How to Amend Articles of Incorporation to Restrict Stock

By David Carnes

Restricted stock is a type of corporate stock that is characterized by restrictions on the owner’s ability to transfer it to another party. It is often offered by corporations to their employees as part of their benefits package, although its use is not limited to this purpose. Before a corporation is legally entitled to issue a new type of stock, however, it must amend its Articles of Incorporation. Amending the Articles of Incorporation requires prior authorization and compliance with appropriate procedures.

Restricted stock is a type of corporate stock that is characterized by restrictions on the owner’s ability to transfer it to another party. It is often offered by corporations to their employees as part of their benefits package, although its use is not limited to this purpose. Before a corporation is legally entitled to issue a new type of stock, however, it must amend its Articles of Incorporation. Amending the Articles of Incorporation requires prior authorization and compliance with appropriate procedures.

Step 1

Obtain the form required by your state to amend the Articles of Incorporation. These forms are often fill-in-the blank.

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Step 2

Complete the form by filling in necessary identification information and drafting an amendment to the company’s Articles of Incorporation creating restricted stock. Required information is likely to include the number of shares authorized, their par value (normally a nominal amount such as one dollar), and a description of the specific restrictions of the stock. If you intend to use restricted stock as compensation, for example, you might restrict the transfer of the stock until the employee has completed a certain number of years of service or until the company reaches certain financial targets. Leave the form unsigned for the moment.

Step 3

Examine company bylaws concerning voting requirements. Even if state law allows a resolution to amend Articles of Incorporation to pass with a simple majority vote, company bylaws may require a supermajority of 2/3 or 3/4. The bylaws may also require shareholder approval.

Step 4

Call a Board of Directors meeting and introduce a resolution to amend the Articles of Incorporation consistent with the draft amendment. Have each director to review the amendment form.

Step 5

Vote on the resolution to amend the company’s Articles of Incorporation in a manner consistent with the amendment form.

Step 6

Draft a written corporate resolution authorizing amendment of the Articles of Incorporation and have each director who voted in favor of the resolution sign it, along with the Chairman of the Board. This resolution functions as a written record of the Board of Directors' vote. File the resolution in the corporate records.

Step 7

Sign the amendment form if you are authorized to do so. Otherwise, have an authorized company representative sign it.

Step 8

File the amendment with the state government office that accepted the company’s original Articles of Incorporation. You may have to pay a filing fee. You will receive a stamped copy of the amendment as evidence of your filing.

Step 9

Attach the state-stamped amendment to the company’s original Articles of Incorporation and keep them together in the company records. These two documents together are legal evidence of the corporation’s amended Articles of Incorporation.

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References

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