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The Enforceability of Bylaws on the Transfer of Shares

California

,

United States of America

Issue

Can shares of a closely held private corporation be left to a beneficiary of a deceased shareholder in the shareholder’s will if the corporate bylaws contain restrictions on transfer?

Conclusion

No decisions were identified that specifically discussed whether restricted shares may be transferred in a will, but decisions discussing the enforceability of restrictions on the transfer of shares may be instructive.

A bylaw of a corporation may reasonably restrict the shareholders' right to transfer shares. To be reasonable, the bylaw must not unreasonably restrict the right of alienation, and must not otherwise unreasonably deprive the shareholder of substantial rights. (Tu-Vu Drive-In Corp. v. Ashkins, Yeng Sue Chow v. Levi Strauss & Co., Vannucci v. Pedrini, Groves v. Prickett)

A by-law reserving a right of first refusal in other shareholders or the corporation does not place an unreasonably restrictive curtailment on the right of alienation, or otherwise unreasonably deprive a shareholder of substantial rights. (Yeng Sue Chow v. Levi Strauss & Co., Tu-Vu Drive-In Corp. v. Ashkins, Groves v. Prickett, Vannucci v. Pedrini)

A corporate bylaw will be enforceable as a contract against those that assent to it as long as it is not against public policy. (Vannucci v. Pedrini)

For a restriction on transfer to be invalid, more than a disparity between the option price and the current value of the stock must be shown. The determination of the repurchase price is a matter of contract that is agreed upon by the parties. Thus, where a contract is made for consideration and without fraud, and where the parties are competent to contract and enter into the contract fairly and understandingly, a court will not refuse to carry out the terms of the agreement merely because the value of the property has increased or diminished since the contract was made. (Yeng Sue Chow v. Levi Strauss & Co.)

In Yeng Sue Chow v. Levi Strauss & Co., the California Court of Appeal for the First District held that the employer's option to repurchase a former employee's stock upon his death, according to the employer's stock option plan, was enforceable. The repurchase option specifically gave the employer 30 days after an employee's death to buy the deceased employee's shares back at book value. The former employee's widow argued, in part, that the first refusal option was unfair because after her husband's death, the defendant company went public and the value of the shares increased. The Court explained that a disparity between the option price and the current value of the stock does not invalidate a repurchase option. The determination of the repurchase price was a matter of contract that was agreed upon by the parties and the contract was enforceable.

Law

No decisions were identified that specifically discussed whether restricted shares may be transferred in a will, but decisions discussing the enforceability of restrictions on the transfer of shares may be instructive.

In Yeng Sue Chow v. Levi Strauss & Co., 122 Cal.Rptr. 816, 49 Cal.App.3d 315 (Cal. App. 1975) ("Yeng Sue Chow"), the California Court of Appeal for the First District held that the employer's option to repurchase a former employee's stock upon his death, according to the stock option plan, was enforceable. The former employee's widow sued the employer for rescission of the stock repurchase option and restitution. The trial court granted summary judgment in favor of the employer, and the widow appealed. The Court of Appeal affirmed the trial court's judgment. In its discussion, the Court noted that the repurchase option specifically gave the employer 30 days after an employee's death to buy the deceased employee's shares back at book value (at 319-320):

Appellant is the widow and executrix of the estate of Arthur Chow, deceased ('Arthur'). Arthur was employed by Levi Strauss & Co. ('the Company') from 1959 until his death on May 27, 1970. During the period of his employment Arthur acquired 11,295 shares of the Company's common capital stock under employee stock purchase plans. [49 Cal.App.3d 320] Under these plans key employees were allowed to purchase the stock on favorable terms, but at the same time granting a repurchase option to the Company in case they intended to resell or otherwise dispose of the shares or in the event of termination of their employment. Thus, all the shares acquired by Arthur were subject to the repurchase option under which the Company was entitled for a period of 30 days after Arthur's death to buy them back at book value. 1

1 An illustration, we cite the pertinent part of one of the stock purchase option agreements: 'FOR VALUE RECEIVED, I hereby agree with LEVI STRAUSS & CO., hereinafter referred to as the Company, as follows:

'1. In the event that for any reason I should cease to be employed by the Company or a subsidiary of the Company, Or in the event of my death, the Company has the option to purchase any or all shares of the capital stock of the Company then owned by me, whether now owned by me or hereafter acquired, At the price and upon the terms hereinafter set forth.

'2. . . .

'The option herein granted to the Company may be exercised within the following periods of time after the occurrence of the event entitling it to exercise the option: . . .

'(c) In the event of my death, the option may be exercised at any time after my death but not later than thirty (30) days after receipt by the Company of written notification from my personal representative or his attorney, of the appointment and qualification of such personal representative.

'Notice of exercise of such option shall be given in writing and mailed to me or, in the event of my death, to my personal representative if the Company shall theretofore have received written evidence of such representative's appointment, otherwise to my surviving spouse, if any, otherwise to any relative of mine know to the Company . . .. In the event of the exercise of said option, the price per share to be paid for said shares shall be a sum equivalent to the 'computed book value' thereof as of the 'valuation date' . . .' (emphasis added).

The Court noted that a by-law reserving a right of first refusal in other shareholders or the corporation does not place an unreasonably restrictive curtailment on the right of alienation, or otherwise unreasonably deprive a shareholder of substantial rights. Stock repurchase agreements serve the important purposes of protecting shareholders' interest in the corporation, allowing shareholders to maintain control of the corporation, protecting the corporation from competitors or other purchasers who may have ulterior motives, and ensuring that the stockholders will be able to sell their shares as it may be difficult to sell shares of a closed corporation on the open market (at 322-323):

Validity of Repurchase Option: It has been well established both in California and elsewhere that while a corporate by-law may not place an unreasonably restrictive curtailment on the right of alienation, nor may it otherwise unreasonably deprive a shareholder of substantial rights, a by-law reserving a right of first refusal in other shareholders or in the corporation does not violate either of those prohibitions (Tu-Vu Drive-In Corp. v. Ashkins (1964) 61 Cal.2d 283, 286, 38 Cal.Rptr. 348, 391 P.2d 828; see also Vannucci v. Pedrini (1932) 217 Cal. 138, 17 P.2d 706; Groves v. Prickett (9 Cir. 1970) 420 F.2d 1119; Ryan v. J. Walter Thompson Company (D.C.1971) 322 F.Supp. 307; O'Neal, Restrictions on Transfer of Stock in Closely Held Corporations: Planning and Drafting (1952) 65 Harv.L.Rev. 773, 777). Accordingly, the courts have uniformly upheld and enforced first option provisions in corporate charters or by-laws whereby the

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shareholder is required to afford the corporation, his fellow-shareholders, or both, an opportunity to buy before he is free to offer his stock to outsiders (Allen v. Biltmore Tissue Corporation (1957) 2 N.Y.2d 534, 161 N.Y.S.2d 418, 422, 141 N.E.2d 812, 815; Cicero Industrial Development Corp. v. Roberts (1970) 63 Misc.2d 565, 312 N.Y.S.2d 893, 899).

The policy reasons underpinning the restriction of alienation of corporate assets in closely held corporations are manifold. Stock repurchase agreements, which merely delay a transfer of corporate shares rather than forbid it, serve a variety of purposes. They are an important device available to the shareholders who seek to protect their interest in the value of the corporation, and assure that upon the death or withdrawal of a participant the remaining shareholders will be able to control the corporation by preservation of veto power and by exclusion of competitors who might be desirous of disrupting the successful operation of the corporation (Ryan v. J. Walter Thompson Company, supra, at pp. 312--313; 7 Cavitch, Business Organizations (1971), § 148.02, pp. 925--926). As our Supreme Court succinctly stated in Tu-Vu Drive-In Corp. v. Ashkins, supra, 61 Cal.2d at page 287, 38 Cal.Rptr. at page 350, 391 P.2d at page 830: 'Bylaws restricting transfer in closed corporations are frequently assential to a successful enterprise; they perform an important function in Precluding unwanted intrusions by outsiders; they preserve the integrity of the functioning entity. Such bylaws are 'necessary for the protection of the corporation and its stockholders against rivals in business or others who might purchase its shares for the purpose of acquiring information which might thereafter be used against the interests of the company. . . . '' (Emphasis added.)

[49 Cal.App.3d 323] At the same time stock repurchase agreements also serve the interests of the individual participants who are under a duty to resell their shares to the company at a fixed rate. It is a matter of common knowledge that in most instances there is no easily ascertainable market value for the shares of closely held corporations. As a consequence, the various formulae set for determining the option price (e.g., book or appraisal value, par value) provide the participant or his heir an Assured market at a fixed price for the stock in the event of death, retirement or other termination of interest in the corporation (Allen v. Biltmore Tissue Corporation, supra, 161 N.Y.S.2d at p. 424, 141 N.E.2d at p. 817). As has been aptly noted, 'If a repurchase plan were not in effect, the widow might find it impossible to sell her shares in the open market, and thus might be forced to sell to the surviving shareholders at an unreasonably low price, if they would purchase her stock at all.' (Close Corporation Stock Repurchase Agreements, 11 W.Res.L.Rev. 278, 290; see also 7 Cavitch, Business Organizations, supra, at p. 927, fn. 6.)

In Tu-Vu Drive-In Corp. v. Ashkins, 61 Cal.2d 283, 38 Cal.Rptr. 348, 391 P.2d 828 (Cal. 1964), the Supreme Court of California explained that a bylaw of a corporation may reasonably restrict the shareholders' right to transfer shares. To be reasonable, the bylaw must not unreasonably restrict the right of alienation, and must not otherwise unreasonably deprive the shareholder of substantial rights. A bylaw reserving a right of first refusal in other shareholders or the corporation does not unreasonably restrict the right of alienation (at 285-286):

We turn to the first of these questions. Corporations Code section 501 provides that 'The by-laws of a corporation may make provisions not in conflict with law or its articles for: * * * (subdivision) (g) Special qualifications of persons who may be shareholders, and reasonable restrictions upon the right to transfer or hypothecate shares.' The problem [61 Cal.2d 286] therefore focuses upon the question of whether the present 'restriction upon the right to transfer' is reasonable.

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[391 P.2d 830] The term 'reasonable' imports a twofold requirement. The bylaw must not constitute an unreasonably restrictive curtailment of the right of alienation (see O'Neal, Restrictions on Transfer of Stock in Closely Held Corporations (1952) 65 Harv.L.Rev. 773, 777-778; Cataldo, Stock Transfer Restrictions and the Closed Corporation (1951) 37 Va.L.Rev. 229, 232), and it must not otherwise unreasonably deprive the shareholder of 'substantial rights.' (Spencer v. Hibernia Bank (1960) 186 Cal.App.2d 702, 736, 737, 9 Cal.Rptr. 867; Bennett v. Hibernia Bank (1956) 47 Cal.2d 540, 552, 305 P.2d 20.) A bylaw reserving a right of first refusal in other shareholders or the corporation does not unreasonably restrict the right of alienation. (See Vannucci v. Pedrini (1932) 217 Cal. 138, 17 P.2d 706; O'Neal, Restrictions on Transfer of Stock, supra, 65 Harv.L.Rev. 773, 777.)

The Court explained that bylaws restricting transfer in closed corporations are often essential to the success of the corporation and are necessary for the protection of the corporation and its stockholders against rival businesses or others who may wish to acquire shares to gain information which they may be able to use against the interests of the corporation. The bylaw, in this case, required that a stockholder who wished to sell their shares must first offer to sell to the other shareholders and that, if the shareholders declined to purchase the stock, offer it to the corporation, at the same price, and under the same terms as offered to the outsider. The Court found that although the bylaw restricted the shareholder's right to transfer their shares without their consent (as they had acquired their shares before the enactment of the bylaw), it did not deprive them of a substantial right because it merely proscribed to who they could transfer their shares while ensuring that they receive the price and terms offered by an outsider. Additionally, a shareholder acquires their shares subject to the power of the corporation to alter its contract with them according to statutory authority (at 286-288):

Similarly, ample authority holds that the bylaw, although it restricts defendant Ashkins' right to transfer without her consent, does not unreasonably deprive her of a 'substantial right.' In Bennett v. Hibernia Bank, supra, 47 Cal.2d 540, 552, 305 P.2d 20, we determined that the reasonableness of bylaws adopted subsequent to the acquisition of the shareholder's stock and without his consent must be considered in light of its purpose and the extent of the impairment of the rights of the complaining shareholder.

[61 Cal.2d 287] Bylaws restricting transfer in closed corporations are frequently essential to a successful enterprise; they perform an important function in precluding unwanted intrusions by outsiders; they preserve the integrity of the functioning entity. Such bylaws are 'necessary for the protection of the corporation and its stockholders against rivals in business or others who might purchase its shares for the purpose of acquiring information which might thereafter be used against the interests of the company * * *.' (Mancini v. Patrizi (1927) 87 Cal.App. 435, 437, 262 P. 375, 376; see generally Cataldo, Stock Transfer Restrictions, supra, 37 Va.L.Rev. 229, 230.)

In the light of the legitimate interests to be furthered by the bylaw, Ashkins' asserted right becomes 'innocuous and insubstantial.' (Royal China v. Regal China Corp. (N.Y.Sup.Ct.1951) 107 N.Y.S.2d 901, modified 280 App.Div. 921, 116 N.Y.S.2d 926.) The bylaw merely proscribes Ashkins' choice of transferees while insuring to her the price and terms equal to those offered by the outsider.

The California courts have sustained bylaws curtailing rights which were far more substantial than the right presently claimed. Thus in Wilson v. Cherokee Drift Min. Co. (1939) 14 Cal.2d 56, 92 P.2d 802, we upheld the action of the board of directors in levying an assessment of $23,000 upon shares held by a nonconsenting shareholder who had purchased his shares prior to passage of the article authorizing the assessment.

[61 Cal.2d 288] We may deal briefly with defendants' contention that the bylaw unconstitutionally

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[391 P.2d 831] impairs Ashkins' contract with the corporation. The California cases have clearly held that the power to regulate the rights of corporate shareholders, reserved to the state by article XII, section 1, of the Constitution, forms part of the contract between the shareholder and the corporation. (Wilson v. Cherokee Drift. Min. Co., supra, 14 Cal.2d 56, 58, 92 P.2d 802; Silva v. Coastal Plywood & Timber, supra, 124 Cal.App.2d 276, 278, 268 P.2d 510; see generally Ballantine & Sterling, California Corporations Laws (4th ed. 1963) 6.) The shareholder thus acquires his shares subject to the power of the corporation to alter its contract with him pursuant to statutory authority. (Wilson v. Cherokee Drift Min. Co., supra, 14 Cal.2d 56, 58, 92 P.2d 802; Silva v. Coastal Plywood & Timber, supra, 124 Cal.App.2d 276, 278, 268 P.2d 510.)

The appellant in Yeng Sue Chow, supra, argued that employee first refusal options should be invalidated because they lack mutuality, are adhesion contracts, and are the result of indirect coercion. The Court disagreed and found that the stock option agreement was not the product of coercion, imposition, or economic duress and was a substantial fringe benefit obtained by the employee (at 326-327):

But the foregoing considerations aside, it cannot be seriously disputed that, far from being the product of coercion, imposition or economic duress, subtle or otherwise, stock purchase agreements by their very [49 Cal.App.3d 327]

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nature constitute a Substantial fringe benefit whereby employees are accorded the Privilege of buying corporate assets on highly favorable terms and thereby are given a financial incentive and economic interest in the success of the enterprise. As a leading author put it, 'a typical key employee Incentive device is the stock purchase plan under which employees are enabled to purchase the corporation's stock at 'bargain' prices.' (7 Cavitch, Business Organizations, supra, § 148.02, at p. 925.)

The circumstances of the concrete case before us well underline the aforestated proposition. The preamble of the option contract underscores that the agreement serves the purpose of 'granting an Incentive to and by encouraging Key employees to acquire stock ownership in the Company . . . thus providing them with a more direct interest in the Company's welfare and assuring a closer identification of their interests with those of the Company . . .' (emphasis added). A closer analysis of the stock purchase agreement provides additional proof how beneficial its terms were to Arthur. Thus, the record demonstrates that a portion of the shares was given to Arthur free, in the form of bonuses. The balance were purchased by Arthur largely with money borrowed from the Company, and the prices for the shares were set so low that even when computed at book value they yielded almost a triple profit to appellant who gained well over $100,000 on Arthur's original $64,827 investment. In this situation appellant's unsupported contention that the stock purchase option was the result of some sort of coercion or economic duress by which only the Company stood to gain ('heads, the company wins--tails, the employee loses') must be categorically rejected.

The appellant also argued that the first refusal option was unfair because, after her husband's death, the defendant company went public and the value of the shares increased. The Court explained that the validity of a restriction on transfer does not rest on any notion of intrinsic fairness of the price of the stock. For a restriction on transfer to be invalid, more than a disparity between the option price and the current value of the stock must be shown. The determination of the repurchase price was a matter of contract that is agreed upon by the parties. Thus, where a contract is made for consideration and without fraud, and where the parties are competent to contract and enter into the contract fairly and understandingly, a court will not refuse to carry out the terms of the agreement merely because the value of the property has increased or diminished since the contract was made (at 329-330):

Finally, we observe that reduced to its simplest terms appellant's position is that this court should rewrite the option contract so that it provide for the repurchase of corporate shares at the market price rather than the agreed upon book value of the shares. This we cannot do. While we concede that the enforcement of a fixed cut-off date frequently produces harsh results (cf. Ryan v. J. Walter Thompson Company, supra at p. 312), the overwhelming weight of authority is to the effect that the validity of restriction on transfer does not rest on any abstract notion of intrinsic fairness of price. To be invalid more than mere disparity between the option price and the current value of the stock must be shown. Since the determination of the price for repurchase is a contractual matter agreed upon by the parties, the court's scope of inquiry is limited to testing the reasonableness of the price formula. Under an unbroken line of cases book value prices of repurchased corporate shares have consistently been approved by the courts (Cicero Industrial Development Corp. v. Roberts, supra, 312 N.Y.S.2d at p. 899; Doss v. Yingling (1930) 95 Ind.App. 494, 172 N.E. 801, 803; Allen v. Biltmore Tissue Corporation, supra, 161 N.Y.S.2d at p. 423, 141 N.E.2d at p. 816; Claire v. Wigdor (1965) 24 A.D.2d 992, 266 N.Y.S.2d 6).

As has been pronounced time and again, the courts can have no concern with the wisdom or folly of a contract, made for a consideration and without fraud where the parties are competent to contract and enter into the same fairly and understandingly. The mere fact that the value of the property has increased or diminished since the contract was concluded will not warrant a refusal to carry out its terms in the absence of circumstances indicating

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fraud or bad faith (In re Estate of Brown, supra; In re Frayser's Estate (1948) 401 I11. 364, 82 N.E.2d 633, 637). The record at bench displays no circumstance whatever indicating any such conduct on the part of the Company. On the contrary, the uncontroverted record discloses an admirable example of a progressive and beneficent[49 Cal.App.3d 330] employer entitled to survive the attempted legal bite of its feeding hand.

In Vannucci v. Pedrini, 217 Cal. 138, 17 P.2d 706, 1932 Cal. LEXIS 355 (Cal. December 30, 1932), the California Supreme Court held that a bylaw of a corporation that gave the other stockholders the right of first refusal before a stockholder could sell their shares to someone else was enforceable. The Court explained that a bylaw will be enforceable as a contract against those that assent to it as long as it is not against public policy (at 143-145):

(1) These three cases relied upon by respondent are not controlling in the present action. Here the by-law, assented to by all the stockholders, including the defendant stockholders, and which the defendant Camilla Pedrini had notice of before she attempted to purchase the stock, provided that the shares of stock in said corporation should not be transferable or subject to sale until first offered to the company, and if refused by the company, then to the stockholders. (2) We may disregard that portion of said by-law requiring that the stock be offered to the company, as it is severable and is in no way dependent upon the remaining part providing that an offer be made to the stockholders before any stock of the corporation is subject to sale. We then have a by-law requiring that before the stock of one stockholder is subject to sale he must offer it to the remaining [***9] stockholders and give them an opportunity to purchase the same at its then book value. Five of such stockholders attempted to sell their stock to one who had knowledge of said by-law, and without complying with the terms of said by-law. Is such a sale legal? The law upon this question seems to be well settled.

(3) "Although a by-law which contravenes the Constitution and laws of the state is unenforceable as such against non-assenting stockholders, it may, nevertheless, if assented to, and is not opposed to public policy, be enforced as a contract, even though it is invalid as a by-law because unreasonable, or not properly adopted, or violative of statutory rights, or obligations. The reason for this is that a man may part with a right voluntarily, although it would be unjust to deprive him of such right by a by-law passed without his assent or knowledge." (6 Cal. Jur., pp. 718, 719.)

"It is argued that the terms upon which shares of stock may be transferred are prescribed by the statute, and that the corporation had no power to annex other conditions. So far as the power of corporate legislation is concerned, this may be conceded. And it may be assumed, for the purpose of the [***10] case, that a corporation could not make a by-law [*144] which would operate in and of itself to create a lien upon the stock for the indebtedness of the stockholder. But the power to legislate is one thing, and the power to contract is quite another. In the language of Angell: 'What may be bad as a by-law against common right may be good as a contract, since a man may part with a common right voluntarily, of which it would be impolitic and unjust to deprive him by a by-law passed without his assent, or perhaps knowledge, by those who might not know or would not consult his individual interests.' (Angell on Corporations, 8th ed., sec. 342.) And to say, as is said by the learned counsel, that no additional limitation can be added by contract in a particular case, seems to us to be going altogether too far." (Jennings v. Bank of California, 79 Cal. 323, 325 [21 Pac. 852, 12 Am. St. Rep. 145, 5 L. R. A. 233].)

"Article IX aforesaid is, moreover, not only a by-law for the regulation of the affairs of the corporation, but it is also a contract between the parties signing the same on the one part and the corporation on the other, and may be enforced as such by the corporation. While provisions for regulating the rights of the members of a corporation as between themselves, duly adopted by a majority of the stockholders, may not be enforceable as a by-law upon nonconsenting stockholders, yet, if assented to by all, they may be enforced as a contract." (People's Home Sav. Bank v. Sadler, 1 Cal. App. 189, 197 [81 Pac. 1029].)

Many authorities from other jurisdictions are to the same effect. (Sterling Loan & Investment Co. v. Litel, 75 Colo. 34 [223 Pac. 753]; Nicholson v. Franklin Brewing Co., 82 Ohio St. 94 [91 N. E. 991, 137 Am. St. Rep. 764, 19 Ann. Cas. 699]; Moses v. Soule, 63 Misc. Rep. 203 [118 N. Y. Supp. 410]; Bloomingdale et al. v. Bloomingdale et ux., 107 Misc. Rep. 646 [177 N. Y. Supp. 873]; Baumohl v. Goldstein, 95 N. J. Eq. 597, 602 [124 Atl. 118, 120].) In this last case the court aptly says: "As among the original incorporators there seems to be no reason in principle why they should not be permitted to retain the control of the corporation in which they have embarked their fortunes among themselves, or such of them as stand by the vessel, where no question of a bona fide purchaser [***12] without notice is involved. In this court, where the intent of the parties is the thing sought to be enforced, every effort should be [*145] made to hold men to agreements into which they have voluntarily entered, where the same are not obnoxious to any law or policy, and upon the strength of which others have changed their position or circumstances, or parted with a valuable consideration. It is their business and their money which is involved. It is by their efforts that success is attained, if attained at all. Surely, the public cannot be aggrieved, and individuals acting in accordance with equitable doctrines cannot be injured, because if they have no knowledge or notice of a fact they are not injured by it."

In Groves v. Prickett, 420 F.2d 1119 (9th Cir. 1970), the United States Court of Appeals for the Ninth Circuit held that a corporate bylaw reserving a right of first refusal in other shareholders is enforceable and that this preference right may be specifically enforced by the corporation. A bylaw that reserves a right of first refusal in other shareholders does not unreasonably restrict the right of alienation, nor does it deprive a shareholder of substantial rights. If a stockholder sells their stock in violation of the corporation's preference right, damages are an inadequate remedy and would defeat the purpose of the bylaw. Thus, if a stockholder sells stock in violation of the corporation's reference right, California courts will cancel the sale and enforce the preference right to purchase (at 1122-1123):

While under California law, a corporate by-law must not place an unreasonably restrictive curtailment on the right of alienation, nor must it otherwise unreasonably deprive a shareholder of substantial rights, Spencer v. Hibernia Bank, 186 Cal.App.2d 702, 736, 737, 9 Cal.Rptr. 867 (1960); Bennett v. Hibernia Bank, 47 Cal.App.2d 540, 552, 305 P.2d 20 (1956), a by-law reserving a right of first refusal in other shareholders does not unreasonably restrict the right of alienation, nor deprive the shareholder of a substantial right. Vannucci v. Pedrini, 217 Cal. 138, 17 P.2d 706 (1932); Bennett v. Hibernia Bank, supra. For that matter, by-laws restricting a transfer in closed corporations are sometimes essential to a successful enterprise. It has been said that such by-laws are "necessary for the protection of the corporation and its stockholders against rivals in business or others who might purchase its shares for the purpose of acquiring information, which might thereafter be used against

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