CORPORATIONS-SHARES OF STOCK-REASONABLENESS OF RESTRICTION ON TRANSFER OF SHARES

Defendant corporation's by-laws provided, inter alia, that shareholders wishing to dispose of their shares must, in absence of contrary agreement with the remaining shareholders, give latter an option to buy at a price equal to book value, regardless of market value of these shares. This restriction was not set forth in the share certificates as required by statute. On refusal of defendant corporation to permit transfer of its shares except in compliance with the terms of the by-law, complainants brought suit for declaratory judgment, and obtained a finding that these terms were void. Held, affirmed.

The by-law restriction violated the statute and also constituted an unreasonable restriction on transfer, since, although it gave the other shareholders the right to purchase at book value, it did not give the vendors a corresponding power to compel purchase at this price. Security Life and Accident Ins. Co. v. Carlovitz, (Ala. 1949) 38,S. (2d) 274.