COMMENT

Source: 1984 Revised Model Business Corporation Act (3d ed.) ("Model Act") § 1.01. It follows the nomenclature of the former law, § 14-2-1. Citations to "former law" are to the Official Code of Georgia Annotated, including the 1987 Cumulative Supplement.

This Code was drawn primarily from the Model Act, which was prepared by the Committee on Corporate Laws of the Section of Corporation, Banking and Business Law of the American Bar Association.

To the extent this statute follows the Model Act, the Official Comments to the Model Act should be regarded as providing guidance to the interpretation of this Code. Some of the comments to this Code were drawn from the Model Act, with permission of the publisher, Law & Business Inc. Harcourt Brace Jovanovich. Comments to Part 6 of Article 8 were drawn from Changes in the Model Business Corporation Act - Amendments Pertaining to Directors' Conflicting Interest Transactions, 43 Bus. Law. 691 (1988), with permission of the American Bar Association, and its Section of Corporation, Business and Banking Law.

As the title indicates, this Chapter deals only with business corporations, that is, corporations organized and operated for profit. The subject of nonprofit corporations is dealt with in Chapter 3 of Title 14, the "Georgia Nonprofit Corporation Code."

Cross-References Application of Act to existing domestic corporation, see § 14-2-1701 . Application of Act to qualified existing foreign corporation, see § 14-2-1702 . Close corporations, see Article 9. Effective date of Act, see § 14-2-1706. Professional corporations, see Georgia Professional Corporation Act, Title 14, Chapter 7. Saving provisions, see § 14-2-1703 .

JUDICIAL DECISIONS

Editor's notes. - In light of the similarity of the statutory provisions, decisions under former Code Section 14-2-1, which was repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, are included in the annotations for this Code section.

Cited in Broome v. Ginsberg, 159 Ga. App. 202 , 283 S.E.2d 1 (1980); Miller & Meier & Assocs. v. Diedrich, 174 Ga. App. 249 , 329 S.E.2d 918 (1985); Stephens v. McGarrity, 290 Ga. App. 755 , 660 S.E.2d 770 (2008); Pandora Franchising, LLC v. Kingdom Retail Group, LLLP, 299 Ga. 723 , 791 S.E.2d 786 (2016).

COMMENT

Source: Model Act, § 1.02. There is no change from former law, § 14-2-7.

Provisions similar to section 14-2-102 have their genesis in Trustees of Dartmouth College v. Woodward, 17 U.S. (4 Wheat) 518 (1819), which held that the United States Constitution prohibited the application of newly enacted statutes to existing corporations while suggesting the efficacy of a reservation of power similar to section 14-2-102. The purpose of section 14-2-102 is to avoid any possible argument that a corporation has contractual or vested rights in any specific statutory provision and to ensure that the state may in the future modify its corporation statutes as it deems appropriate and require existing corporations to comply with the statutes as modified.

All articles of incorporation or certificates of authority granted under the Code are subject to the reservation of power set forth in section 14-2-102. Further, corporations "governed" by this Act which includes all corporations formed or qualified under earlier, general incorporation statutes that contain a reservation of power are also subject to the reservation of power of section 14-2-102 and are bound by subsequent amendments to the Code.

Former Georgia law had reserved to the state the right to withdraw the franchise in all cases of private charters granted since January 1, 1863. No such reserved power exists, however, with respect to private corporations created prior to 1863, and it would be unconstitutional for the General Assembly to alter a pre-1863 charter. See Thompson v. Atlantic Coast Line R.R., 200 Ga. 856 , 38 S.E.2d 774 (1946).

Cross-References Application of Act to existing domestic corporation, see § 14-2-1701 . Application of Act to existing qualified foreign corporation, see § 14-2-1702 . Effective date of Act, see § 14-2-1706. Saving provisions, see § 14-2-1703 .

RESEARCH REFERENCES

Am. Jur. 2d. - 18 Am. Jur. 2d, Corporations, § 79.

C.J.S. - 18 C.J.S., Corporations, § 77 et seq.

ALR. - Power of state to amend charter of a private incorporated charity, 62 A.L.R. 573 .

Constitutional and statutory provisions relating to consolidation, merger, or reorganization of corporations as applicable retrospectively to corporation previously chartered, 131 A.L.R. 734 .

COMMENT

Source: This section was added by amendment in 1989.

This section is a codification of a widely recognized rule of construction of business corporation laws. This confirms "the general theory of the Delaware Corporation law that action taken pursuant to the authority of the various sections of that law constitute acts of independent legal significance and their validity is not dependent on other sections of the Act." Hariton v. Arco Electronics, Inc., 41 Del. Ch. 74, 188 A.2d 123, 125 (Del. Supr. 1963), citing Langfelder v. Universal Laboratories, Inc., 68 F. Supp. 209, 211 (D.Del. 1946).

COMMENT

Note to 2006 Amendment New Code Section 14-2-104, which is based on Section 303 of the General Corporation Law of the State of Delaware, confirms that a corporation in bankruptcy is authorized to effectuate the decrees and orders of the court or judge in such proceedings and to take any corporate action provided for or directed by such decrees and orders without further action by directors or shareholders. Such authority may be exercised and such action may be taken, as may be directed in such orders or decrees, by any trustee appointed in the proceeding, by designated officers of the corporation, or by other representatives appointed by the court or judge. Where the action requires the filing of articles or a certificate with the Secretary of State, subsection (c) of new Code Section 14-2-104 specifically provides that the articles or certificate may certify that it was filed pursuant to the decree or order of a bankruptcy court. The validity of the action taken under Code Section 14-2-104 is not dependent on the existence or pendency of a confirmed plan of reorganization and the authority granted thereunder terminates upon the completion of such a bankruptcy proceeding.

COMMENT

Source: Model Act, § 1.20. While the pattern of this section generally follows former law, §§ 14-2-4 and 14-2-5, the application is more general.

Subsection (a) standardizes the filing requirements for all documents required or permitted by the Code to be filed with the Secretary of State. In a few instances, other sections of the Act impose additional requirements which must also be complied with if the document in question is to be filed. Publication of a notice must be evidenced in filings connected with articles of incorporation, name changes, mergers and dissolutions. See §§ 14-2-201.1 , 14-2-1006.1 , 14-2-1105.1 , and 14-2-1403.1 .

Subsection (b) makes it clear that these filing requirements relate only to documents which the Code expressly requires or permits to be filed with the Secretary of State; it does not authorize or direct the Secretary of State to accept or reject for filing other documents relating to corporations and does not treat documents required or permitted to be filed under other statutes.

Under subsection (c), a document must be filed by the Secretary of State if it contains the information required by the Code. The document may contain additional information or statements and their presence is not ground for the Secretary of State to reject the document for filing. These documents must be accepted for filing even though the Secretary of State believes that the language is illegal or unenforceable.

Under subsections (d) and (e), to be eligible for filing, a document must be typed or printed and in the English language (except to the limited extent permitted by section 14-2-120(e)).

Under subsection (f), to be filed, a document must simply be executed by a corporate officer. No specific corporate officer is designated as the appropriate officer to sign though the signing officer must designate his office or the capacity in which he signs the document.

Subsection (g) is permissive with respect to use of the corporate seal, attestations and acknowledgements. Former § 14-2-4(c) required attestation of documents by the secretary or assistant secretary. These requirements serve little purpose in connection with documents filed under the Code. Corporate seals no longer have legal significance under the Code, although they may have significance in other contexts, such as statutes of limitations governing contracts under seal. See also § 14-5-7 , concerning the evidentiary effect of corporate seals on documents affecting real property.

The Model Act provision permitting the Secretary of State to prescribe mandatory use of forms was omitted.

Cross-References Certificate of existence for foreign corporation, see § 14-2-1503 . Corporate name, see article 4 and § 14-2-1506 . Correcting filed document, see § 14-2-124 . "Deliver" includes mail, see § 14-2-140 . Effective time and date of filing, see § 14-2-123 . Evidence of publication of notice, see §§ 14-2-201.1 , 14-2-1006.1 , 14-2-1105.1 , and 14-2-140 3.1. Filing fees, see § 14-2-122 . Forms, see § 14-2-121 . Penalty for filing false document, see § 14-2-129 . Secretary of corporation defined, see § 14-2-140. Secretary of state's filing duty, see § 14-2-125 .

JUDICIAL DECISIONS

Editor's notes. - In light of the similarity of the statutory provisions, decisions under former Code Section 14-2-4, which was repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, are included in the annotations for this Code section.

Cited in Milton v. Austin, 124 Ga. App. 657 , 185 S.E.2d 551 (1971); Teri-Lu, Inc. v. Georgia R.R. Bank & Trust Co., 147 Ga. App. 860 , 250 S.E.2d 548 (1978); Sachs v. Lee & Sandra Assocs., 153 Ga. App. 823 , 266 S.E.2d 573 (1980); Computer Maintenance Corp. v. Tilley, 172 Ga. App. 220 , 322 S.E.2d 533 (1984); Schroeder v. Hunter Douglas, Inc., 172 Ga. App. 897 , 324 S.E.2d 746 (1984); Herrli Homes, Inc. v. Roon, 175 Ga. App. 85 , 332 S.E.2d 379 (1985).

OPINIONS OF THE ATTORNEY GENERAL

Editor's notes. - In light of the similarity of the statutory provisions, opinions under former Code 1933, §§ 22-104 and 22-105, and former Code Sections 14-2-4 and 14-2-5, which were repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, are included in the annotations for this Code section.

Corporation cannot escape liability by pleading failure to comply. - A corporation which did not file certified copies of the application for revivor with the Secretary of State as formerly required or pay the fees required by law when reviving its charter, was not thereafter licensed to transact any business in Georgia, and could not escape liability for the fees in question by pleading its own failure to comply with the clear and unambiguous terms and conditions of the law or the subsequent lapse of time. 1957 Op. Att'y Gen. p. 23 (decided under former Code 1933, § 22-105).

Cancellation of security deeds and writs of execution from record. 1972 Op. Att'y Gen. No. U72-79 (decided under former Code 1933, § 22-104).

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, § 171 et seq.

C.J.S. - 19 C.J.S., Corporations, §§ 654, 750.

COMMENT

Source: Model Act, § 1.21. Former law, § 14-2-390, was more general, granting the Secretary of State the power and authority "reasonably necessary to enable him to administer this chapter efficiently and to perform the duties therein imposed upon him. . . ."

This authority is not intended to permit the Secretary to prescribe and mandate the use of official forms so as to preclude additional information that is permitted by statute, or is commonly contained in, a document to be filed, such as articles of incorporation or articles of merger or share exchange, which, under section 14-2-1105, include the plan of merger or share exchange. In short, where the document is contractual in nature, the Secretary of State may not limit its contents by prescribing official and mandatory forms; only where the documents are informational is such prescription permitted. Elimination of the last sentence of § 1.21(a) of the Model Act, "If the Secretary of State so requires, use of these forms is mandatory," is intended to require the Secretary of State to use his rule-making authority before requiring additional information on forms.

Cross-References Annual registration, see § 14-2-1622 . Application for certificate of authority, see § 14-2-1503 . Application for certificate of withdrawal, see § 14-2-1520 . Certificate of existence, see § 14-2-128 . Effective time and date of filing, see § 14-2-123 . Filing fees, see § 14-2-122 . Filing requirements, see § 14-2-120 .

COMMENT

Source: Model Act, § 1.22. This reduces the large number of separate fees and charges presently provided in §§ 14-2-371 and 14-2-372.

Section 14-2-122 establishes in a single section the filing fees for all documents that may be filed under the Code. The fee provisions have been simplified, by reducing the number of categories, and covering all other filings with a single fee.

Note to 1989 Amendment The 1989 amendments deleted subsection (4), providing penalties for late filings of annual registrations, and added subsection (6), specifying that there is no charge for reservation of a corporate name.

Note to 2007 Amendment The 2007 amendment inserted new paragraph (10), which imposes a $95.00 fee for filing a certificate of conversion, and redesignated former paragraph (10) as paragraph (11).

Cross-References Agent's change of registered office, see § 14-2-5.02. Agent's resignation, see § 14-2-503 . Amended certificate of authority, see § 14-2-1504 . Amendment of articles of incorporation, see §§ 14-2-602 , 14-2-631 , and 14-2-1006 . Annual registration, see § 14-2-1622 . Certificate of authority, see § 14-2-1503 . Certificate of withdrawal, see § 14-2-1520 . Certificates for copies of documents, see chapter 5 of this title. Copies of documents, see chapter 5 of this title. Corporation's change of registered agent or office, see § 14-2-502 . Correction, see § 14-2-124 . Dissolution: administrative, see § 14-2-1421 . decree, see § 14-2-1433 . judicial, see §§ 14-2-1430 & 14-2-1431 ; reinstatement, see § 14-2-1422 ; revocation, see § 14-2-1404 ; voluntary, see § 14-2-1401 et seq. Evidentiary effect of certified copy, see § 14-2-127 . Existence, certificate of, see § 14-2-128 . Fee for copying and certifying copies of filed documents, see Title 14, Chapter 5. Fee for service of process on Secretary of State, see Title 14, Chapter 5. Incorporation, see § 14-2-201 . Merger, see § 14-2-1105 . Name of corporation, see § 14-2-401 . Reserved name, see § 14-2-402 . Restatement of articles of incorporation, see § 14-2-1007 . Revocation of certificate of authority, see § 14-2-1531 . Service on Secretary of State, see §§ 14-2-1107 , 14-2-1520 & 14-2-1531 . Share exchange, see § 14-2-1105 .

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, §§ 174, 278.

C.J.S. - 18 C.J.S., Corporations, § 62. 19 C.J.S., Corporations, § 988.

COMMENT

Source: Model Act, § 1.23. With minor exceptions described below, this follows the pattern of former law, § 14-2-5.

Subsection (a) provides that documents accepted for filing become effective at the time and date of filing, or at another specified time on that date, unless a delayed effective date is selected under section 14-2-123(b) . This section gives express statutory authority to the practice of the Secretary of State of ignoring processing time and treating a document as effective as of the date it is submitted for filing even though it may not be reviewed and accepted for filing until several days later. Former § 14-2-5(a)(3) sanctioned this practice by providing that the date when the document was received and stamped "filed" by the Secretary of State was the filing date.

Subsection (c) has no counterpart in either the Model Act or former law. It was added to reflect and authorize the previous practice of the Secretary of State, which permitted the existing filing date to be used even if the filed document is deficient, if, after receipt of notice of the deficiency, the document is corrected and returned to the Secretary of State in timely fashion.

Cross-References Effective date: amendment or restatement of articles of incorporation, see § 14-2-1009 . Merger or share exchange, see § 14-2-1105 . Voluntary dissolution, see § 14-2-1403 . Filing duty of Secretary of State, see § 14-2-125 . Filing fees, see § 14-2-122 . Filing requirements, see § 14-2-120 . Reliance of third persons on uncorrected documents, see § 14-2-124 .

COMMENT

Source: Model Act § 1.24. This substantially preserves the practice of former law, § 14-2-5(b).

Section 14-2-124 permits making corrections in filed documents without refiling the entire document or submitting formal articles of amendment. This continues the practice of former law, under § 14-2-5(b). Under subsection (c), even the correction relates back to the original effective date of the document except as to persons relying on the original document and adversely affected by the correction. As to these persons, the effective date of articles of correction is the date the articles are filed.

A document may be corrected either because it contains an "incorrect statement" or because it was defectively executed (including defects in optional forms of execution that do not affect the eligibility of the original document for filing).

Cross-References "Deliver" includes mail, see § 14-2-140 . Effective time and date of filing, see § 14-2-123 . Filing fees, see § 14-2-122 . Filing requirements, see § 14-2-120 .

COMMENT

Source: Model Act, § 1.25. Changes from former law, § 14-2-5 and § 14-2-393(a), are described below.

Under section 14-2-125 the Secretary of State is required to file a document if it "satisfies the requirements of Code section 14-2-120 ." There was no express standard in former Georgia law. Such a review was implicit in § 14-2-393(a), which provided that if the Secretary of State rejects a document for filing, he must provide notice of his reasons for such action.

Subsection (c) provides that if the Secretary of State does reject a document for filing he must return it to the corporation or its representative within ten days (rather than the five days provided in the Model Act) together with a brief written explanation of his reason for rejection. This rejection may be the basis of judicial review under section 14-2-126.

Provisions of former § 14-2-5(d) that required the Secretary of State to keep hard copies of charter documents for seven years, and annual reports for five years, before switching to microform, have been eliminated.

Cross-References Appeal from rejection of document, see § 14-2-126 . "Deliver" includes mail, see § 14-2-140 . Effective time and date of filing, see § 14-2-123 . Filing requirements: fees, see § 14-2-122 . Generally, see § 14-2-120 . Resignation of registered agent, see §§ 14-2-503 & 1509. Service on foreign corporation, see § 14-2-1510 . Powers of Secretary of State, see § 14-2-130 .

COMMENT

Source: Model Act § 1.26. The major change from former law, § 14-2-393(a), is reduction from 40 to 30 days of the time limit for appeals.

This Code, like earlier versions, does not address either the burden of proof or the standard for review in judicial proceedings challenging action of the Secretary of State.

Cross-References "Deliver" includes mail, see § 14-2-140 . Filing fees, see § 14-2-122 . Filing requirements, see § 14-2-120 . "Principal office": defined, see § 14-2-140 ; designated in annual registration, see § 14-2-1622 . Registered office: designated in annual registration, see § 14-2-1622 ; requirement, see §§ 14-2-202 & 14-2-501 . Secretary of state's filing duty, see § 14-2-125 .

COMMENT

Source: Model Act, § 1.27. This follows the pattern of the former law, § 14-2-6(a).

The Secretary of State may be requested to certify that a specific document has been filed with him upon payment of the fees specified in the fee schedule of the Secretary of State. Georgia departed from the Model Act language, which made the certificate conclusive evidence of filing, to provide that it is only prima facie evidence of filing, to allow for the possibility of fraud or collusion between an employee of the Secretary of State and the applicant. The limited effect of the certificate is consistent with the ministerial filing obligation imposed on the Secretary of State under the Model Act.

The Model Act was modified to provide that the Secretary of State's certificate will be evidence not that the original document "is on file," in the words of the Model Act, but "have been filed," since in some cases original documents will be destroyed and retained only in microform.

Cross-References Forms, see § 14-2-121 . Secretary of state's filing duty, see § 14-2-125 .

JUDICIAL DECISIONS

Cited in Due W. Assocs. v. Renfroe Mining & Grading Co., 194 Ga. App. 397 , 391 S.E.2d 13 (1990).

COMMENT

Source: Model Act, § 1.28. This is substantially the same as former law, § 14-2-6.

Section 14-2-128 establishes a procedure by which anyone may obtain a certificate from the Secretary of State that a particular domestic or foreign corporation is in existence or is authorized to transact business in the state. Where the Model Act provides that the certificate is conclusive evidence, Georgia provides only for a prima facie effect, to allow for the possibility of fraud or collusion between an employee of the Secretary of State and an applicant.

The certificate will be a standardized form. To accommodate the standardization of the process, Georgia eliminated the Model Act provision allowing the applicant to request certification of other facts of record in the office of the Secretary of State. Requests for copies of documents on file containing facts other than those provided in the standardized form may be obtained under the procedures set out in Chapter 5 of this title.

Cross-References Certificate of existence for nonqualified foreign corporation, see § 14-2-1503 . Filing fees, see § 14-2-122 . Filing requirements, see § 14-2-120 . Forms, see § 14-2-121 . "Principal office": defined, see § 14-2-140 ; designated in annual registration, see § 14-2-1622 . Registered office: designated in annual registration, see § 14-2-1622 ; requirement, see §§ 14-2-202 , 14-2-501 & 14-2-1507 .

COMMENT

Source: Model Act, § 1.29. The level of the fine imposed remains the same as in the former law, § 14-2-411(b).

Cross-References Administrative dissolution, see § 14-2-1440 . "Deliver" includes mail, see § 14-2-140 . Revocation of certificate of authority of foreign corporation, see § 14-2-1530 .

RESEARCH REFERENCES

Am. Jur. 2d. - 18B Am. Jur. 2d, Corporations, § 1598.

C.J.S. - 19 C.J.S., Corporations, §§ 649, 650, 1036.

ALR. - Constitutionality of statute regarding conduct of officers or directors of insolvent corporation which will render them criminally responsible, 76 A.L.R. 530 .

COMMENT

Source: Model Act, § 1.30. This continues the authority granted by former law, in § 14-2-390.

Cross-References Administrative dissolution, see § 14-2-1420 . Judicial dissolution, see § 14-2-1430 . Revocation of certificate of authority of foreign corporation, see § 14-2-1530 . Secretary of state's filing duty, see § 14-2-125 .

COMMENT

Source: Model Act, § 1.40. The former law was § 14-2-2.

Section 14-2-140 collects in a single section definitions of terms used throughout the Code. Articles and Parts of the Code in a few instances contain specialized definitions applicable only to those articles or parts.

Most of the definitions of section 14-2-140 are drawn directly from earlier versions of the Model Act and the Georgia Code and are reasonably self-explanatory. See § 14-2-2. The principal change in the definitions relates to elimination of legal capital concepts, such as stated capital, capital surplus, and earned surplus.

The term "distribution" defined in subsection (6) is a fundamental element of the financial provisions of the Model Act as amended in 1980. Section 14-2-640 sets forth a single, unitary test for the validity of any "distribution." Section 14-2-140(6) in turn defines "distribution" to include all transfers of money or other property made by a corporation to a shareholder in respect of the corporation's shares, except mere changes in the unit of interest such as share dividends and share splits. Thus, a "distribution" includes the declaration or payment of a dividend, a purchase by a corporation of its own shares, a distribution of evidences of indebtedness or promissory notes of the corporation, and a distribution in voluntary or involuntary liquidation. If a corporation incurs indebtedness in connection with a distribution (as in the case of a distribution of a debt instrument or an installment purchase of shares), the creation, incurrence, or distribution of the indebtedness is the event which constitutes the distribution rather than the subsequent payment of the debt by the corporation.

The term "indirect" in the definition of "distribution" is intended to include transactions like the repurchase of parent company shares by a subsidiary whose actions are controlled by the parent. It also is intended to include any other transaction in which the substance is clearly the same as a typical dividend or share repurchase, no matter how structured or labeled.

The definition of "national securities exchange" in section 14-2-140(16) is defined by reference to the Georgia Securities Act, which authorizes the Georgia Securities Commissioner to determine which exchanges qualify as national securities exchanges for purposes of exemption from registration under that Act.

The definition of "shareholder" in section 14-2-140(25) includes a beneficial owner of shares named in a nominee certificate under section 14-2-723, but only to the extent of the rights granted the beneficial owner in the certificate for example, the right to receive notice of, and vote at, shareholders' meeting.

Subsection (29) defines "voting group" for purposes of the Code as a matter of convenient reference. A "voting group" consists of all shares of one or more classes or series that under the articles of incorporation or the Code are entitled to vote and be counted together collectively on a matter. Shares entitled to vote "generally" on a matter under the articles of incorporation or this Code are for that purpose a single voting group. The word "generally" signifies all shares entitled to vote on the matter by the articles of incorporation or this Code that do not expressly have the right to be counted or tabulated separately. "Voting groups" are thus the basic unit of collective voting at shareholders' meeting, and voting by voting groups may provide essential protection to one or more classes or series of shares against actions that are detrimental to the rights or interests of that class or series.

Note to 1990 Amendment The 1990 amendment expands the definition of "national securities exchange" to include the National Association of Securities Dealers, Inc.'s automated national quotation system. This amendment effectively eliminates the right of shareholders to dissent from mergers or share exchanges involving the issuance of NASDAQ-listed securities and so conforms the statutory dissent rights to the exemption from registration provided under § 10-5-8(8.1) of the Georgia Securities Act of 1973.

Note to 1993 Amendment The 1993 amendment added a new definition of Treasury shares, recognizing that a corporation retains the option pursuant to Section 14-2-631 of retaining reacquired shares rather than cancelling such shares and having them revert to authorized but unissued shares.

Note to 1996 Amendment The definition of "distribution" in subsection (6) was amended to add to the exception rights to acquire shares of the corporation. Thus, neither the issuance of its own shares nor rights to acquire them will constitute a distribution.

Note to 1999 Amendment Source: Model Act § 1.40(7A). The definition of "electronic transmission" or "electronically transmitted" includes both communication systems which in the normal course produce paper, such as telegrams and facsimiles, as well as communication systems which transmit and permit the retention of data which is then subject to subsequent retrieval and reproduction in written form. Electronic transmission is intended to be broadly construed and include the evolving methods of electronic delivery, including electronic transmissions between computers via modem, as well as data stored and delivered on magnetic tapes or computer diskettes.

Note to 2004 Amendment Current Georgia law provides that certain types of mailings to shareholders are to be mailed by "first class." Transfer agents often use a class of mail which is the equivalent of or better than first class but under different postal service classifications. The amendment of Code Section 14-2-140 to incorporate a definition of "First Class" clarifies that mailings with similar classifications are effective as such.

The 2004 Amendments further revise the definitions of "Deliver", "Electronic Transmission", and "Sign" or "Signature", to provide additional specificity with regard to the modes of permissible paperless communication. The 2004 Amendments further include a definition of "Electronic network", which is used in Code Section 14-2-720 in the context of the inspection of a shareholders' list.

Cross-References Annual registration, see § 14-2-1622 . Nominee certificate, see § 14-2-723 . Special definitions: "Affiliate," see § 14-2-1110 . "Announcement date," see § 14-2-1110 . "Associate," see § 14-2-1110. "Beneficial owner," see §§ 14-2-1110 & 14-2-1131 . "Beneficial shareholder," see § 14-2-1301 . "Business combination," see §§ 14-2-1110 & 14-2-1131 . "Call," see § 14-2-641 . "Claim," see § 14-2-1407 . "Conflicting interest," see § 14-2-860 . "Continuing director," see § 14-2-1110. "Control," see §§ 14-2-1110 & 1131. "Corporation," see §§ 14-2-850 , 14-2-1110 & 14-2-1301 . "Derivative proceeding," see § 14-2-740 . "Determination date," see § 14-2-1110. "Director," see § 14-2-850 . "Director's conflicting interest transaction," see § 14-2-860 . "Dissenter," see § 14-2-1301. "Dissenters' notice," see § 14-2-1322 . "Expenses," see § 14-2-850. "Fair value," see § 14-2-1301. "Insolvent," see § 14-2-1201 . "Interest," see § 14-2-1301. "Interested shareholder," see § 14-2-1110. "Joint-stock association," see § 14-2-1109 . "Liability," see § 14-2-850. "Limited partnership," see § 14-2-1109 . "Net assets," see § 14-2-1110. "Officer," see § 14-2-864 . "Officer's conflicting interest transaction," see § 14-2-864 . "Outstanding shares," see § 14-2-603 . "Parent," see § 14-2-1104 . "Participating shares," see § 14-2-1103 . "Party," see § 14-2-850. "Proceeding," see § 14-2-850. "Professional corporation," see Georgia Professional Corporation Act O.C.G.A. Ch. 7, T. 14. "Qualified shares," see § 14-2-863 . "Record shareholder," see § 14-2-1301. "Redemption," see § 14-2-641 . "Registered holder," see § 14-2-641. "Related person," see § 14-2-860. "Required disclosure," see § 14-2-860. "Resident domestic corporation," see § 14-2-1131. "Shares," see §§ 14-2-627 , 14-2-630 & 14-2-1109. "Shareholder," see §§ 14-2-740 , 14-2-1109 & 14-2-1301. "Statutory close corporation," see O.C.G.A. Art. 9, T. 14. "Subsidiary," see § 14-2-1104 . "Time of commitment," see § 14-2-860. "Voting shares," see §§ 14-2-1103 & 14-2-1110.

JUDICIAL DECISIONS

ANALYSIS

• General Consideration
• Company
• Corporation
• Corporations Engaged In Any Business

OPINIONS OF THE ATTORNEY GENERAL

Editor's notes. - In light of the similarity of the statutory provisions, opinions under former § 14-2-2, which was repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, are included in the annotations for this Code section.

Definition of "foreign corporation" is based upon the premise that such an entity must be a corporation; thus, since a business trust is not considered a corporate entity, it cannot be a foreign corporation under Georgia law and does not have to register with the Secretary of State as a corporation under the Georgia Business Corporation Code (see now O.C.G.A. § 14-2-101 et seq.). 1978 Op. Att'y Gen. No. 78-42 (decided under former Code 1933, § 22-102).

RESEARCH REFERENCES

Am. Jur. 2d. - 18 Am. Jur. 2d, Corporations, § 3.

C.J.S. - 18 C.J.S., Corporations, §§ 1, 8 et seq., 146 et seq., 172 et seq., 180 et seq., 249, 250, 368 et seq., 456 et seq. 19 C.J.S., Corporations, § 968.

ALR. - Right of creditor of insolvent corporation to sue stockholder at law upon unpaid subscription, 7 A.L.R. 100 .

Validity of release, cancellation, or compromise of unpaid subscription for stock by corporation or its representatives, 101 A.L.R. 231 .

Eligibility as corporate director of one who was not stockholder in fact, or not stockholder of record, at time of election, but who afterwards became such, 130 A.L.R. 156 .

COMMENT

Source: Model Act, § 1.41. This section generally follows the approach of former law, in § 14-2-113.

Section 14-2-141 establishes rules for determining how notice may be given and when notice is effective for a variety of purposes.

Subsection (a) expressly validates oral notice for all purposes except where written notice is required, as where dissenter's rights are to be triggered, or disclosure of an agreement and plan of merger or share exchange is required. This is new to Georgia law.

Subsection (b)'s authorization of notice by publication has no counterpart in former Georgia law.

Subsection (c) of the Model Act was amended by adding provisions permitting use of third class mail by large corporations, to preserve the approach of former law.

Subsection (e) of the Model Act was amended by the addition of "the articles of incorporation or bylaws" to the introductory clause. This permits corporations to provide for longer periods for the effective dates of notices, but does not allow the minimum periods set out in subsection (e) to be shortened.

Subsection (g) was added to the Model Act's provisions to clarify rules for calculating the time when notice becomes effective. It is based on O.C.G.A. § 1-3-1(d)(3), but does not exclude weekends and holidays where the final day falls on one.

Note to 1989 Amendment The 1989 amendments changed subsection (e)(2) by the addition of "or such longer period as shall be provided in the articles of incorporation or bylaws" to the introductory clause. This permits corporations to provide for longer periods for the effective dates of notices, but does not allow the minimum periods set out in subsection (e)(2) to be shortened. The 1989 amendments also changed subparagraph (1) to clarify the effective date of delivery of a notice. Thus, actual receipt always establishes a delivery date, unless an earlier date is established under subparagraphs (2) or (3). Physical delivery to an addressee's office or residence also establishes delivery.

Note to 1997 Amendment The last sentence of subsection (a) is new. This clarifies that the decision in Georgia Dept. of Transportation v. Norris, 1996 Ga. App. LEXIS 791 (1996) (holding that a facsimile transmission did not satisfy a requirement under another statute for a notice "given in writing") does not normally apply to corporate law matters under this Chapter.

Note to 2003 Amendment New subsection (h) of Code Section 14-2-141 is modeled on Section 233 of the Delaware General Corporation Law and is designed to permit corporations to give a single written notice of meetings and other matters to shareholders who share the same address, if those shareholders consent to receiving only one notice. This provision is intended to interface with and permit use of the Securities and Exchange Commission's "householding" rules adopted in 2000. Delivery of Proxy Statements and Information Statements to Households, Securities Act Release No. 7912, Exchange Act Release No. 43487, Investment Company Act Release No. 24715, [2000-2001 Transfer Binder] Fed. Sec. L. Rep. (CCH) 86,404 at 83,931 (October 27, 2000). These "householding" rules permit companies and intermediaries to satisfy the delivery requirements for proxy statements, information statements and certain other materials with respect to two or more security holders sharing the same address by delivering a single proxy statement, information statement or other disclosure document to those security holders. This method of delivery may reduce the amount of duplicative information that shareholders receive and lower the cost of complying with the proxy rules for companies. This amendment, which is not limited to public companies, provides that sending a non-objecting shareholder such a "householded" document that includes a notice required to be given under this chapter, the articles of incorporation or the bylaws, shall satisfy the requirement that such notice be given to each shareholder.

Note to 2004 Amendment New subsection (f) to Code Section 14-2-705 provides an exception to the shareholder notice requirement when multiple notices of annual meeting or dividend payments have been returned as undeliverable. This provision is modeled on Section 230(b) of the General Corporation Law of the State of Delaware and conforms in large part to the shareholder notice provisions of Securities and Exchange Commission Rule 14(a)-3(e)(2) promulgated under the Securities Exchange Act of 1934, as amended. The exception to the shareholder notice requirements does not apply to any notice of an annual meeting returned as undeliverable if the notice was given by electronic transmission.

The 2004 amendments also permit notices in this Chapter to be given to the corporation by electronic transmission if provided by resolution of the board of directors or in the articles of incorporation, and further permit notices in this Chapter to be given to a shareholder and to a registered agent of a corporation by electronic transmission only if the shareholder or registered agent, respectively, shall consent in advance.

Cross-References Annual registration, see § 14-2-1622 . Application for certificate of authority, see § 14-2-1503 . "Principal office": defined, see § 14-2-140 ; designated in annual registration, see § 14-2-1622 . "Mail" defined, see § 14-2-140 . Notice of directors' meetings, see § 14-2-822 . Record of shareholders, see § 14-2-1601 . Special notice requirements: creditors of dissolving corporation, see §§ 14-2-1406 & 14-2-1407 ; derivative proceedings, see § 14-2-745 ; intent to dissolve, see § 14-2-1403 resignation of registered agent, see §§ 14-2-503 & 14-2-1509 ; service on corporation, see §§ 14-2-504 & 14-2-1510 . Waiver of notice by directors, see § 14-2-823 . Waiver of notice by shareholders, see § 14-2-706 .

JUDICIAL DECISIONS

Editor's notes. - In light of the similarity of the statutory provisions, decisions under former Code 1933, § 22-604 and former Code Section 14-2-113, which were repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, are included in the annotations for this Code section.

Shareholders may act through attorney in calling special meeting of corporation's shareholders. Comolli v. Comolli Granite Co., 233 Ga. 461 , 211 S.E.2d 750 (1975), (decided under former Code 1933, § 22-604).

Cited in Milton Frank Allen Publications, Inc. v. Georgia Ass'n of Petro. Retailers, 224 Ga. 518 , 162 S.E.2d 724 (1968); Sherrer v. Hale, 248 Ga. 793 , 285 S.E.2d 714 (1982); J.M. Clayton Co. v. Martin, 177 Ga. App. 228 , 339 S.E.2d 280 (1985).

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, § 795 et seq.

C.J.S. - 18 C.J.S., Corporations, §§ 367, 447 et seq. 19 C.J.S., Corporations § 521.

ALR. - Participation in meeting as waiver of compliance with notice requirement for shareholders' meeting, 64 A.L.R.3d 358.

COMMENT

Source: Model Act, § 1.42. There was no counterpart in former law. Determination of the number of shareholders is critical for determining eligibility to elect statutory close corporation status under Article 9.

Cross-References Close corporations, see article 9. Dissenter's rights, see § 14-2-1302 . "Entity" defined, see § 14-2-140 . Record of shareholders, see §§ 14-2-720 & 14-2-1601 . "Shareholder" defined, see § 14-2-140 . Voting trusts, see § 14-2-730 .

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, §§ 273, 862 et seq.

C.J.S. - 18 C.J.S., Corporations, § 372 et seq.

COMMENT

Source: This provision was taken from former law, § 14-2-87(b).

Note to 1989 Amendment The 1989 amendment changed this provision to provide that all signatures on a bond or debenture may be facsimiles. The 1989 amendments made a similar change in the requirements for stock certificates contained in Code Section 14-2-625(d).

Cross-References Signatures on share certificates, see § 14-2-625 .

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, § 245.

C.J.S. - 19 C.J.S., Corporations, § 752.

COMMENT

Source: Former O.C.G.A. § 14-2-4 (1982).

This section restores provisions of former section 14-2-4 that were an addition to Model Act provisions when enacted in 1968. Subsections (a) and (b) correspond to former subsections (a) and (b) of the prior code provision, while subsection (c) corresponds to former subsection (d). This section omits provisions of former law that specified which corporate officers must sign corporate documents required by the code, and omits provisions relating to deeds. The effect of a seal upon deeds is governed by Code Section 14-5-7.

Cross-References Power to have a corporate seal, see § 14-2-302(2) . Required officers, see § 14-2-840 . "Secretary" defined, see § 14-2-140 . Signatures, see §§ 14-2-150 & 14-2-625 .

JUDICIAL DECISIONS

Signature in representative capacity without seal. - The presence of an unattested corporate seal and an individual signature on a promissory note placed the instrument within the representative capacity provisions of the Uniform Commercial Code, so as to permit the introduction of parol evidence to show agency. Hartkopf v. Heinrich Ad. Berkemann, 200 Ga. App. 355 , 408 S.E.2d 450 , cert. denied, 200 Ga. App. 896 , 408 S.E.2d 450 (1991).

Corporate seal not requirement for valid corporate assignment of deed. - Unlike the current version of O.C.G.A. § 14-5-7 , the prior version (effective until June 30, 2011) lacked explicit language that a corporate seal was not required for a conclusively valid corporate conveyance; yet, the applicable Georgia law still revealed that a corporate seal was not a requirement for a valid corporate assignment of deed. Foster v. Homeward Residential Inc. (In re Foster), 500 Bankr. 197 (Bankr. N.D. Ga. 2013).

Section not persuasive in actions against individuals. - O.C.G.A. § 14-2-151 , authorizing an action against a corporation because of the corporate seal, is not persuasive in an action brought against a party individually. Fabe v. Floyd, 199 Ga. App. 322 , 405 S.E.2d 265 , cert. denied, 199 Ga. App. 906 , 405 S.E.2d 265 (1991); Castellana v. Conyers Toyota, Inc., 200 Ga. App. 161 , 407 S.E.2d 64 (1991).

COMMENT

Source: Model Act, § 2.01. The only change from previous law is that former § 14-2-170 required natural persons who serve as incorporators to be over 18 years of age.

The only functions of incorporators under the Code are (1) to sign the articles of incorporation, (2) to deliver them for filing with the Secretary of State, and (3) to complete the formation of the corporation to the extent set forth in Section 14-2-205.

Cross-References Articles of incorporation, see § 14-2-202 . "Deliver" includes mail, see § 14-2-140 . Effective time and date of filing, see § 14-2-123 . Filing fees, see § 14-2-122 . Filing requirements, see § 14-2-120 . Organization of corporation by incorporators, see § 14-2-205 . "Person" defined, see § 14-2-140 .

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, § 155 et seq.

C.J.S. - 18 C.J.S., Corporations, §§ 50, 51.

ALR. - Validity, construction, and effect of statutory provisions concerning capital requisites of state incorporation of bank, 79 A.L.R.3d 1190.

COMMENT

Source: Former § 14-2-172.

Prior Georgia law required publication of a similar notice for four consecutive weeks at a fee of $60. It also required filing with the clerk of the superior court in the county where the registered office of the corporation was located. Further, documents to effect the filing and publication were forwarded, together with the required checks, to the Secretary of State for transmittal to the clerks and newspapers. Local filing has been eliminated entirely by the Code with the expectation that it will be replaced by computer access to the corporate data base of the Secretary of State from the offices of all clerks. Filing fees under the Code were increased to fund the installation of the hardware for such a system. The Revision Committee recommended elimination of all publication requirements, to correspond to the Model Act and modern practice. While this was rejected by the General Assembly, publication requirements have been reduced and simplified. Incorporators will be required to see to publication, rather than to pass that responsibility on to the Secretary of State, at a saving in administrative costs.

Note to 1989 Amendment The 1989 amendment eliminated references in the form of notice to multiple registered agents. The Code does not provide for such agents, as prior law did. See § 14-2-501 .

Note to 1990 Amendment The 1990 amendment makes it clear that any person acting on behalf of the corporation (such as an attorney or other agent) may execute the requisite certificate of publication and not just an incorporator.

Note to 1993 Amendment The 1993 amendment deals with the timing of making a request for publication in connection with the incorporation process, permitting such a request to be delivered no later than the business day after filing of the certificate of incorporation with the Secretary of State. The amendment also changes the form of notice in recognition that it generally is published after such filing has occurred.

Cross-References Articles of incorporation, see § 14-2-202 . Failure to publish notice as grounds for administrative dissolution, see § 14-2-1420(5) . Filing fees, see § 14-2-122 . Filing requirements, see § 14-2-120 . Registered office and registered agent, see § 14-2-501 .

JUDICIAL DECISIONS

Editor's notes. - In light of the similarity of the statutory provisions, decisions under former Code Section 14-2-172, which was repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, are included in the annotations for this Code section.

Contract offer in corporate name prior to corporation's existence. - Contract offer in corporate name remained merely a tender until its acceptance, a date after the corporate existence began; therefore, incorporators incurred no personal liability on ground of unauthorized assumption of corporate powers. Satellite Syndicated Sys. v. Henderson, 162 Ga. App. 453 , 291 S.E.2d 749 (1982), (decided under former § 14-2-172).

OPINIONS OF THE ATTORNEY GENERAL

Editor's notes. - In light of the similarity of the statutory provisions, opinions under former Code Section 14-2-172, which was repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, are included in the annotations for this Code section.

Secretary of State authorized to incorporate marketing associations. - Since constitutional amendment (former Art. III, Sec. VIII, Para. II of the 1976 Constitution) transfers the power to incorporate private companies to the Secretary of State, and marketing associations are private companies, the Secretary of State, rather than the superior courts, is authorized to incorporate marketing associations. 1977 Op. Att'y Gen. No. 77-34 (decided under former § 14-2-172).

RESEARCH REFERENCES

ALR. - Effect upon the corporate existence of failure to file certificate in organizing a corporation, 22 A.L.R. 376 ; 37 A.L.R. 1319 .

COMMENT

Source: Model Act, § 2.02. Comparable provisions were in former § 14-2-171.

Subsection (a) sets forth the minimum mandatory requirements for all articles of incorporation while subsection (b) describes optional provisions that may be included. The mandatory contents of articles of incorporation have been shortened from the former requirements of § 14-2-171. This eliminates the former requirements of § 14-2-171 that articles contain recitals that the corporation is organized under the Business Corporation Code, the period of duration, a statement of corporate purposes, the par value of shares or a statement that they will have no par value, classification of shares and designations of preferences, statements that the corporation will not commence business without minimum consideration paid for shares, preemptive rights requirements, and the number and names and addresses of the initial directors. Subsection (a)(5) was added to the Model Act to provide a mailing address to which the Secretary of State may send notices and forms.

Everything else is optional. A corporation formed under these provisions will automatically have perpetual duration under Section 14-2-302(1) unless a special provision is included providing a shorter period. Similarly, a corporation formed without reference to a purpose clause will automatically have the purpose of engaging in any lawful business under Section 14-2-301(a), unless a narrower purpose clause is provided pursuant to subsection (b)(2).

Subsection (b) describes specific options that may be elected by the draftsman and contains general authorization to include other provisions relevant to the authority of the corporation, its officers and board of directors, or to the management of the corporation's internal affairs. Subsection (b)(4) has been expanded beyond the Model Act provisions to incorporate the 1987 amendment to former § 14-2-171(b)(3), authorizing shareholders to provide in the articles of incorporation that directors will not be liable to the corporation or its shareholders except for certain types of actions. Subsection (b)(4)(ii), containing one of the exceptions to permitted exculpation, has been altered by deletion of the phrase "not in good faith." The exculpatory statutes of a number of jurisdictions now follow this pattern of excluding from exculpation only acts involving intentional or willful "misconduct or a knowing violation of" law, Nev. laws, Ch. 28, 1987 or of criminal law, Va. Code § 13.1-692.1. Fla. Laws 87-245, § 2, exculpates except for knowing criminal law violations.

Note to 1989 Amendment Subsection (b)(5) was added by the 1989 amendment. It expressly validates a provision in articles of incorporation permitting boards of directors, board committees, and individual directors to consider the interests of constituencies of the corporation other than the shareholders in making decisions.

Note to 1996 Amendments Amendments to subsection (b)(4) were made to conform to some, but not all of the 1990 proposals to amend the Revised Model Business Corporation Act. The introductory clause to subsection (b)(4) was amended to delete the word "personal" before "liability of a director", to delete the phrase "breach of duty of care of other duty" before "as a director", to delete "provided that no provision shall delete or limit", which was replaced with "except", and to delete the ending phrase, "of a director." None of these changes were intended to be substantive. The Code takes no position on whether limitations on liability beyond those previously in effect are binding on corporations that have previously elected coverage under this subsection, with language purporting to limit liability to the full extent permitted by the Code as then in effect or as later amended. Whether such language is effective depends in part on judicial interpretations of the doctrine of waiver, and whether proxy disclosures made to shareholders at the time of adoption adequately disclosed this possibility.

Cross-References Amendment of articles, see §§ 14-2-603 , 14-2-631 , and Article 10, Part 1. Bylaws, see §§ 14-2-206 & 14-2-207 , and Article 10, Part 2. Close corporations, see Article 9. Conflict of interest, see § 14-2-860 et seq. Duration of corporate existence, see § 14-2-302 . Filing fees, see § 14-2-122 . Filing requirements, see § 14-2-120 . Incorporators, see § 14-2-201 . Liability of shareholders, see § 14-2-622 . Powers, see § 14-2-302 . Professional corporations, see Georgia Professional Corporation Act. Purposes, see § 14-2-301 . Restated articles, see § 14-2-1007 . Share classes, see § 14-2-601 .

JUDICIAL DECISIONS

Editor's notes. - In light of the similarity of the statutory provisions, decisions under former Code Section 14-2-171, which was repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, are included in the annotations for this Code section.

Undercapitalization. - Satisfaction of former § 14-2-171(a)(8) (now repealed), requiring minimum capital of $500, does not preclude a determination that a corporation is undercapitalized. Hyzer v. Hickman, 195 Ga. App. 213 , 393 S.E.2d 79 (1990), rev'd on other grounds, 261 Ga. 38 , 401 S.E.2d 738 (1991) (decided under former § 14-2-171).

Cited in Saint Francis Hosp. v. Dion, 123 Ga. App. 360 , 181 S.E.2d 72 (1971); Davenport v. Petroleum Delivery Serv. of Ga., Inc., 235 Ga. 116 , 218 S.E.2d 848 (1975); Bloodworth v. Sandersville Prod. Credit Ass'n, 245 Ga. 40 , 262 S.E.2d 804 (1980); Bryant v. State, 155 Ga. App. 621 , 271 S.E.2d 875 (1980).

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, §§ 165 et seq.

C.J.S. - 18 C.J.S., Corporations, § 56.

ALR. - Effect upon the corporate existence of failure to file certificate in organizing a corporation, 22 A.L.R. 376 ; 37 A.L.R. 1319 .

Corporate stock without par value, 36 A.L.R. 791 ; 45 A.L.R. 1501 ; 65 A.L.R. 1347 .

Validity and construction of corporate articles or bylaws relating to stock held by one retiring from corporate office or employment, 66 A.L.R. 1295 .

Validity, construction, and effect of provisions of articles of incorporation or certificates of stock relating to redemption or retirement of stock, 88 A.L.R. 1131 .

Validity and effect of agreement by a corporation contemporaneously with issue or sale of stock, to repurchase or redeem the stock or to cancel the subscription therefor and refund consideration paid, 101 A.L.R. 154 .

Liability of officers, directors, or members of defectively organized corporation to one of their number for advances, commissions, etc., 115 A.L.R. 658 .

Conclusiveness of charter as regards character, kind, or purposes of corporation, 119 A.L.R. 1012 .

Provision of statute, charter, or bylaws respecting amendment of corporate bylaws as excluding waiver thereof, 169 A.L.R. 1374 .

Enforceability in another jurisdiction of personal liability of stockholders for debts of corporation whose organization is incomplete or defective, 42 A.L.R.2d 659.

Construction and effect of corporate articles, charter, or bylaws limiting duration or maturity of its indebtedness, 55 A.L.R.2d 949.

Validity of restrictions on alienation or transfer of corporate stock, 61 A.L.R.2d 1318.

Corporations: validity of charter provision for nonvoting common stock, 52 A.L.R.3d 1131.

Validity and construction of provision restricting transfer of corporate stock, which conditions transfer upon consent of one other than shareholder, officer, or director of corporation, 53 A.L.R.3d 1272.

What business opportunities are in "line of business" of corporation for purposes of determining whether a corporate opportunity was presented, 77 A.L.R.3d 961.

COMMENT

Source: Model Act § 2.03. Comparable provisions were in former §§ 13-2-171 and 14-2-173.

Subsection (a) provides that the existence of a corporation begins when the articles of incorporation are filed, unless a delayed effective date is specified under Section 14-2-123 . The provision of subsection (a) for a delayed effective date is new. See former § 14-2-171.

Local filing requirements of former § 14-2-172 have been eliminated.

Under the unequivocal provisions of subsection (b) of the Code, which is substantially similar to former § 14-2-173, de jure incorporation is complete upon the Secretary of State's filing of the articles of incorporation except as against the state in certain proceedings challenging the corporate existence. Any steps short of filing of the articles by the Secretary of State would not constitute apparent compliance with the conditions precedent to incorporation. Therefore a de facto corporation cannot exist under this Code.

Cross-References Corporations de facto, see § 14-2-204 . Dissolution, see Article 14. Duration, see § 14-2-302 . Effective time and date of filing, see § 14-2-123 . Filing fees, see § 14-2-122 . Filing requirements, see § 14-2-120 . Secretary of state's filing duty, see § 14-2-125 .

JUDICIAL DECISIONS

Editor's notes. - In light of the similarity of the statutory provisions, decisions under former Code Section 14-2-173, which was repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, are included in the annotations for this Code section.

Cited in Cahoon v. Ward, 231 Ga. 872 , 204 S.E.2d 622 (1974).

RESEARCH REFERENCES

Am. Jur. 2d. - 18 Am. Jur. 2d, Corporations, § 72.

C.J.S. - 18 C.J.S., Corporations, § 66.

ALR. - Effect upon the corporate existence of failure to file certificate in organizing a corporation, 22 A.L.R. 376 ; 37 A.L.R. 1319 .

Validity, construction, and effect of provisions of articles of incorporation or stock certificates relating to call, redemption, or retirement of common stock, 48 A.L.R.2d 392.

Incorporation of company under particular name as creating exclusive right to such name, 68 A.L.R.3d 1168.

Liability of attorney for improper or ineffective incorporation of client, 40 A.L.R.4th 535.

COMMENT

Source: Model Act, § 2.04. While Section 14-2-204 is substantially identical to § 14-2-23, it represents a change in Georgia law. Formerly directors remain liable until the corporation is organized, under provisions requiring payment of minimum capital of at least $500 under former § 14-2-154(a)(4). No such organizational steps are a condition precedent to limited liability under the Code.

The Code follows the approach of limited partnership law: that innocent investors who are ignorant of the failure to complete the incorporation process do not become personally liable by virtue of that failure. Thus, where both shareholders and innocent third parties deal on the basis of corporate credit and corporate liability, no public policy requires shareholder liability. Notice of the failure, and continued participation in the business thereafter, would, of course, trigger personal liability.

Cross-References Incorporation, see § 14-2-203 . "Person" defined, see § 14-2-140 .

JUDICIAL DECISIONS

Editor's notes. - In light of the similarity of the statutory provisions, decisions under former Civil Code 1910, §§ 2192, 2220, former Code 1933, § 22-204 and former Code Section 14-2-23 which were repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, are included in the annotations for this Code section.

Common law "promoter's liability" supplanted by statute. - O.C.G.A. § 14-2-204 requires actual knowledge by persons who engage in preincorporation transactions that there was no incorporation; thus, defendant who entered a contract as president of a corporation before articles of incorporation had been issued was not personally liable for the corporation's alleged breach of contract because the defendant had no knowledge that the articles had not been issued at the time of the contract. Weir v. Kirby Constr. Co., 213 Ga. App. 832 , 446 S.E.2d 186 (1994).

Necessity for certificate of incorporation. - Without a charter (now certificate of incorporation) there is no corporation; and without organization under the charter there can be no corporate act, no corporate property, no corporate liability. Michael Bros. Co. v. Davidson & Coleman, 3 Ga. App. 752 , 60 S.E. 362 (1908) (decided under former Civil Code 1910, § 2192).

Agreements between individuals insufficient for incorporation. - Corporations cannot be created by a mere agreement between individuals; the agreement and association must be authorized and sanctioned by law. Meinhard, Schaul & Co. v. Bedingfield Mercantile Co., 4 Ga. App. 176 , 61 S.E. 34 (1908) (decided under former Civil Code 1910, § 2192).

Doctrine of corporation by estoppel. - The doctrine of corporation by estoppel should not be applied when an individual purporting to act for a nonexistent corporation attempts to escape liability on a contract by defending on the basis of the nonexistent corporation. Don Swann Sales Corp. v. Echols, 160 Ga. App. 539 , 287 S.E.2d 577 (1981) (decided under former Code 1933, § 22-204).

Doctrine of corporation by estoppel is inapplicable to transactions occurring prior to issuance of certificate of incorporation. Echols v. Vienna Sausage Mfg. Co., 162 Ga. App. 158 , 290 S.E.2d 484 (1982) (decided under former Code 1933, § 22-204).

Incorporators held liable. - Defendants were individually liable for debts in a case in which plaintiff's agents were repeatedly told by defendants that the entity with which they were contracting was a Georgia corporation but the evidence was undisputed that the corporation had never existed. Kelley v. R S & H of N.C., Inc., 197 Ga. App. 236 , 398 S.E.2d 213 (1990) (decided under former § 14-2-23).

Evidence that defendant knowingly signed a lease on behalf of a corporation that did not exist was sufficient to find him personally liable for damage to the lessor's property. Zuberi v. Gimbert, 230 Ga. App. 471 , 496 S.E.2d 741 (1998).

Partnership agreement for LLC that was never formed. - Mortgage corporation was not bound by a partnership agreement executed by the mortgage corporation's sole officers and shareholders as partners of a limited liability company (LLC); as the LLC was never formed, the officers became personally obligated under the partnership agreement. Nationwide Mortg. Servs. v. Troy Langley Constr., Co., 280 Ga. App. 539 , 634 S.E.2d 502 (2006).

The plaintiff loaned money to a partnership and, therefore, O.C.G.A. § 14-2-204 did not apply; there was no indication that the plaintiff believed that the business had been incorporated when making the loans or that either of the plaintiff's partners was responsible for incorporating the business. Jamal v. Hussein, 237 Ga. App. 779 , 515 S.E.2d 407 (1999).

Mere offer to enter into contract at unspecified future time will not result in personal liability of incorporators when contract was not in fact consummated until after formation of corporate entity. Satellite Syndicated Sys. v. Henderson, 162 Ga. App. 453 , 291 S.E.2d 749 (1982) (decided under former Code 1933, § 22-204) Watson v. Sierra Contracting Corp., 226 Ga. App. 21 , 485 S.E.2d 563 (1997);.

Mere misnomer does not place individual liability on agent. - Trial court did not err in denying a hotel's motion for summary judgment and instead granting summary judgment to an agent because the undisputed evidence showed that the agent signed the contract on behalf of a corporate principal, identified in the contract by a misnomer; thus, the agent was not individually liable under the contract. Courtland Hotel, LLC v. Salzer, 330 Ga. App. 264 , 767 S.E.2d 750 (2014).

Cause of action when organizers transacted business in company name. - Although the debtor corporation, chartered in 1923, never received enough capital stock for its organization, the four-year statute of limitations for fraud did not begin to run upon the organization of the corporation, but began to run when a debt was incurred with plaintiff creditor bank in 1927; because no cause of action arose against corporation organizers before they transacted business in its name, a suit brought in 1930 was not barred. Rucker v. Mobley, 178 Ga. 496 , 173 S.E. 392 (1934) (decided under former Civil Code 1910, § 2220).

Arranger of telephone service for not-yet-formed corporation. - An individual who arranged for telephone service on behalf of a corporation that was not yet incorporated was personally liable for all charges, including post-incorporation charges, since the telephone company had not been advised that it was dealing with a newly formed corporation. Korey v. BellSouth Telecommunications, Inc., 225 Ga. App. 857 , 485 S.E.2d 498 (1997), rev'd on other grounds, 269 Ga. 108 , 498 S.E.2d 519 (1998).

Cited in Cahoon v. Ward, 231 Ga. 872 , 204 S.E.2d 622 (1974).

RESEARCH REFERENCES

Am. Jur. 2d. - 18 Am. Jur. 2d, Corporations, § 119 et seq.

ALR. - Liability of corporation on contracts of promoters, 17 A.L.R. 452 ; 49 A.L.R. 673 ; 123 A.L.R. 726 .

Personal liability of person doing business in the name of a dormant corporation, 18 A.L.R. 282 .

Signing articles of incorporation as rendering one liable on contracts entered into prior to conclusion of incorporation, 44 A.L.R. 776 .

Stockholder's personal conduct of operations or management of assets as factor justifying disregard of corporate entity, 46 A.L.R.3d 428.

COMMENT

Source: Model Act, § 2.05. This replaces former § 14-2-175.

Following incorporation, the organization of a new corporation must be completed so that it may engage in business. This usually requires adoption of bylaws, the appointment of officers and agents, raising of equity capital by the issuance of shares to the participants in the venture, and the election of directors. The Code's provisions are conditional: if no directors are named in the articles of incorporation, the incorporators complete the organization, or elect initial directors who complete the organization; if initial directors are named, the directors complete the organization.

Former law, § 14-2-171(a)(12), required initial directors to be named in the articles and provided that they must complete the organization of the corporation.

Sections 14-2-205(b) and (c) are limited to meetings of incorporators since Sections 14-2-821 and 822 permit the same actions by the board of directors.

Note to 2004 Amendment The 2004 amendments permit actions of incorporators required or permitted by this Chapter to be taken without a meeting by electronic transmission.

Cross-References Articles of incorporation, see § 14-2-202 . Bylaws, see §§ 14-2-206 & 14-2-207 . Director action without meeting, see § 14-2-821 . Incorporators, see § 14-2-201 .

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, §§ 178 et seq.

C.J.S. - 18 C.J.S., Corporations, § 52.

COMMENT

Source: Model Act § 2.06. The only departure from former law, § 14-2-176(a), is that it made no provision for action by incorporators.

Note to 1993 Amendment A number of provisions of the Business Corporation Code reserve the authority to adopt specific bylaws to the shareholders (e.g. O.C.G.A. §§ 14-2-801(b) ; 14-2-806 ; 14-2-856 and 14-2-1021 ). The 1993 amendment is intended to clarify that bylaws adopted in connection with the initial organization of the corporation may include such provisions without requiring subsequent shareholder ratification.

Cross-References Amendment of bylaws, see §§ 14-2-1020 et seq., 14-2-1113 , and 14-2-1133 . Directors: Action without meeting, see § 14-2-821 . Committees, see § 14-2-825 . Election by shareholders, see § 14-2-728 . Emergency bylaws, see § 14-2-207 . Majority vote at meeting, see § 14-2-824 . Nominee registration of shares, see § 14-2-723 . Notice of meeting, see § 14-2-822 . Number, see § 14-2-803 . Participation in meeting, see § 14-2-820 . Qualifications, see § 14-2-802 . Quorum for meeting, see § 14-2-824 . Supermajority vote at meeting, see § 14-2-824 & 14-2-1022 . Officers: Appointment, see § 14-2-840 . Duties, see § 14-2-841 . Organizing corporation, see § 14-2-205 . Record date, see § 14-2-707 . Share transfer restrictions, see § 14-2-627 . Shareholders' meeting notice, see § 14-2-705 . Shareholders' meetings, see §§ 14-2-701 & 14-2-702 . Shares without certificates, see § 14-2-626 . Subscriptions, see § 14-2-620 . Supermajority vote at shareholders' meeting, see § 14-2-727 .

JUDICIAL DECISIONS

Editor's notes. - In light of the similarity of the statutory provisions, decisions under former Code Section 14-2-176, which was repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, are included in the annotations for this Code section.

Cited in Bloodworth v. Sandersville Prod. Credit Ass'n, 245 Ga. 40 , 262 S.E.2d 804 (1980).

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, § 252 et seq.

C.J.S. - 18 C.J.S., Corporations, § 154 et seq.

ALR. - Validity and construction of corporate articles or bylaws relating to stock held by one retiring from corporate office or employment, 66 A.L.R. 1295 .

Bylaw of corporation authorizing removal of officer, agent, or employee at any time, as affecting contract of employment for a specified period, 145 A.L.R. 312 .

Enforceability of invalid corporate bylaw as contract, 159 A.L.R. 290 .

Provision of statute, charter, or bylaws respecting amendment of corporate bylaws as excluding waiver thereof, 169 A.L.R. 1374 .

Conflict of laws as to validity and effect of corporate bylaw, 27 A.L.R.2d 435.

Construction and effect of corporate articles, charter, or bylaws limiting duration or maturity of its indebtedness, 55 A.L.R.2d 949.

COMMENT

Source: Model Act, § 2.07. See former § 14-2-177.

The provisions permitting emergency bylaws have been broadened beyond former § 14-2-177, which covered nuclear attack "or other similar emergency", to cover any "catastrophic event" that means that a quorum of the board cannot be assembled (which could cover a crash of a corporate jet). Further, protection from liability for those acting pursuant to emergency bylaws has been changed. Formerly officers were liable only for willful misconduct; under the new provisions they are not liable for actions taken in good faith, which conforms the section with other liability provisions.

Cross-References Amendment of bylaws, see §§ 14-2-1020 et seq., 14-2-1113 and 14-2-1133 . Bylaws generally, see § 14-2-206 . Emergency powers without bylaw provision, see § 14-2-303 .

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, § 266 et seq.

C.J.S. - 18 C.J.S., Corporations, §§ 155, 156, 157, 167, 168, 169.

ALR. - Conflict of laws as to validity and effect of corporate bylaw, 27 A.L.R.2d 435.

COMMENT

Source: Model Act, § 14-2-301 . Former law was contained in §§ 14-2-20 and 14-5-2 .

Section 14-2-301 provides that every corporation automatically has the purpose of engaging in any lawful business unless a narrower purpose is described in the articles of incorporation. This departs from former Georgia practice under § 14-2-171, which required the corporation to set forth its purpose.

Subsection (b) of the Model Act, which dealt with corporations subject to regulation under another statute, was omitted. This matter is covered in Article 17 in a manner that reflects Georgia's particular structure of "Secretary of State" corporations.

Cross-References Foreign corporations, see Article 15. Professional corporations, see Georgia Professional Corporation Act. Secretary of State Corporations, see § 14-2-1701 and Chapter 4 of title 14. Special purpose corporations, see Article 17. Statement of purpose in articles, see § 14-2-202 .

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, § 158 et seq.

C.J.S. - 18 C.J.S., Corporations, §§ 53, 54, 55.

ALR. - Power of state to amend charter of a private incorporated charity, 62 A.L.R. 573 .

COMMENT

Source: Model Act, § 14-2-302 . The enumerated powers are similar but not identical to those found in the former law, § 14-2-21.

The law of corporations has always proceeded on the fundamental assumption that corporations are creations with limited power; such an assumption was articulated by the United States Supreme Court as early as 1804, Head & Armory v. Providence Insurance Co., 6 U.S. (2 Cranch) 127, 169 (1804), and appears never to have been seriously questioned as a judicial matter. It is clear that narrow and limited power clauses are undesirable: they encourage litigation by bringing into question reasonable transactions that further the business and interests of the corporation and to the extent transactions are unauthorized, may defeat valid and reasonable expectations. Modern corporation law tends to view the corporation as a creature of contract, rather than as a creature of a state that zealously guards its powers through narrow grants to corporate entities.

The general philosophy of Section 14-2-302 is thus that corporations formed under the Code provisions should be automatically authorized to engage in all acts and have all powers that an individual may have.

The powers of a corporation under the Code exist independently of whether a corporation has a broad or narrow purpose clause.

Corporate powers to act as fiduciaries are limited by Code Section 7-1-242 to specific financial institutions and certain other corporations under limited circumstances.

Note to 1989 Amendment The 1989 amendments added a new subsection (15) and renumbered former subsection (15) as subsection (16). Subsection (15) restored a specifically enumerated corporate power contained in former O.C.G.A. § 14-2-21(15) (1982). The language was expanded, following N.C. Gen. Stat. § 55-17(b)(4), to cover matters other than life insurance, and to specifically create insurable interests in corporations. The Model Act did not contain such language in its powers clause, and it was thought necessary to restore this language in view of the negative implications that might otherwise flow from the omission. Georgia common law creates doubts about the extent of the insurable interests of employers. Turner v. Davidson, 171 Ga. 736 , 4 S.E.2d 814 (1939). While provisions in the Insurance Code attempt to create an insurable interest, they do so only for 'publicly owned' corporations, a term defined in neither the corporate nor insurance codes. See O.C.G.A. §§ 33-24-3(c) and 33-42-6(a)(4) (Supp. 1988).

Note to 1990 Amendment The 1990 amendment clarifies that all corporations, including those formed before the adoption of the 1969 Corporate Code, have perpetual existence unless their articles (or an amendment thereto adopted after April 1, 1969) specify otherwise. The old Code, at Section 14-2-21(a), provided that each corporation existing on the date of adoption of the old Code (April 1, 1969) had perpetual duration unless its articles of incorporation were affirmatively amended after adoption of the 1969 Code to provide for a limited period of duration. Because old Section 14-2-21(a)(2) was arguably repealed by the new Code, the question arose whether the repeal of the 1969 Code's automatic grant of perpetual duration, when read with new Section 14-2-302, required a corporation formed prior to April 1, 1969 with a limited duration to refer to its pre-1969 articles of incorporation to determine its legal duration. Since such corporations may have passed the limit of their legal existence, the new 14-2-302 was amended to specify that any corporation existing on April 1, 1969 has perpetual duration unless its articles were subsequently amended to provide otherwise.

Cross-References Bylaws, see §§ 14-2-206 , 14-2-207 , 14-2-1020 , 14-2-1021 , 14-2-1113 and 14-2-1133 . Compensation of directors, see § 14-2-811 . "Employee" defined, see § 14-2-140 . "Entity" defined, see § 14-2-140 . Fiduciary powers of corporations, see § 7-1-242 . Foreign corporations, see § 14-2-1505 . Indemnification, see § 14-2-850 et seq. Sale of assets, see Article 12. "State" defined, see § 14-2-140. Ultra vires, see § 14-2-304 .

JUDICIAL DECISIONS

Editor's notes. - In light of the similarity of the statutory provisions, decisions under former Code 1872, § 1678, former Code 1882, § 1678, former Civil Code 1895, § 1851, former Civil Code 1910, § 2283, Ga. L. 1937-38, Ex. Sess., p. 214, § 10, former Code 1933, § 22-202 and Code Section 14-2-21, which were repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, are included in the annotations for this section.

Rule of ejusdem generis not applied to this Code section. - Although the rule of ejusdem generis is accepted by Georgia courts, there appears to be no Georgia case applying this rule in the context of former Code 1933, § 22-202. Schnorbach v. Fuqua, 70 F.R.D. 424 (S.D. Ga. 1975) (decided under former Code 1933, § 22-202).

Scope of corporation's powers. - The powers of a corporation are limited to those which are common to all corporations, except such additional valid powers as may be specifically conferred by the authority creating it. Clement A. Evans & Co. v. Waggoner, 197 Ga. 857 , 30 S.E.2d 915 (1944) (decided under Ga. L. 1937-38, Ex. Sess., p. 214, § 10).

"Direct interest" includes more than participants. - Judicial construction has not confined the meaning of the term "direct interest" to the participants alone, but has extended it to include others upon whom the determination of the subject matter may have a secondary effect, so long as the effect, as to them, is not merely contingent, uncertain or conjectural. Choctaw Lumber Co. v. Atlanta Band Mill, Inc., 88 Ga. App. 701 , 77 S.E.2d 333 , cert. denied, 210 Ga. 166 , 78 S.E.2d 515 (1953) (decided under Ga. L. 1937-38, Ex. Sess., p. 214, § 10).

Specific joint undertaking. - Corporation is not debarred from entering upon a specific joint undertaking, provided the nature of the enterprise comes within the scope of its ordinary and legitimate powers. Clement A. Evans & Co. v. Waggoner, 197 Ga. 857 , 30 S.E.2d 915 (1944) (decided under Ga. L. 1937-38, Ex. Sess., p. 214, § 10).

Corporation cannot lend credit for accommodation of third person. - No corporation, whether public or private, organized under the laws of this state can, in absence of express charter authority so to do, lend its credit for mere accommodation of third persons. Nalley Land & Inv. Co. v. Merchants' & Planters' Bank, 178 Ga. 818 , 174 S.E. 618 (1934), later appeal, 187 Ga. 142 , 199 S.E. 815 (1938) (decided under former Civil Code 1910, § 2283).

National bank in negotiating its paper can bind itself for the payment thereof by its endorsement thereon; but it cannot guarantee the payment of the paper of others, or become surety thereon, solely for the benefit of the latter. Nalley Land & Inv. Co. v. Merchants' & Planters' Bank, 178 Ga. 818 , 174 S.E. 618 (1934), later appeal, 187 Ga. 142 , 199 S.E. 815 (1938) (decided under former Civil Code 1910, § 2283).

Accommodation endorsement of commercial paper. - Authority to make an accommodation endorsement of commercial paper will not be implied from the power to lend or borrow money on such paper and generally to exercise the powers usually incident to corporations under the laws of this state. Nalley Land & Inv. Co. v. Merchants' & Planters' Bank, 178 Ga. 818 , 174 S.E. 618 (1934), later appeal, 187 Ga. 142 , 199 S.E. 815 (1938) (decided under former Civil Code 1910, § 2283).

Credit union authorized to receive security deed from debtors. - A credit union, like any other corporation organized under the laws of this state, is authorized to receive a security deed from its debtors. Cole v. Georgia Cent. Credit Union, 243 Ga. 60 , 252 S.E.2d 485 (1979) (decided under former Code 1933, § 22-202).

Effect of change in shareholders. - The object of incorporation is to create an artificial being with perpetual life, or life for a term of years, and it does not cease to be such, although all of the natural persons who were first members of the organization die, sell their interest, or otherwise cease to be stockholders. Mathis v. Morgan, 72 Ga. 517 , 53 Am. R. 847 (1884) (decided under former Code 1882, § 1678).

Effect of bankruptcy. - The bankruptcy of a corporation does not put an end to the corporate existence, nor vacate the office of its directors. Holland v. Heyman & Bro., 60 Ga. 174 (1878); National Sur. Co. v. Medlock, 2 Ga. App. 665 , 58 S.E. 1131 (1907) (decided under former Code 1872, § 1678, and former Civil Code 1895, § 1851).

Effect of administrative dissolution. - The general powers of a corporation exist independently of the purpose for continued existence stated in the provision for administrative dissolution. Fulton Paper Co. v. Reeves, 212 Ga. App. 341 , 441 S.E.2d 881 (1994).

Cited in Knickerbocker Tax Sys. v. Texaco, Inc., 130 Ga. App. 383 , 203 S.E.2d 290 (1973); Freeman v. Allstate Bus. Sys., 166 Ga. App. 249 , 304 S.E.2d 97 (1983).

RESEARCH REFERENCES

Am. Jur. 2d. - 18 Am. Jur. 2d, Corporations, §§ 45 et seq., 65 et seq. 18A Am. Jur. 2d, Corporations, § 222 et seq. 18B Am. Jur. 2d, Corporations, §§ 1264 et seq., 1291 et seq.

C.J.S. - 18 C.J.S., Corporations, §§ 67, 143 et seq. 19 C.J.S., Corporations, §§ 518 et seq., 651 et seq.

ALR. - Right of business corporation to use its funds or property for humanitarian purposes, 3 A.L.R. 443 .

Liability of corporation on contracts of promoters, 17 A.L.R. 452 ; 49 A.L.R. 673 ; 123 A.L.R. 726 .

Conclusiveness of decision of corporate officers or directors that property is of sufficient value to warrant a loan under the powers of the corporation, 18 A.L.R. 645 .

Personal liability of directors as affected by terms of contract or form of signature, 33 A.L.R. 1353 ; 51 A.L.R. 319 .

Power of corporation to pass title to real property which it holds in excess of its powers, 37 A.L.R. 204 ; 62 A.L.R. 494 .

Corporation's payment of bonus to officers or employees, 40 A.L.R. 1423 ; 88 A.L.R. 751 ; 164 A.L.R. 1125 .

Right of corporation to sue on contract made by promoters before its organization, 66 A.L.R. 1425 .

Insurance on life of officer for benefit of private corporation, 75 A.L.R. 1362 ; 143 A.L.R. 293 .

Right of officer or director of private corporation to purchase in his own interest at a judicial or other public sale of the corporate property, 76 A.L.R. 439 .

Personal liability on contract made by "trustees" or others in closing affairs of dissolved corporation, 76 A.L.R. 1478 .

Lien of mortgage securing corporate bonds as affected by exchange of bonds for those of reorganized or new corporations, 81 A.L.R. 139 .

Statutory added liability of stockholders of bank or other corporation as affected by sale of, or other transaction in relation to, assets, 100 A.L.R. 1276 .

Construction, application, and effect of statutory provision that directors or corporation may remove officer, agent, or employee at pleasure, 111 A.L.R. 894 .

Validity of contract between corporations as affected by directors or officers in common, 114 A.L.R. 299 ; 33 A.L.R.2d 1060.

Power of corporation to change obligations to stockholders, 117 A.L.R. 1290 .

Power of corporation to enforce a contract made after taking the steps necessary to put its corporate existence beyond collateral attack, as affected by limited amount of capital subscribed or paid in, 128 A.L.R. 874 .

Computation of fund to be provided by private employer for payment of pension or retirement allowance to employees, 153 A.L.R. 818 .

Competency of stockholder as a witness where corporation is a party to a suit prosecuted by or against the personal representative of a decedent, 163 A.L.R. 1215 .

Applicability of statutes regulating sale of assets or property of corporation as affected by purpose or character of corporation, 9 A.L.R.2d 1306.

Conditions accompanying or following dissolution of lessee corporation, as breach of covenant against assignment or sublease, 12 A.L.R.2d 179.

Requisites as to definiteness of agreement to pay employee share of profits, 18 A.L.R.2d 211.

Validity of security for contemporaneous loan to corporation by officer, director, or stockholder, 31 A.L.R.2d 663.

Power of a business corporation to donate to a charitable or similar institution, 39 A.L.R.2d 1192.

Construction of "net profits," "earnings," or the like, in provision for profit-sharing bonus for corporate officers or employees, 49 A.L.R.2d 1129.

Power of a particular officer or agent of business corporation to bind it by a donation to a charity or similar institution, 50 A.L.R.2d 447.

Expenses incurred by competing factions within corporation in soliciting proxies as charge against corporation, 51 A.L.R.2d 873.

Leasing of real estate by foreign corporation, as lessor or lessee, as doing business within state within statutes prescribing conditions of right to do business, 59 A.L.R.2d 1131.

Corporation's power to enter into partnership or joint venture, 60 A.L.R.2d 917.

Power of secretary or treasurer of corporation to institute litigation for it, 64 A.L.R.2d 900.

Criminal liability of corporate officer who issues worthless checks in corporate name, 68 A.L.R.2d 1269.

Rights and liabilities as between employer and employee with respect to general bonus or profit-sharing plan, 81 A.L.R.2d 1066.

Rights and liabilities as between employer and employee with respect to employee stock options, 96 A.L.R.2d 176.

Power and authority of president of business corporation to execute commercial paper, 96 A.L.R.2d 549.

Liability of corporation for torts of subsidiary, 7 A.L.R.3d 1343.

Failure to issue stock as factor in disregard of corporate entity, 8 A.L.R.3d 1122.

Liability of corporation for contracts of subsidiary, 38 A.L.R.3d 1102.

Foreign corporation's leasing of personal property as doing business within statutes prescribing conditions of right to do business, 50 A.L.R.3d 1020.

Private pension plans: statements in literature distributed to employees as controlling over provisions of general plan, 50 A.L.R.3d 1270.

Construction and operation of private pension plan provision for distribution of pension funds upon termination of plan, 55 A.L.R.3d 767.

Charitable contributions by public utility as part of operating expense, 59 A.L.R.3d 941.

Power of corporation to make political contribution or expenditure under state law, 79 A.L.R.3d 491.

Validity, construction, and effect of statutory provisions concerning capital requisites of state incorporation of bank, 79 A.L.R.3d 1190.

Right of corporation to discharge employee who asserts rights as stockholder, 84 A.L.R.3d 1107.

COMMENT

Source: Model Act, § 14-2-303 . Former law was found in § 14-2-177.

Section 14-2-303 should be read in conjunction with Section 14-2-207 , which authorizes a corporation to adopt emergency or standby bylaws. Section 14-2-303 grants every corporation limited powers to act in an emergency even though it has failed to enact emergency bylaws under Section 14-2-207 . The authority is more explicit than that granted by former § 14-2-177(h), which provided only that corporate action was valid "if it is substantially in compliance with this Code section or of it is otherwise practical and necessary for the emergency operation and management of the business."

Subsection (d) defines emergency more broadly than former § 177(a), to cover any catastrophic event that prevents a quorum from being assembled.

Cross-References Corporate powers, see § 14-2-302 . Emergency bylaws, see § 14-2-207 . "Notice" defined, see § 14-2-141 . Notice of directors' meeting, see § 14-2-822 . "Principal office" defined, see § 14-2-140 .

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, § 252 et seq.

C.J.S. - 19 C.J.S., Corporations, §§ 547, 573.

ALR. - Conflict of laws as to validity and effect of corporate bylaw, 27 A.L.R.2d 435.

COMMENT

Source: Model Act, § 14-2-304 . This generally follows former § 14-2-22.

The basic purpose of Section 14-2-304 is to eliminate all vestiges of the doctrine of inherent incapacity of corporations. Under this section it is unnecessary for persons dealing with a corporation to inquire into limitations on its purposes or powers that may appear in its articles of incorporation. A person who is unaware of these limitations when dealing with a corporation is not bound by them.

Cross-References Corporate powers, see § 14-2-302 . Corporate purposes, see § 14-2-301 . Derivative proceedings, see § 14-2-740 et seq. Director standards of conduct, see § 14-2-830 et seq. Dissolution, see Article 14. "Employee" defined, see § 14-2-140 . "Proceeding" defined, see § 14-2-140 .

JUDICIAL DECISIONS

Editor's notes. - In light of the similarity of the statutory provisions, decisions under former Civil Code 1910, § 2225, former Code 1933, § 22-712, and former Code Section 14-2-22, which were repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, are included in the annotations for this Code section.

When defense proper. - The doctrine of ultra vires has no proper place in the law of private corporations, organized merely for the purpose of private gain, except in respect of contracts which are bad in themselves, the making of which is prohibited by a consideration of public morals or justice, or of sound public policy, or prohibited by the statute law on grounds connected with the public good. Corbin Supply Co. v. Loftis, 50 Ga. App. 309 , 178 S.E. 185 (1934) (decided under former Code 1933, § 22-712).

Public policy must be served by defense. - Defense of ultra vires made by private corporation will be sustained only when imperative rule of public policy requires it. A contract partly executed will be enforced as against such a corporation when it has received benefits thereunder in its corporate capacity. Corbin Supply Co. v. Loftis, 50 Ga. App. 309 , 178 S.E. 185 (1934) (decided under former Code 1933, § 22-712).

Corporation cannot use defense and retain benefits of transaction. - A corporation cannot interpose the defense that a transaction was ultra vires and retain the benefits of the transaction. In re Am. Ventures, Inc., 340 F. Supp. 279 (N.D. Ga. 1971), aff'd, 457 F.2d 974 (5th Cir. 1972) (decided under former Code 1933).

No application of doctrine of ultra vires will allow a corporation to retain and use benefits of the contract under which they were obtained. Flatauer Fixture & Sales Corp. v. Garcia & Assocs., 99 Ga. App. 685 , 109 S.E.2d 818 (1959) (decided under former Code 1933, § 22-712).

Corporation may plead ultra vires although all stockholders acquiesced. - A corporation is not estopped to plead an ultra vires act by which the corporation contracted to pay an individual debt of one of its officers, notwithstanding that all the stockholders of the corporation consented to or acquiesced in the execution of the contract. Piedmont Feed & Grocery Co. v. Georgia Feed & Grocery Co., 52 Ga. App. 847 , 184 S.E. 899 (1936) (decided under former Code 1933, § 22-712).

No defense to action for breach after performance by either party. - After a contract entered into by a corporation has been performed by either of the contracting parties, the fact that the making of the contract involved an unauthorized exercise of corporate power on the part of the company will not constitute a defense to an action brought by the party having performed the contract to recover compensation for a breach of the contract by the other party. Flatauer Fixture & Sales Corp. v. Garcia & Assocs., 99 Ga. App. 685 , 109 S.E.2d 818 (1959) (decided under former Code 1933, § 22-712).

President cannot borrow money and bind corporation without authority. - A corporation can only act by and through its proper and duly authorized officers, agents, and servants. The president of a corporation is its alter ego in many respects, and, without any special delegation of authority, is presumed to have power to act for it in matters within the scope of its ordinary business. However, the president of a corporation, who has no charter authority nor authority from the controlling board of directors, either general or special, to do so, cannot borrow money in the name of the corporation and execute a corporate promissory note binding upon such corporation, when the corporation received none of the proceeds of the loan, nor any benefit therefrom, nor ratified such action upon the part of its president in any manner. F & M Bank v. Stovall Inv. Co., 50 Ga. App. 277 , 177 S.E. 882 (1934) (decided under former Civil Code 1910, § 2225).

Corporation liable when fruits of contract are applied to corporate uses. - If the officers of a corporation, though without authority to do so, do in fact execute a contract on behalf of the corporation, and the fruits of it are received, retained, and applied to corporate uses, the corporation will be liable thereon notwithstanding any want of authority in its officers. Flatauer Fixture & Sales Corp. v. Garcia & Assocs., 99 Ga. App. 685 , 109 S.E.2d 818 (1959) (decided under former Code 1933, § 22-712).

Cited in Free For All Missionary Baptist Church, Inc. v. Southeastern Beverage & Ice Equip. Co., 135 Ga. App. 498 , 218 S.E.2d 169 (1975); Shier v. Price, 152 Ga. App. 593 , 263 S.E.2d 466 (1979); Fresh & Fancy Produce, Inc. v. Brantley, 190 Ga. App. 128 , 378 S.E.2d 379 (1989) (decided under former Code section 14-2-22).

RESEARCH REFERENCES

Am. Jur. 2d. - 18B Am. Jur. 2d, Corporations, § 1712 et seq.

C.J.S. - 19 C.J.S., Corporations, §§ 673, 676, 677, 678.

ALR. - Liability of corporation on contracts of promoters, 17 A.L.R. 452 ; 49 A.L.R. 673 ; 123 A.L.R. 726 .

Right of obligor to challenge assignment or transfer by corporation as ultra vires, 45 A.L.R. 1509 .

Release by corporation resting for consideration on detriment to release without benefit to corporation as ultra vires the corporation, 52 A.L.R. 579 .

Contract in relation to corporate stock as binding upon the corporation or personally upon the officers who sign it, 54 A.L.R. 1388 .

Doctrine of ultra vires as applied to torts of private corporation, 57 A.L.R. 302 .

Contract by national bank for purchase of stock in another corporation as ultra vires, 89 A.L.R. 1308 .

Assumption of mortgage or lien by bank or other corporation as ultra vires, 91 A.L.R. 177 .

Right of corporation to perform or to hold itself out as ready to perform functions in the nature of legal services, 157 A.L.R. 282 .

Power of corporation or its officers with respect to payment of remuneration, bonus, and the like, to widow or family of deceased officer, 29 A.L.R.2d 1262.

Right of corporation to indemnity for civil or criminal liability incurred by employee's violation of antitrust laws, 37 A.L.R.3d 1355.

Validity of obligation given by corporation incident to purchase of entire stock by sole shareholder, 71 A.L.R.3d 639.

Power of corporation to make political contribution or expenditure under state law, 79 A.L.R.3d 491.

COMMENT

Note to 2006 Amendment The Code requires that certain matters, such as certain amendments to the articles of incorporation, certain mergers, dispositions of all or substantially all assets and dissolution, be submitted to shareholders for approval. In addition, stock exchange listing requirements mandate that certain matters be submitted for shareholder approval in the absence of a state law requirement, and shareholder approval may be necessary to secure certain benefits that are available under securities and tax laws or regulations. The addition of new Code Section 14-2-305, which is based on Section 146 of the General Corporate Law of the Sate of Delaware, coupled with the amendments to subsections (b)(1) of Code Sections 14-2-1003, 14-2-1103, 14-2-1202 and 14-2-1402, clarify that directors may authorize the corporation to agree with another person to submit a matter to shareholders, but reserve the ability to change their recommendation.

Law reviews. - For article, "2006 Amendments to Georgia's Corporate Code and Alternative Entity Statutes," see 12 Ga. St. B. J. 12 (2007).

COMMENT

Source: Model Act, § 4.01, former § 14-2-40.

Section 14-2-401 deals with two basic name requirements: (1) the name must indicate "corporateness," and (2) the name must be distinguishable upon the records of the Secretary of State.

Subsections (a)(1) and (2) parallel former Sections 14-2-40(a)(1) and (2). Subsections (a)(3) and (4) were taken directly from former § 14-2-40(a)(2)(C) and (a)(4), respectively. The space limit on corporate names is required to facilitate computerization of the Secretary of State's records.

Subsection (b)(3) lists classes of "official names" that are not available. The Secretary of State becomes involved with fictitious or assumed names only in the situation where a foreign corporation, planning to transact business in a state, discovers that its name is not available in that state. To qualify it must adopt an assumed or fictitious name as its "official name" in the state, see Section 14-2-1506. Such a fictitious or assumed name is thereafter an "official" name and is unavailable to the same extent as any other "official name" in use is unavailable.

Subsection (c) varies considerably from the Model Act. The purpose of the revisions is to make certain that only one corporation is listed under a single name at any one time.

Certain restrictions on corporate names do not appear in the Code. Section 14-2-40(a)(2)(A) formerly provided that the corporate name shall not contain any word or phrase that implies the corporation is organized for any purpose other than those stated in its articles of incorporation. The modern practice of permitting incorporation for any lawful business purpose renders this obsolete. Perhaps more important is elimination of § 40(a)(2)(B), which provided that the corporate name shall not contain any word or phrase which implied that the corporation was "organized by, affiliated with, or sponsored by any fraternal, veterans', service, religious, charitable, or professional organization, unless that fact is certified in writing in a manner satisfactory to the Secretary of State by the organization with which affiliation or sponsorship is claimed." The Code views the duties of the Secretary of State as primarily ministerial; if the name is distinguishable upon the records of the Secretary of State from other entities the names of which are on file, that is enough.

Note to 1989 Amendment The 1989 amendment added the last two sentences to subsection (e). This amendment reinforced the limited ministerial role of the Secretary of State - that a decision that a corporate name is available is based only on an inspection of the records of the Secretary of State, and has no broader commercial or legal implications.

Cross-References "Deliver" includes mail, see § 14-2-140 . Effective time and date of filing, see § 14-2-123 . Filing fees, see § 14-2-122 . Filing requirements, see § 14-2-120 . Foreign corporations, see Article 15. Professional corporations, see Georgia Professional Corporation Act. Reserved name, see § 14-2-402 . Statement of name in articles, see § 14-2-202 . Trade name, see § 10-1-490 et seq.

Note to 2006 Amendment Subsection (b)(2) of Code Section 14-2-401 was amended for purposes of deleting references to "or registered" and "or 14-2-403." Code Section 14-2-403, which was repealed in 2002, provided a means by which a foreign corporation, not qualified to transact business in Georgia, could preserve the right to use its unique real name if it subsequently elected to qualify in Georgia.

JUDICIAL DECISIONS

Editor's notes. - In light of the similarity of the statutory provisions, decisions under former Code 1933, § 22-202 and former Code Section 14-2-401, which were repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, are included in the annotations for this Code section.

Jurisdiction to set aside incorporation because corporate name previously used. - A motion to revoke and set aside an order of incorporation, on the grounds that movant had acquired a prior use to the name used by the corporation, that the use of the name by the corporation would cause confusion in the minds of the public and a cloud on the title of petitioners' property, and that the order of incorporation had been improvidently granted because movant had not been given notice before the order of incorporation, and praying that the order of incorporation be set aside insofar as the use of the name claimed by movant was concerned, is not an equity case within the meaning used in Ga. Const. 1976, Art. VI, Sec. II, Para. IV (see Ga. Const. 1983, Art. VI, Sec. VI, Para. III), defining the jurisdiction of the Supreme Court. The grounds of the motion are not such as are relievable only in equity. On the contrary, the motion is one to set aside an order of the court on an alleged legal ground. A court of law has jurisdiction to entertain such a motion in a proper proceeding by petition, with rule nisi or process, and to grant the relief prayed. Methodist Episcopal Church S., Inc. v. Decell, 60 Ga. App. 843 , 5 S.E.2d 66 (1939) (decided under former Code 1933, § 22-202).

Cited in Dundon v. Forehand, 152 Ga. App. 749 , 263 S.E.2d 687 (1979); Dorfman v. Briah Assocs., 160 Ga. App. 359 , 287 S.E.2d 75 (1981).

OPINIONS OF THE ATTORNEY GENERAL

Editor's notes. - In light of the similarity of the statutory provisions, opinions under former Code 1933, § 22-301 and former Code Section 14-2-40, which were repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, are included in the annotations for this Code section.

Names of professional corporations. - The State Board of Examiners in Optometry (now the State Board of Optometry) has the authority to require optometrists who incorporate under the Professional Corporation Act to use only their personal names in naming the professional corporation. 1971 Op. Att'y Gen. No. 71-180 (decided under former Code 1933, § 22-301).

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, § 222 et seq.

18A Am. Jur. Pleading and Practice Forms, Name, § 47.

C.J.S. - 18 C.J.S., Corporations, § 132 et seq.

ALR. - Right to enjoin use of name of defunct corporation, 27 A.L.R. 1024 .

Corporation doing business and making contracts under assumed name, 56 A.L.R. 450 .

Validity and construction of constitutional or statutory provisions which prohibit the use by a corporation or partnership, as a part of its name, of certain described words giving the impression that it is subject to governmental control, 63 A.L.R. 1049 .

Rights and remedies as between originator of uncopyrighted advertising plan or slogan, or his assignee, and another who uses or infringes the same, 157 A.L.R. 1436 .

Right, in absence of self-imposed restraint, to use one's own name for business purposes to detriment of another using the same or a similar name, 44 A.L.R.2d 1156; 72 A.L.R.3d 8.

Right to protection of corporate name, as between domestic corporation and foreign corporation not qualified to do business in state, 26 A.L.R.3d 994.

Incorporation of company under particular name as creating exclusive right to such name, 68 A.L.R.3d 1168.

Use of "family name" by corporation as unfair competition, 72 A.L.R.3d 8.

COMMENT

Source: Model Act, § 4.02. This replaces former § 14-2-41.

There are no conditions on the reservation of a corporate name, unlike former Georgia law, § 14-2-41, which provided that a corporate name could only be reserved by persons and corporations holding specified intentions. Protection against reservation of a corporate name merely to block another's use of the name is obtained from the relatively short duration of the reservation.

Both the Model Act and former Georgia law, § 14-2-41(b), provide for reservation periods of four months (120 days in the Model Act). Former Georgia law also permitted the Secretary of State to extend the period "for good cause shown." The Code shortens the reservation period to one non-renewable 60-day period, which is sufficient to permit organization of a corporation under the procedures of the Code. Elimination of any possibility of renewal relieves the Secretary of State of a discretionary function not in keeping with the office, and the possibility of extortionate reservation of names for any significant period.

The Code eliminates the provisions of § 14-2-41(c) that permit a person acquiring the right to use the name of a domestic or qualified foreign corporation to reserve the right for five years. This Georgia provision was taken from prior North Carolina law and was intended to cover the situation in Rome Machine & Foundry Co. v. Davis Foundry & Mach. Works, 135 Ga. 17 , 68 S.E. 800 (1910).

Note to 1989 Amendment The 1989 amendments changed subsection (a) to eliminate the requirement of "delivering an application to the Secretary of State for filing." Modern practice permits telephonic name reservations, and it is anticipated that computerized name reservations will soon be feasible. No fee will be charged for a name reservation under § 14-2-122 . While the current practice of the Secretary of State is to send a written confirmation of a name reservation, entry in the Secretary of State's computer is prima facie evidence of a proper name reservation.

Further amendments to subsection (a) deleted the modifier "exclusive" before "use" in the first sentence. Subsection (b) was amended to delete the initial reference to "The owner of a reserved corporate name" and to replace it with "A person who has in effect a name reservation under subsection (a) of this Code section . . . ." These amendments conform the Code's language to similar language in the Limited Partnership Code.

Note to 1990 Amendment The 1990 amendment extends the non-renewable name reservation period for corporations from 60 to 90 days.

Cross-References Availability of names, see § 14-2-401 . Consent to use corporate name, see § 14-2-401 . "Deliver" includes mail, see § 14-2-140 . Effective time and date of filing, see § 14-2-123 . Filing fees, see § 14-2-122 . Filing requirements, see § 14-2-120 . Foreign corporations, see Article 15. "Person" defined, see § 14-2-140 .

JUDICIAL DECISIONS

Editor's notes. - In light of the similarity of the statutory provisions, decisions under former Code Section 14-2-41 which was repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, are included in the annotations for this Code section.

No exclusive right to use of name. - A corporation is allowed to reserve a name before actual incorporation. However, this reservation does not always confer an exclusive right to the use of the name in trade or business or even for corporate purposes. Elite Personnel, Inc. v. Elite Personnel Servs., Inc., 259 Ga. 192 , 378 S.E.2d 117 (1989), overruled in part on other grounds, Future Professionals v. Darby, 266 Ga. 690 , 470 S.E.2d 644 (1996) (decided under former § 14-2-41).

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, §§ 228.

ALR. - Right to enjoin use of name of defunct corporation, 27 A.L.R. 1024 .

Protection of business or trading corporation against use of same or similar name by another corporation, 66 A.L.R. 948 .

Use of "family name" by corporation as unfair competition, 72 A.L.R.3d 8.

COMMENT

Source: Model Act, § 5.01. This replaces former § 14-2-60.

The requirement that a corporation continuously maintain a registered office and a registered agent at that office is based on the premises that at all times a corporation should have an office where it may be found and a person at that office on whom any notice or process required or permitted by law may be served. The street address of the registered office must appear in the public records maintained by the Secretary of State. A mailing address, such as a post office box, is not sufficient since the registered office is the designated location for service of process.

Section 14-2-501 eliminates the provision of former § 14-2-60, that expressly permitted more than one registered agent, and the provision that no registered agent shall be appointed without written consent of the agent. A corporation that appoints an agent without the agent's consent does so at its own peril; the law of agency will govern the relationship.

The Code assumes that formal communications to the corporation will normally be addressed to the registered agent at the registered office. If the communication itself deals with the registered office or registered agent, however, copies must be sent to one of the principal officers of the corporation, rather than to the principal office of the corporation. The Code consistently recognizes that the registered office may be a "legal" rather than a "business" office.

Cross-References Annual registration disclosure, see § 14-2-1622 . Changing registered office or agent, see § 14-2-502 . Effect of notice of intent to dissolve, see § 14-2-140 5. Foreign corporations, see Article 15. Involuntary dissolution for failure to appoint and maintain registered agent and office, see § 14-2-1420 . Naming registered agent and office in articles of incorporation, see § 14-2-202 . "Principal office": defined, see § 14-2-140 ; designated in annual registration, see § 14-2-1622 . Resignation of registered agent, see § 14-2-503 . Service on corporation, see § 14-2-504 .

JUDICIAL DECISIONS

Editor's notes. - In light of the similarity of the statutory provisions, decisions under Ga. L. 1946, p. 687, § 2 and former Code Section 14-2-60, which were repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, are included in the annotations for this Code section.

Personal jurisdiction of Georgia courts over a foreign corporation is not secured by personal service on the defendant's president while that corporate officer is sojourning in Georgia, whether the officer came voluntarily or was lured into the state under false pretenses. Lamex, Inc. v. Sterling Extruder Corp., 109 Ga. App. 92 , 135 S.E.2d 445 (1964), commented on in, 2 Ga. St. B.J. 127 (1965) (decided under former Ga. L. 1946, p. 687, § 2).

Personal judgment against foreign corporation. - It is essential to a legal rendition of a personal judgment against a foreign corporation otherwise than by its voluntary appearance that the corporation be doing business within this state in such a manner and to such an extent as to warrant the inference that it is present in the state. Lamex, Inc. v. Sterling Extruder Corp., 109 Ga. App. 92 , 135 S.E.2d 445 (1964), commented on in, 2 Ga. St. B.J. 127 (1965) (decided under former Ga. L. 1946, p. 687, § 2).

Obligation to determine where venue existed. - Although venue did not lie in the county where an individual filed a negligence action and a corporation's registered agent was not located in the same county as the corporation's principal office, the trial court could not simply deny the corporation's and its insurer's Ga. Unif. Super. Ct. R. 19.1(B) motion to transfer; it was obligated by O.C.G.A. §§ 14-2-501 , 14-2-510(b) , and 14-2-1622(a)(2) to determine the county or counties in which venue properly lay. Coastal Transp., Inc. v. Tillery, 270 Ga. App. 135 , 605 S.E.2d 865 (2004).

Service of process held sufficient. - Because a corporation failed in its burden of showing that the person who actually received service of process was not authorized to accept service on behalf of its registered agent, the service was properly found to be sufficient. Thus, the trial court was not required to dismiss the action based on a lack of sufficient service of process. Holmes & Co. v. Carlisle, 289 Ga. App. 619 , 658 S.E.2d 185 (2008).

Service of process upon registered agent of corporation. - In five consolidated aviation wrongful death cases and one aviation property case, the trial court properly denied the motion to dismiss filed by an out-of-state damper part seller on the ground of insufficient service of process as personal service upon the seller's registered agent was appropriate under both its State of Delaware and under Georgia law. Vibratech, Inc. v. Frost, 291 Ga. App. 133 , 661 S.E.2d 185 (2008).

Cited in Saint Francis Hosp. v. Dion, 123 Ga. App. 360 , 181 S.E.2d 72 (1971); In re Carmichael Enters., Inc., 334 F. Supp. 94 (N.D. Ga. 1971); Hallmark Properties, Inc. v. Slater, 229 Ga. 432 , 192 S.E.2d 157 (1972); Lukas v. Pittman Hwy. Contracting Co., 134 Ga. App. 305 , 214 S.E.2d 398 (1975); S. Donald Norton Properties, Inc. v. Triangle Pac., Inc., 253 Ga. 761 , 325 S.E.2d 160 (1985); Ticor Constr. Co. v. Brown, 255 Ga. 547 , 340 S.E.2d 923 (1986).

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, § 168.

C.J.S. - 19 C.J.S., Corporations, § 679.

COMMENT

Source: Model Act, § 5.02. This replaces former § 14-2-61.

Changes of registered office or registered agent are usually routine matters which do not affect the rights of shareholders. The purpose of this section is to permit these changes without a formal amendment of the articles of incorporation, without approval of the shareholders, and, indeed, even without approval of the board of directors.

The Model Act provisions were altered to make the statement of a change of registered office or registered agent an amendment to the annual registration. This has the effect of reducing the number of records that must be searched to provide information about corporations.

In the case of a change of registered agent, the Model Act required written consent of the new registered agent. This was eliminated in the Code as redundant. A corporation that names a new registered agent without the consent of the agent does so at its peril, since the absence of a legal agency relationship, caused by the lack of consent of the agent, will mean that the putative agent owes no duties to the corporate principal. Further, if a corporation names an agent without the agent's consent, it has created apparent authority in the agent to accept service, and is estopped to deny the agency.

The procedure in subsection (b) by which a registered agent may change the street address of the registered office applies to any location within the state. The Model Act requirement that the agent file a separate statement of change for each corporation for which it serves as registered agent was eliminated in Georgia, and replaced with a requirement that the statement list all corporations for which the agent serves as registered agent. This facilitates changes of location by those entities that typically serve as registered agent for multiple corporations.

Cross-References Deletion of initial agent and office from articles of incorporation, see § 14-2-1002 . "Deliver" includes mail, see § 14-2-140 . Effect of dissolution of incorporation, see § 14-2-140 8. Effective time and date of filing, see § 14-2-123 . Filing fees, see § 14-2-122 . Filing requirements, see § 14-2-120 . Involuntary dissolution for failure to file notice of change of registered agent or office, see § 14-2-1420 . "Notice" defined, see § 14-2-141 . Resignation of registered agent, see § 14-2-503 .

JUDICIAL DECISIONS

Editor's notes. - In light of the similarity of the statutory provisions, decisions under Ga. L. 1947, p. 1544, former Code 1933, § 22-1814.1 and former Code Section 14-2-61, which were repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, are included in the annotations for this Code section.

Filing annual report will not change principal office. - Evidence that an annual report filed with the Secretary of State stated that corporation's principal office was in a certain county was not legally sufficient to show a compliance with the requirements of law which must be followed for the purpose of obtaining amendments to a corporate charter, including one to change the location of its principal office. Grimaud v. Knox-Georgia Homes, Inc., 210 Ga. 514 , 81 S.E.2d 476 (1954) (decided under former Ga. L. 1947, p. 1544; former Code 1933, § 22-1814.1)

Cited in Saint Francis Hosp. v. Dion, 123 Ga. App. 360 , 181 S.E.2d 72 (1971); Hallmark Properties, Inc. v. Slater, 229 Ga. 432 , 192 S.E.2d 157 (1972); Padgett Masonry & Concrete Co. v. Peachtree Bank & Trust Co., 130 Ga. App. 886 , 204 S.E.2d 807 (1974); Lukas v. Pittman Hwy. Contracting Co., 134 Ga. App. 305 , 214 S.E.2d 398 (1975).

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, § 168.

C.J.S. - 19 C.J.S., Corporations, § 679.

ALR. - Change in name, location, composition, or structure of obligor commercial enterprise subsequent to execution of guaranty or surety agreement as affecting liability of guarantor or surety to the obligee, 69 A.L.R.3d 567.

COMMENT

Source: Model Act, § 5.03. This replaces former § 14-2-61.

The Model Act required delivery of two copies of a statement of resignation, to provide the Secretary of State with copies to send to both the principal and registered offices of the corporation. Georgia practice under § 14-2-61(c) did not require the Secretary of State to mail a second copy to the principal office, but required the registered agent to do so. The Code preserves the existing Georgia practice, but eliminates the requirement that the agent file an affidavit that he has notified the corporation.

The Code eliminates the circularity of having the registered agent mail a copy of the notice of intent to resign to the registered office, and requires mailing to one of the principal officers of the corporation, at the address shown in the annual registration. Section 14-2-1622(a)(4) requires the annual registration to list the "respective addresses" of these officers, which need not be identical with the principal office of the corporation. Thus the notice is expected to be sent to an address where a responsible officer will actually receive it.

Cross-References Annual registration, see § 14-2-1622 . Change of registered agent, see § 14-2-502 . "Deliver" includes mail, see § 14-2-140 . Effect of dissolution of corporation, see § 14-2-140 8. Effective time and date of filing, see § 14-2-123 . Filing fees, see § 14-2-122 . Filing requirements, see § 14-2-120 . "Mail" defined, see § 14-2-140. Notice, see § 14-2-141 . "Principal office": defined, see § 14-2-140. Designated in annual registration, see § 14-2-1622 .

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, § 168.

C.J.S. - 19 C.J.S., Corporations, § 679.

COMMENT

Source: Model Act, § 5.04. This replaces former § 14-2-62.

Somewhat the same circularity problem that arose in connection with the resignation of registered agents (see the Comment to Section 14-2-503 ) also sometimes arose in connection with service of process under former Georgia law, § 14-2-62(c). Under that provision, if service could not be made on the registered agent at its registered office, a duplicate of the process was forwarded to the Secretary of State who served it at the registered office (where the agent previously could not be found). It is unlikely that this arrangement resulted in the copy being forwarded routinely to the corporation. Instead of providing for service on the Secretary of State if service cannot be perfected on the registered agent, therefore, Section 14-2-504 provides for service by registered or certified mail addressed to the secretary of the corporation at its principal office shown in its most recent annual registration.

Cross-References Annual registration, see § 14-2-1622 . Foreign corporations, see Article 15. "Notice" defined, see § 14-2-141 . "Principal office": defined, see § 14-2-140 ; designated in annual registration, see § 14-2-1622 . Registered office and agent: designated in annual registration, see § 14-2-1622; required, see § 14-2-501 . "Secretary" defined, see § 14-2-140 .

JUDICIAL DECISIONS

ANALYSIS

• General Consideration
• Service Upon Registered Agent
• Reasonable Diligence
• Effect on Other Manner of Service
• Foreign Corporations

OPINIONS OF THE ATTORNEY GENERAL

Editor's notes. - In light of the similarity of the statutory provisions, opinions under former Code 1933, § 22-403 and former Code Section 14-2-62, which were repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, are included in the annotations for this Code section.

Only feasible method for charging corporations with crimes is through the return of an indictment by a grand jury. 1970 Op. Att'y Gen. No. 70-155 (decided under former Code 1933, § 22-403).

RESEARCH REFERENCES

Am. Jur. 2d. - 19 Am. Jur. 2d, Corporations, §§ 1882 et seq., 2083 et seq.

C.J.S. - 19 C.J.S., Corporations, § 802 et seq.

ALR. - What suits at domicil of corporation involving corporate stock or rights and obligations incident thereto are in rem jurisdiction which may rest upon constructive service of process against nonresidents, 145 A.L.R. 1393 .

Requisites of service upon, or delivery to, designated public official, as a condition of substituted service of process on him, 148 A.L.R. 975 .

Nonresident director or officer of domestic corporation as subject to constructive service of process in suit or proceeding to enforce duty or obligation to corporation, its stockholders, or creditors, 148 A.L.R. 1251 .

Who is "managing agent" of domestic corporation within statute providing for service of summons or process thereon, 71 A.L.R.2d 178.

Who has possession, custody, or control of corporate books or records for purposes of order to produce, 47 A.L.R.3d 676.

Right of member, officer, agent, or director of private corporation or unincorporated association to assert personal privilege against self-incrimination with respect to production of corporate books or records, 52 A.L.R.3d 636.

Availability of sole shareholder's Fifth Amendment privilege against self-incrimination to resist production of corporation's books and records - modern status, 87 A.L.R. Fed. 177.

COMMENT

Source: Former § 14-2-63.

These venue provisions are for specific actions, in addition to those specified elsewhere in the code. They preserve former law.

Cross-References Annual registration, see § 14-2-1622 . "Principal office": defined, see § 14-2-140 ; designated in annual registration, see § 14-2-1622 . Registered office and agent: designated in annual registration, see § 14-2-1622; required, see § 14-2-501 . Service of process: on domestic corporation, see § 14-2-504 ; on foreign corporation, see § 14-2-1510 ; on Secretary of State for surviving foreign corporation in a merger, see § 14-2-1107 ; on Secretary of State for withdrawn foreign corporation, see § 14-2-1520 ; on Secretary of State for foreign corporation with revoked certificate of authority, see § 14-2-1531 . Venue: judicial appraisal of shares, see § 14-2-1330 . Judicial dissolution of corporation, see § 14-2-1431 .

JUDICIAL DECISIONS

ANALYSIS

• General Consideration
• Office
• Registered Office
• Principal Office
• Tort Actions

RESEARCH REFERENCES

Am. Jur. 2d. - 19 Am. Jur. 2d, Corporations, § 1867 et seq. 36 Am. Jur. 2d, Foreign Corporations, § 470 et seq.

C.J.S. - 19 C.J.S., Corporations, §§ 798 et seq., 1021.

ALR. - Prejudice against officer, stockholder, or employee of corporation as ground for change of venue on application of corporation, 63 A.L.R. 1015 .

Citizenship, domicil, residence, or location of national corporations, 69 A.L.R. 1346 ; 88 A.L.R. 873 .

Business situs of intangible in state other than domicil of owner as excluding tax at domicil, 79 A.L.R. 344 .

Statutory or constitutional provisions as to venue as denial of equal protection of laws, 107 A.L.R. 862 .

Situs of corporate stock (or stock in joint stock company) for purpose of attachment, garnishment, or execution, 122 A.L.R. 338 .

What constitutes residence of foreign corporation in a county or judicial district within state venue statute, 129 A.L.R. 1286 .

Conclusiveness, as regards venue, of designation of place of business in incorporation papers, 175 A.L.R. 1092 .

Relationship between "residence" and "domicil" under venue statutes, 12 A.L.R.2d 757.

Foreign corporation's purchase within state of goods to be shipped into other state or country as doing business within state for purposes of jurisdiction or service of process, 12 A.L.R.2d 1439.

Waiver by national bank of statutory right to be sued in district where established or in which it is located, 1 A.L.R.3d 904.

Place where corporation is doing business for purposes of state venue statute, 42 A.L.R.5th 221.

COMMENT

Source: Model Act, § 6.01. This replaces former § 14-2-80.

Subsection (a) omits the reference of former § 14-2-80(a) to creating shares with or without par value. The Code also eliminates the legal capital conditions on conversion formerly contained in § 14-2-80(b)(5). Old statutory distinctions between common and preferred shares have been abandoned, in favor of complete contractual flexibility.

The language contained in the proviso was intended to negate any inference of invalidity of provisions that treat holders of shares of the same class differently, such as dual class voting provisions, or that grant greater or lesser voting or redemption rights, which are often based either on size or duration of holdings. Such provisions were explicitly approved by the Delaware Supreme Court in Providence & Worcester Co. v. Baker, 378 A.2d 121 (1977). This language was intended to permit the approach of the Delaware Supreme Court in permitting distinctions to be made among holders of securities, rather than the approach of some Federal courts, which-have held that distinctions made on the basis of the identity of the holder of the securities are prohibited. See Asarco Inc. v. Court, 611 F. Supp. 468 (D. N.J. 1985).

Subsection (b) is new to Georgia law. Following the approach outlined above, of not distinguishing between preferred and common, it simply mandates that the corporation must authorize one or more classes of shares that have unlimited voting rights and one or more classes that are to receive the net assets of the corporation upon dissolution. These fundamental characteristics need not be placed in a single class of shares but may be divided as desired. It is nevertheless essential that the corporation always have authorized shares with these two characteristics, and Section 14-2-603 requires that shares having in the aggregate these characteristics always be outstanding.

Subsection (c) lists the principal features that are customarily incorporated into classes of shares. Subsection (d) makes clear that this listing is not exhaustive.

Subsection (c) authorizes creation of classes of shares with limited or residual rights without significant limitation. Subsection (c)(1) contains new language authorizing shares with "special, conditional or limited voting rights. . . ." This contemplates voting rights triggered by the passage of a specified number of dividends, but it could be used to validate the use of various super-voting provisions, such as giving common shares super-voting rights when held for a specified time, or limiting voting power when accumulated in large blocks by single holders and their associates.

Subsection (c)(1) provides that any class of shares may be granted multiple or fractional votes per share without limitation. See Section 14-2-721. Shares of any class may also be made nonvoting "except to the extent prohibited by this chapter." This "except" clause refers to the provisions in the Code that permit shares that are designated to be nonvoting to vote on amendments to articles of incorporation and mergers or share exchanges that directly affect that class (Sections 14-2-726, 1004 and 1103).

Subsection (c)(2) authorizes shares that are redeemable or convertible. This permits common shares that are redeemable at the option of the corporation, the holder, a third party, or upon the occurrence of a designated event. This repeals Georgia's prohibition of redeemable common shares, contained in former § 14-2-93(a). Shares redeemable at the option of the corporation are sometimes called "callable shares," while shares redeemable at the option of the shareholder are sometimes described as involving a "put." The Code permits either type of redemption for any class of shares and thereby permits the creation of redeemable or callable shares without limitation (subject only to the provisos that the class or classes of shares described in subsection (b) must always exist and that at least one share of each class with those rights or powers must be outstanding under Section 14-2-603 ).

Subsection (c)(2) also eliminates the provision in former § 14-2-80(b)(5) that shares may be convertible into shares of a class having prior or superior rights only when so provided in the articles of incorporation. This has the effect, among others, of prohibiting so-called "upstream" conversions, that is, shares convertible into debt securities or into a class of shares having prior or superior preference rights. This restriction was eliminated because the power to make shares redeemable at the option of the shareholder for cash (see subsection (c)(2)(ii) should logically permit the shares to be redeemable or convertible at the option of the shareholder into other shares with senior preferential rights. Creditors of the corporation and holders of shares with preferential rights are less seriously affected by a conversion of shares into debt or into shares with preferential rights than they would be by the redemption of the shares for money, which is permitted by the Code, subject to the limitations of Section 14-2-640 . Shares made "redeemable" for debt under subsection (c)(2)(ii), achieve the same effect as a right to "convert" shares into debt securities.

Subsection (d) was added to the Model Act provisions. It eliminates the requirement of former § 14-2-80(b)(5) that convertible securities may not be issued unless a sufficient number of authorized but unissued or treasury shares were reserved by the board to be issued only in satisfaction of the conversion rights. It expressly validates the issuance of shares with certain conversion or redemption rights even where the corporation currently lacks sufficient authorized shares to honor such rights if they are triggered. In effect it provides that issuance of shares convertible or redeemable into shares presently not authorized is not ultra vires, and that enforcement of these conversion or redemption rights is a matter of contract, not of corporate power.

Subsection (f) has been taken from Calif. Gen. Corp. L. § 205, to provide a basis for calculating any franchise or other taxes that may be based on par value.

Note to 1989 Amendment The 1989 amendments to section 14-2-601 were intended to be clarifying. Changes in subsection (a) were intended to clarify that its provisions relate to classes of shares generally. The exception, relating to the treatment of series in section 14-2-602, was moved to the beginning of the sentence to separate it from the proviso. References to "class or series" of shares were replaced with more general references to "the shares" to clarify that the provisions of section 14-2-601 apply to shares generally, while the provisions of section 14-2-602 apply to series within a class.

Subsection (c)(2) was amended by including authorization of classes of shares that are exchangeable, as distinguished from convertible, to clarify that exchange rights into shares of another corporation may be created.

Subsection (d) was amended by adding the phrase "or other securities" following the reference to shares, to clarify the breadth of the corporation's power to issue securities. A reference to "exchangeable" was added to the phrase "redeemable or convertible" to clarify that any form of transaction involving securities is covered by this subsection.

Subsection (f) was amended by the addition of the last clause, to clarify that if the board designates a par value for the purpose of complying with a particular statute, that designation applies for that purpose only.

Note to 2000 Amendment Subsection (a) has been amended to clarify that shares of a series within a class which has been designated, either in accordance with this Code section or in accordance with Code Section 14-2-602, may have preferences, limitations, and relative rights different from those of shares of other series within the same class. This subsection has also been amended to add a reference to Code Section 14-2-624, which clarifies that compliance with the provisions of Code Section 14-2-624 shall not result in a conflict with this subsection.

Subsection (b) was added to the Code by the 2000 amendment to eliminate any question that, in addition to the procedures set forth in Code Section 14-2-602, a class of shares may be divided into series in the original articles of incorporation or by amendment to the articles of incorporation pursuant to board and shareholder action under Code Section 14-2-1003. The new subsection also contains provisions regarding the preferences, limitations and relative rights within a series similar to those set forth in Code Section 14-2-602(c).

The 2000 amendments redesignated former subsection (b) as subsection (c). Subsections (c), (d) and (e), which have been redesignated as subsections (d), (e) and (f), have been amended to add references to series of shares within a class, consistent with the other amendments to this Code section. Former subsection (f) has been redesignated as subsection (g). The 2000 amendments to Code Section 14-2-601 are not intended to limit the authority of the board of directors to create and fix the terms of a series of shares under Code Section 14-2-602.

Subsection (h) has been added to Code Section 14-2-601 to further clarify that the provisions of 14-2-601 shall not limit the authority or discretion of the board of directors to determine the terms of rights, options or warrants pursuant to Code Section 14-2-624.

Note to 2003 Amendment The amendment to Code Section 14-2-601 adds a definition of "facts" ascertainable outside the articles of incorporation or any amendment thereto. It is based on Section 151 of the Delaware General Corporation Law and expressly allows for a determination or action by any person or body, including the corporation. This is also consistent with the definition of extrinsic "facts" objectively ascertainable found in Section 1.20(k) of the Model Business Corporation Act. Common examples of facts outside of the control of the corporation are references to an interest rate such as the federal funds rate or to securities market prices. The facts on which powers, designations, preferences, rights, qualifications, limitations or restrictions may be made dependent also include facts within the control of the corporation and do not need to occur independently. In addition to a determination or action by the corporation, references to extrinsic facts may also include, without limitation, references to determinations or actions by the board of directors, a committee of the board, an officer or agent of the corporation, or other person.

Cross-References Amendment of articles: generally, see § 14-2-1001 et seq.; terms of series or class, see § 14-2-602 . Articles of incorporation generally, see § 14-2-202 . Certificateless shares, see § 14-2-626 . Close corporations, see Article 9. Consideration for shares, see § 14-2-621 . Debt securities, see § 14-2-302 . Distributions, see § 14-2-640 . Fractional shares, see § 14-2-604 . Nonvoting shareholders' right to notice, see §§ 14-2-704 , 14-2-1003 , 14-2-1103 . Options, see § 14-2-624 . Outstanding shares, see § 14-2-603 . Preemptive rights, see § 14-2-630 . Redemption, see § 14-2-631 . Series of shares, see § 14-2-602 . Voting by nonvoting shares, see §§ 14-2-1004 , 14-2-1103 . Voting by voting groups of shares, see §§ 14-2-140 , 14-2-725 , & 14-2-726 . Voting rights generally, see § 14-2-721 .

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, § 349 et seq.

C.J.S. - 18 C.J.S., Corporations, §§ 205, 206, 207 et seq., 456 et seq. 19 C.J.S., Corporations, § 965.

ALR. - Corporate stock without par value, 19 A.L.R. 131 ; 36 A.L.R. 791 ; 45 A.L.R. 1501 ; 65 A.L.R. 1347 .

Priority as between creditors and holders of preferred stock, 29 A.L.R. 254 .

Construction and effect of provision for preference or redemption of preferred stock in respect of capital value, 33 A.L.R. 1257 ; 124 A.L.R. 1069 .

Payments by stockholders applicable upon double liability, 45 A.L.R. 1215 ; 56 A.L.R. 527 ; 83 A.L.R. 147 ; 120 A.L.R. 511 .

Right of corporation itself, in absence of fraud against it, to complain that stock issued as fully paid was based on overvaluation of property, or receipt of less than par value, 56 A.L.R. 396 .

Duty of corporation upon presentation for transfer of stock standing in one's name as trustee or other fiduciary, 56 A.L.R. 1199 .

Issuance by corporation of new stock certificates without requiring surrender of old, 61 A.L.R. 436 ; 150 A.L.R. 148 .

Validity and construction of contract or option, on purchase of corporate stock by employee, for resale thereof to original seller on termination of employment, 66 A.L.R. 1182 .

Voting power of corporation stock as confined to issued and outstanding stock to exclusion of authorized unissued stock or stock which has been reacquired by the corporation, 90 A.L.R. 315 .

Implied obligation of purchaser of corporate stock to indemnify a vendor against future calls and assessments, 141 A.L.R. 1351 .

Power of board of directors to rescind or modify its action in calling stock for redemption or retirement, 148 A.L.R. 839 .

Construction and application of provisions of statute, charter, bylaws, or stock certificate conferring upon holders of preferred or other specified class of stock a right to vote in event of nonpayment of dividends or other specified conditions, 154 A.L.R. 418 .

Statutory requirements respecting issuance of corporate stock as applicable to foreign corporation, 8 A.L.R.2d 1185.

Delay of stockholders in exercising their right to convert their stock into other class of stock or corporate obligation, 10 A.L.R.2d 587.

Remedy for refusal of corporation or its agent to register or effectuate transfer of stock, 22 A.L.R.2d 12.

Patent rights, copyrights, trademarks, secret processes, formulas, or the like, as "property" within provisions of law or charter forbidding issuance of corporate stock except for money paid or property received, 37 A.L.R.2d 913.

Validity, construction, and effect of provisions of articles of incorporation or stock certificates relating to call, redemption, or retirement of common stock, 48 A.L.R.2d 392.

Power of corporation to change existing redemption rights of common stock shareholders, 70 A.L.R.2d 843.

Corporations: validity of charter provision for nonvoting common stock, 52 A.L.R.3d 1131.

COMMENT

Source: Model Act, § 6.02; former § 14-2-81(b)(1) and (2).

Section 14-2-602 permits the board of directors, if authority to do so is contained in the articles of incorporation, to fix the terms of a class of shares to meet corporate needs, including current requirements of the securities market or the exigencies of negotiations for acquisition of other corporations or properties, without the necessity of holding a shareholders' meeting to amend the articles of incorporation. This section therefore permits prompt action and gives desirable flexibility. The articles of incorporation may also create "series" of shares within a class (rather than designating that "series" as a separate class) if that is deemed desirable.

The board of directors may set the terms of a class only if there are not outstanding shares of that class. Similarly, the board may designate the terms of a series only if there are not outstanding shares of that series.

The power to vary the terms of "blank stock" for series of the same class extends to all the permitted variables set forth in Section 14-2-601(c). The proviso added to subsection (c) parallels that added to Section 14-2-601(a).

Subsection (d) requires a simple official filing to amend the articles so there will be a public record of the class or series the corporation intends to issue. The amendment may be made without shareholder action. Under former § 14-2-81(c), the effect of a certificate filed by the board was not clear. Subsection (d) eliminates that ambiguity, and is intended to avoid the outcome of Telvest v. Olson, Del. Ch., (C.A. No. 5798, 1979), where the court held that the certificate of directors' action constituted an unauthorized charter amendment altering common voting rights. See Section 14-2-1002 .

Subsection (e) was added to the Model Act by the Code. It restores the ability to reduce the number of shares authorized in a series where not all shares of the series are issued, formerly contained in § 14-2-81(b)(1).

Subparagraph (f) is a transition rule to provide authority similar to that formerly granted by § 14-2-81(b)(2), where the articles fail to grant the board authority to determine rights and preferences of series.

One significant change from former law is elimination of the provision of § 14-2-80(b)(3), which prohibited issuance of shares with priority over dividends or on assets at liquidation, over any currently outstanding class entitled to such priority over other shares. Holders of senior securities obtain such protection from the provisions of the articles of incorporation designating their rights and preferences, rather than from an absolute statutory prohibitions.

Note to 1989 Amendment The 1989 amendment to subsection (a) eliminated a cross reference to the limits contained in section 14-2-601 that was thought to be superfluous. Section 14-2-601 deals with classes of shares, while section 14-2-602 deals with series within a class.

The 1989 amendment to subsection (c) deleted the phrase "or any amendment thereto" following the phrase "the articles of incorporation" as redundant.

Note to 2000 Amendment The 2000 amendments to subsection (c) clarify that the preferences, limitations and relative rights of shares within a class or a series, determined by the board of directors under this Code section, are subject to the requirements consistent with those that are set forth in Code Section 14-2-601(a) and (b). Consistent with the 2000 amendments to Code Section 14-2-601(a) and (b), this subsection has also been amended to clarify that compliance with the provisions of Code Section 14-2-624 shall not result in a conflict with this subsection.

Subsection (e) was amended to empower the board of directors, without shareholder action, to eliminate a series of shares where no shares of that series are issued.

Former subsection (f), which allowed the rights and preferences of a series of stock to be established by shareholder vote for corporations formed prior to July 1, 1989, was eliminated by the 2000 amendment, because the 2000 amendments to Code Section 14-2-601 eliminate any question that the board of directors and shareholders may divide a class of shares into series through an amendment to the articles of incorporation under Code Section 14-2-1003. The amendments to Code Section 14-2-601 make clear that, in the absence of board authority to determine the preferences, limitations and relative rights of a class or series of shares or to designate a series of shares, the proper procedure for taking such action is set forth in Code Section 14-2-1003. New subsection (f) was added to clarify that the provisions of Code Section 14-2-602 shall not limit the authority or discretion of the board of directors to determine the terms of rights, options or warrants issuable pursuant to Code Section 14-2-624.

Note to 2003 Amendment The amendment to Code Section 14-2-602 adds the same definition of 'facts' ascertainable outside the articles of incorporation as was added to Code Section 14-2-601 in order to make the two sections consistent with each other.

Note to 2004 Amendment The amendment to Code Section 14-2-602(e) is based on Section 151(g) of the Delaware General Corporation Act. Barring a restriction in the articles of incorporation, including one imposed by the articles of amendment pursuant to which the series in questions was created, the amendment would restore the shares of a series the terms of which have been designated under the authority of subsection (a) but none of which are outstanding, either because shares of the series were never issued or were issued but have since been redeemed, to the undesignated class they occupied prior to the action of the board of directors that created the series. Such shares may then be retained for future designation by the board of directors under the original "blank check" authority granted in the articles of incorporation. This flexibility is consistent with that created by the 2002 amendments to Model Act Section 6.02, which permit a board of directors to both "classify" and "reclassify" unissued shares of the corporation.

The amendment to subsection (e) also makes clear that, in the case of a series that has been designated by an amendment to the articles of incorporation filed in accordance with subsection (d) but as to which no shares have ever been issued, the board may amend the terms of the series by filing a subsequent amendment, rather than having to file both an amendment eliminating the first series and a second amendment designating a new series.

Cross-References Amendment to articles of incorporation, see § 14-2-1003 and Article 10, Part 1. Authorized shares, see § 14-2-601 . Certificateless shares, see § 14-2-626 . Certificates for shares, see § 14-2-625 . Committees, see § 14-2-825 . "Deliver" includes mail, see § 14-2-140 . Director standards of conduct, see §§ 14-2-830 & 14-2-831 . Distributions, see § 14-2-640 . Effective time and date of filing, see § 14-2-123 . Filing fees, see § 14-2-122 . Filing requirements, see § 14-2-120 . Options, see § 14-2-624 . Redemption, see §§ 14-2-601 & 14-2-631 . Series or class as voting group, see §§ 14-2-140 , 14-2-725 , 14-2-726 , & 14-2-1004 . Voting by voting group, see §§ 14-2-725 & 14-2-726 . "Voting group" defined, see § 14-2-140.

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, §§ 349 et seq., 353 et seq.

C.J.S. - 18 C.J.S., Corporations, § 211.

ALR. - Right to issue corporate stock without voting power, 21 A.L.R. 643 .

Construction and effect of provision for preference or redemption of preferred stock in respect of capital value, 33 A.L.R. 1257 ; 124 A.L.R. 1069 .

Power to create preferred stock as against existing preferred stock, 44 A.L.R. 72 .

Right of holders of preferred stock to have receiver appointed, 50 A.L.R. 261 .

Issuance by corporation of new stock certificates without requiring surrender of old, 61 A.L.R. 436 ; 150 A.L.R. 148 .

Rights of holders of preferred stock in respect of dividends, 67 A.L.R. 765 ; 98 A.L.R. 1526 ; 133 A.L.R. 653 .

Validity and effect of agreement by a corporation contemporaneously with issue or sale of stock, to repurchase or redeem the stock or to cancel the subscription therefor and refund consideration paid, 101 A.L.R. 154 .

Instrument issued by a corporation as certificate of preferred stock or as evidence of indebtedness, 123 A.L.R. 856 .

Power of board of directors to rescind or modify its action in calling stock for redemption or retirement, 148 A.L.R. 839 .

Preferred stockholders' rights, upon liquidation or dissolution, to dividends, 25 A.L.R.2d 788.

Rights of preferred stockholders as to passed or accumulated dividends in going concern, 27 A.L.R.2d 1073.

Patent rights, copyrights, trademarks, secret processes, formulas, or the like, as "property" within provisions of law or charter forbidding issuance of corporate stock except for money paid or property received, 37 A.L.R.2d 913.

Minority stockholders' right to enjoin further or additional issuance of stock, 38 A.L.R.2d 1366.

COMMENT

Source: Model Act, § 6.03. There was no counterpart to this section in former Georgia law.

Subsection (c) requires that at all times the corporation must have outstanding shares of one or more classes with unlimited voting rights and rights to receive the net assets on dissolution.

The provisions of the Code are consistent with the specialized class of corporation known as the open-end investment company, which permits unlimited redemptions of shares at net asset value at the request of shareholders. Sections 14-2-601 and 603 permit the classes of shares with voting and dissolution rights to be made redeemable without limitation. The requirement of subsection (c) that at least one share be outstanding is also consistent with an unlimited right of redemption since that section only applies while there are shares of stock outstanding.

Cross-References Cancellation of shares, see §§ 14-2-621 & 14-2-1004 . Certificateless shares, see § 14-2-626 . Certificates for shares, see § 14-2-625 . Classes of shares generally, see § 14-2-601 . Consideration for shares, see § 14-2-621 . Dissolution of corporation, see Article 14. Reacquisition of shares, see § 14-2-631 . Redemption of shares, see §§ 14-2-601 & 14-2-631 . Share dividends, see § 14-2-623 . Voting by nonvoting class of shares, see §§ 14-2-1004 & 14-2-1103 . Voting by voting groups, see §§ 14-2-140 , 14-2-725 & 14-2-726 . "Voting group" defined, see § 14-2-140 .

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, §§ 397 et seq.

C.J.S. - 18 C.J.S., Corporations, § 185 et seq.

COMMENT

Source: Model Act, § 6.04. This replaces former § 14-2-88.

Subsection (a) authorizes handling fractional shares in various ways, including:

1. The corporation may issue scrip instead of fractional shares. As subsection (c) provides, scrip confers none of the substantive rights of shares, but only authorizes holders to combine scrip certificates in amounts aggregating a full share and then to exchange them for a full share. This aggregation must occur within the time and subject to the conditions set initially by the board of directors and stated in the scrip certificate. Scrip that is not combined and exchanged may become void, authorized by subsection (d).
2. The corporation may authorize the immediate sale of all fractional share interests, thereby avoiding the expense and delay of scrip and the inconvenience of recognizing fractional shares.

Under this section fractional shares may be certificated or uncertificated. There is no difference in treatment of certificated or uncertificated shares for this purpose. See Sections 14-2-625 and 626.

Cross-References Redemption, see §§ 14-2-601 & 14-2-631 . Share dividends, see § 14-2-623 .

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, § 844.

C.J.S. - 18 C.J.S., Corporations, § 185 et seq.

ALR. - Right to issue corporate stock without voting power, 21 A.L.R. 643 .

Issuance by corporation of new stock certificates without requiring surrender of old, 61 A.L.R. 436 ; 150 A.L.R. 148 .

Voting of jointly held or fractional shares in corporation, 98 A.L.R.2d 357.

COMMENT

Source: Model Act, § 6.20. This replaces former § 14-2-83.

Subsection (a) is substantially identical to former § 14-2-83(a). It provides that preincorporation subscriptions in writing are irrevocable for six months unless the subscription agreement provides that they are revocable or that they are irrevocable for some other period, or unless all the subscribers agree to revocation. In essence, there is an irrevocability agreement among all of the subscribers. The terms of this contract are set forth in subsections (b) and (d).

Subsection (b) is substantially similar to former § 14-2-83(c). Subsection (b) provides that after incorporation the board of directors may determine the payment terms of subscriptions, but that calls must be uniform so far as practicable as to all shares of the same class or series unless the subscriptions provide otherwise. Subsection (d) provides alternative methods of enforcement of preincorporation subscriptions by the corporation.

Subsection (c) is clarifying, and states that shares are fully paid and nonassessable when the consideration called for in the subscription agreement is paid. This represents a major departure from the old legal capital rules of former § 14-2-84(a), which required shares with par value to be issued for consideration not less than the par value of the shares.

Subsection (e) clarifies that post-incorporation subscription agreements are also valid.

Cross-References Consideration for shares, see § 14-2-621 . Effective date of notice, see § 14-2-141 . "Notice" defined, see § 14-2-141 .

JUDICIAL DECISIONS

Editor's notes. - In light of the similarity of the statutory provisions, decisions under former Code 1993, § 22-504 and former Code Section 14-2-83, which were repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, are included in the annotations for this Code section.

Stock subscription agreements enforceable only if written. - An alleged oral promise to pay for stock is unenforceable under former Code 1933, § 22-504 (see now O.C.G.A. § 14-2-620 ), which requires enforceable stock subscription agreements to be in writing. Super Valu Stores, Inc. v. First Nat'l Bank, 463 F. Supp. 1183 (M.D. Ga. 1979) (decided under former Code 1933, § 22-504).

Cited in Putnam v. Williams, 652 F.2d 497 (5th Cir. 1981).

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, § 475 et seq.

C.J.S. - 18 C.J.S., Corporations, §§ 249, 250, 252, 279.

ALR. - Liability of corporation on contracts of promoters, 17 A.L.R. 452 ; 49 A.L.R. 673 ; 123 A.L.R. 726 .

Binding effect of subscription to stock in corporation to be formed, 61 A.L.R. 1463 .

Infant's rights and liabilities on subscription to or purchase of corporate stock, 64 A.L.R. 972 .

Liability under trust-fund doctrine of subscribers to stock of corporation the charter of which has been canceled for reasons other than insolvency, 71 A.L.R. 103 ; 90 A.L.R. 1350 .

Necessity and sufficiency of notice of withdrawal of subscription to stock in projected corporation, 71 A.L.R. 1345 .

Liability of promoters for fraud or misrepresentation to persons subscribing for shares after formation of corporation, 72 A.L.R. 355 .

Fraud: necessity for knowledge of falsity of representation as to value, inducing subscription to or purchase of corporate stock, or other securities, 73 A.L.R. 1120 .

Construction, application, and effect of statutes giving corporation a lien on shares of its stockholders for debts due from stockholders to corporation, 80 A.L.R. 1338 .

Validity and effect of extrinsic agreement absolving one, in whole or part, from liability on subscription to corporate stock, 81 A.L.R. 198 .

Right of action to recover purchase price under sale of corporate stock where title has not passed as affected by provision of Sales Act, 99 A.L.R. 275 .

Validity of release, cancellation, or compromise of unpaid subscription for stock by corporation or its representatives, 101 A.L.R. 231 .

Disposition of interest or rights in corporation represented by stock the owners of which cannot be found, 101 A.L.R. 670 .

Consideration for subscription agreements, 151 A.L.R. 1238 .

Enforcement of stock subscription after suit on note of subscriber is barred by statute of limitations, 11 A.L.R.2d 1380.

Applicability of Blue Sky Laws to preincorporation subscriptions, 50 A.L.R.2d 1103.

COMMENT

Source: Model Act, § 6.21. This replaces former §§ 14-2-84 & 14-2-85.

Subsection (a) is roughly comparable to former § 14-2-84(d), in allowing the articles to reserve to the shareholders the power to fix consideration for shares.

Subsection (b) specifically authorizes receipt of promissory notes and contracts for services to be performed, reversing the prohibition of former § 14-2-85(b). Shares may also be issued for "any tangible or intangible property or benefit to the corporation," as consideration for the present issue of shares. The term "benefit" should be broadly construed to include, for example, a reduction of a liability, a release of a claim, or benefits obtained by a corporation by contribution of its shares to a charitable organization or as a prize in a promotion.

Subsection (c) merely requires the board to determine that the consideration received for shares to be issued is adequate, in fulfillment of its general fiduciary duties to the existing shareholders. Accounting principles are not specified in the Code, and the board of directors is not required by the statute to determine the "value" of noncash consideration received by the corporation (as was the case in former § 14-2-84(h), requiring each corporation to keep a record of the consideration for all shares issued, and of the number and par value, if any, of the shares issued therefor). Thus, the board need not make a value determination for purposes of accounting entries on the balance sheet, although it may elect to do so. In many instances, property or benefit received by the corporation will be of uncertain value; if the board of directors determines that the issuance of shares for the property or benefit is an appropriate transaction that protects the shareholders from dilution, that is sufficient under Section 14-2-621 . But subsection (c) only protects the validity of shares issued; it does not protect such decisions from charges that they unfairly dilute the investment of existing shareholders. The board of directors does not have to make an explicit "adequacy" determination by formal resolution; that determination may be inferred from a determination to authorize the issuance of shares for a specified consideration.

Section 14-2-621 reflects the elimination of the legal capital concepts of former Georgia law. Thus, payment of par value is not required to make shares fully paid and nonassessable; only payment of the agreed consideration. Since shares need not have a par value, there can be no "watered stock" liability for issuing shares at too low a price. As subsection (d) provides, shares are fully paid and nonassessable when issued for the consideration authorized by the board of directors. Creditor protection no longer rests on formalistic notions of capital dedicated through a legal capital system to the firm; creditors obtain their protections from the more realistic limitations on distributions contained in Section 14-2-640.

Where shares are issued for notes or promised future services, subsection (e) authorizes, but does not require, placing the shares in escrow until the payment is received, and canceling them to the extent payment is not received.

The subsection also defines the rights of the corporation with respect to these shares. If the shares are issued without being restricted as provided in this subsection, they are validly issued insofar as the adequacy of consideration is concerned. See Section 14-2-622 and its Comment.

Note to 1993 Amendment The 1993 amendment adds statutory authority to the interpretation formerly noted only in comments that the board of directors does not have to make an explicit determination as to the adequacy of consideration and that such a conclusion may be inferred from the determination to issue shares.

Cross-References Certificateless shares, see § 14-2-626 . Certificates for shares, see § 14-2-625 . Committees of the board, see § 14-2-825 . Director standards of conduct, see § 14-2-830 et seq. Distributions, see § 14-2-640 . Liability of subscribers and shareholders, see § 14-2-622 . Par value shares, see § 14-2-202 . Preincorporation subscriptions for shares, see § 14-2-620 . Share dividends, see § 14-2-623 . Share options, see § 14-2-624 . Share transfer restrictions, see § 14-2-627 .

JUDICIAL DECISIONS

Editor's notes. - In light of the similarity of the statutory provisions, decisions under former Code 1933, § 22-506 and former Code Section 14-2-85, which were repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, are included in the annotations for this Code section.

Full payment presumed following board resolutions. - Although a corporation may issue shares and share certificates to a person who is not entitled to them by reason of a full payment, full payment becomes conclusively presumed when, in the absence of bad faith, the board of directors issues a resolution as to the fair value of the consideration to the corporation. In re Delk Rd. Assocs., 37 Bankr. 354 (Bankr. N.D. Ga. 1984) (decided under former § 14-2-85).

Board must value property given for stock on transfer or stock issuance. - Board of directors of a corporation must by resolution place a value upon property contributed by a stockholder in payment of stock upon the date of transfer or stock issuance. Super Valu Stores, Inc. v. First Nat'l Bank, 463 F. Supp. 1183 (M.D. Ga. 1979) (decided under former Code 1933, § 22-506).

Failure to value property at time of transfer. - When stock in corporation is issued in consideration of transfer of patent rights to the corporation, and no resolution is made by the directors setting a value in dollars on the patent rights, and when the corporation later comes into a court of equity seeking to cancel such shares, it is necessary for the court to make a determination as to the relative value of the stock issued and the property transferred, as of the time of the transaction. In such action by the corporation against the stockholder, the burden would be on the corporation to show that the property transferred to the corporation by the stockholder was overvalued. Crowder v. Electro-Kinetics Corp., 228 Ga. 610 , 187 S.E.2d 249 (1972) (decided under former Code 1933, § 22-506).

Trial court properly found that the issuance of the controlling shares in a corporation to its president breached the president's fiduciary duties to the shareholders because the president made no attempt to determine the value of the shares and was interested in control of the corporation, not the well-being of the shareholders; as the president failed to make any real determination that the consideration for the shares was adequate, he breached his fiduciary duties to the existing shareholders. Gallagher v. McKinnon, 273 Ga. App. 727 , 615 S.E.2d 746 (2005).

Issuance of controlling shares of stock in close corporation to president breached the president's fiduciary duties to the corporation's shareholders as prior to the issuance of the shares, there was no attempt to determine their value and as the president was interested in his control of the corporation, not the well-being of the shareholders; as the president failed to make any real determination that the consideration for the issued shares was adequate, the president breached his fiduciary duties to the existing shareholders. Gallagher v. McKinnon, 273 Ga. App. 727 , 615 S.E.2d 746 (2005).

Shares not validly issued when no board approval. - As shares of stock issued to a brother in a small, family-owned corporation were not approved by the board of directors, as required by the corporate bylaws, the shares were not validly issued; accordingly, there was no cause to consider whether the issuance of the disputed stock certificates was supported by adequate consideration. Furthermore, the evidence did not support the brother's assertion that the corporation's settled course of business was to acquiesce in such issuance by the corporate president as the shares were not deemed to have been validly issued. Ward v. Ward, 322 Ga. App. 888 , 747 S.E.2d 95 (2013).

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, §§ 397 et seq.

C.J.S. - 18 C.J.S., Corporations, § 223 et seq.

ALR. - Bona fide holder of negotiable paper given in payment of a subscription to corporate stock in violation of law, 4 A.L.R. 1330 .

Liability upon stock subscription payable in services which are rendered unnecessary by the insolvency of corporation, or other cause, 6 A.L.R. 277 .

Effect upon the validity of subscription to corporate stock, of failure to comply with statutory requirement of payment at the time of subscribing, 6 A.L.R. 1116 .

Power to require nonassenting creditors or bondholders to accept securities of, or shares in, new or reorganized corporation, 28 A.L.R. 1196 ; 88 A.L.R. 1238 .

Corporate stock without par value, 36 A.L.R. 791 ; 45 A.L.R. 1501 ; 65 A.L.R. 1347 .

Construction of contract which fixes compensation of officer or employee with reference to dividends, 41 A.L.R. 871 .

Right of corporation itself, in absence of fraud against it, to complain that stock issued as fully paid was based on overvaluation of property, or receipt of less than par value, 56 A.L.R. 396 .

Duty of corporation upon presentation for transfer of stock standing in one's name as trustee or other fiduciary, 56 A.L.R. 1199 .

Note as consideration for issuance of corporate stock under statute forbidding issuance of stock except for money paid, property received, etc., 58 A.L.R. 708 .

Infant's rights and liabilities on subscription to or purchase of corporate stock, 64 A.L.R. 972 .

Right of corporation to deny validity of stock issued by it in violation of statutory or constitutional provisions respecting receipt of consideration, as against subsequent bona fide purchasers or pledgees for value, 73 A.L.R. 1435 .

Accrued dividends on preferred stock, 75 A.L.R. 1150 .

Construction, application, and effect of statutes giving corporation a lien on shares of its stockholders for debts due from stockholders to corporation, 80 A.L.R. 1338 .

Right of action to recover purchase price under sale of corporate stock where title has not passed as affected by provision of Sales Act, 99 A.L.R. 275 .

Validity of release, cancelation, or compromise of unpaid subscription for stock by corporation or its representatives, 101 A.L.R. 231 .

Instrument issued by a corporation as certificate of preferred stock or as evidence of indebtedness, 123 A.L.R. 856 .

Implied obligation of purchaser of corporate stock to indemnify a vendor against future calls and assessments, 141 A.L.R. 1351 .

Issuance by corporation of new stock certificates without requiring surrender of old, 150 A.L.R. 148 .

Rights and liabilities of promoters or incorporators inter se under their contract for issuance of stock to them in return for services, 8 A.L.R.2d 722.

Meaning of "book value" of corporate stock, 51 A.L.R.2d 606.

Stock purchase or stock bonus plan as within provisions of federal labor relations acts requiring employer to bargain collectively, 58 A.L.R.2d 843.

Construction and effect of constitutional or statutory provisions precluding issuance of corporate stock in consideration of promissory notes, 78 A.L.R.2d 834.

Validity of agreement in conjunction with sale of corporate shares that majority of directors will be replaced by purchaser's designees, 13 A.L.R.3d 361.

Valuation of corporate stock under "buy-out" or "first option" agreement giving option to or requiring corporation or other stockholders to purchase stock of deceased or withdrawing stockholders, 54 A.L.R.3d 790.

Validity of obligation given by corporation incident to purchase of entire stock by sole shareholder, 71 A.L.R.3d 639.

COMMENT

Source: Model Act, § 6.22. This replaces former § 14-2-110.

Subsection (a) simplifies the provisions of former § 14-2-110(a), making subscribers and shareholders liable only for unpaid consideration. The major change is elimination of the obligation to pay, as the "full consideration" for shares, a minimum price equal to par value, as required by former § 14-2-84(a). Further, all reference to liability of successor transferees formerly provided in § 14-2-110(b) is omitted; this is left to the provisions of Article 8 of the Uniform Commercial Code.

Subsection (b) makes clear that no shareholder, whether original purchaser or transferee, becomes personally liable for corporate debts except through personal conduct, unless otherwise provided in the articles of incorporation.

Cross-References Articles of incorporation, see § 14-2-202 . Consideration for shares, see § 14-2-621 . Share transfer restrictions, see § 14-2-627 . Subscriptions for shares, see § 14-2-620 .

JUDICIAL DECISIONS

Editor's notes. - In light of the similarity of the statutory provisions, decisions under former Code 1933, § 22-601 and former Code Section 14-2-110, which was repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, are included in the annotations for this Code section.

Period of limitations as to contract between subscribers and corporation. - Rights and liabilities existing between corporation and its stockholders arise out of contract entered into between the subscribers and the corporation, a right of action which is barred after a period of six years from the accrual of the right. C & S Land, Transp. & Dev. Corp. v. Yarbrough, 153 Ga. App. 644 , 266 S.E.2d 508 (1980) (decided under former Code 1933, § 22-601).

Shareholders of a professional corporation. - Lawyers may practice their profession as shareholders in a professional corporation with the same rights and responsibilities as shareholders in other professional corporations; thus, lawyers in a professional corporation were not jointly and severally liable for the professional misconduct of the majority shareholder; overruling First Bank & Trust Co. v. Zagoria, 250 Ga. 844 , 302 S.E.2d 674 (1983). Henderson v. HSI Fin. Servs., Inc., 266 Ga. 844 , 471 S.E.2d 885 (1996).

Personal liability of a shareholder for individual actions. - Trial court erred in granting a directed verdict pursuant to O.C.G.A. § 9-11-50 to a pediatrician in a medical malpractice action by the parents of a minor, whose allegedly misdiagnosed bacterial meningitis caused brain damage and rendered the minor a quadriplegic, because there was some evidence that the pediatrician violated the standard of care when the pediatrician allowed the doctor's unlicensed nurse to handle weekend calls from patients' families without the necessity of contacting the pediatrician; although the nurse, who spoke with the parents and gave them erroneous information that the child probably had a virus or was hungry, was employed by the pediatrician's professional corporation, the pediatrician could not be shielded from individual liability from the pediatrician's own acts, pursuant to O.C.G.A. § 14-2-622(b) . Snider v. Basilio, 276 Ga. App. 315 , 623 S.E.2d 521 (2005).

Cited in Continental Cas. Co. v. Continental Rent-A-Car of Ga., Inc., 349 F. Supp. 666 (N.D. Ga.); Super Valu Stores, Inc. v. First Nat'l Bank, 463 F. Supp. 1183 (M.D. Ga. 1979); In re Delk Rd. Assocs., 37 Bankr. 354 (Bankr. N.D. Ga. 1984).

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, §§ 717 et seq., 725 et seq., 728 et seq., 730 et seq., 732 et seq., 734 et seq., et seq.,739 et seq., 745 et seq., 748 et seq., 755 et seq.

C.J.S. - 18 C.J.S., Corporations, §§ 503, 504, 505, 506.

ALR. - Liability of one whose name appears upon corporate books as a stockholder without his consent, 3 A.L.R. 1049 .

Personal liability of officers or stockholders for debts of corporation which has made an unauthorized change in its name, 8 A.L.R. 583 .

Liability as on unpaid subscription, of transferees of stock issued in exchange for property or services at an overvaluation, 12 A.L.R. 449 .

Statutory liability of stockholder for tort of corporation, 14 A.L.R. 267 .

Liability to creditors of stockholders whose stock is forfeited or sold for nonpayment of assessments, 19 A.L.R. 1096 .

Payments by stockholders applicable upon double liability, 23 A.L.R. 1367 ; 45 A.L.R. 1215 ; 56 A.L.R. 527 ; 83 A.L.R. 147 ; 120 A.L.R. 511 .

Disregarding corporate existence, 34 A.L.R. 597 .

When does statute of limitations begin to run against an action by, or in behalf of, creditors of a corporation on unpaid stock or subscriptions, 35 A.L.R. 832 .

Validity of provision in contract with corporation waiving liability of stockholders, 40 A.L.R. 371 .

Right of stockholder to set off indebtedness of corporation against statutory superadded liability, 40 A.L.R. 1183 ; 98 A.L.R. 659 .

Stockholders' liability as covering interest on claims of corporate creditors after bankruptcy, declared insolvency, or appointment of a receiver, 41 A.L.R. 564 .

Insolvency of corporation as barring stockholder's right to rescind subscription on ground of fraud, 41 A.L.R. 674 ; 46 A.L.R. 484 .

Liability of transferrer of corporate stock for calls or assessments as affected by insolvency, fraud, or illegality in transfer, 45 A.L.R. 99 ; 86 A.L.R. 57 .

Fraud inducing subscription or purchase of stock as defense against statutory superadded liability, 51 A.L.R. 1203 .

Liability of member of mutual fire insurance company as affected by period of membership, 53 A.L.R. 343 .

Liability of stockholder as affected by business of corporation being turned over to an officer of the court or other persons, 55 A.L.R. 327 .

Right of stockholders contributing to make good losses to be reimbursed by, or out of assets of, corporation, 55 A.L.R. 794 .

Constitutional provision fixing liability of stockholders as limitation of power of legislature in that regard, 63 A.L.R. 870 .

Right of corporation to refuse to register transfer of stock because of stockholder's indebtedness to it, where transfer is by operation of law, 65 A.L.R. 220 .

Sale, or surrender of stock for sale, to pay assessment, as relieving stockholder from further liability, 66 A.L.R. 436 .

Right of pledgee of corporate stock in respect of dividends declared thereon, 67 A.L.R. 485 ; 103 A.L.R. 849 .

Liability as stockholder of one purchasing stock for, or transferring stock to, infant, 69 A.L.R. 661 .

Creditor's knowledge that stock is unpaid as affecting stockholders' liability, 69 A.L.R. 881 .

Applicability of constitutional or statutory provisions relating to added liability of stockholders to holders of stock issued, or stockholders of corporations organized, before their enactment, 72 A.L.R. 1252 .

Infant, his estate or property held in trust for him, as subject to statutory added liability of stockholder, 78 A.L.R. 431 ; 120 A.L.R. 956 .

Right of a third person who has paid corporation's indebtedness to be subrogated to creditors' right to enforce stockholders' statutory liability, 78 A.L.R. 611 .

Stockholder's statutory added liability as affected by death of stockholder, 79 A.L.R. 1537 ; 96 A.L.R. 1466 .

Validity and effect of extrinsic agreement absolving one, in whole or part, from liability on subscription to corporate stock, 81 A.L.R. 198 .

Liability of pledgee of stock as shareholder, 82 A.L.R. 565 .

Stockholders' statutory liability as assignable or subject to sale, 82 A.L.R. 1285 ; 159 A.L.R. 1114 .

Transfer of bank or other corporate stock to corporation issuing it, as releasing transferrer from stockholders' statutory added liability, 86 A.L.R. 72 .

Statutory added liability of holders of bank stock or other corporate stock the issue of which was ultra vires, invalid, or irregular, 86 A.L.R. 816 .

Conveyance or transfer by stockholder as fraudulent as regards his liability as stockholder to creditors of corporation, 89 A.L.R. 751 .

Statutory superadded liability of stockholders as affected by reorganization, consolidation, or merger of corporation, 89 A.L.R. 770 ; 154 A.L.R. 427 .

Statutory added liability of stockholders of bank or other corporation as affected by sale of, or other transaction in relation to, assets, 89 A.L.R. 790 ; 100 A.L.R. 1276 .

Liability under trust-fund doctrine of subscribers to stock of corporation the charter of which has been canceled for reasons other than insolvency, 90 A.L.R. 1350 .

Liability on stock held by one as trustee or in other fiduciary capacity, 91 A.L.R. 257 ; 97 A.L.R. 1250 ; 117 A.L.R. 655 .

Setoff as between dividends from assets of insolvent bank or other corporation and liability of creditors as stockholders, 91 A.L.R. 326 .

Rank or preference of claim against estate in respect of superadded liability on corporate stock owned by decedent whose estate is insolvent, 92 A.L.R. 1040 .

Right of an officer whose power and authority to enforce liability of stockholders of insolvent corporation is derived from statute, without intermediary court action, to maintain action in that regard in another state, 94 A.L.R. 904 .

Statutory liability of stockholder of bank or other corporation as affected by change in or renewal of corporation's obligation, 97 A.L.R. 630 .

Life interest and remainder in corporate stock as affecting stockholder's statutory liability, 99 A.L.R. 505 .

Validity and effect of agreement by a corporation contemporaneously with issue or sale of stock, to repurchase or redeem the stock or to cancel the subscription therefor and refund consideration paid, 101 A.L.R. 154 .

Validity of release, cancelation, or compromise of unpaid subscription for stock by corporation or its representatives, 101 A.L.R. 231 .

Stockholders' statutory liabilities as affected by alleged defects or irregularities in organization of corporation, 102 A.L.R. 327 .

Statutory added liability of stockholders of bank or other corporation as affected by transfer of stock after closing thereof or appointment of receiver therefor, 103 A.L.R. 689 .

Agreement by creditors of bank or other corporation postponing payment of their claims as affecting statutory liability of stockholders, 103 A.L.R. 754 .

Stockholders' statutory liability as affected by fact that stock is in name of a holding company, 103 A.L.R. 921 ; 151 A.L.R. 1165 .

Failure to enter transfer of stock on corporate books as affecting liability of transferrer for calls or assessments, 104 A.L.R. 638 .

Applicability of constitutional or statutory provisions relating to added liability of stockholders to corporate debts contracted prior to the adoption of the provision, 105 A.L.R. 165 .

Power of corporation to change obligations to stockholders, 105 A.L.R. 1452 ; 117 A.L.R. 1290 .

Recovery against corporate directors or officers for fraud or mismanagement as affected by releases, ratification, waiver, or consent by some, but not for all, of the stockholders, 120 A.L.R. 238 .

When limitation begins to run against action to enforce stockholder's superadded liability, 137 A.L.R. 788 .

Implied obligation of purchaser of corporate stock to indemnify a vendor against future calls and assessments, 141 A.L.R. 1351 .

Conflict of laws as to period of limitation to enforce stockholders' statutory liability, 143 A.L.R. 1442 .

Effect of fraud to toll the period for bringing action prescribed in statute creating the right of action, 15 A.L.R.2d 500; 48 A.L.R.4th 1094.

Enforceability in another jurisdiction of personal liability of stockholders for debts of corporation whose organization is incomplete or defective, 42 A.L.R.2d 659.

Settlement negotiations as estopping reliance on statute of limitations, 39 A.L.R.3d 127.

Stockholder's personal conduct of operations or management of assets as factor justifying disregard of corporate entity, 46 A.L.R.3d 428.

Liability of director or dominant shareholder for enforcing debt legally owed him by corporation, 56 A.L.R.3d 212.

Controlling stockholder's duty to investigate intent and motive of purchaser before selling stock, 77 A.L.R.3d 1005.

Personal liability of stockholder, officer, or agent for debt of foreign corporation doing business in the state, 27 A.L.R.4th 387.

COMMENT

Source: Model Act, § 6.23. This replaces former §§ 14-2-84(e) & 14-2-90.

Since the Code has eliminated the concept of par value, the distinction between a share "split" and a share "dividend" has not been retained and both types of transactions are referred to simply as "share dividends." A share dividend is solely a paper transaction: No assets are received by the corporation for the shares and any "dividend" paid in shares does not involve the distribution of property by the corporation to its shareholders. Section 14-2-623 therefore recognizes that such a transaction involves the issuance of shares "without consideration," and Section 14-2-140(6) excludes it from the definition of a "distribution." Such transactions are treated in a fictional way under the former "par value" and "stated capital" statute, which treated a share dividend as involving transfers from a surplus account to stated capital, under former § 14-2-90(a)(4), and assumed that par value shares could be issued without receiving any consideration by reason of that transfer of surplus under former § 14-2-84(e). All share dividends will issue shares that are fully paid and nonassessable, as a result of this change.

Subsection (a) simply provides that stock dividends may be issued pro rata and without consideration, recognizing this as a paper transaction. These shares are then fully paid and nonassessable. Share dividends may create problems when a corporation has more than a single class of shares. The requirement that a share dividend be "pro rata" only applies to shares of the same class or series; if there are two or more classes entitled to receive a share dividend in different proportions, the dividend will have to be allocated appropriately.

Subsection (b) prohibits dividends to one class or series of stock from being made in shares of another class or series, thus preventing dilution of one class by another, unless authorized by the articles of incorporation or the vote of the holders of the class to be issued, or when there are no holders of the class being distributed. Section 14-2-90(a)(5) of the former law is consistent with clauses (1) and (2); clause (3) is new.

Subsection (c) provides a default rule for record date for determination of shareholders entitled to dividends, in the absence of a record date set by the board.

Note to 1997 Amendments Subsection (d) was added in 1997. The amendment, which allows dividends on treasury shares, allows a listed company to preserve the relative value of its treasury shares. While some stock splits will be handled under O.C.G.A. § 14-2-1002(4) , others may be dealt with as share dividends.

Cross-References Action by shareholders, see § 14-2-701 et seq. Class of shares, see §§ 14-2-601 & 14-2-602 . Consideration for shares, see § 14-2-621 . Distributions generally, see § 14-2-640 . Fractional shares, see § 14-2-604 . Record date, see § 14-2-707 . Series of shares, see § 14-2-602 .

JUDICIAL DECISIONS

Editor's notes. - In light of the similarity of the statutory provisions, a decision under former Code Section 14-2-90, which was repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, is included in the annotations for this Code section.

Cited in G.A. Thompson & Co. v. Partridge, 636 F.2d 945 (5th Cir. 1981).

RESEARCH REFERENCES

Am. Jur. 2d. - 18B Am. Jur. 2d, Corporations, § 976 et seq.

C.J.S. - 18 C.J.S., Corporations, §§ 192, 215, 361, 364 et seq.

ALR. - Income tax in relation to stock dividends (including character of corporate distributions as stock dividends), 143 A.L.R. 230 ; 144 A.L.R. 1337 ; 167 A.L.R. 554 .

Modern status of rules governing allocation of stock dividends or splits between principal and income, 81 A.L.R.3d 876.

COMMENT

Source: Model Act, § 6.24. This replaces former § 14-2-86.

Subsection (a) is a simplification and liberalization of rules concerning rights and options. It merely authorizes the corporation, by its board, to issue rights, options, or warrants and set their terms.

The phrase "for the purchase of shares" in the first sentence of the 1984 Model Act was changed to "with respect to the shares" in subsection (a) of the Code to emphasize the breadth of the corporate powers given to directors in issuing rights, which are not intended to be limited to rights to purchase shares. The second sentence of the Model Act was amended in the Code to add the phrase "the terms and conditions relating to the exercise of such rights, options or warrants." This language is intended to eliminate any possible negative inference that the particular reference to determination of terms on which rights are issued might imply that the board lacked the power to set exercise conditions.

Subsection (b) is new, and corresponds to § 14-2-601(d) . It validates the issuance of rights, options, or warrants even if there are not currently sufficient authorized but unissued shares to satisfy all such rights, options, or warrants if exercised. Former § 14-2-86(a) provided that no options could be issued unless there were sufficient authorized but unissued shares or treasury shares reserved at the time of issuance. Elimination of this language was intended to clarify that whether sufficient shares are reserved does not raise questions of the validity of the rights, options, or warrants issued, but rather raises questions of contract law and of duties of directors.

Note to 1989 Amendment Subsection (a) was amended to clarify that rights, options or warrants are permitted to be issued by a corporation whether or not in connection with the issuance of other securities of the corporation. The listing of items that may be covered in rights was expanded, by adding a reference to the time of exercise, the prices and the holders by whom the rights may be exercised. This was intended to clarify the intent of the 1988 Revised Code.

The concluding sentences of subsection (c) were added to the Model Act language to clarify the fact that the discretion granted to the board of directors to issue rights, options, or warrants and set their terms under subsection (a) is intended to be limited only by the directors' fiduciary obligations to the corporation. As such, any restrictions placed on the issuance of shares by Code Section 14-2-601 should not be interpreted as applying to the issuance of rights, options, or warrants and the determination of their terms and conditions by the board of directors under subsection (a). The language was intended to permit the approach of courts interpreting Delaware law, including the Delaware Supreme Court in Moran v. Household International, Inc., 500 A.2d 346 (Del. 1985), which have held that the board of directors is authorized to issue rights pursuant to shareholder rights plans. See, e.g. Dynamics Corporation of America v. CTS Corp., 637 F. Supp. 406 (N.D.Ill.), aff'd, 794 F.2d 250 (7th Cir. 1986), reversed on other grounds, 107 S. Ct. 1637 (1987). The language rejects the holding of the Federal District Court for the Northern District of Georgia in West Point Pepperell, Inc. v. Farley Inc. (Nov. 14, 1988) and was intended specifically to permit the use by Georgia corporations of shareholder rights plans incorporating both so-called "flip-over" and discriminatory "flip-in" provisions.

Note to 2000 Amendment The 2000 amendments to Code Section 14-2-624 and the related changes to Code Sections 14-2-601, 14-2-602 and 14-2-801 are intended to resolve uncertainties that have arisen following the decision in Invacare Corp. v. Healthdyne Technologies, Inc., 968 F. Supp. 1578 (N.D. Ga. 1997). In that case, the court upheld the board of directors' adoption of a "dead-hand" provision in a "poison pill" shareholder rights plan (the effect of which is to limit the ability of newly elected directors to withdraw or change the plan). Commentators have raised issues concerning that decision in light of subsequent contrary authority in Delaware. See Carmody v. Toll Brothers, Inc., 723 A.2d 1180 (Del. Ch. 1998); Quickturn Design Systems, Inc. v. Shapiro, 721 A.2d 1281 (Del. 1998). Commentators have also questioned whether the inclusion of the words "in its sole discretion" in Code Section 14-2-624(c) should be read as overriding the requirements of not only Code Section 14-2-601 (which was specifically referred to in Code Section 14-2-624(c)) but also other sections of the Code, particularly Code Section 14-2-801.

Note to 2003 Amendment The amendment to Code Section 14-2-624(c) adds the same definition of "facts" ascertainable outside the documents evidencing the rights, or the resolution providing for the issue of the rights, options or warrants, as was added to Code Section 14-2-601.

Note to 2004 Amendment New subsection (f) to Code Section 14-2-624 clarifies Georgia law that a board of directors may delegate to an officer the authority to specify the officers and employees of the corporation or its subsidiaries who will receive options and to determine the number of options to be received by each such officer or employee so long as the board has specified the total number of options to be awarded. The statute also makes clear that the person delegated with the authority to choose new optionholders cannot choose himself or herself. This provision is modeled on Section 157(c) of the General Corporation Law of the State of Delaware.

By deleting the "sole discretion" language from Code Section 14-2-624(c), the amendments contemplate that Code Section 14-2-624 must be read in a manner consistent with other provisions of the Code. The 2000 amendments to subsection (d) authorize in more specific terms the use of "poison pill" shareholder rights plans (Code Section 14-2-624(d)(1)) and, contrary to the Delaware authority, permit limitations on the ability of newly elected directors to withdraw or change such a plan. Such limitations on a director's authority may only remain in effect for a maximum of 180 days from the initial election of such director, unless the limitations are based solely on certain current or former positions or relationships with the corporation, an interested shareholder or person seeking to become an interested shareholder, or an affiliate of an interested shareholder or person seeking to become an interested shareholder.

The 2000 amendments added subsection (e), which incorporates into this Code section the definitions of "beneficial owner," "affiliate," "associate," and "interested shareholder" contained in Code Section 14-2-1110, with the following exceptions: first, any exclusion from the definition of beneficial ownership is permitted (i.e., a "poison pill" need not cover all persons otherwise meeting the definition of "beneficial owner"), and, second, the beneficial ownership definition does not apply to previously existing plans until December 31, 2000. The amendments also expressly provide that the inclusion of a person as a nominee for election as a director by an interested shareholder or person seeking to become an interested shareholder does not create an implication that the nominee is an affiliate of such interested shareholder or person seeking to become an interested shareholder. Subsection (e) also preserves the validity of provisions in rights, options or warrants which contain a limitation on the authority of newly elected directors that does not purport to comply with the time limitations of subsection (d)(2), but allows such provisions to be effective only to the extent permitted by subsection (d)(2).

Cross-References "Affiliate" defined, see § 14-2-1110 . "Associate" defined, see § 14-2-1110 . Authorized shares, see § 14-2-601 . "Beneficial Owner" defined, see § 14-2-1110. Committees of the board, see § 14-2-825 . Consideration for shares, see § 14-2-621 . Director standards of conduct, see § 14-2-830 et seq. Distributions, see § 14-2-640 . "Interested Shareholder" defined, see § 14-2-1110. Report to shareholders on certain consideration for shares, see § 14-2-1621 . Requirement for and duties of board of directors, see § 14-2-801 . Share option plans, see § 14-2-302 . Terms of class or series determined by board of directors, see § 14-6-601.

JUDICIAL DECISIONS

Editor's notes. - In light of the similarity of the statutory provisions, a decision under former Code Section 14-2-86, which was repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, is included in the annotations for this Code section.

Strict compliance not necessary if corporation benefits. - A stock purchase warrant was not void even though it was not issued in strict compliance with former § 14-2-86(a) (i.e., when the issuance of the warrant was ratified, the corporation had not reserved a sufficient number of authorized but unissued shares to cover the potential exercise of the warrant). The corporation prepared the warrant and received and benefited from the consideration therefor. Jackson v. Southern Pan & Shoring Co., 258 Ga. 401 , 369 S.E.2d 239 (1988) (decided under former § 14-2-86).

Shareholders rights plan adopted. - Board of directors had authority to adopt a shareholders rights plan with a continuing director feature to protect against hostile takeovers without amendment of the articles of incorporation or bylaws. Invacare Corp. v. Healthdyne Technologies, Inc., 968 F. Supp. 1578 (N.D. Ga. 1997).

Board of directors authority wrongly limited. - A proposed bylaw amendment to require the board of directors to eliminate a continuing director feature from a shareholders rights plan was contrary to O.C.G.A. § 14-2-624(c) , giving the board authority to set the terms and conditions of the rights plan. Invacare Corp. v. Healthdyne Technologies, Inc., 968 F. Supp. 1578 (N.D. Ga. 1997).

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, § 569 et seq.

C.J.S. - 18 C.J.S., Corporations, §§ 252, 307, 308, 372, 373, 456 et seq.

ALR. - Implied authority of general manager or superintendent of corporation to contract with employee for share in profits of business, 47 A.L.R. 1015 .

Time factor in purchase or sale of corporate stock under contract not fixing a definite time for demand or performance, 144 A.L.R. 895 .

Construction and application of provisions of articles, bylaws, statutes, or agreements restricting alienation or transfer of corporate stock, 2 A.L.R.2d 745.

Validity of stock-option plan under which selected personnel of corporation may acquire stock interest therein, 34 A.L.R.2d 852.

Rights and liabilities as between employer and employee with respect to employee stock options, 96 A.L.R.2d 176.

Transfer of, and voting rights in, stock of co-operative apartment association, 99 A.L.R.2d 236.

Construction and effect of "dilution" provision of employee's stock-option contract, dealing with rights where stock structure of corporation changes before option is exercised, 59 A.L.R.3d 1030.

Restrictions on transfer of corporate stock as applicable to testamentary dispositions thereof, 61 A.L.R.3d 1090.

Divorce and separation: treatment of stock options for purposes of dividing marital property, 46 A.L.R.4th 640.

Valuation of stock options for purposes of divorce court's property distribution, 46 A.L.R.4th 689.

COMMENT

Source: Model Act, § 6.25. This replaces former § 14-2-87.

Certificateless shares are permitted under subsection (a) upon compliance with Section 14-2-626. There was no comparable provision in former Georgia law. There are no differences in the rights and obligations of shareholders, whether or not their shares are represented by certificates, other than mechanical differences. If share transfer restrictions are imposed, conspicuous references must appear on the certificate if they are to be binding on third persons without knowledge of the restrictions. See Section 14-2-627.

Subsection (a) of the Model Act was amended by replacing the phrase "the rights and obligations of shareholders are identical" with "there shall be no differences in the rights and obligations of shareholders based on" to eliminate any implication that all shareholders' rights are identical, regardless of class or series. Consistent with changes in § 14-2-601 , no implication is intended that all holders of shares of the same class will have the same rights, regardless of whether conditions are different with respect to different holders.

Subsection (b) sets forth the minimum requirements for share certificates.

Subsection (c) of the Model Act required detailed descriptions of the relative rights and preferences of each class and series on the certificate, or a statement that the corporation would furnish this information without charge. This is similar to former § 14-2-87(d), requiring that, where there is more than one class or series of shares, the certificate must set forth or summarize such rights or contain a statement offering to furnish them. The Code eliminates this requirement as impracticable and unnecessary, by providing that a reference to the state of incorporation is sufficient, because it places a holder on notice of the location of the provisions governing his rights. Under Section 14-2-1602 , a shareholder is entitled to inspect and copy the articles of incorporation and all amendments. A complete description of the relative rights and preferences of various classes and securities on a certificate is generally impossible, and a notice that this information can be obtained from the corporation is redundant. All investors in shares are charged with notice that their rights are determined by the articles of incorporation. The Model Act requirements remain a permissible alternative.

Special rules govern disclosure of restrictions on transfer of shares, under Section 14-2-627, and disclosure of statutory close corporation status, under Section 14-2-910. A reference to the state of incorporation is not sufficient notice of these special facts relating to share ownership.

Subsection (d) provides only that certificates must be signed by two officers designated in the bylaws or by the board, a simplification of former law, § 14-2-87(b), which required the signature of specified officials.

Under subsection (d) of the Model Act, all signatures on a share certificate may be facsimiles. This change gives recognition to the fact that a purchaser of publicly traded shares will hardly ever be in a position to determine whether a manual signature on a stock certificate is in fact the authorized signature of an officer of the transfer agent or registrar. From the standpoint of the issuing corporation of publicly traded securities, if a share certificate requiring a manual signature is stolen and the signature thereafter forged, the corporation may defend on lack of genuineness under section 8-202(3) of the Uniform Commercial Code. But this defense is not effective against a bona fide purchaser when the forged signature has been placed on the certificate by an employee of the issuer or registrar or transfer agent entrusted with handling the certificates (UCC § 8-205). Comparable provisions relating to bonds, that preserve the authorization of former law, § 14-2-87(f), are found in Section 14-2-150 of the Code.

Subsection (f) is taken from § 14-2-87(e) & (h) of former Georgia law, and is clarifying.

Note to 1989 Amendment The 1989 amendment changed subsection (d) to provide expressly that all signatures on a share certificate may be facsimiles, as the Model Act permits. This eliminated any ambiguity in the prior Georgia law. Comparable provisions relating to bonds, that preserve the authorization of former law, § 14-2-87(f), in Section 14-2-150 , were also amended in 1989.

Cross-References Certificateless shares, see § 14-2-626 . Classes of shares, see §§ 14-2-601 & 14-2-602 . Close corporations, see § 14-2-910 . "Conspicuously" defined, see § 14-2-140 . Descriptions of classes, see § 14-2-601 . Facsimile signatures on bonds and debentures, see § 14-2-150 . Officers, see § 14-2-840 . Series of shares, see § 14-2-602 . Share transfer restrictions, see § 14-2-627 . Signatures, see § 14-2-150 .

JUDICIAL DECISIONS

Editor's notes. - In light of the similarity of the statutory provisions, a decision under former Code Section 14-2-87, which was repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, is included in the annotations for this Code section.

Certificate as some evidence of ownership. - A share certificate does not comprise conclusive, irrebuttable evidence of ownership rights. In re Delk Rd. Assocs., 37 Bankr. 354 (Bankr. N.D. Ga. 1984) (decided under former § 14-2-87).

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, § 400.

C.J.S. - 18 C.J.S., Corporations, §§ 235, 237, 238.

ALR. - Corporate stock without par value, 36 A.L.R. 791 ; 45 A.L.R. 1501 ; 65 A.L.R. 1347 .

Refusal of corporation to issue, convert, or transfer stock as conversion, 54 A.L.R. 1157 .

Constitutionality, construction, and application of statute relating to lost, destroyed, or stolen certificate of corporate stock, 125 A.L.R. 997 .

Necessity of delivery of stock certificate to complete valid gift of stock, 23 A.L.R.2d 1171.

Corporation's delivery of stock certificate to stockholder as prerequisite of its issuance to him, 16 A.L.R.3d 1015.

COMMENT

Source: Model Act, § 6.26. This replaces former § 14-2-87.

Subsection (a) authorizes the creation of uncertificated shares either by original issue or in substitution for shares previously represented by certificates. No such authority was formerly granted by Georgia law. This subsection gives the board of directors the widest discretion so that a particular class and series of shares might be entirely represented by certificates, entirely uncertificated, or represented partly by each. The second sentence ensures that a corporation may not treat as uncertificated, and accordingly transferable on its books without due presentation of a certificate, any shares for which a certificate is outstanding.

The statement required by subsection (b) ensures that holders of uncertificated shares will receive from the corporation the same information that the holders of certificates receive when certificates are issued. There is no requirement that this information be delivered to purchasers of uncertificated shares before purchase.

Cross-References Certificates for shares, see § 14-2-625 . Information on share certificates, see § 14-2-625 . Share transfer restrictions, see § 14-2-627 .

RESEARCH REFERENCES

Am. Jur. 2d. - 18B Am. Jur. 2d, Corporations, § 399.

C.J.S. - 18 C.J.S., Corporations, § 235.

COMMENT

Source: Model Act, § 6.27. There was no comparable provision in former Georgia law. Former § 14-2-171(b)(1) permitted articles of incorporation to set forth "any provision, not inconsistent with law, for the regulation of the internal affairs of the corporation and for the restriction of the transfer of shares." No further rules were provided.

Subsection (a) provides (1) that transfer restrictions may appear in articles, bylaws or shareholders' agreements, and (2) that restrictions do not affect previously issued shares unless the holders vote affirmatively for the restriction or are parties to the agreement.

Subsection (b) parallels provisions of the UCC concerning enforcement against subsequent holders. The terms of a restriction on transfer do not need to be set forth in full or summarized in detail on a certificate or information statement required by Section 14-2-626(b) for uncertificated securities. Rather, subsection (b) provides that in the case of a certificated security, the existence of the restriction must be conspicuously set forth on the front or back of the certificate; in the case of an uncertificated security, the existence of the restriction must be noted in the information statement. There is no requirement that the notation on an information statement be conspicuous. If a transferee knows of the restriction he is bound by it even though the restriction is not noted on the certificate or information statement. The last sentence of subsection (b) was added to the Model Act; it is intended to be clarifying.

Subsection (c) sets out grounds for justifying restrictions as being for a reasonable purpose, specifying (1) maintenance of corporate status, whether Subchapter S status or some other status depending on number or identity of shareholders (such as professional corporations), (2) maintenance of exemptions under securities laws, and (3) a general "any other reasonable purpose" clause that incorporates traditional doctrines about reasonable restraints on alienation. Thus subsection (c) does not limit permissible purposes, recognizing the variety of possible reasons for restrictions. The variety of purposes that have been permitted have increasingly emphasized the nature of share ownership as contractual, rather than as regulated by external doctrines about transferability.

Subsection (d) specifies forms of restrictions that are permitted, thus clarifying a murky area in Georgia and elsewhere: (1) rights of first refusal; (2) buy-sell agreements; (3) consent restraints ("if the requirement is not manifestly unreasonable") and (4) prohibitions of transfers to specified classes of persons or to designated persons if not manifestly unreasonable. The types of restrictions referred to in subsections (d)(1) (option agreements) and (2) (buy-sell agreements) are imposed as a matter of contractual negotiation and do not prohibit the outright transfer of shares. Rather, they designate to whom shares or other securities must be offered at a price established in the agreement or by a formula or method agreed to in advance. By contrast, the restrictions described in subsections (d)(3) and (4) may permanently limit the market for shares by disqualifying all or some potential purchasers. As a result the restrictions imposed by these two provisions must not be "manifestly unreasonable."

The reasonableness of a restriction on transfer can be justified either by its procedure or its execution. Thus, where a consent restraint requiring unanimous consent might be considered unreasonable because it provides a veto, it could be saved by a showing either that the corporation had characteristics of a partnership, where unanimous consent is required for admission of new members, so that there can be "no greater objection to retaining the right of choosing one's associates in a corporation than in a firm" (Holmes, J., in Barrett v. King, 8 Mass. 476, 479, 63 N.E. 934, 935 (1902)), or by a showing that consent had not been unreasonably withheld. This liberal treatment is consistent with the Code's general approach of maximizing the freedom of participants in corporations to choose their own arrangements, even where they resemble those found in partnerships.

Cross-References Certificates for shares, see § 14-2-625 . Classes of shares, see § 14-2-601 . Close corporations, see Article 9. Consideration for shares, see § 14-2-621 . "Conspicuously" defined, see § 14-2-140 . Debt securities, see § 14-2-302 . Dissenters' rights, see § 14-2-1324 . Information statement, see §§ 14-2-625 & 14-2-626 . Notice of statutory close corporation status, see § 14-2-910 . Professional corporations, see Georgia Professional Corporation Act.

JUDICIAL DECISIONS

Restriction invalid. - Provision in a family corporation's articles of incorporation which prohibited a Chapter 7 debtor from selling stock the debtor owned in the corporation for a period of ten years was invalid and unenforceable under O.C.G.A. § 14-2-627 because the provision did not fall into any of the four categories of permissible restrictions that were recognized under § 14-2-627 (d), and the court ordered the corporation to reissue shares the debtor owned in the corporation in the bank's name to partially satisfy a debt the debtor owed to the bank. AB&T Nat'l Bank v. Mossy Dell, Inc. (In re Beauchamp), 483 Bankr. 268 (Bankr. M.D. Ga. 2012), overruled on other grounds, 500 Bankr. 235 (Bankr. M.D. Ga. 2013).

Bankruptcy court did not err when the court found that restrictions a family-owned corporation placed on the transfer of the corporation's stock, which limited transfer to the lineal descendants of a husband and wife who founded another corporation and prohibited shareholders from transferring their shares for ten years, was invalid under O.C.G.A. § 14-2-627 to the extent it prohibited shareholders from transferring their shares for ten years; however, nothing in the statute supported the court's determination that the provision which allowed transfer only to family members was manifestly unreasonable because it did not provide an alternative means for shareholders to realize the value of their shares. Mossy Dell, Inc. v. AB&T Nat'l Bank (In re Beauchamp), 500 Bankr. 235 (M.D. Ga. 2013).

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, §§ 563 et seq.

C.J.S. - 18 C.J.S., Corporations, §§ 287 et seq, 342. 19 C.J.S., Corporations, § 780.

ALR. - Construction and application of articles, bylaws, statutes, or agreements restricting alienation or transfer of corporate stock, 2 A.L.R.2d 745.

COMMENT

Source: Model Act, § 6.28. This replaces former § 14-2-85(e).

Section 14-2-628 permits a corporation to pay underwriting and legal expenses, and the organization expenses of the corporation, from consideration received from shares.

Cross-References Consideration for shares, see § 14-2-621 . Fully paid shares, see § 14-2-621 . Liability for share consideration, see § 14-2-622 .

RESEARCH REFERENCES

Am. Jur. 2d. - 18 Am. Jur. 2d, Corporations, § 397 et seq.

C.J.S. - 18 C.J.S., Corporations, § 121.

COMMENT

Source: Model Act, § 6.30. This replaces former § 14-2-111.

Subsection (a) adopts an "opt in" provision for preemptive rights: Unless an affirmative reference to these rights appears in the articles of incorporation, no preemptive rights exist.

Because subsection (a) reverses the presumption of former § 14-2-111(b) that preemptive rights exist unless denied in the articles, a new subsection (b) has been added to the Model Act provisions to make clear that it does not change preemptive rights for corporations created under the existing act. Subsection (b) preserves previously existing preemptive rights that existed by virtue of the silence of a corporation's articles of incorporation under the former "opt out" provision of § 14-2-111(b).

Similarly, corporations electing statutory close corporation status under Article 9 of this chapter are dealt with separately under subsections (a) and (b) so as to provide preemptive rights on an "opt out" basis. This preserves the provisions of former law for those corporations most likely to value such a rule.

Subsection (c) provides a standard model for preemptive rights if the corporation desires to exercise the "opt in" alternative of subsection (a). The simple phrase, "the corporation elects to have preemptive rights," or words of similar import, results in the rest of subsection (c) becoming applicable to the corporation. But a corporation may qualify or limit any of the rules set forth in subsection (c) by express provisions in the articles of incorporation if the rules are felt to be undesirable or inappropriate for the specific corporation.

The provisions of subsection (c) establish rules for most of the problems involving preemptive rights. Thus subsection (c)(1) defines the general scope of the preemptive right giving appropriate recognition to the discretion of the board of directors in establishing the terms and conditions for exercise of that right. Subsection (c)(2) lists the principal exceptions to preemptive rights, including a one year period during which initial capital can be raised by a newly formed corporation without regard to the preemptive rights of persons who have previously acquired shares. The exceptions now contained in subsection (c)(2) have been amended to conform them to the approach of former Georgia law. Thus, subsections (c)(2)(A), (B), (C), (G) and (I) are taken in their entirety from former law. Stock dividends, excepted in subsection (c)(2)(A), must be pro rata and to the holders of the same class under most circumstances, and cannot alter relative ownership claims. While issuance of fractional shares, excepted under subsection (c)(2)(B), may alter relative ownership claims, in most instances the alteration will be insignificantly small. An exception for mergers and share exchanges, in subsection (c)(2)(C), is traditional, and reflects the belief that acquiring another business is of sufficient importance that it should not be blocked by preemptive rights claims. This is consistent with the approach to protection of class rights under Section 14-2-1004, where they obtain separate protection and veto powers over internal reorganizations, but not under Section 14-2-1103, where class rights are aggregated in mergers and share exchanges. The Code is consistent in not giving small claim holders veto powers over business transactions with third parties.

Subsections (c)(2)(D) and (E) provide standardized exceptions to the preemptive rights doctrine. They cover shares and rights issued to officers and directors as compensation. Because issuance of such shares in a close corporation can have a large impact on voting control of the corporation, it is appropriate to require shareholder approval. This restores the requirement of former law, contained in § 14-2-111(d)(7).

Subsection (c)(2)(F) was amended to extend the original issue exception from the six months provided in the Model Act to restore the one year period of former Georgia law. Subsection (c)(2)(H) was amended to limit the exception for shares issued otherwise than for money by incorporating the language of former Georgia law, in § 14-2-111(d)(3), which contained an implicit "business purpose" test.

Subsection (c)(2)(I) follows former law, and provides a means for group waiver of preemptive rights, by the holders of two-thirds of the shares of the class of shares to be issued. This waiver is only for as long as specified in the resolution, and may not be for longer than one year. This exception provides flexibility in arranging financing for a corporation, but poses dangers for the distribution of power in close corporations.

Subsection (c)(3) creates rules with respect to the waiver of these rights. The Model Act provision was amended to clarify the rule that a shareholder can waive preemptive rights "at any time," whether before or after any proposed issuance of shares in which such rights are not to be or have not been honored. Further, these rights can be waived by the holders of the entire class, acting in effect as a voting group, by the affirmative vote of the holders of two-thirds of the class. The second sentence codifies existing law, that generally, absent a specific assignment of a chose in action to a transferee of shares, the right to sue remained with the person who was the shareholder at the time any preemptive rights are violated, and the right to waive claims resides in that person as well. If a specific assignment of claims arising by reason of violations of preemptive rights has been made, of course, the assignee is the person who can waive the rights that were violated.

Preemptive rights may be an important means of protecting the allocation of voting control within a corporation. Preemptive rights also may serve in part the function of protecting the equity participation of shareholders. This combination of functions creates no problem in a corporation that has authorized only a single class of shares but may occasionally create problems in corporations with more complex capital structures. Thus, issuance of voting preferred stock may dilute the voting power of common shares, and dilute the dividend and liquidation claims of preferred stock. The Code resolves this conflict by protecting voting power rather than dividend and liquidation rights, and thus denies preemptive rights to all classes without general voting rights, as well as to all classes with preferential rights to distributions and assets, in subsection (4). The presumption is that rights of preferred are a creature of contract, while common rights are residual, and should receive greater protection from standard form default provisions of law.

Subsection (c) is primarily designed to protect voting power within the corporation from dilution, except under subsection (c)(5) where preemptive rights are granted with respect to convertible preferred, regardless of whether the class of common stock into which the preferred is convertible is voting or not. Former § 14-2-111(e) denied preemptive rights to common with respect to any other class.

Subsection (c)(6), as it appeared in the Model Act, originally provided that when shareholders have failed to exercise preemptive rights, those shares may be sold freely for one year without reoffering them to existing shareholders. This is shorter than the provision of § 14-2-111(d)(9), which provided that shares could be offered at any later time, provided the price was no lower. This provision was retained in the Code.

Subsection (d) expands preemptive rights through a special definition of "shares" to apply to all securities that are convertible into or carry a right to acquire shares subject to preemptive rights. Former § 14-2-111(e) provided "no holder of shares of any class shall have any preemptive right with respect to shares of any other class which may be issued. . . ."

Subsection (e) is new. It clarifies the status of shares issued in violation of preemptive rights; they are validly issued, and not subject to cancellation by reason of the preemptive rights violation.

Subsection (f) is new. The approach is based on Section 13 of the Securities Act of 1933. It provides a statute of limitations for all violations of preemptive rights, whether before or after adoption of this statute. No notice is required to cut off rights after five years. The statute is intended to limit equitable tolling claims to no more than two years. There are strong public policies, to facilitate further business financing, that justify these limits. These limitations apply to existing claims based on violations of preemptive rights, as well as to those that arise after the effective date of the Code. See Section 14-2-1704.

Note to 1989 Amendment The 1989 amendment amended subsection (a) by adding a reference to "treasury shares . . . , if any. . . ." Treasury shares were not contemplated by the Model Act, but were restored in the 1989 amendments to Code Section 14-2-631 , for those corporations electing to provide for them. This provision clarifies that treasury shares are to be treated in the same manner as unissued shares for purposes of preemptive rights. Accordingly, for these corporations electing preemptive rights, no standard exception from these rights is provided for treasury shares under subsection (c). This preserves the approach of the 1988 Code, and strengthens preemptive rights for electing corporations, since under former O.C.G.A. § 14-2-111(a) preemptive rights applied only to unissued shares.

Note to 1993 Amendment The 1993 amendment added language to subsections (a) and (b) referring to shareholders who did not have preemptive rights as of the effective date of the revised Code (i.e. July 1, 1989). If a corporation formed prior to 1989 restated its articles of incorporation under the new Code without including an express denial of preemptive rights, it was not clear whether the omission of such explicit language in the restated articles created preemptive rights because of the change in presumption effected by the revised Code. The amendment makes clear that such restatements did not create preemptive rights where none existed before, simply by virtue of such omission.

Note to 2004 Amendment The 2004 amendments permit shareholders to waive their preemptive rights by electronic transmission.

Cross-References Articles of incorporation, see § 14-2-202 . Close corporations, statutory, see Article 9. Consideration for shares, see § 14-2-621 . Debt securities, see § 14-2-302 . Director standards of conduct, see § 14-2-830 et seq. Directors' conflicting interest transactions, see § 14-2-860 et seq. Distributions, see §§ 14-2-140 & 14-2-640 . Fractional shares, see § 14-2-604 . Share classes and series, see §§ 14-2-601 & 14-2-602 . Shares qualified to vote upon directors' conflicting interest transactions, see § 14-2-863 .

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, §§ 432 et seq.

C.J.S. - 18 C.J.S., Corporations, § 192 et seq.

ALR. - Power to require nonassenting creditors or bondholders to accept securities of, or shares in, new or reorganized corporation, 28 A.L.R. 1196 ; 88 A.L.R. 1238 .

Right of stockholder to set off indebtedness of corporation against statutory superadded liability, 40 A.L.R. 1183 ; 98 A.L.R. 659 .

Stockholders' privilege as to acquisition of new issue of stock by corporation, 52 A.L.R. 220 ; 138 A.L.R. 526 .

Reimbursement of stockholder or officer of corporation for expenses incurred in connection with transaction conducted in his name but in interest of corporation, 56 A.L.R. 973 .

Provision of articles, bylaws, or agreement regarding future determination by parties other than owner of price at which corporate stock is to be taken over by corporation or stockholders upon specified event, 117 A.L.R. 1359 .

Failure of purchaser of stock from existing corporation, or of subscriber thereto, to pay for same as affecting his right to dividends, 122 A.L.R. 1048 .

Validity of stock-option plan under which selected personnel of corporation may acquire stock interest therein, 34 A.L.R.2d 852.

Minority stockholders' right to enjoin further or additional issuance of stock, 38 A.L.R.2d 1366.

Validity of "consent restraint" on transfer of shares of close corporation, 69 A.L.R.3d 1327.

COMMENT

Source: Model Act, § 6.31. This replaces former §§ 14-2-92 & 94.

Subsection (a) restates the fundamental power of a corporation to reacquire its own shares. Such a transaction constitutes a "distribution" by the corporation (see the definition of that term in Section 14-2-140 ) and is subject to the limitations of Section 14-2-640 . Repurchased shares do not become treasury shares, as they did under former § 14-2-94(b); they are returned to the status of authorized but unissued shares.

Subsection (b) requires cancellation only where articles of incorporation prohibit reissue of acquired shares. Former § 14-2-94(a) required that if shares were acquired out of stated capital they must be canceled. No comparable provision exists in the Code.

Subsection (c) requires a simplified official filing to reflect the reduction of authorized shares. This provision is included in order that there be a public record of the number of authorized shares that a corporation may issue. The amendment may be made without shareholder action. See Section 14-2-1002. Until the amendment is effective, the corporation has power to reissue the reacquired shares despite a prohibition in the articles of incorporation. In such a case, the action of the directors in issuing the shares may be challengeable but the shares so issued would be fully paid and nonassessable if issued in conformity with Section 14-2-621.

Note to 1989 Amendment Subsection (a) was amended in 1989 to restore the concept of treasury shares to the Code on an optional basis. For corporations with shares listed on stock exchanges, listing fees may be avoided where treasury shares are sold by a corporation, while fees may be incurred if authorized but unissued shares are sold, even though they represent shares previously purchased by the corporation. Subsection (c) was amended by striking requirements that the articles of amendment be delivered to the Secretary of State for filing and that they contain the name of the corporation, since these matters are covered in Code Section 14-2-1006. Subsection (d) was added to permit directors to adopt articles of amendment providing for treasury shares without shareholder approval.

Note to 1997 Amendments Subsection (f) [subsection (e)] was added in 1997. It is intended to allow a corporation to pledge its own treasury shares as collateral for corporate obligations.

Cross-References Acquisition as "distribution," see § 14-2-140 . Amendment of articles of incorporation, see Article 10, Part 1. Amendment of articles of incorporation by board of directors, see § 14-2-1002 . Annual registration, see § 14-2-1622 . "Deliver" includes mail, see § 14-2-140 . Director standards of conduct, see §§ 14-2-830 & 14-2-831 . Distributions generally, see § 14-2-640 . Effective time and date of amendment, see § 14-2-123 . Filing fees, see § 14-2-122 . Filing requirements, see § 14-2-120 . Issuance of shares, see § 14-2-621 .

JUDICIAL DECISIONS

Editor's notes. - In light of the similarity of the statutory provisions, decisions under former Code 1933, § 22-513 and former Code Section 14-2-92, which were repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, are included in the annotations for this Code section.

Former Code 1933, § 22-513 (see now O.C.G.A. § 14-2-631 ) merely sanctioned corporate purchase of its own shares to eliminate any conflict with the legal principle in some jurisdictions that such a purchase is never permissible without an express grant of authority, and does not grant a corporation an absolute right to purchase its own stock regardless of the circumstances. Comolli v. Comolli, 241 Ga. 471 , 246 S.E.2d 278 (1978) (decided under former Code 1933, § 22-513).

If issuance of debenture is prohibited by law, repurchasing contract is void and cannot be enforced. Hullender v. Acts II, 153 Ga. App. 119 , 264 S.E.2d 486 (1980) (decided under former Code 1933, § 22-513).

Specific performance of stock repurchase agreement with insolvent corporation. - In a case in which the book value of the stock in question is $0.00 and no creditors or other shareholders could be injured by the enforcement of a stock repurchase agreement because no actual payment of corporate funds would be required thereunder, a decree of specific performance would not be erroneous notwithstanding the corporation's insolvency. McCreery v. RSA Mgt., Inc., 249 Ga. 43 , 287 S.E.2d 203 (1982) (decided under former Code 1933, § 22-513).

Cited in Bridges v. 20th Century Travel, Inc., 149 Ga. App. 837 , 256 S.E.2d 102 (1979); Scroggins v. Powell, Goldstein, Frazer & Murphy (In re Kaleidoscope, Inc.), 25 Bankr. 729 (N.D. Ga. 1982); Corporate Jet Aviation, Inc. v. Vantress, 82 Bankr. 619 (N.D. Ga. 1987).

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, § 391. 18B Am. Jur. 2d, Corporations, § 1755 et seq.

C.J.S. - 18 C.J.S., Corporations, § 204. 19 C.J.S., Corporations, § 660 et seq.

ALR. - Unwarranted payment of dividends as ground for ousting foreign corporation, 41 A.L.R. 997 .

Transfer of bank or other corporate stock to corporation issuing it, as releasing transferrer from stockholders' statutory added liability, 86 A.L.R. 72 .

Validity, construction, and effect of provisions of articles of incorporation or certificates of stock relating to redemption or retirement of stock, 88 A.L.R. 1131 .

Voting power of corporation stock as confined to issued and outstanding stock to exclusion of authorized unissued stock or stock which has been reacquired by the corporation, 90 A.L.R. 315 .

Validity and effect of agreement by a corporation contemporaneously with issue or sale of stock, to repurchase or redeem the stock or to cancel the subscription therefor and refund consideration paid, 101 A.L.R. 154 .

Issuance by corporation of new stock certificates without requiring surrender of old, 150 A.L.R. 148 .

Reduction of capital stock and distribution of capital assets upon reduction, 35 A.L.R.2d 1149.

Minority stockholders' right to enjoin further or additional issuance of stock, 38 A.L.R.2d 1366.

Rights of creditors of corporation with respect to its purchase or acquisition of its own stock, 47 A.L.R.2d 758.

Transfer of, and voting rights in, stock of co-operative apartment association, 99 A.L.R.2d 236.

Construction and operation of statute restricting corporation's right to purchase its own stock to purchase from surplus, 61 A.L.R.3d 1049.

COMMENT

Source: Model Act, § 6.40. This replaces former §§ 14-2-90, 14-2-91, 14-2-92(e), & 14-2-154(c).

Former rules limiting dividends to earned surplus or current earnings, and limiting distributions in partial liquidation to capital surplus, thus preserving stated capital as a "fund" (unless stated capital was reduced by the shareholders) have been entirely eliminated in the Code. It has long been recognized that the traditional "par value" and "stated capital" statutes do not provide significant protection against distributions of capital to shareholders.

The financial provisions of the Code sweep away all the distinctions among the various types of surplus but retain restrictions on distributions built around the traditional equity insolvency test of earlier statutes, and adds a balance sheet test designed to give protection to long-term creditors. Former law did impose an equity insolvency test on distributions that prohibited distributions of assets if the corporation was insolvent or if the distribution had the effect of making the corporation insolvent or unable to meet its obligations as they were projected to arise. See former §§ 14-2-90(a), 91(a)(1) and 92(e).

Subsection (a) imposes a single, uniform test on all distributions. It eliminates the former distinctions between dividends ( § 14-2-90) (payable only from earned surplus or current earnings, except in the case of wasting asset corporations), distributions in partial liquidation ( § 14-2-91) (payable from capital surplus), and share repurchases ( § 14-2-92) (payable from earned surplus, and from capital surplus if permitted in the articles or approved by the shareholders).

Subsection (b) provides a default rule for determining the record date for distributions, in the absence of specification by the board of directors.

Subsection (c) restricts "distributions" (the new generic term defined in § 14-2-140(6) to cover any transfer of money or property, or incurrence of indebtedness to shareholders, thus covering repurchases, dividends and returns of capital) with two basic tests:

1. an equity insolvency test (inability to pay debts as they become due in the usual course of business, which preserves the rule formerly found in §§ 14-2-90(a), 91(a)(1) and 92(e).
2. a balance sheet test that requires remaining assets to be sufficient to cover all creditors plus preferences on senior securities on liquidation. This is similar to the limitation on distributions in partial liquidation contained in former § 14-2-91(a)(4), where no earned surplus was available, and in § 14-2-92(e), governing share repurchases. Under former law, dividends were also governed by a surplus test under § 14-2-90(a)(1).

In most cases involving a corporation operating as a going concern in the normal course, information generally available will make it quite apparent that no particular inquiry concerning the equity insolvency test is needed. It is only when circumstances indicate that the corporation is encountering difficulties or is in an uncertain position concerning its liquidity and operations that the board of directors or, more commonly, the officers or others upon whom they may place reliance under Section 14-2-830(b), may need to address the issue.

Subsection (c)(2) requires that, after giving effect to any distribution, the corporation's assets equal or exceed its liabilities plus (with some exceptions) the dissolution preferences of senior equity securities.

Subsection (c)(2) provides that a distribution may not be made unless the total assets of the corporation exceed its liabilities plus the amount that would be needed to satisfy any shareholder's superior preferential rights upon dissolution if the corporation were to be dissolved at the time of the distribution. The treatment of preferential rights mandated by this section may always be eliminated by an appropriate provision in the articles of incorporation.

The provisions of former § 14-2-91(a)(3), prohibiting distributions to common unless all cumulative dividends on preferred have been paid are not contained in the Model Act. This is a matter of contract rather than corporate law.

Subsection (d) authorizes asset and liability determinations to be made for this purpose on the basis of either (1) financial statements prepared on the basis of accounting practices and principles that are reasonable in the circumstances or (2) a fair valuation or other method that is reasonable in the circumstances. This is similar to the language of former § 14-2-154(c) governing liability of directors for dividends) which excused directors who rely on financial statements, except that § 154(c) permitted a director in good faith to consider the assets to be worth their book value. The concept of "reappraisal surplus" in § 14-2-2(4) of the former law, which was designed to alleviate the formalism of the old legal capital requirements, was eliminated as unnecessary, with the abandonment of the other categories of surplus. This leaves boards free to revalue assets to their current values at the time of a proposed distribution. See, e.g., the leading "balance sheet" case of Randall v. Bailey, 288 N.Y. 280, 43 N.E.2d 43 (1942).

In a corporation with subsidiaries, the board of directors may rely on unconsolidated statements prepared on the basis of the equity method of accounting (see American Institute of Certified Public Accountants, APB Opinion No. 18 (1971)) as to the corporation's investee corporations, including corporate joint ventures and subsidiaries, although other evidence would be relevant in the total determination. While a board is expressly permitted to rely upon unconsolidated statements, it may, in its discretion, continue to rely upon consolidated statements, in accordance with former law under § 14-2-97.

Subsection (e) sets out rules for testing the legality of distributions involving delayed or deferred payments, such as executory agreements to repurchase shares, or the issuance of corporate debt as consideration for share repurchases. Former § 14-2-92(e) provided that an executory agreement to purchase was permitted only when "such purchase or payment would not violate the insolvency or net assets tests," and 92(f) forgave a violation only if, at the time payment was required, the corporation would not violate those tests. Commentary indicated that the repurchasing corporation must be solvent both at the time of an agreement to repurchase and at the time of each payment. Herwitz, "Installment Repurchase of Stock: Surplus Limitations," 79 Harv. L. Rev. 303, 322 (1965). See Hullender v. Acts II, 153 Ga. App. 119 (1980) (refusing to enforce a corporate note given in a buy-back because of insolvency at time note was given. Uncertainty thus surrounded the enforceability of executory repurchase agreements until each installment payment was made. The provisions of subsection (e) clarify this area.

Subsection (e)(1) provides that compliance with the insolvency and net asset tests shall be measured at the earlier of (1) the payment date or (2) the date the shareholder ceases to be a shareholder, except as provided in subsection (g). Distribution of indebtedness is defined as a payment for purpose of share repurchases.

Subsection (e)(2) provides that the time for measuring the effect of a distribution of indebtedness is the date the indebtedness is distributed.

Subsection (e)(3) provides that the time for measuring the effect of a distribution for compliance with the equity insolvency and balance sheet tests for all distributions not involving the reacquisition of shares or the distribution of indebtedness is the date of authorization, if the payment occurs within 120 days following the authorization; if the payment occurs more than 120 days after the authorization, however, the date of payment must be used. If the corporation elects to make a distribution in the form of its own indebtedness under subsection (e)(2), the validity of that distribution must be measured as of the time of distribution, unless the indebtedness qualifies under subsection (g).

Subsection (f) provides that indebtedness created to acquire the corporation's shares or issued as a distribution is on a parity with the indebtedness of the corporation to its general, unsecured creditors, except to the extent subordinated by agreement. Subsection (f) of the Model Act was amended by adding the second exception, "or except to the extent secured," which is intended to be clarifying.

Subsection (g) provides that indebtedness need not be taken into account as a liability in determining whether the tests of subsection (c) have been met if the terms of the indebtedness provide that payments of principal or interest can be made only if and to the extent that payment of a distribution could then be made under Section 14-2-640. This has the effect of making the holder of the indebtedness junior to all other creditors but senior to the holders of all classes of shares, not only during the time the corporation is operating but also upon dissolution and liquidation.

Although subsection (g) is applicable to all indebtedness meeting its tests, regardless of the circumstances of its issuance, it is anticipated that it will be applicable most frequently to permit the reacquisition of shares of the corporation at a time when the deferred purchase price exceeds the net worth of the corporation. In such situations, it is anticipated that net worth will grow over time from operations so that when payments in respect of the indebtedness are to be made the two insolvency tests will be satisfied. In the meantime, the fact that the indebtedness is outstanding will not prevent distributions that could be made under subsection (c) if the indebtedness were not counted in making the determination.

Cross-References Director standards of conduct, see § 14-2-830 et seq. "Distribution" defined, see § 14-2-140 . Failure to present certificates for redemption or cancellation, see § 14-2-641 . Liability for unlawful distributions, see § 14-2-831 . Record date, see § 14-2-707 . Redemption, see §§ 14-2-601 & 14-2-631 . Share dividends, see § 14-2-623 .

JUDICIAL DECISIONS

Editor's notes. - In light of the similarity of the statutory provisions, a decision under former Code 1933, § 22-512 and former Code Section 14-2-91, which were repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, is included in the annotations for this Code section.

Arrangements for payment of debts must first be made. - One cannot withdraw capital from a corporation without first arranging for payment of its valid debts. Nicholson v. Core (In re Carolee's Combine, Inc.), 3 Bankr. 324 (Bankr. N.D. Ga. 1980) (decided under former Code 1933, § 22-512).

Leverage buy out transaction. - Georgia's stock distribution and repurchase statutes applied to a leverage acquisition of a corporation. Munford v. Valuation Research Corp., 97 F.3d 456 (11th Cir. 1996).

Effect of guarantee of corporation's obligation upon buyout of shareholder. - Since the defendant guarantors had insisted on structuring the buyout of a former shareholder's interest as a purchase of stock by the corporation and guarantee of the corporation's obligation, the guarantors could not contend that the entire transaction was void on the ground that the transaction rendered the corporation insolvent. Morris & Manning Ins. Agency, Inc. v. Morris, 211 Ga. App. 433 , 439 S.E.2d 660 (1994).

Payment for stock. - Payment for capital stock made to former employee/shareholders of a professional corporation was not a distribution in violation of O.C.G.A. § 14-2-640 since, under the terms of a termination agreement, the corporation was required to pay the purchase price of the stock, and the former employees were no longer shareholders. Dougherty, McKinnon & Luby v. Greenwald, 225 Ga. App. 762 , 484 S.E.2d 722 (1997).

When the creditor first made a demand on the debtor to pay the creditor $900,000 in exchange for the creditor's stock, the debtor would not have been able to pay its debts as they came due in the usual course of its business, whether or not it paid the creditor. Therefore, the debtor was not permitted by O.C.G.A. § 14-2-640 to convert the creditor's equity to debt and hence was not obligated to pay $900,000 to the creditor; thus, the creditor's claim had to be disallowed. Vista Eyecare, Inc. v. Neumann (In re Vista Eyecare, Inc.), 283 Bankr. 613 (Bankr. N.D. Ga. 2002).

RESEARCH REFERENCES

Am. Jur. 2d. - 18B Am. Jur. 2d, Corporations, § 1709 et seq.

C.J.S. - 18 C.J.S., Corporations, § 360 et seq. 19 C.J.S., Corporations, §§ 571, 575, 576, 586, 637.

ALR. - Insolvency of corporation as barring stockholder's right to rescind subscription on ground of fraud, 41 A.L.R. 674 ; 46 A.L.R. 484 .

Reduction of capital stock and distribution of capital assets upon reduction, 44 A.L.R. 11 ; 35 A.L.R.2d 1149.

Trademark or tradename as asset in case of bankruptcy, insolvency, or assignment for benefit of creditors, 44 A.L.R. 706 .

Right or duty of corporation to pay dividends, and liability for wrongful payment, 55 A.L.R. 8 ; 76 A.L.R. 885 ; 109 A.L.R. 1381 .

Right as between seller and purchaser of stock to dividends declared thereon, 60 A.L.R. 703 .

Right of pledgee of corporate stock in respect of dividends declared thereon, 67 A.L.R. 485 ; 103 A.L.R. 849 .

Rights of holders of preferred stock in respect of dividends, 67 A.L.R. 765 ; 98 A.L.R. 1526 ; 133 A.L.R. 653 .

Duty and remedy as regards deferring payment of dividends from assets of insolvent bank or other insolvent corporation while there are undetermined claims or preferences, 88 A.L.R. 1301 .

Constitutionality of tax upon corporate dividends, or the transfer thereof, in respect of stock owned by nonresident, 104 A.L.R. 1491 .

Failure of purchaser of stock from existing corporation, or of subscriber thereto, to pay for same as affecting his right to dividends, 122 A.L.R. 1048 .

Right as between life beneficiaries and remaindermen, or successive life beneficiaries, in corporate dividends or distributions during the life interest, 130 A.L.R. 492 ; 44 A.L.R.2d 1277.

Validity and construction of state statutes as applied to the taxation of income derived from dividends on stock of foreign corporations, 143 A.L.R. 147 .

When dividends on corporate stock become taxable as income, 143 A.L.R. 596 ; 158 A.L.R. 1432 ; 167 A.L.R. 303 .

Validity of cancellation of accrued dividends on preferred corporate stock, 8 A.L.R.2d 893.

Parties defendant to stockholder's suit to compel declaration of dividend, 15 A.L.R.2d 1124.

Preferred stockholders' rights, upon liquidation or dissolution to dividends, 25 A.L.R.2d 788.

Dividend rights in surplus of new consolidated corporation resulting from reduction of capital stock of former constituent corporations, 28 A.L.R.2d 1177.

Corporation's right to interplead claimants to dividends, 46 A.L.R.2d 980.

Construction of "net profits," "earnings," or the like, in provision for profit-sharing bonus for corporate officers or employees, 49 A.L.R.2d 1129.

Negligence, nonfeasance, or ratification of wrongdoing as excusing demand on directors as prerequisite to bringing of stockholder's derivative action on behalf of corporation, 99 A.L.R.3d 1034.

COMMENT

Source: Former § 14-2-98. There is no counterpart in the Model Act. This section provides a non-exclusive method for canceling redeemable securities which are not surrendered within a minimum of 60 days after the issuing corporation has called for their redemption. If a plan for transfer of funds or other property distributable upon cancellation or redemption is adopted by the corporation prior to the notice of the call, and is properly described in the notice, the effect is to cancel the securities effective as of the call date. The term "securities" is not defined, but is intended to be read broadly to include any instruments that might be defined as securities under the Georgia Securities Act of 1973, including such promissory notes and commercial paper as are treated as securities in § 10-5-2(a)(16) . For certificated securities, the triggering event is the failure to present any certificates required by the call, whether for shares or bonds or debentures. In the case of uncertificated securities, the issuer can require such documentation as is appropriate under the Uniform Commercial Code or other applicable law. Holders are given six years within which to claim their property. After the lapse of six years, property remaining in the hands of a trustee may be distributed according to the plan, or if no plan of distribution has been adopted, the property shall be distributed to the Board of Regents of the University System of Georgia.

This section does not provide for notice to the holders of registered security interests under recent revisions to Article 8 of the Uniform Commercial Code.

Note to 2004 Amendment Prior to the 2004 amendments, notices under this Code section were required to be "mailed". The 2004 amendments, which change such references from "mailed" to "sent", seek to harmonize this Code section with those amendments to this Chapter which contemplate notice by electronic transmission.

Cross-References "Distribution" defined, see § 14-2-140 . Effective date of notice, see § 14-2-141 . Record date, see § 14-2-707 . Redemption, see §§ 14-2-601 & 14-2-631 . "Shares" defined, see § 14-2-140 . Voting of shares called for redemption, see § 14-2-721 .

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, §§ 447 et seq.

C.J.S. - 18 C.J.S., Corporations, §§ 245, 246, 247.

COMMENT

Source: Model Act, § 7.01. This replaces former § 14-2-112(a) & (b).

The requirement of subsection (a) that an annual meeting be held is phrased in mandatory terms to ensure that every shareholder entitled to participate in the meeting has the unqualified rights (1) to demand that the annual meeting be held and (2) to compel the holding of the meeting under Section 14-2-703 if the corporation does not promptly hold the meeting.

Subsection (b) provides that the time and place of the annual meeting may be "stated in or fixed in accordance with the bylaws." If the bylaws do not themselves fix a time and place for the annual meeting, authority to fix them may be delegated to the board of directors or to a specified corporate officer.

Many corporations, such as non-public subsidiaries and closely held corporations, do not regularly hold annual meetings, and if no shareholder objects, that practice creates no problem under Section 14-2-701, since subsection (c) provides that failure to hold an annual meeting does not affect the validity of any corporate action.

Cross-References Action without meeting, see § 14-2-704 . Bylaws, see § 14-2-206 and Article 10, Part 2. Close corporations, see Article 9. Court-ordered meeting, see § 14-2-703 . Director holdover terms, see § 14-2-805 . Notice of meeting, see § 14-2-705 . "Principal office": defined, see § 14-2-140 ; designated in annual registration, see § 14-2-1622 . Proxies, see § 14-2-722 . Quorum and voting requirements, see § 14-2-725 et seq. Shareholders' list at meeting, see § 14-2-720 . Special meeting, see § 14-2-702 . Voting entitlement generally, see § 14-2-721 . "Voting group" defined, see § 14-2-140 .

JUDICIAL DECISIONS

Editor's notes. - In light of the similarity of the statutory provisions, a decision under former Code Section 14-2-112, which was repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, is included in the annotations for this Code section.

Cited in J.M. Clayton Co. v. Martin, 177 Ga. App. 228 , 339 S.E.2d 280 (1985).

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, §§ 781 et seq., 785 et seq.

C.J.S. - 18 C.J.S., Corporations, §§ 442, 443.

ALR. - Power of directors to change time for regular meetings of stockholders, 2 A.L.R. 558 ; 8 A.L.R. 678 .

Informality of meeting of stockholders as affecting action taken thereat, 51 A.L.R. 941 .

Admissibility of parol evidence as to proceedings at meetings of stockholders or directors of private corporations or associations, 48 A.L.R.2d 1259.

COMMENT

Source: Model Act, § 7.02. This replaces former § 14-2-112(c).

A special meeting may be called under subsection (a) by the board of directors or the person or persons authorized to do so by the articles of incorporation or bylaws. Georgia formerly provided in § 14-2-112(c) that special meetings might be called by the president or the chairman of the board, while subsection (a)(1) leaves this grant to the articles or bylaws.

The rule of former § 14-2-112(c), creating a statutory right to call meetings of shareholders in the holders of 25% of a company's shares, is the default rule for corporations with more than 100 shareholders, under subsection (a)(2), unless those corporations elect a larger or smaller number, or preclude shareholder calls of special meetings.

The former rule, creating an absolute statutory right for shareholders to call meetings, is preserved for corporations with 100 or fewer shareholders, in subsection (a)(3). In this respect the Code follows the Delaware approach, in Del. Code Ann., tit. 8, § 211(d).

The number of record shareholders is to be determined in accordance with Section 14-2-142.

Subsection (b) fixes a record date for determining the shareholders entitled to sign a demand for a special shareholders' meeting. Unless a record date is otherwise fixed for this purpose, the record date is the date the first shareholder signs the demand. No such provision existed in former Georgia law.

Note to 1989 Amendment The 1989 amendment changed subsection (a)(2) by clarifying the reference to "corporations described" in paragraph (3).

Note to 1997 Amendment The 1997 amendments to subsection (a) eliminated the requirement that a shareholder demand be delivered only to the corporate secretary, thus permitting delivery to the corporation generally, and added a new final sentence (clause (4) permitting revocations of calls of special meetings. Code section 14-2-141(d) governs delivery of notice to a corporation, and permits delivery to a registered agent at the registered office, or to "the corporation or its secretary at its principal office." Subsection (e) was added in 1997. It is intended to clarify that bylaw amendments governing the call of special meetings by shareholders are not subject to the provisions of Code section 14-2-1021(b), which provide that such bylaws may only be adopted, amended or repealed by the shareholders.

Note to 2004 Amendment The 2004 amendments permit a demand for a special meeting to be made by electronic transmission.

Cross-References Action without meeting, see § 14-2-704 . Annual meeting, see § 14-2-701 . Articles of incorporation, see § 14-2-202 . Bylaws, see § 14-2-206 and Article 10, Part 2. Court-ordered meeting, see § 14-2-703 . Notice of meeting, see § 14-2-705 . Number of shareholders of record, see § 14-2-142 . Objection to extraneous business, see § 14-2-706 . "Principal office": defined, see § 14-2-140 ; designated in annual registration, see § 14-2-1622 . Quorum and voting requirements, see § 14-2-725 et seq. "Secretary" defined, see § 14-2-140 . Shareholders' list at meeting, see § 14-2-720 . Voting entitlement generally, see § 14-2-721 . "Voting group" defined, see § 14-2-140. Waiver of notice, see § 14-2-706 .

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, § 795 et seq.

C.J.S. - 18 C.J.S., Corporations, § 443 et seq.

ALR. - Informality of meeting of stockholders as affecting action taken thereat, 51 A.L.R. 941 .

Remedies to restrain or compel holding of stockholders' meeting, 48 A.L.R.2d 615.

Admissibility of parol evidence as to proceedings at meetings of stockholders or directors of private corporations or associations, 48 A.L.R.2d 1259.

Participation in meeting as waiver of compliance with notice requirement for shareholders' meeting, 64 A.L.R.3d 358.

COMMENT

Source: Model Act, § 7.03. This replaces former § 14-2-112(b).

Section 14-2-703 provides the remedy for shareholders if the corporation refuses or fails to hold a shareholders' meeting as required by Section 14-2-701 or 14-2-702 . A shareholder entitled to participate in a meeting may apply for a summary court order to command the holding of a meeting if (1) an annual meeting is not held within the later of 6 months after the end of the corporation's fiscal year or 15 months after its last annual meeting, or (2) a special meeting is not properly noticed within 30 days after a valid demand is delivered to the secretary of the corporation or, if properly noticed, is not held in accordance with the notice. Since a meeting must be held within 60 days of the notice date under Section 14-2-705 , the maximum delay between the demand for a special meeting and the right to petition a court for a summary order is 90 days. Where the corporation fails to hold an annual meeting at the time specified in its bylaws, or, in the absence of such a specification, within 60 days after a demand, former § 14-2-112(b) provided for shareholder application to the superior court to mandate an annual meeting. No provision was made in the former law for special meetings.

The court has discretion under Section 14-2-703 since the language of the statute is that the court "may summarily order" that a meeting be held. In any event, a shareholder applying for a summary order to hold a meeting has the burden of showing that he is entitled to the order.

Subsection (b) of the Model Act, describing the powers of the court, was amended to return to the language of § 14-2-112(b), which is simpler and clearer. The court may provide that a meeting it has ordered is to be the annual meeting. If so provided, the meeting should be viewed as compliance with Section 14-2-701 , precluding all other shareholder requests for an annual meeting for that year. The court may, consistent with the articles of incorporation, bylaws, and the Code, specify the quorum and votes required for the meeting and actions taken at the meeting. This may include such matters as determining which shares must be counted for approval of business combinations with an interested shareholder under Article 11, Part 2, or which shares are qualified to approve a director's conflicting interest transaction under Article 8, Part 6.

Note to 1989 Amendment Subsection (a)(1) was amended by substituting "earlier" for "later". This returns to Model Act language, and liberalizes a shareholder's right to demand a meeting. Subsection (a)(1) was also amended by changing the phrase "the corporation's fiscal year" to "a fiscal year of the corporation." This was to clarify that where a corporation had missed several annual meetings a shareholder need not wait for a period of six months after the most recent fiscal year before obtaining a court-ordered meeting. If the corporation has not held a meeting within the earlier of 15 months from its last annual meeting or six months after the end of any fiscal year, relief is available under this section.

The 1989 amendment changed subsection (b) to delete the ambiguous reference to a "substitute" meeting and to eliminate surplus language dealing with administrative details, without intending to limit the broad authority of courts to order remedial actions.

Note to 1993 Amendment The 1993 amendment is intended to clarify that any shareholder of a corporation may petition the court to order the annual meeting be held, and not simply a shareholder who is entitled to vote at such a meeting.

Cross-References Annual meeting, see § 14-2-701 . Effective date of notice, see § 14-2-141 . Notice of meeting, see § 14-2-705 . "Principal office": defined, see § 14-2-140 ; designated in annual registration, see § 14-2-1622 . Quorum and voting requirements, see § 14-2-725 et seq. Registered office: designated in annual registration, see § 14-2-1622 ; required, see § 14-2-202 & 14-2-501 . Shareholders' list for voting at meeting, see § 14-2-720 . Voting entitlement generally, see § 14-2-721 .

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, §§ 966 et seq.

C.J.S. - 18 C.J.S., Corporations, §§ 479, 480.

ALR. - Remedies to restrain or compel holding of stockholders' meeting, 48 A.L.R. 615 .

COMMENT

Source: Model Act, § 7.04. This replaces former § 14-2-112(d).

Subsection (a) provides that all the shareholders entitled to vote on an issue may validly act by unanimous written consent without a meeting. Unanimous written consent is obtainable, as a practical matter, only on matters on which there are only a relatively few shareholders entitled to vote. For this reason, language was added to the Model Act version of subsection (a) to restore the "opt-in" provisions of former law, § 14-2-112(d), as amended in 1985, permitting shareholder action on less than unanimous consent if so provided in the articles of incorporation.

The final sentence of subsection (a) provides that to be effective, consents must be in writing, signed by all the shareholders consenting to the action (whether unanimous under subsection (a) or by the lesser number permitted in articles of incorporation, and delivered to the secretary of the corporation. The phrase "one or more written consents" is included in subsection (a) to make it clear that all shareholders do not need to sign the same piece of paper.

Implicit in this language is that action by written consent is effective only when the last necessary shareholder has signed the appropriate written consent and all consents have been delivered to the corporation. Before that time, any shareholder may withdraw his consent simply by advising the secretary of that fact. Cf. Calumet Industries, Inc. v. McClure, 464 F. Supp. 19 (N.D. 111. 1978). The withdrawal of a sufficient number of consents may, of course, destroy the written consent required by this section. If a shareholder seeks to withdraw his consent after shareholders have signed written consents and filed them with the secretary of the corporation, the corporation may either treat the attempted withdrawal as too late or give it effect, thereby requiring the matter to be presented at a shareholders' meeting if the withdrawal reduces the number of consenting shareholders below the required level.

Subsection (b) has no counterpart in the Model Act. Protective provisions have been added with respect to mergers, share exchanges, and asset sales, drawn largely from former Georgia law, § 14-2-112(d), as amended in 1985, to assure that shareholders receive adequate disclosures or knowingly waive their rights to disclosures. With respect to mergers approved by written consent, the protective provisions represent a combination of former law and the provisions relating to notice of dissenters' rights contained in Article 13 of the Code. For mergers and share exchanges, the disclosure requirements of Section 14-2-1103(d) will apply.

Following the 1985 amendment to former § 14-2-112(d), subsection (c) retains the unanimous consent provision for election of directors where cumulative voting is in effect, notwithstanding anything in the articles of incorporation to the contrary.

Section 14-2-704 is applicable to all shareholder actions, including the approval of fundamental corporate changes described in articles 10, 11, 11A, 12, and 14. If these actions were taken at an annual or special meeting, the Model Act provided that shareholders who were not entitled to vote on the matter would nevertheless be entitled to receive notice of the meeting, including a description of the transaction proposed to be considered at the meeting. Because of Georgia's omission of the Model Act's notice provisions for nonvoting shareholders in § 7.04(d) for actual meetings, the provisions of the Model Act for such notice in the case of shareholder action by written consent were also omitted.

Subsection (d) sets the record date, if not otherwise fixed, as the date the first shareholder signs the consent. This follows former § 14-2-112(d).

Subsection (e) permits the corporate secretary to certify to third parties that shareholder action was duly taken at a meeting of shareholders. This accommodates many printed forms, such as banking resolutions, that call for such a certificate.

Subsection (f) retains the requirement of former § 14-2-112(d), as amended in 1985, of notice of action taken by consent to nonconsenting shareholders.

Note to 1989 Amendment The 1989 amendment changed subsection (c) to clarify the relationship between section 14-2-705 and section 14-2-728. While section 14-2-728 provides that shares otherwise entitled to vote cumulatively may not be voted cumulatively at a particular meeting unless the meeting notice states that cumulative voting will be in effect or a shareholder who has the right to vote cumulatively gives notice not less than 48 hours before the time of the meeting that he intends to cumulate his votes, no such notice is required where shareholders act by unanimous consent.

The 1989 amendment also eliminates a superfluous cross reference in subsection (d) to subsections (a) and (b) of this section.

Note to 1993 Amendment The 1993 amendment is intended to clarify the notice required to be afforded shareholders in the case of actions creating dissenters' rights which are effected by shareholder consent. If a corporation solicits a consent, § 14-2-1320 still requires that the corporation notify the shareholder that the action may trigger dissenters' rights.

Note to 1997 Amendments The 1997 amendments to subsections (a) and (d) introduce the requirement that shareholders' written consents must be dated (subsection (a)), and that the requisite consents must be dated within 60 days of each other (subsection (d)). The purpose is to minimize the possibility that shareholder action by written consent will be authorized by persons who may no longer be shareholders at the time the action is taken. The final sentence of subsection (d) authorizes revocation of such consents. The second sentence of subsection (e) was added to provide a default rule for the effective date of consents, which cannot be earlier than the time the corporation receives notice of them through delivery.

Note to 2004 Amendment The 2004 amendments permit a consent, demand, or notice by a shareholder under this Chapter to be delivered by electronic transmission, if the corporation can determine from the electronic transmission that it was delivered by such shareholder, and can further determine the date upon which such shareholder transmitted such electronic transmission.

Cross-References Acceptance of consents, see § 14-2-724 . Amendment of articles of incorporation, see Article 10, Part 1. Dissolution, see Article 14. Merger and share exchange, see Articles 11 and 11A. "Notice" defined, see § 14-2-141 . Sale of assets, see Article 12. "Secretary" defined, see § 14-2-140 . Voting entitlement generally, see § 14-2-721 .

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, § 9.

C.J.S. - 18 C.J.S., Corporations, § 442.

ALR. - Participation in meeting as waiver of compliance with notice requirement for stockholders' meeting, 64 A.L.R.3d 358.

COMMENT

Source: Model Act, § 7.05. This replaces former §§ 14-2-113 & 14-2-114(c).

Under subsection (a) shareholders entitled to notice must be given notice of annual and special meetings pursuant to Section 14-2-705 unless the notice is waived pursuant to Section 14-2-706 . Notice must be given at least 10 but not more than 60 days before the meeting date. The window within which notices of meetings must be given is extended from 10-50 days under former § 14-2-133(a) to 10-60 days under the Code. The timing of notice is uniform for all shareholders' meetings. Formerly Georgia provided for different notice periods for certain corporate actions. Twenty day's notice was required for approval of mergers under former § 14-2-212(b). Under the Code, notice requirements for mergers or share exchanges ( § 14-2-1103(d) ), sales of assets other than in the regular course of business ( § 14-2-1202(d) ), and amendments of the articles of incorporation ( § 14-2-1003(d) ) are cross referenced to § 14-2-705 , thus providing unified treatment.

Under subsection (a) only shareholders who are entitled to vote at a meeting are entitled to notice. Thus, notice usually needs to be sent only to holders of shares entitled to vote for an election of directors or generally on other matters (in the case of an annual meeting), and on matters within the specified purposes set forth in the notice (in the case of a special meeting), and only to holders of shares of those classes or series of shares on the record date.

Notice may be mailed by other than first class mail under the provisions of § 14-2-141 by certain companies, if mailed sufficiently in advance.

Subsection (b) provides that no purposes need be stated for annual meetings unless the articles of incorporation specify otherwise, or the Code requires, as in the case of mergers, share exchanges and certain asset sales. See Code Sections 14-2-1003, 14-2-1103, 14-2-1202, and 14-2-1402.

Subsection (c) requires that notice of all special meetings must include a description of the purpose or purposes for which the meeting is called and the matters that can be acted upon at the meeting are limited to those described in the notice.

Subsection (d) provides a default rule for determining a record date, where the notice or board resolution fail to do so, which is similar to that formerly provided in § 14-2-114(c). If notice is mailed to shareholders over a period of more than one day, the day before the notice is delivered to the first shareholder is the record date.

The selection of the close of business on the day before the notice is mailed as the catch-all record date is intended to permit the corporation to mail notices to shareholders on a given day without regard to any requests for transfer that may have been received during that day.

Subsection (e) provides rules for adjourned meetings and determines whether new notice must be given to shareholders. If a new record date is or must be fixed, the 10-to-60-day notice requirement and all other requirements of Section 14-2-705 must be complied with as notice is given to the persons who are shareholders as of the new record date. A new quorum for the adjourned meeting must also be established. See Section 14-2-725.

Cross-References Annual meeting, see § 14-2-701 . "Deliver" includes mail, see § 14-2-140 . Effective date of notice, see § 14-2-141 . "Notice" defined, see § 14-2-141 . Notice otherwise required: amendment, see § 14-2-1003 ; dissolution, see § 14-2-140 2; merger and share exchange, see § 14-2-1103 ; sale of assets, see § 14-2-1202 . Special meeting, see § 14-2-702 . Waiver of notice, see § 14-2-706 .

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, § 684 et seq.

C.J.S. - 18 C.J.S., Corporations, § 447 et seq.

ALR. - Informality of meeting of stockholders as affecting action taken thereat, 51 A.L.R. 941 .

Participation in meeting as waiver of compliance with notice requirement for shareholders' meeting, 64 A.L.R.3d 358.

COMMENT

Source: Model Act, § 7.06. This replaces former § 14-2-113(d).

Subsection (a) permits any shareholder to waive any notice required by Section 14-2-705 by a written waiver, signed by the shareholder and delivered to the corporation. A waiver is effective even though it is signed at or after the time set for the meeting.

Subsection (b)(1) provides that attendance at a meeting constitutes waiver of any failure to receive the notice or defects in the statement of the date, time, and place of any meeting. If a shareholder believes that the defect in or failure of notice was in some way prejudicial, he may preserve his objection by stating at the beginning of the meeting that he objects to holding the meeting or transacting any business. If this objection is made, the corporation may correct the defect by sending proper notice to the shareholders for a subsequent meeting or by obtaining written waivers of notice from all shareholders who did not receive the notice required by Section 14-2-705.

A shareholder who attends a meeting solely for the purpose of objecting to the notice may not be counted as present for purposes of determining whether a quorum is present. See the Comment to Section 14-2-725.

In the case of special meetings, or annual meetings at which fundamental corporate changes are considered, a second purpose of the notice is to tell shareholders what is to be considered at the meeting. An objection that a particular matter is not within the stated purposes of the meeting obviously cannot be raised until the matter is presented. Thus subsection (b)(2) provides that a shareholder waives this kind of objection if he fails to object promptly after the matter is first presented.

Subsection (c) restores the approach of the notice provisions of § 14-2-113(d)(1) of former law, incorporating the disclosure requirements generally applicable to mergers, share exchanges and asset sales under the Code as a condition to obtaining an effective waiver of notice for these meetings under this section.

Note to 2004 Amendment The 2004 amendments permit a shareholder to waive, by electronic transmission, any notice required by this Chapter, the articles of incorporation, or bylaws.

Cross-References Acceptance of waiver, see § 14-2-724 . Action without meeting, see § 14-2-704 . Meeting notice, see § 14-2-705 . "Notice" defined, see § 14-2-141 . Proxies, see § 14-2-722 . Waiver of quorum objection, see § 14-2-725 .

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, § 684 et seq.

C.J.S. - 18 C.J.S., Corporations, § 447 et seq.

ALR. - Participation in meeting as waiver of compliance with notice requirement for shareholders' meeting, 64 A.L.R.3d 358.

COMMENT

Source: Model Act, § 7.07. This replaces former § 14-2-114.

Section 14-2-707 authorizes the board of directors to fix record dates for any action unless the bylaws themselves fix or provide for the fixing of a record date.

A separate record date may be established for each voting group entitled to vote separately on a matter at a meeting, or a single record date may be established for all voting groups entitled to participate in the meeting. If neither the bylaws nor the board of directors fix a record date for specific action, the section of this chapter that deals with that action itself fixes the record date.

The time in advance of a meeting for setting a record date is expanded by subsection (b) from the 50 days formerly provided by § 14-2-114(b) to 70 days, to accommodate very large publicly held corporations. The record date may not be fixed retroactively.

Under subsection (c), once the record date has been set, the same record date may be utilized for an adjournment of the meeting that reconvenes within 120 days after the date fixed for the original meeting, or the board of directors may fix a new record date. If the adjourned meeting takes place more than 120 days after the date fixed for the original meeting, subsection (c) requires that a new record date be fixed.

Cross-References Annual meeting, see § 14-2-701 . Bylaws, see § 14-2-206 & Article 10 Part 2. Court-ordered meeting, see § 14-2-703 . Other record date provisions: action without meeting, see § 14-2-704 ; distributions to shareholders, see § 14-2-640 ; notice of meeting, see § 14-2-705 ; special meeting, see § 14-2-702 . "Voting group" defined, see § 14-2-140 .

JUDICIAL DECISIONS

Owner had no dissenters' rights if not owner on record date. - Minority shareholder's LLC did not have dissenters' rights to a merger since the shares were transferred to it after the record date established pursuant to O.C.G.A. § 14-2-707 ; LLC was not entitled to participate in the event at issue, the merger, and could not obtain payment for its shares under the dissenters' rights statutes. Magner v. One Secs. Corp., 258 Ga. App. 520 , 574 S.E.2d 555 (2002).

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, § 793, 797 et seq.

C.J.S. - 18 C.J.S., Corporations, §§ 447 et seq., 479, 480.

COMMENT

Source: Model Act, § 7.20. This replaces former § 14-2-115.

Subsection (a) requires the preparation of a list of shareholders entitled to notice of a meeting.

Subsection (b) departs from the Model Act, which required the shareholder list to be available two days after the notice of the meeting, and returns to the approach of § 14-2-115, which required the list to be available at the time and place of the meeting. Shareholders seeking copies of lists may still request them under Section 14-2-1602 . Access to shareholders, their agents, and attorneys, is made explicit in subsection (b), where former § 14-2-115 was silent on the rights of agents and attorneys.

Subsection (b) permits shareholders to "inspect" the list without limitation, but implicitly permits the shareholder to "copy" the list only if the shareholder complies with the requirement of Section 14-2-1602(c), that the demand be "made in good faith and for a proper purpose." This departs from the Model Act approach, which contemplated copying of the list made available over a longer period.

Section 14-2-720 does not require the list of shareholders to be in any particular form. It may be maintained, for example, in electronic form. If the list is maintained in other than written form, however, suitable equipment must be provided so that a comprehensible list may be inspected by a shareholder as permitted by this section.

If the corporation fails to prepare the list or refuses to permit a shareholder to inspect it, a shareholder may apply to the appropriate court under subsection (c) for a summary order permitting inspection of the list; the court may further order the meeting to be postponed for a reasonable time. These powers were not expressly granted in former § 14-2-115.

This judicial remedy is the only sanction for violation of Section 14-2-720 , since Section 14-2-720(d) provides that the failure to prepare, maintain, or produce the list does not affect the validity of any action taken at the meeting. Former § 14-2-115(b) provided that if the requirements of making a shareholder list available were not met, the meeting should be adjourned at the demand of any shareholder until the requirements are complied with. No comparable provision exists in the Code; indeed, subsection (d) states explicitly that violations do not affect the validity of action taken at the meeting.

Note to 2004 Amendment The 2004 amendments permit a corporation to make a shareholders' list available for inspection on a reasonably accessible electronic network, provided that the corporation takes reasonable steps to ensure that such information is available only to the shareholders of the corporation.

Cross-References Annual meeting, see § 14-2-701 . Charge for providing copy, see § 14-2-1603 . Effective date of notice, see § 14-2-141 . Inspection of corporate records generally, see Article 16, Part 1. "Notice" defined, see § 14-2-141 . Notice of meeting, see § 14-2-705 . "Principal office": defined, see § 14-2-140 ; designated in annual registration, see § 14-2-1622 . Proper purpose for copying, see § 14-2-1602 . Record date, see § 14-2-707 . Record of shareholders, see § 14-2-1601 . Registered office: designated in annual registration, see § 14-2-1622 ; required, see §§ 14-2-202 & 14-2-501 . "Shareholder" defined, see § 14-2-140 . Special meeting, see § 14-2-702 . Voting entitlement generally, see § 14-2-721 . "Voting group" defined, see § 14-2-140.

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, §§ 792, 793.

C.J.S. - 18 C.J.S., Corporations, §§ 413 et seq., 456 et seq.

ALR. - Corporation: right to reconsider vote in stockholders' or directors' meeting, 13 A.L.R. 131 .

Purposes for which stockholder or officer may exercise right to examine corporate books and records, 15 A.L.R.2d 11.

COMMENT

Source: Model Act, § 7.21. There are no substantial changes from former law, § 14-2-117.

Subsection (a) provides that each outstanding share, regardless of class, is entitled to one vote per share unless otherwise provided in the articles of incorporation. The word "outstanding" was moved from the first to the second sentence, in the interest of clarity and emphasis. The articles of incorporation may provide for multiple or fractional votes per share, and may provide that some classes of shares are nonvoting on some or all matters, or that some classes have multiple or fractional votes per share while other classes have a single vote per share or different multiple or fractional votes per share, or that some classes constitute one or more separate voting groups and are entitled to vote separately on the matter.

The power to vary or condition voting power is also often used to give increased protection to financial interests in the corporation. It is customary, for example, to make classes of shares with preferential rights nonvoting, but the power to vote may be granted to those classes if distributions are omitted for a specified period. Other conditions may also be created that vary voting rights of holders within a class, such as creation of large blocks, or the duration of the shareholder's ownership.

Under the last sentence of subsection (a), the power to vote cannot be granted generally to nonshareholders. But creditors may in effect be given the power to vote, e.g., by creating a special class of redeemable voting shares for them, by creating a voting trust at the time the credit is extended with power in the creditors to name the voting trustees, by registering the shares in the name of the creditors as pledgees with power to vote, or by granting the creditors a revocable or irrevocable proxy to vote some or all of the outstanding shares.

Subsection (b) prohibits the voting of shares held by a domestic or foreign corporation that is itself a majority-owned subsidiary of the corporation issuing the shares. The Code departs from the Model Act's definition of "majority-owned" as the definition of a subsidiary, and clarifies an ambiguity in former law, § 14-2-117(c), which simply referred to a "subsidiary," leaving open the question of whether minority control disqualified shares. The Code deletes the Model Act's definition, which was based upon ownership of a majority of the shares entitled to vote for directors, and replaces it with ownership of sufficient shares to elect a majority of the directors. Reference to "sufficient shares to elect" recognizes the increasing use of dual classes of common stock with disparate voting rights, as well as the power of preferred shares to vote under some circumstances. The use of the word "sufficient" is intended to eliminate subjective questions of whether a minority has "working control." In this context, "sufficient" means enough votes to elect a majority of the directors even if all other shares are voted against these candidates.

The inclusion of subsection (b) is not intended to affect the possible application of common law principles that may invalidate circular holding situations not within its literal prohibition. As to the possible existence of these common law principles, see, e.g., Cleveland Trust Co. v. Eaton, 11 Ohio Misc. 151, 229 N.E.2d 850 (1967), rev'd on the basis of statutory amendment, 20 Ohio St.2d 129, 256 N.E.2d 198 (1970). The phrase "absent special circumstances" is included to enable a court to permit the voting of shares where it deems that the purpose of the section is not violated.

Subsection (c) makes the prohibition against voting of circularly-owned shares of subsection (b) inapplicable to shares held in a fiduciary capacity. Formerly, § 14-2-117(c) permitted such voting only by a subsidiary that was a state or national bank or trust company authorized to exercise fiduciary powers. Code Section 7-1-242 limits the right of corporations to exercise fiduciary powers.

Subsection (d) avoids subjecting a transaction to approval by a class of redeemable shares that will be redeemed as a result of the transaction if adequate provision has been made to ensure that the holders of the redeemable shares will in fact receive the amount payable to them on redemption. This should be distinguished from voting rights that exist when articles of incorporation are amended to redeem shares that were not redeemable by their terms, where voting rights are granted by Section 14-2-1004(a)(10).

Note to 1989 Amendment The 1989 amendment deleted the word "outstanding" from the last sentence of subsection (a) for purposes of clarification. Earlier variations from the Model Act, explained in the second sentence of the second paragraph of the original Comment, were deemed to be confusing. The intent was to emphasize that shares, and only shares, are entitled to vote.

Note to 1997 Amendments Subsection (b) was amended in 1997 to prohibit a corporation from voting its own shares.

Cross-References Acceptance of votes, see § 14-2-724 . Articles of incorporation, see § 14-2-202 . Cumulative voting, see § 14-2-728 . Director establishment of voting rights, see § 14-2-602 . "Notice" defined, see § 14-2-141 . Proxy voting, see § 14-2-722 . Redeemable shares, see § 14-2-601 . Redemption of shares, see § 14-2-641 . Series of shares, see § 14-2-602 . "Share" defined, see § 14-2-140 . Shareholders' meetings, see § 14-2-701 et seq. Voting by nominees, see § 14-2-723 . Voting by voting groups, see §§ 14-2-140 , 14-2-725 , 14-2-726 . Voting rights generally, see § 14-2-701 .

JUDICIAL DECISIONS

Editor's notes. - In light of the similarity of the statutory provisions, decisions under former Code Section 14-2-117, which was repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, are included in the annotations for this Code section.

Full payment presumed following board resolution. - Although a corporation may issue shares and share certificates to a person who is not entitled to them by reason of a full payment, full payment becomes conclusively presumed when, in the absence of bad faith, the board of directors issues a resolution as to the fair value of the consideration to the corporation. In re Delk Rd. Assocs., 37 Bankr. 354 (Bankr. N.D. Ga. 1984) (decided under former § 14-2-117).

Cited in Givens v. Spencer, 232 Ga. 806 , 209 S.E.2d 157 (1974); Bloodworth v. Sandersville Prod. Credit Ass'n, 245 Ga. 40 , 262 S.E.2d 804 (1980).

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, §§ 837 et seq., 845 et seq.

C.J.S. - 18 C.J.S., Corporations, § 456 et seq.

ALR. - Corporations: right to reconsider vote in stockholders' or directors' meeting, 13 A.L.R. 131 .

Waiver of right to object to voting of invalid or unauthorized stock, 72 A.L.R. 948 .

Voting power of corporation stock as confined to issued and outstanding stock to exclusion of authorized unissued stock or stock which has been reacquired by the corporation, 90 A.L.R. 315 .

Powers of voting trustees, 159 A.L.R. 1067 .

Construction, application, and effect of constitutional provisions or statutes relating to cumulative voting of stock for corporate directors, 43 A.L.R.2d 1322.

Transfer of, and voting rights in, stock, of co-operative apartment association, 99 A.L.R.2d 236.

Corporations: casting of ballots after closing of polls, 41 A.L.R.3d 234.

Corporations: power of inspectors of election relating to irregular or conflicting proxies, 44 A.L.R.3d 1443.

Corporations: validity of charter provision for nonvoting common stock, 52 A.L.R.3d 1131.

Right, as between pledgor and pledgee, to vote pledged stock, 68 A.L.R.3d 680.

Validity of variations from one share-one vote rule under modern corporate law, 3 A.L.R.4th 1204.

COMMENT

Source: Model Act, § 7.22. This replaces former § 14-2-119.

Subsection (a) provides that shareholders may vote in person or by proxy. Subsection (a) gives voting rights to "shareholders," and not to pledgees, and in that sense is consistent with the rule of former § 14-2-117(i), which was more specific. Pledgees obtain voting rights only through the grant of a proxy, as provided in this section.

Subsection (b) states the general rules on powers of attorney.

Subsection (c) provides that an appointment form that contains no expiration date is valid for 11 months. This is consistent with former § 14-2-119(b). This ensures that in the normal course a new appointment will be solicited at least once every 12 months. But an appointment form may validly specify a longer period if the parties agree.

The appointment of a proxy is essentially the appointment of an agent and is revocable in accordance with the principles of agency law unless it is "coupled with an interest." See subsection (d). Thus, an appointment may be revoked either expressly or by implication, as when a shareholder later executes a second appointment form inconsistent with an earlier one, or attends the meeting in person and seeks to vote on his own behalf. Former § 14-2-119(c) provided that attendance of a shareholder at a meeting and an election to vote in person revokes a previously granted proxy. This was omitted from the Code as surplusage.

Subsection (d) deals with the irrevocable appointment of a proxy. The general test adopted is the common law test that all appointments are revocable unless they expressly provide for irrevocability and are "coupled with an interest." Subsection (d) provides considerable certainty since it describes several accepted forms of relationship as examples of "proxies coupled with an interest." These examples are not exhaustive and other arrangements may also be held to be "coupled with an interest."

Subsection (e) preserves the rule of former § 14-2-119(c) that the death or incapacity of a shareholder does not affect the corporation's right to accept a proxy unless the corporation receives prior notice. In view of the widespread dispersal of shareholders in many corporations, it is not feasible for the corporation to learn of these events independently of notice. On the other hand, subsection (e) does not affect the validity of the proxy appointment or its manner of exercise as between the proxy and the personal representatives of the decedent or incompetent. That relationship is governed by the law of agency independent of the Code.

Subsection (f) provides that an irrevocable proxy is revoked when the interest with which it was coupled is extinguished - for example, by repayment of the loan or release of the pledge.

Subsection (g) provides that a transferee for value of shares that are subject to an irrevocable appointment takes free of the appointment if (1) he did not know of the existence of the appointment and (2) the existence of the irrevocable appointment was not noted conspicuously on the certificate or information statement. Former § 14-2-119(i) provided for automatic revocation of a proxy when shares are transferred to a bona fide purchaser for value without notice.

The omission of the language of former § 14-2-119(f), which prohibits the sale of the vote, is deliberate. Older cases holding sales of votes to be against public policy are inapposite in the context of economic relationships, and that the doctrine frustrated legitimate transactions. Thus, creditors or shareholders of a particular class may find that certain contingencies in credit agreements, bond indentures or the articles of incorporation were not fully covered, and that payments to shareholders with respect to some changes are appropriate. See, Clark, Vote Buying and Corporate Law, 29 Case W. Res. L. Rev. 776 (1979) and Manne, Some Theoretical Aspects of Share Voting, 64 Colum. L. Rev. 1427 (1964).

Note to 1993 Amendment The 1993 amendment authorizes shareholders to appoint proxies using virtually any written medium, including facsimile. The amendment also authorizes a corporation to adopt optional bylaws providing for additional means by which a shareholder may appoint proxies or vote, including the authorization of oral proxies.

Note to 1997 Amendment Subsections (b), (c), (d) and (h) were amended to conform to Model Act amendments concerning facsimile transmission of proxies. The only other substantive change was authorization of execution of proxies by either a shareholder or his agent or attorney-in-fact. The 1997 amendments generally conform to the Model Act by revising subsections (c), (d) and (h) to add references to facsimile transmissions, although the Model Act contains a broader reference to "electronic transmission."

Note to 1999 Amendment Subsections (b), (c), (d) and (h) were amended to conform to recent Model Act amendments concerning the electronic transmission of proxies. The new subsection (i) is the last sentence of the former subsection (b), with the addition of the reference to electronic transmission.

This section provides that a shareholder may appoint a proxy to vote by signing an appointment form, either personally or by his agent or attorney-in-fact. The 1999 amendment authorizes shareholders to appoint a proxy by electronic transmission. An electronic transmission which appoints a proxy is deemed the equivalent of a signed appointment form if it contains or is accompanied by information from which it can be reasonably verified that the transmission was authorized by the shareholder or by the shareholder's agent or attorney-in-fact. "Electronic transmission" as used in this section means any process of communication not directly involving the physical transfer of paper that is suitable for the retention, retrieval, and reproduction of information by the recipient. See the 1999 amendment to § 14-2-140 . Subsection (b) is intended to sanction the practice whereby shareholders who have been provided proxy materials with a personal identification number may electronically transmit (e.g., by touch-tone telephone or e-mail) their vote and identifying number to a person who, acting as the shareholder's agent, causes that information to be transmitted, directly or indirectly, to the inspector of election.

The appointment is effective when an appointment form or an electronic transmission (or documentary evidence thereof, including verification information) is received by the inspector of election or the officer or agent of the corporation authorized to receive and tabulate votes. The proxy has the same power to vote as that possessed by the shareholder, unless the appointment form or electronic transmission contains an express limitation on the power to vote or direction as to how to vote the shares on a particular matter, in which event the corporation must tabulate the votes in a manner consistent with that limitation or direction. See subsection (h).

Cross-References Acceptance of proxy votes, see § 14-2-724 . Certificateless shares, see § 14-2-626 . "Conspicuously" defined, see § 14-2-140 . "Electronic transmission" defined, see § 14-2-140 . "Include" defined, see § 14-2-140. Information on share certificate, see § 14-2-625 . "Notice" defined, see § 14-2-141 . "Secretary" defined, see § 14-2-140. "Transmitted electronically" defined, see § 14-2-140.

JUDICIAL DECISIONS

Editor's notes. - In light of the similarity of the statutory provisions, a decision under former Code Section 14-2-119, which was repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, is included in the annotations for this Code section.

Cited in Funding Sys. Leasing Corp. v. Pugh, 530 F.2d 91 (5th Cir. 1976).

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, §§ 885 et seq.

C.J.S. - 18 C.J.S., Corporations, § 472 et seq.

ALR. - Corporation: right to reconsider vote in stockholders' or directors' meeting, 13 A.L.R. 131 .

Power to require nonassenting creditors or bondholders to accept securities of, or shares in, new or reorganized corporation, 28 A.L.R. 1196 ; 88 A.L.R. 1238 .

Revocability of proxy to vote stock, 159 A.L.R. 307 .

Expenses incurred by competing factions within corporation in soliciting proxies as charge against corporation, 51 A.L.R.2d 873.

Corporations: power of inspectors of election relating to irregular or conflicting proxies, 44 A.L.R.3d 1443.

Misrepresentation in proxy solicitation - state cases, 20 A.L.R.4th 1287.

COMMENT

Source: Model Act, § 7.23. This replaces former § 14-2-2(12), which defines "shareholder."

Traditionally, a corporation recognizes only the registered owner as the owner of shares. That was the former approach in Georgia. But it has become a common practice for persons purchasing shares to have them registered in the "street name" of a broker-dealer or other financial institution, principally to facilitate transfer by eliminating the need for the beneficial owner's signature and delivery.

The purpose of Section 14-2-723 is to facilitate direct communication between the corporation and the beneficial owner by authorizing the corporation to create a procedure for bypassing both the registered owner and intermediate brokerage firms. The adoption of this procedure is discretionary with each corporation and affirmative action by the corporation is necessary to accomplish it. The procedure is also discretionary with the shareholder, who must elect to follow the applicable procedure prescribed by the corporation. The shareholder retains all of his rights except those granted to the beneficial owner.

The corporation may limit or qualify the procedure as it deems appropriate.

The definition of "shareholder" in Section 14-2-140 includes beneficial owners to the extent they obtain the rights of shareholders pursuant to the procedure authorized by this section.

Cross-References "Shareholder" defined, see § 14-2-140 .

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, § 934 et seq.

C.J.S. - 18 C.J.S., Corporations, § 447 et seq.

COMMENT

Source: Model Act, § 7.24. This replaces former §§ 14-2-115, 14-2-117, & 14-2-119.

Corporations are often asked to accept a written instrument as evidence of action by a shareholder. Ordinarily the corporation will have no knowledge of the circumstances surrounding the execution of the instrument. This section establishes general rules permitting the corporation to accept instruments if they appear to be executed in the manner described in the section. This privilege is, of course, qualified by a "good faith" requirement, so that actual knowledge of the circumstances of execution of an instrument cannot be ignored. The rules set forth in this section are not exclusive and may be supplemented by additional rules established by the corporation in its bylaws pursuant to Section 14-2-206(b).

Subsection (a) provides a safe harbor for corporations that accept votes or proxies if they appear to be executed by the shareholder, bearing a name that "corresponds" to the record name of a shareholder, if done in good faith.

Subsection (b) provides a safe harbor for corporations that accept votes bearing signatures in representative capacities. Subsection (b) permits the acceptance of an instrument executed by a person other than the shareholder if there is a designation or evidence of the capacity of the person executing the instrument that indicates the act of the person is the act of the shareholder. It does not affect the rights of grantors and grantees of proxies inter se. Subsections (b)(1)-(3) correspond to former § 14-2-117(e)-(g); and subsection (b)(5) corresponds to § 14-2-117(h). There was no counterpart in former law corresponding to subsection (b)(4), which simply states that if a pledgee has a power of attorney to vote the pledgor's shares, the corporation may accept the votes. This is merely a restatement of agency principles; another statement of those principles appeared in former § 14-2-117(i), which provided that the pledgor may continue to vote pledged shares until they are transferred to the name of the pledgee.

Subsection (c) provides a safe harbor for corporations rejecting votes in good faith. It permits rejection of an instrument if the officer or agent tabulating votes has a "reasonable basis for doubt" about the validity of the signature or about the authority of the person acting on behalf of the shareholder.

Subsection (d) provides protection for officers and directors who accept or reject instruments based on the standards set out in the preceding subsections. This is broader than former law; § 14-2-117(j) only protected corporations that accepted record owners as the owners of shares for all purposes.

Subsection (e) makes clear that the validity or invalidity of corporate action is ultimately a matter for judicial resolution through review of the results of an election in a suit to enjoin or compel corporate action. It is contemplated that any such suit will be brought promptly, typically before the corporate action is consummated or the corporation's position otherwise changes in reliance on the vote, and that any suit that is not brought promptly under the circumstances would normally be barred because of laches.

Note to 1989 Amendment Subsection (c) was amended to delete a reference to "a bylaw authorized by the articles of incorporation" and replace it with a reference to "a bylaw adopted by the shareholders," which is consistent with the reference to Code Section 14-2-1021.

Note to 1997 Amendments Subsection (c) was amended by adding the last clause, permitting corporations to reject proxy votes when concerned about the accuracy of reproductions. Subsections (d) and (e) were amended by the addition or a reference to proxies appointed in accordance with the standards of Code section 14-2-722(b), which authorizes facsimile transmission of proxies.

Cross-References Consents, see § 14-2-704 . "Entity" defined, see § 14-2-140 . Officers, see § 14-2-840 . Proxies, see § 14-2-722 . "Secretary" defined, see § 14-2-140 . "Shareholder" defined, see § 14-2-140. Voting by nominees, see § 14-2-723 . Waiver of notice, see § 14-2-706 .

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, § 823 et seq.

C.J.S. - 18 C.J.S., Corporations, § 447 et seq.

ALR. - Corporations: right to reconsider vote in stockholders' or directors' meeting, 13 A.L.R. 131 .

Waiver of right to object to voting of invalid or unauthorized stock, 72 A.L.R. 948 .

Powers of voting trustees, 159 A.L.R. 1067 .

Corporations: casting of ballots after closing of polls, 41 A.L.R.3d 234.

Corporations: power of inspectors of election relating to irregular or conflicting proxies, 44 A.L.R.3d 1443.

Right, as between pledgor and pledgee, to vote pledged stock, 68 A.L.R.3d 680.

COMMENT

Source: Model Act, § 7.25. This replaces former § 14-2-116.

The Code has been altered to reflect voting by voting groups, which are defined in Section 14-2-140 as all shares of one or more classes or series that under the articles of incorporation are entitled to vote collectively. On most matters coming before shareholders' meetings, only a single voting group, consisting of a class of voting shares, will be involved, and action on such a matter is effective when approved by that voting group pursuant to Section 14-2-725. See Section 14-2-726(a).

Under the Code, classes or series of shares are generally not entitled to vote separately by voting group except to the extent specifically authorized by the articles of incorporation. But Section 14-2-1004 of the Code grants classes or series of shares the right to vote separately when fundamental changes are proposed in the articles of incorporation that may adversely affect that class. Section 14-2-1004 provides, further, that when two or more series are affected in essentially the same way, the series are lumped together and must vote as a single voting group rather than as multiple voting groups on the matter. Similarly, votes of a class may be required to waive preemptive rights for the class under Code Section 14-2-630.

Following this approach, subsection (a) provides that a voting group may take action only if a quorum of those shares exists, and provides a default rule of a majority of the shares, in the absence of a contrary provision in the articles of incorporation or this Code.

The articles of incorporation may modify the quorum and voting requirements of Section 14-2-725 for a single voting group or for all voting groups entitled to vote on any matter. The articles of incorporation may increase the quorum and voting requirements to any extent desired up to and including unanimity upon compliance with Section 14-2-727; they may also require that shares of different classes or series are entitled to vote separately or together on specific issues or provide that actions are approved only if they receive the favorable vote of a majority of the shares of a voting group present at a meeting at which a quorum is present. Higher voting requirements may also be imposed through bylaws adopted pursuant to Section 14-2-1021, or for business combinations through bylaws adopted pursuant to Sections 14-2-1113 and 14-2-1133.

Subsection (a) imposes no limit of one-third on quorums the articles of incorporation or a shareholder adopted bylaw might provide to alter the basic majority rule. Section 14-2-727(a) of the Code governs the limits on quorum provisions, setting a lower limit of one-third of all votes, preserving the rule of former § 14-2-116(a).

The phrase "or this chapter" in Section 14-2-725(a) and (c) makes clear that wherever the provisions of the Model Act provide more stringent voting or quorum requirements, they control over Section 14-2-725. More stringent requirements are provided for the approval of certain fundamental corporate changes - for example, certain amendments to the articles of incorporation, mergers, and the sale of all or substantially all the corporate property not in the ordinary course of business. See Sections 14-2-1003, 14-2-1103, and 14-2-1202. See also Section 14-2-863, which imposes a special voting and quorum requirement for approval of conflict of interest transactions by members of the board of directors, Article 11, Part 2, and Article 11A, both of which provide special voting requirements for business combinations with interested shareholders.

Subsection (b) provides that once a quorum is present, it continues, notwithstanding withdrawal of a shareholder from a meeting, unless the meeting is adjourned under circumstances where a new record date is or must be set. This latter provision is an addition to existing Georgia law.

The language "other than solely to object to holding the meeting or transacting business at the meeting" was added to the Model Act version of subsection (b). It follows the language of Section 14-2-706(b), permitting a shareholder to make a special appearance for purposes of objecting to the lack of notice or defective notice without being counted for purposes of a quorum.

Subsection (c) provides that an action (other than the election of directors, which is governed by Section 14-2-728 ) is approved by a voting group at a meeting at which a quorum is present if the votes cast in favor of the action exceed the votes cast opposing the action. This section changes the traditional rule of former § 14-2-116(b) that an action was approved at a meeting at which a quorum was present if it received the affirmative vote "of the majority of the shares represented at that meeting." The traditional rule in effect treated abstentions as negative votes; the Code treats them truly as abstentions.

Subsection (c) of the Model Act originally permitted supermajority shareholder voting only through the articles of incorporation or the statute. Subsection (c) was amended to refer to supermajority voting requirements imposed in bylaws adopted by shareholders pursuant to Section 14-2-1021 of the Code. This follows the general approach of former § 14-2-116(b), which permitted supermajority voting to be imposed in the bylaws; subject, of course to the concurrent power of shareholders and directors to amend bylaws in former § 14-2-176(b). Under old § 14-2-176(c) bylaw amendments could be "locked in" with a supermajority amendment requirement by providing for this in the articles.

Subsection (d) of the Model Act was deleted as surplusage. It duplicates Section 14-2-727(b).

Georgia's fair price statute, formerly § 14-2-235, which now appears as Part 2 of Article 11, permits the board to "opt in" through a bylaw amendment that can only be repealed by a shareholder vote that includes the affirmative vote of a majority of all eligible shares, excluding those held by a related person - a requirement that makes abstentions "no" votes. A similar bylaw election can be made with respect to business combinations under Article 11A that contains restrictions on repeal.

Cross-References Adjourned meeting record date, see § 14-2-707 . Amendment of articles of incorporation, see § 14-2-1003 . Amendment of bylaws, see Article 10, Part 2. Business combination with interested shareholder, see §§ 14-2-1110 et seq. and 14-2-1131 et seq. Bylaw requirements for voting, see § 14-2-1021 . Dissolution, see § 14-2-140 2. Election of directors, see § 14-2-728 . Merger and share exchange, see § 14-2-1103 . Multiple voting groups, see § 14-2-726 . Proxy voting, see § 14-2-722 . Quorum and voting requirements for directors' conflicting interest transactions, see § 14-2-863 . Record date, see § 14-2-707 . Sale of assets, see § 14-2-1202 . Supermajority requirements, see §§ 14-2-727 & 14-2-1021 . "Voting group" defined, see § 14-2-140 .

JUDICIAL DECISIONS

Editor's notes. - In light of the similarity of the statutory provisions, a decision under former Code Section 14-2-716, which was repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, is included in the annotations for this Code section.

Cited in Long v. Atlanta & W. Point R.R., 253 Ga. 257 , 320 S.E.2d 530 (1984).

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, §§ 818 et seq.

C.J.S. - 18 C.J.S., Corporations, §§ 454, 461.

ALR. - Corporation: right to reconsider vote in stockholders' or directors' meeting, 13 A.L.R. 131 .

Stockholders required for quorum or vote as determined by number of stockholders or number of shares, 63 A.L.R. 1106 .

COMMENT

Source: Model Act, § 7.26. There was no counterpart in former Georgia law.

Subsection (a) provides that when a matter is to be voted upon by a single voting group, action is taken when the voting group votes upon the action as provided in Section 14-2-725. In most instances the single voting group will consist of all the shares of the class or classes entitled to vote by the articles of incorporation; voting by two or more voting groups as contemplated by subsection (b) is the exceptional case.

Subsection (b) basically requires that if more than one voting group is entitled to vote on a matter, favorable action on a matter is taken only when it is voted upon favorably by each voting group, counted separately. Implicit in this section are the concepts that (1) different quorum and voting requirements may be applicable to different matters considered at a single meeting and (2) different quorum and voting requirements may be applicable to different voting groups on the same matter. See the Comment to Section 14-2-725.

Cross-References Amendment of articles of incorporation, see § 14-2-1004 . Change of voting group requirements, see § 14-2-727 . Merger and share exchange, see § 14-2-1103 . Number of votes per share, see § 14-2-721 . Quorum and voting requirements, see § 14-2-725 . Supermajority requirements, see § 14-2-727 . Voting by voting groups on amendments of articles of incorporation, see § 14-2-1004 . "Voting group" defined, see § 14-2-140 .

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, §§ 923 et seq.

C.J.S. - 18 C.J.S., Corporations, § 461.

COMMENT

Source: Model Act, § 7.27, and former §§ 14-2-116(a) and 14-2-118(b).

Subsection (a) permits the articles of incorporation to increase the quorum or voting requirements for approval of an action by shareholders up to any desired amount including unanimity.

As it appeared in the Model Act, subsection (a), permitting upward variances in quorums from simple majority, eliminated the explicit provision of former § 14-2-116(a), which permitted reduction of a quorum to not less than one-third of the shares entitled to vote. The policy of existing Georgia law was preserved by adding the words "or lesser", and restoring the one-third limit. The Model Act provision, which permitted such voting variations only in the articles, was amended to continue Georgia's rule of also permitting such variations in the bylaws, in former § 14-2-116(a). Article 11, Part 2 of this Chapter preserves the ability of the board to amend the bylaws to require supermajority votes for business combinations with interested shareholders. See also Section 14-2-1133 .

Subsection (b) of the Model Act requires any amendment of the articles of incorporation that adds, modifies, or repeals any supermajority provision to be approved by the greater of the proposed quorum and vote requirement or by the quorum and vote required by the articles before their amendment. This approach was rejected in the Code, which permits adoption of supermajority voting requirements by the voting rules then in effect. The Model Act approach reflected a mistrust of shareholder voting not shared by Georgia. On the other hand, in large publicly held corporations normal shareholder apathy at annual meetings could make adoption of supermajority requirements difficult if not impossible, even though obtaining the supermajority would be feasible for a vote on an event that generated considerable shareholder interest, such as a merger or share exchange. Subsection (b) of the Model Act was amended to follow the language of former law, § 14-2-118(b). This protects supermajority provisions from being repealed by lower votes, but does not require adoption of a supermajority voting requirement to receive more than the usual vote for approval.

Cross-References Amendment of articles of incorporation, see Article 10, Part 1. Bylaw provisions changing quorum and voting requirements, see §§ 14-2-1021 & 14-2-1022 . Quorum and voting requirements in general, see § 14-2-725 . Quorum and voting requirements for directors' conflicting interest transactions, see § 14-2-863 . Voting by voting group, see § 14-2-726 . "Voting group" defined, see § 14-2-140 .

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, § 818 et seq.

C.J.S. - 18 C.J.S., Corporations, §§ 454, 461.

ALR. - Stockholders required for quorum or vote as determined by number of stockholders or number of shares, 63 A.L.R. 1106 .

Validity, construction, and effect of provision in charter or bylaw requiring supermajority vote, 80 A.L.R.4th 667.

COMMENT

Source: Model Act, § 7.28. This replaces former §§ 14-2-117 & 14-2-119.

Subsection (a) provides that directors are elected by a plurality of the votes cast, where former law was silent on the subject.

Subsection (b) makes the default rule no cumulative voting, unless provided in the articles of incorporation, which is consistent with former Georgia law in § 14-2-117(d). Subsection (b) provides basically for an "opt in" election. Under subsection (c) this election may be made simply by inserting a statement that "all directors are elected by cumulative voting" or "holders of class A shares are entitled to cumulate their votes," or words of similar import. The effect of such a statement is to make applicable automatically the detailed provisions of subsections (c) and (d) describing the cumulative right to vote at elections of directors by the voting group or groups specified.

Subsection (c) provides that if the articles provide for cumulative voting, whether by all shareholders or by a designated voting group, they may cumulate their votes. Former law did not provide for cumulative voting by a voting group. Subsection (c) of the Model Act was amended by the addition of the word "or" and inclusion of both possibilities. The quotation marks in the Model Act provision were eliminated to eliminate any inference that specific words had to be used in order to comply with the statute.

Subsection (d) attempts to prevent surprise where cumulative voting is permitted by requiring (1) notice of that cumulative voting is in effect in the notice of meeting or proxy statement or (2) 48 hours' advance notice to the corporation of a shareholder's intent to vote cumulatively. Subsection (d)(1) of the Model Act was amended by deleting the words "is authorized" and replacing them with "will be in effect." Complying with federal proxy rules requiring the disclosure of the authorization of cumulative voting in a corporate charter should not trigger the right of shareholders to vote cumulatively without notice from the shareholders, unless the corporation deliberately decides to announce that cumulative voting will be "in effect" for the upcoming election. The word "conspicuously" was deleted from the Model Act because it might create needless conflicts with federal proxy rules.

Cross-References Articles of incorporation: amendment, see Article 10, Part 1; content, see § 14-2-202 . "Deliver" includes mail, see § 14-2-140 . Notice of meeting, see § 14-2-705 . "Notice" to the corporation, see § 14-2-141 . Proxies, see § 14-2-722 . Quorum of shareholders, see § 14-2-725 . Voting for directors by voting group, see § 14-2-804 . "Voting group" defined, see § 14-2-140 .

Note to 2008 Amendment The 2008 amendment to subsection (a) of Code Section 14-2-728 provides that the statutory default plurality rule may be altered in the articles of incorporation of any corporation or in a bylaw adopted by the board of directors of a publicly traded corporation. In light of the holdover rule in subsection (e) of Code Section 14-2-805, a corporation that adopts a variation from the statutory default plurality rule may wish to consider using advance conditional resignations as permitted by Code Section 14-2-807, such as a resignation conditioned upon acceptance by the board if the director fails to receive the requisite vote.

RESEARCH REFERENCES

Am. Jur. 2d. - 18B Am. Jur. 2d, Corporations, § 1179 et seq.

C.J.S. - 19 C.J.S., Corporations, § 518 et seq.

ALR. - Corporations: right to reconsider vote in stockholders' or directors' meeting, 13 A.L.R. 131 .

Voting power of corporation stock as confined to issued and outstanding stock to exclusion of authorized unissued stock or stock which has been reacquired by the corporation, 90 A.L.R. 315 .

Powers of voting trustees, 159 A.L.R. 1067 .

Construction, application, and effect of constitutional provisions or statutes relating to cumulative voting of stock for corporate directors, 43 A.L.R.2d 1322.

Corporations: validity of charter provision for nonvoting common stock, 52 A.L.R.3d 1131.

Validity of variations from one share-one vote rule under modern corporate law, 3 A.L.R.4th 1204.

COMMENT

Source: Former § 14-2-166(d).

This Code section was added in 1989 to preserve prior Georgia law that explicitly provides for adjournment for lack of a quorum. Repeated adjournments are permitted by this section.

Cross-References Quorum of shareholders, see § 14-2-725 .

COMMENT

Note to 1997 Amendments This section was added in 1997. Subsection (a) requires publicly held corporations meeting the definition of having shares listed on a national securities exchange to appoint inspectors to act at shareholders meetings, and to make a written report of the determinations made pursuant to subsection (b). The requirement of a written report is to facilitate judicial review of determinations made by inspectors.

Subsection (b) specifies the duties of inspectors of election. Normally, in making these determinations, the only facts before the inspectors should be appointment forms and electronic transmissions (or written evidence thereof), envelopes submitted with appointment forms, ballots and the regular books and records of the corporation, including lists of holders obtained from depositories. However, inspectors may consider other reliable information for the limited purpose of reconciling appointment forms, electronic transmissions, and ballots submitted by or on behalf of banks, brokers, their nominees, and similar persons which represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the shareholder holds of record.

Cross-References "National Securities Exchange" defined, see § 14-2-140 . Officer, see § 14-2-840 .

COMMENT

Source: Model Act, § 7.30. There are no substantial changes from former law, § 14-2-121 .

Subsection (a) provides a simple and direct procedure for the creation of an enforceable voting trust. This simple disclosure requirement eliminates the possibility that the voting trust may be used to create "secret, uncontrolled combinations of stockholders to acquire control of the corporation to the possible detriment of non-participating shareholders." Lehrman v. Cohen, 222 A.2d 800, 807 (Del. 1966).

The purpose of Section 14-2-730 is not to impose narrow or technical requirements on voting trusts. For example, a voting trust that by its terms extends beyond the 10-year maximum should be treated as being valid for the maximum permissible term of 10 years.

Following the long established pattern of earlier versions of the Model Act and the statutes of many states, a voting trust under subsection (b) is valid for a maximum of 10 years after its effective date.

Subsection (c) permits a voting trust to be extended for successive terms of 10 years commencing with the date the first shareholder signs the extension agreement. Shareholders who do not agree to an extension are entitled to the return of their shares upon the expiration of the original term.

Note to 1989 Amendment Subsection (a) was amended to change "copies" to "a copy."

Cross-References "Deliver" includes mail, see § 14-2-140 . Delivery to corporation, see § 14-2-141 . Inspection of shareholder lists, see § 14-2-720 , Article 16, Part 1. "Principal office": defined, see § 14-2-140 ; designated in annual registration, see § 14-2-1622 . "Shareholder" defined, see § 14-2-140. Shares held by nominees, see § 14-2-723 . Voting agreements, see § 14-2-731 .