is conclusively presumed to have notice of the fact of such person's ineligibility to be a stockholder.

(b) If the articles of incorporation of a close corporation state the number of persons, not in excess of 35, who are entitled to be holders of record of its stock, and if the certificate for such stock conspicuously states or the corporation has notified the registered owner of uncertificated stock pursuant to K.S.A. 17-6401(f), and amendments thereto, of such number, and if the issuance or transfer of stock to any person would cause the stock to be held by more than such number of persons, the person to whom such stock is issued or transferred is conclusively presumed to have notice of this fact.

(c) If a stock certificate of any close corporation conspicuously notes or the corporation has notified the registered owner of uncertificated stock pursuant to K.S.A. 17-6401(f), and amendments thereto, of the fact of a restriction on transfer of stock of the corporation, and the restriction is one which is permitted by K.S.A. 17-6426, and amendments thereto, the transferee of the stock is conclusively presumed to have notice of the fact that such person has acquired stock in violation of the restriction, if such acquisition violates the restriction.

(d) Whenever any person to whom stock of a close corporation has been issued or transferred has, or is conclusively presumed under this section to have, notice either that: (1) Such person is a person not eligible to be a holder of stock of the corporation; (2) transfer of stock to such person would cause the stock of the corporation to be held by more than the number of persons permitted by its articles of incorporation to hold stock of the corporation; or (3) the transfer of stock is in violation of a restriction on transfer of stock, the corporation, at its option, may refuse to register transfer of the stock into the name of the transferee.

(e) The provisions of subsection (d) shall not be applicable if the transfer of stock, even though otherwise contrary to subsection (a), (b) or (c), has been consented to by all the stockholders of the close corporation, or if the close corporation has amended its articles of incorporation in accordance with K.S.A. 17-7206, and amendments thereto.

(f) The term "transfer," as used in this section, is not limited to a transfer for value.

(g) The provisions of this section do not impair in any way any rights of a transferee regarding any right to rescind the transaction or to recover under any applicable warranty, express or implied.

History: L. 1972, ch. 52, § 131; L. 2009, ch. 23, § 1; L. 2016, ch. 110, § 111; July 1.

17-7208. Breach of condition necessary to status as close corporation; proceeding to prevent loss of status; jurisdiction and powers of district court. (a) If any event occurs, as a result of which one or more of the provisions or conditions included in a close corporation's articles of incorporation, pursuant to K.S.A. 17-7202, and amendments thereto, to qualify it as a close corporation has been breached, the corporation's status as a close corporation shall terminate unless:

(1) Within 30 days after the occurrence of the event, or within 30 days after the event has been discovered, whichever is later, the corporation files with the secretary of state a certificate, executed in accordance with K.S.A. 17-7908 through 17-7910, and amendments thereto, stating that a specified provision or condition included in its articles of incorporation pursuant to K.S.A. 17-7202, and amendments thereto, to qualify it as a close corporation has ceased to be applicable, and furnishes a copy of such certificate to each stockholder; and

(2) the corporation concurrently with the filing of such certificate takes such steps as are necessary to correct the situation which threatens its status as a close corporation, including, without limitation, the refusal to register the transfer of stock which has been wrongfully transferred as provided by K.S.A. 17-7207, and amendments thereto, or a proceeding under subsection (b).

(b) The district court, upon the suit of the corporation or any stockholder, shall have jurisdiction to issue all orders necessary to prevent the corporation from losing its status as a close corporation, or to restore its status as a close corporation, by enjoining or setting aside any act or threatened act on the part of the corporation or a stockholder which would be inconsistent with any of the provisions or conditions required or permitted by K.S.A. 17-7202, and amendments thereto, to be stated in the articles of incorporation for a close corporation, unless it is an act approved in accordance with K.S.A. 17-7206, and amendments thereto. The district court may enjoin or set aside any transfer or threatened transfer of stock of a close corporation which is contrary to the terms of its articles of incorporation or of any transfer restriction permitted by K.S.A. 17-6426, and amendments thereto, and may enjoin any public offering, as defined in K.S.A. 17-7202, and amendments thereto, or threatened public offering of stock of the close corporation.

History: L. 1972, ch. 52, § 132; L. 2000, ch. 39, § 43; L. 2016, ch. 110, § 112; July 1.

17-7209. Invalid transfer of close corporation's security; corporate option. If a restriction on the transfer of a security of a close corporation is held not to be authorized by K.S.A. 17-6426, and amendments thereto, the corporation, nevertheless, shall have an option, for a period of 30 days after the judgment setting aside the restriction becomes final, to acquire the restricted security 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 district court. In order to determine fair value, the court may appoint an appraiser to receive evidence and report to the court such appraiser's findings and recommendation as to fair value.

History: L. 1972, ch. 52, § 133; L. 2016, ch. 110, § 113; July 1.

17-7210. Agreement of stockholders to restrict discretion or powers of board of directors of close corporation. A written agreement among the stockholders of a close corporation holding a majority of the outstanding stock entitled to vote, whether solely among themselves or with a party not a stockholder, 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 stockholders 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.

History: L. 1972, ch. 52, § 134; July 1.

17-7211. Management of close corporation by stockholders. (a) The articles of incorporation of a close corporation may provide that the business of the corporation shall be managed by the stockholders of the corporation, rather than by a board of directors. So long as this provision continues in effect: (1) No meeting of stockholders need be called to elect directors; (2) unless the context clearly requires otherwise, the stockholders of the corporation shall be deemed to be directors for purposes of applying provisions of this code; (3) unless provided otherwise in the articles of incorporation or by agreement made between the stockholders, action by stockholders shall be taken by the voting of shares of stock in the same manner as provided in K.S.A. 17-6502(a), and amendments thereto; and (4) the stockholders of the corporation shall be subject to all liabilities of directors. Such a provision may be inserted in the articles of incorporation by amendment, if all incorporators and subscribers or all holders of record of all of the outstanding stock, whether or not having voting power, authorize such a provision. An amendment to the articles of incorporation to delete such a provision shall be adopted by a vote of the holders of a majority of all outstanding stock of the corporation, whether or not otherwise entitled to vote.

(b) If the articles of incorporation contain a provision authorized by this section, the existence of such provision shall be noted conspicuously on the face or back of every stock certificate issued by such corporation or, in the case of uncertificated shares, contained in the notice sent pursuant to K.S.A. 17-6401(f), and amendments thereto.

History: L. 1972, ch. 52, § 135; L. 1975, ch. 145, § 1; L. 2016, ch. 110, § 114; July 1.

17-7212. Appointment of custodian for close corporation, when. (a) In addition to the provisions of K.S.A. 17-6516, and amendments thereto, respecting the appointment of a custodian for any corporation, the district court, upon application of any stockholder, 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 K.S.A. 17-7211, and amendments thereto, the business and affairs of the corporation are managed by the stockholders 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 articles of incorporation or bylaws or in any written agreement of the stockholders has failed; or

(2) the petitioning stockholder has the right to dissolution of the corporation under a provision of the articles of incorporation permitted by K.S.A. 17-7215, and amendments thereto.

(b) In lieu of appointing a custodian for a close corporation under this section or K.S.A. 17-6516, and amendments thereto, the court may appoint a provisional director, whose powers and status shall be as provided in K.S.A. 17-7213, and amendments thereto, if the court determines that it would be in the best interest of the corporation. Such appointment shall not preclude any subsequent order of the court appointing a custodian for such corporation.

History: L. 1972, ch. 52, § 136; L. 2016, ch. 110, § 115; July 1.

17-7213. Appointment of provisional director for close corporation, when; qualifications, rights and powers of provisional director. (a) Notwithstanding any contrary provision of the articles of incorporation or the bylaws or agreement of the stockholders, the district court 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 stockholders generally.

(b) An application for relief under this section must be filed: (1) By at least 1/2 of the number of directors then in office; (2) by the holders of at least 1/3 of all stock then entitled to elect directors; or (3) if there be more than one class of stock then entitled to elect one or more directors, by the holders of 2/3 of the stock of any such class. The articles of incorporation of a close corporation may provide that a lesser proportion of the directors or of the stockholders or of a class of stockholders may apply for relief under this section.

(c) A provisional director shall be an impartial person who is neither a stockholder 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 district court. A provisional director is not a receiver of the corporation and does not have the title and powers of a custodian or receiver appointed under K.S.A. 17-6516 or 17-6901, and amendments thereto. 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 such person shall be removed by order of the court, or by the holders of a majority of all shares then entitled to vote to elect directors, or by the holders of 2/3 of the shares of that class of voting shares which filed the application for appointment of a provisional director. A provisional director's compensation shall be determined by agreement between such person and the corporation, subject to approval of the court, which may fix such person's 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 stockholders who may petition for appointment of a provisional director are not satisfied, the district court, nevertheless, may appoint a provisional director if permitted by K.S.A. 17-7212(b), and amendments thereto.

History: L. 1972, ch. 52, § 137; L. 2016, ch. 110, § 116; July 1.

17-7214. Operation of close corporation as partnership. No written agreement among stockholders of a close corporation, nor any provision of the articles of incorporation or of the bylaws 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 stockholders 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 stockholders of the corporation to treat the corporation as if it were a partnership, or to arrange relations among the stockholders or between the stockholders and the corporation in a manner that would be appropriate only among partners.

History: L. 1972, ch. 52, § 138; July 1.

17-7215. Dissolution of close corporation at option of stockholders or upon event or contingency specified in articles of incorporation; disclosure of provision on stock certificates. (a) The articles of incorporation of any close corporation may include a provision granting to any stockholder, or to the holders of any specified number or percentage of shares of any class of stock, 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 stockholders exercising such option shall give written notice thereof to all other stockholders. After the expiration of 30 days following the sending of such notice, the dissolution of the corporation shall proceed as if the required number of stockholders having voting power had voted in favor thereof.

(b) If the articles of incorporation, as originally filed, do not contain a provision authorized by subsection (a), the articles may be amended to include such provision if adopted by the affirmative vote of the holders of all the outstanding stock, whether or not entitled to vote, unless the articles of incorporation specifically authorize such an amendment by a vote which shall be not less than 2/3 of all the outstanding stock whether or not entitled to vote.

(c) Each stock certificate in any corporation whose articles of incorporation authorize dissolution, as permitted by this section, shall conspicuously note on the face thereof or, in the case of uncertificated shares, contained in the notice sent pursuant to K.S.A. 17-6401(f), and amendments thereto, the existence of the provision. Unless noted conspicuously on the face of the stock certificate or in the notice sent pursuant to K.S.A. 17-6401(f), and amendments thereto, or unless the transferee had actual knowledge of or consented to the dissolution, the provision is ineffective.

History: L. 1972, ch. 52, § 139; L. 2016, ch. 110, § 117; July 1.

17-7216. Effect of close corporation provisions on other laws. The provisions of K.S.A. 17-7201 to 17-7215, inclusive, and any amendments thereto shall not be deemed to repeal any statute or rule of law which is or would be applicable to any corporation which is organized under the provisions of this act, but which is not a close corporation.

History: L. 1972, ch. 52, § 140; L. 1973, ch. 100, § 17; July 1.