COMMENT

CODE REVISION COMMISSION NOTE ON COMMENTS The comments appearing in this title have been prepared under the supervision of the State Bar of Georgia as noted in the comments. Neither the General Assembly of Georgia nor the Code Revision Commission of the State of Georgia has participated in the drafting of these comments or has reviewed the comments for their content. The comments should not be considered to constitute a statement of legislative intention by the General Assembly of Georgia nor do they have the force of statutory law.

NOTES AS TO COMMENTS The comments in Chapters 3 through 6 of Title 14 were prepared in 1967 and 1968 by Pasco M. Bowman, II, then a professor at the University of Georgia School of Law, who was reporter of the Special Advisory Committee of the Corporate and Banking Law Section of the State Bar of Georgia when the former Georgia Business Corporation Code was enacted in 1968. These comments have been reproduced, without substantial change, under the supervision of Nat G. Slaughter, III, Chairman, and Mitchell M. Purvis, Secretary, of the Corporation Code Revision Committee of the Corporate and Banking Law Section of the State Bar of Georgia. Those comments which are designated as Notes to 1975, 1976, or 1977 Amendments were prepared under the supervision of John D. Hopkins, then Chairman of the Corporation Code Revision Committee. Those comments which are designated as Notes to 1969, 1970, 1972, 1973, 1980, or 1981 Amendments were prepared by Nat G. Slaughter, III, Chairman, and Mitchell M. Purvis, Secretary, of the Corporation Code Revision Committee.

Certain references in the comments prepared by Professor Bowman to the procedures under Georgia law prior to the 1976 constitutional amendment of presenting articles of incorporation and other corporate documents to judges of the superior courts have been deleted. References in all comments to "prior Georgia law" or to a certain specific section of "prior Ga. Code Ann. § 22-________" are to the Georgia corporate law which existed prior to April 1, 1969, the effective date of the Georgia Business Corporation Code. References to a certain specific section of "Georgia Business Corporation Code § 22-________" are to sections enacted in 1968 or thereafter which were repealed prior to the effective date of the 1981 Code. Citations and references in all comments to existing provisions of Georgia law are to the 1981 Code sections.

For comments in Chapter 2, see note at beginning of Chapter 2.

Cross references. - Subjection of corporate charters to provisions of Constitution of Georgia, Ga. Const. 1983, Art. III, Sec. VI, Para. V.

Actions subjecting corporations to criminal liability, § 16-2-22 .

Professional fund raisers and solicitors, § 43-17-1 et seq.

Taxation of corporations generally, §§ 48-7-21 , 48-7-25 , 48-7-31 .

Administrative Rules and Regulations. - Rules of General Applicability, Official Compilation of the Rules and Regulations of the State of Georgia, Office of Secretary of State, Commissioner of Corporations, Chapter 590-7-1.

Corporate Information Center, Official Compilation of the Rules and Regulations of the State of Georgia, Office of Secretary of State, Commissioner of Corporations, Chapter 590-7-5.

Law reviews. - For article discussing early laws of incorporation in Georgia, see 11 Ga. B. J. 156 (1948). For article discussing Georgia's Corporation Law prior to the 1968 Acts, see 2 Ga. St. B. J. 153 (1965). For article, "Does State Corporation Law Have a Future?," see 8 Ga. St. B. J. 311 (1972). For article discussing developments in Georgia Corporation Law in 1976 and 1977, see 29 Mercer L. Rev. 31 (1977). For article surveying Georgia cases in the area of business associations from June 1977 through May 1978, see 30 Mercer L. Rev. 1 (1978). For article on recent judicial and legislative developments in Georgia Corporation Law, see 31 Mercer L. Rev. 43 (1979). For survey article on business associations, see 44 Mercer L. Rev. 67 (1992). For annual survey article on business associations, see 50 Mercer L. Rev. 171 (1998). For survey article discussing developments in law of business associations for the period from June 1, 1998 through May 31, 1999, see 51 Mercer L. Rev. 127 (1999). For survey article discussing developments in law of business associations for the period from June 1, 1999 through May 31, 2000, see 52 Mercer L. Rev. 95 (2000). For survey article on cases in the areas of corporate, securities, partnership, and banking law for the period from June 1, 2002 through May 31, 2003, see 55 Mercer L. Rev. 55 (2003). For article, "Excessive Corporate Risk-Taking and the Decline of Personal Blame," see 65 Emory L.J. 533 (2015). For article, "The Power Few of Corporate Compliance," see 53 Ga. L. Rev. 132 (2018). For article, "Disruptive Innovation in Criminal Defense: Demanding Corporate Criminal Trials," see 69 Mercer L. Rev. 825 (2018). For article, "Cybersecurity Oversight Liability," see 35 Ga. St. U.L. Rev. 663 (2019). For annual survey on business associations, see 71 Mercer L. Rev. 15 (2019).

OPINIONS OF THE ATTORNEY GENERAL

The standards of fidelity set by the Financial Institutions Code (see now O.C.G.A. T. 7) are as high or higher than those which are set by the Georgia Business Corporation Code (see now O.C.G.A. T. 14). 1977 Op. Att'y Gen. No. U77-62.

Title not applicable to mergers between banks and business corporations. - Mergers and consolidations between banks or trust companies and business corporations are governed exclusively by Ga. L. 1968, p. 565, as amended, and thus Ga. L. 1974, p. 705, as amended, is not applicable. 1978 Op. Att'y Gen. No. 78-36 (see now O.C.G.A. T. 7 and T. 14).

RESEARCH REFERENCES

ALR. - Disregard of Separate Existence of Corporations Under Single Business Enterprise Theory, 50 A.L.R.7th 2.

CHAPTER 1 GENERAL PROVISIONS

Reserved

CHAPTER 2 BUSINESS CORPORATIONS

General Provisions.

S HORT TITLE AND RESERVATION OF POWER .

F ILING DOCUMENTS .

S ECRETARY OF STATE .

D EFINITIONS .

E XECUTION OF DOCUMENTS .

Incorporation.

Purposes and Powers.

Name.

Office and Agent.

R EGISTERED AGENTS AND SERVICE OF PROCESS .

V ENUE .

Shares and Distributions.

S HARES .

I SSUANCE OF SHARES .

S UBSEQUENT ACQUISITION OF SHARES BY SHAREHOLDERS AND CORPORATION .

D ISTRIBUTIONS .

Shareholders.

M EETINGS .

V OTING .

V OTING TRUSTS AND AGREEMENTS .

D ERIVATIVE PROCEEDINGS .

Directors and Officers.

B OARD OF DIRECTORS .

M EETINGS AND ACTION OF THE BOARD .

S TANDARDS OF CONDUCT .

O FFICERS .

I NDEMNIFICATION .

C ONFLICTING INTEREST TRANSACTIONS .

D ISCLAIMER OF BUSINESS OPPORTUNITIES .

Close Corporations.

C REATION .

S HARES .

G OVERNANCE .

R EORGANIZATION AND TERMINATION .

J UDICIAL SUPERVISION .

T RANSITION PROVISIONS .

Amendment of Articles of Incorporation and Bylaws.

A MENDMENT OF ARTICLES OF INCORPORATION .

A MENDMENT OF BYLAWS .

Merger and Share Exchange.

M ERGER AND SHARE EXCHANGE .

F AIR PRICE REQUIREMENTS .

B USINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS .

Sale of Assets.

Dissenters' Rights.

R IGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES .

P ROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS .

J UDICIAL APPRAISAL OF SHARES .

Dissolution.

V OLUNTARY DISSOLUTION .

A DMINISTRATIVE DISSOLUTION .

J UDICIAL DISSOLUTION .

M ISCELLANEOUS .

Foreign Corporations.

C ERTIFICATE OF AUTHORITY .

W ITHDRAWAL .

R EVOCATION OF CERTIFICATE OF AUTHORITY .

D OMESTICATION .

Records and Reports.

R ECORDS .

R EPORTS .

Transition Provisions.

Benefit Corporations.

Editor's notes. - Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, repealed the Code sections formerly codified as this chapter and enacted the current chapter. The former chapter consisted of Code Sections 14-2-1 through 14-2-7 (Article 1), 14-2-20 through 14-2-23 (Article 2), 14-2-40 through 14-2-43 (Article 3), 14-2-60 through 14-2-63 (Article 4), 14-2-80 through 14-2-98 (Article 5), 14-2-110 through 14-2-123 (Article 6), 14-2-140 through 14-2-156 (Article 7), 14-2-170 through 14-2-177 (Article 8), 14-2-190 through 14-2-196 (Article 9), 14-2-210 through 14-2-218 (Article 10), 14-2-230 through 14-2-231 (Article 11), 14-2-250 through 14-2-251 (Article 12), 14-2-270 through 14-2-295 (Article 13), 14-2-310 through 14-2-331 (Article 14), 14-2-350 through 14-2-351 (Article 15), 14-2-370 through 14-2-373 (Article 16), 14-2-390 through 14-2-393 (Article 17), and 14-2-410 through 14-2-411 (Article 18), and was based on Ga. L. 1968, p. 565; Ga. L. 1969, p. 152; Ga. L. 1970, p. 195; Ga. L. 1970, p. 243; Ga. L. 1970, p. 605; Ga. L. 1972, p. 433; Ga. L. 1973, p. 833; Ga. L. 1975, p. 778; Ga. L. 1976, p. 1102; Ga. L. 1976, p. 1576; Ga. L. 1977, p. 324; Ga. L. 1977, p. 649; Ga. L. 1977, p. 1098; Ga. L. 1979, p. 435; Ga. L. 1980, p. 603; Ga. L. 1980, p. 623; Ga. L. 1980, p. 715; Ga. L. 1980, p. 1188; Ga. L. 1981, Ex. Sess., p. 8 (Code enactment Act) and Ga. L. 1982, p. 3, Ga. L. 1982, p. 156, Ga. L. 1982, p. 694, Ga. L. 1982, p. 886, Ga. L. 1983, p. 3, Ga. L. 1983, p. 1299, Ga. L. 1983, p. 1479, Ga. L. 1984, p. 22, Ga. L. 1984, p. 514, Ga. L. 1984, p. 1319, Ga. L. 1985, p. 527, Ga. L. 1985, p. 1281, Ga. L. 1985, p. 1302, Ga. L. 1986, p. 10, Ga. L. 1986, p. 1454, Ga. L. 1987, p. 537, Ga. L. 1987, p. 849, Ga. L. 1987, p. 1448.

Table of Comparable Provisions for Chapter 2 of Title 14

This table lists each Code section in the former Business Corporation Code, Ga. L. 1968, p. 565, as amended, and comparable provisions of the new Business Corporation Code, Ga. L. 1988, p. 1070. It is intended to assist the user, who is familiar with the former chapter, to find comparable new provisions. Table entries do not indicate that the former provision was reenacted without change in the new chapter, only that the comparable new provision pertains to the same subject. Absence of a comparable new provision in the table may mean only that there was no new provision similar enough for inclusion in this table, not that the subject is no longer covered.

OLD NEW --- --- 14-2-1 14-2-101 14-2-2 14-2-140, 14-2-723 14-2-3 14-2-1701 14-2-4 14-2-120, 14-2-1408 14-2-5 14-2-120, 14-2-123, 14-2-124, 14-2-125 14-2-6 14-2-127, 14-2-128 14-2-7 14-2-102 14-2-20 14-2-301 14-2-21 14-2-302 14-2-22 14-2-304 14-2-23 14-2-204 14-2-40 14-2-401 14-2-41 14-2-402 14-2-42 14-2-403 14-2-43 14-2-403 14-2-60 14-2-501 14-2-61 14-2-502, 14-2-503 14-2-62 14-2-504 14-2-63 14-2-510 14-2-80 14-2-601 14-2-81 14-2-602 14-2-82 - 14-2-83 14-2-620 14-2-84 14-2-621, 14-2-623 14-2-85 14-2-621, 14-2-628 14-2-86 14-2-624 14-2-87 14-2-150, 14-2-625, 14-2-626 14-2-88 14-2-604 14-2-89 - 14-2-90 14-2-623, 14-2-640 14-2-91 14-2-640 14-2-92 14-2-631, 14-2-640 14-2-93 - 14-2-94 14-2-631 14-2-95 - 14-2-96 - 14-2-97 - 14-2-98 14-2-641 14-2-110 14-2-622 14-2-111 14-2-630 14-2-112 14-2-701, 14-2-702, 14-2-703, 14-2-704 14-2-113 14-2-141, 14-2-705, 14-2-706, 14-2-823 14-2-114 14-2-705, 14-2-707 14-2-115 14-2-720, 14-2-724 14-2-116 14-2-725, 14-2-727, 14-2-1021 14-2-117 14-2-721, 14-2-724, 14-2-728 14-2-118 14-2-727, 14-2-1021 14-2-119 14-2-722, 14-2-724, 14-2-728 14-2-120 14-2-731, 14-2-920 14-2-121 14-2-730 14-2-122 14-2-1601, 14-2-1602, 14-2-1604, 14-2-1620 14-2-123 14-2-740, 14-2-741, 14-2-742, 14-2-745, 14-2-746 14-2-140 14-2-801, 14-2-802, 14-2-811 14-2-141 14-2-803, 14-2-804, 14-2-805 14-2-142 14-2-940 14-2-143 14-2-806 14-2-144 14-2-805, 14-2-807, 14-2-810 14-2-145 14-2-808 14-2-146 14-2-820, 14-2-824, 14-2-1022 14-2-147 14-2-825 14-2-148 14-2-820, 14-2-822, 14-2-823 14-2-149 14-2-821 14-2-150 14-2-840 14-2-151 14-2-844 14-2-152 14-2-842 14-2-152.1 14-2-842 14-2-153 14-2-831 14-2-154 14-2-640, 14-2-824 14-2-155 14-2-861, 14-2-862, 14-2-863 14-2-156 14-2-851, 14-2-852, 14-2-855, 14-2-856, 14-2-858, 14-2-859, 14-2-1621 14-2-170 14-2-201 14-2-171 14-2-202, 14-2-203 14-2-172 14-2-201.1 14-2-173 14-2-203 14-2-174 - 14-2-175 14-2-205 14-2-176 14-2-206, 14-2-1022 14-2-177 14-2-207, 14-2-303 14-2-190 14-2-1001 14-2-191 14-2-1002, 14-2-1003, 14-2-1005 14-2-192 14-2-1004 14-2-193 14-2-1006 14-2-194 14-2-1006, 14-2-1006.1 14-2-195 14-2-1009 14-2-196 14-2-1007 14-2-197 14-2-1008 14-2-210 14-2-1101 14-2-211 14-2-1101 14-2-212 14-2-1103 14-2-213 14-2-1105, 14-2-1105.1 14-2-214 14-2-1104 14-2-215 14-2-1108 14-2-216 14-2-1105, 14-2-1106 14-2-217 14-2-1107 14-2-218 14-2-1109 14-2-230 14-2-1201 14-2-231 14-2-1202 14-2-232 14-2-1110 14-2-233 14-2-1111 14-2-234 14-2-1112 14-2-235 14-2-1113 14-2-236 14-2-1131 14-2-237 14-2-1132 14-2-238 14-2-1133 14-2-250 14-2-1302, 14-2-1303 14-2-251 14-2-1301, 14-2-1320, 14-2-1321, 14-2-1322, 14-2-1323, 14-2-1325, 14-2-1326, 14-2-1327, 14-2-1330, 14-2-1331 14-2-270 14-2-1401 14-2-271 - 14-2-272 14-2-1402 14-2-273 14-2-1402, 14-2-1403 14-2-274 14-2-1403 14-2-275 14-2-1405 14-2-276 14-2-1403.1, 14-2-1405, 14-2-1406 14-2-277 14-2-1404 14-2-278 14-2-1404 14-2-279 14-2-1404 14-2-280 14-2-1404 14-2-281 14-2-1408 14-2-282 14-2-1408 14-2-283 14-2-1420, 14-2-1421, 14-2-1422 14-2-284 14-2-1430, 14-2-1431 14-2-285 14-2-940, 14-2-1430, 14-2-1431 14-2-286 14-2-1432 14-2-287 14-2-1432 14-2-288 14-2-1406 14-2-289 14-2-1432 14-2-290 14-2-1433 14-2-291 14-2-1433 14-2-292 14-2-1406, 14-2-1408, 14-2-1440 14-2-293 14-2-1405, 14-2-1406, 14-2-1407, 14-2-1408 14-2-294 14-2-1409 14-2-295 14-2-1409 14-2-310 14-2-1501 14-2-311 14-2-1505 14-2-312 14-2-1506 14-2-313 14-2-1504 14-2-314 14-2-1503 14-2-315 14-2-1503 14-2-316 14-2-1505 14-2-317 14-2-1507 14-2-318 14-2-1508, 14-2-1509 14-2-319 14-2-1510, 14-2-1520 14-2-320 14-2-1504 14-2-321 14-2-1504 14-2-322 14-2-1504 14-2-323 14-2-1520 14-2-324 14-2-1520 14-2-325 14-2-1530 14-2-326 14-2-1530, 14-2-1531 14-2-327 14-2-1531 14-2-328 14-2-1531 14-2-329 14-2-1702 14-2-330 14-2-1540 14-2-331 14-2-1502 14-2-350 14-2-1622 14-2-351 14-2-1622 14-2-370 14-2-122 14-2-371 14-2-122 14-2-372 14-2-122 14-2-373 - 14-2-390 14-2-121, 14-2-130 14-2-391 - 14-2-392 - 14-2-393 14-2-126, 14-2-1532 14-2-394 - 14-2-410 - 14-2-411 14-2-129 14-5-2 14-2-301

Law reviews. - For article discussing liability of corporate directors, officers, and shareholders under the Georgia Business Corporation Code, as affected by provisions of the Georgia Civil Practice Act, see 7 Ga. St. B.J. 277 (1971). For annual survey on business associations, see 35 Mercer L. Rev. 37 (1983). For annual survey on business associations, see 36 Mercer L. Rev. 91 (1984). For article, "Maintaining the Corporation as a Separate Entity," see 23 Ga. St. B. J. 36 (1986). For annual survey of law of business associations, see 38 Mercer L. Rev. 57 (1986). For annual survey of cases concerning business associations, see 39 Mercer L. Rev. 53 (1987). For article, "Changes in Corporate Practice under Georgia's New Business Corporation Code," see 40 Mercer L. Rev. 655 (1989). For article, "Georgia's New Business Corporation Code," see 24 Ga. St. B. J. 158 (1988). For annual survey of law of business associations, see 40 Mercer L. Rev. 61 (1988). For survey article on business associations, see 42 Mercer L. Rev. 71 (1990). For article, "Some Distinctive Features of the Georgia Business Corporation Code," 28 Ga. St. B. J. 101 (1991). For article, "The Development of the Shareholder's Direct Action Damage Remedy," see 28 Ga. St. B. J. 195 (1992). For annual survey of law of business associations, see 43 Mercer L. Rev. 85 (1991). For annual survey article on business associations, see 45 Mercer L. Rev. 53 (1993). For article discussing developments in law of business associations from June 1, 1996 through May 31, 1997, see 49 Mercer L. Rev. 71 (1997). For annual survey article on business associations, see 50 Mercer L. Rev. 171 (1998). For survey article discussing developments in law of business associations for the period from June 1, 1998 through May 31, 1999, see 51 Mercer L. Rev. 127 (1999). For survey article discussing developments in law of business associations for the period from June 1, 1999 through May 31, 2000, see 52 Mercer L. Rev. 95 (2000). For survey article on cases in the areas of corporate, securities, partnership, and banking law for the period from June 1, 2002 through May 31, 2003, see 55 Mercer L. Rev. 55 (2003). For article, "2006 Amendments to Georgia's Corporate Code and Alternative Entity Statutes," see 12 Ga. St. B. J. 12 (2007). For article, "Keynote Address to the Atlas Conference: 'International Business Disputes in an Era of Receding Globalism,'" see 34 Ga. St. U.L. Rev. 765 (2018). For note on 1993 amendment of this chapter, see 10 Ga. St. U. L. Rev. 74 (1993). For note on 1999 amendments to sections in this chapter, see 16 Ga. St. U. L. Rev. 27 (1999). For note, "The Cost of Appraisal Rights: How to Restore Certainty in Delaware Mergers," see 52 Ga. L. Rev. 651 (2018). For comment, "An Empirical Study of Defective Incorporation," see 39 Emory L.J. 523 (1990). For comment, "Transfers of Intangible Property: Revise §§ 482 and 936(H) to Tax Transfers of Business Functions," see 32 Georgia St. U. L. Rev. 977 (2016).

COMMENT

CODE REVISION COMMISSION NOTE ON COMMENTS The comments appearing in this chapter have been prepared under the supervision of the Georgia Corporation Code Revision Committee of the Corporate and Banking Law Section of the State Bar of Georgia and are included in the Official Code of Georgia Annotated at the request of the committee. Neither the General Assembly of Georgia nor the Code Revision Commission of the State of Georgia has participated in the drafting of these comments or has reviewed the comments for their content. The comments should not be considered to constitute a statement of legislative intention by the General Assembly of Georgia nor do they have the force of statutory law.

COMMENT

NOTE AS TO DRAFTING COMMITTEE

The Georgia Business Corporation Code was completely recodified by an Act (Ga. L. 1988, p. 1070) that was based on a draft proposed by the Georgia Business Corporation Code Revision Committee of the Section of Corporate and Banking Law of the State Bar of Georgia composed of the following:

George L. Cohen, Chairman

William J. Carney, Reporter, Professor, Emory University Law School

Elliott Goldstein, Special Consultant

Thomas C. Herman, Secretary

W. Hale Barrett Holcombe T. Green, Jr. J. Kermit Birchfield, Jr. Edward J. Hardin Terry C. Bridges Donald R. Harkleroad John W. Collier Edward J. Hawie C. Powers Dorsett, Jr. James L. Smith, III William E. Eason, Jr. L. Neil Williams, Jr. Alan S. Gaynor The Committee was assisted by the following special advisers: Senator Edward Hine, Jr. Valerie A. Hepburn, Director of Administration, Wayne Howell, Deputy Office of the Secretary of State Secretary of State State of Georgia Stephanie Manis, George E. Hibbs, Assistant Assistant Attorney General General Counsel, State Bar of Georgia Representative Thomas Chambless

NOTES AS TO COMMENTS The comments in Chapter 2 of Title 14 were prepared in 1987, 1988, and 1989 by William J. Carney, Charles Howard Candler Professor at Emory University Law School, who was reporter to the Georgia Corporation Code Revision Committee (hereinafter the "Code Revision Committee") of the Corporate and Banking Law Section of the State Bar of Georgia, which submitted a proposed draft of the revised Georgia Business Corporation Code (the "Code") in the form in which it was introduced in the Georgia General Assembly. The Comments were reviewed by the Code Revision Committee, which was chaired by George L. Cohen. They were presented to the General Assembly, in substantially this form, as part of the explanation for the changes proposed from prior law, and to clarify the meaning of the Code. The Comments also note amendments made by the General Assembly to the Code as initially introduced.

JUDICIAL DECISIONS

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

Cited in Hullender v. Acts II, 153 Ga. App. 119 , 264 S.E.2d 486 (1980).

RESEARCH REFERENCES

ALR. - What corporate communications are entitled to attorney-client privilege - modern cases, 27 A.L.R.5th 76.

ARTICLE 1 GENERAL PROVISIONS

Cross references. - Incorporation of banks and trust companies, § 7-1-390 et seq.

Incorporation of condominium associations, § 44-3-100 et seq.

Law reviews. - For article, "Changes in Corporate Practice under Georgia's New Business Corporation Code," see 40 Mercer L. Rev. 655 (1989). For article, "Georgia's New Business Corporation Code," see 24 Ga. St. B. J. 158 (1988). For article, "Researching Georgia Law," see 3 Ga. St. U. L. Rev 585 (1993). For note surveying revisions to Georgia Condominium Act between 1963 and 1975 regarding expansion, disclosure, liens, and incorporation, see 24 Emory L.J. 891 (1975).

JUDICIAL DECISIONS

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

Cited in Whitley v. Whitley Constr. Co., 121 Ga. App. 696 , 175 S.E.2d 128 (1970).

PART 1 S HORT TITLE AND RESERVATION OF POWER

14-2-101. Short title.

This chapter shall be known and may be cited as the "Georgia Business Corporation Code."

(Code 1981, § 14-2-101 , enacted by Ga. L. 1988, p. 1070, § 1.)

Law reviews. - For article, "Georgia Condominium Law: Beyond the Condominium Act," see 13 Ga. St. B. J. 24 (2007). For article, "The Georgia LLC Act Comes of Age," see 16 (No. 1) Ga. St. B. J. 20 (2010). For article, "Researching Georgia Law," see 34 Ga. St. U. L. Rev. 741 (2015).

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).

14-2-102. Reservation of power to amend or repeal.

The General Assembly has power to amend or repeal all or part of this chapter at any time and all domestic and foreign corporations subject to this chapter are governed by the amendment or repeal.

(Code 1981, § 14-2-102 , enacted by Ga. L. 1988, p. 1070, § 1.)

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 .

14-2-103. Independent legal significance of chapter provisions.

Each provision of this chapter shall have independent legal significance.

(Code 1981, § 14-2-103 , enacted by Ga. L. 1989, p. 946, § 1.)

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).

14-2-104. Effect of order for bankruptcy relief upon powers and duties of corporation.

  1. Any corporation, an order for relief with respect to which has been entered pursuant to the federal Bankruptcy Code (11 U.S.C. Section 101, et seq.), may put into effect and carry out any decrees and orders of the court or judge in such bankruptcy proceeding and may take any corporate action provided or directed by such decrees and orders, without further action by its directors or shareholders. Such power and authority may be exercised, and such corporate action may be taken, as may be directed by such decrees and orders, by the trustee or trustees of such corporation appointed or elected in the bankruptcy proceeding, or a majority thereof, or, if none be appointed or elected and acting, by designated officers of the corporation, or by a representative appointed by the court or judge, with like effect as if exercised and taken by unanimous action of the directors and shareholders of the corporation.
  2. Such corporation may, in the manner provided in subsection (a) of this Code section, but without limiting the generality or effect of the foregoing, alter, amend, or repeal its bylaws; constitute or reconstitute and classify or reclassify its board of directors, and name, constitute, or appoint directors and officers in place of or in addition to all or some of the directors or officers then in office; amend its articles of incorporation, and make any change in its shares, or any other amendment, change, or alteration, or provision, authorized by this chapter; be dissolved, transfer all or part of its assets, merge or effect any share exchange in connection with any action taken under this Code section; change the location of its registered office, change its registered agent, and remove or appoint any agent to receive service of process; authorize and fix the terms, manner, and conditions of, the issuance of bonds, debentures, or other obligations, regardless of whether convertible into shares of any class or series, or bearing warrants or other evidences of optional rights to purchase or subscribe for shares of any class or series; or lease its property and franchises to any corporation, if permitted by law. No shareholder shall have the right to dissent under Article 13 of this chapter with respect to such shareholder's shares in connection with any action taken under this Code section.
  3. Articles or a certificate of any amendment, correction, merger, share exchange, or dissolution, made by such corporation pursuant to this Code section, shall be filed with the Secretary of State in accordance with Code Section 14-2-120, and, subject to Code Section 14-2-123 and subsection (c) of Code Section 14-2-124, shall thereupon become effective in accordance with its terms and the provisions thereof. Such articles, certificate, or other instrument shall be made, executed, and acknowledged, as may be directed by such decrees and orders, by the trustee or trustees appointed or elected in the bankruptcy proceeding, or a majority thereof, or, if none be appointed or elected and acting, by the officers of the corporation, or by a representative appointed by the court or judge, and shall certify that provision for the making of such articles, certificate, or instrument is contained in a decree or order of a court or judge having jurisdiction of a proceeding under the federal Bankruptcy Code.
  4. This Code section shall cease to apply to such corporation upon the entry of a final decree in the bankruptcy proceeding closing the case and discharging the trustee or trustees, if any; provided, however, that the closing of a case and discharge of trustee or trustees, if any, will not affect the validity of any act previously performed pursuant to subsection (a), (b), or (c) of this Code section.
  5. On filing any articles, certificate, report, or other paper made or executed pursuant to this Code section, there shall be paid to the Secretary of State for the use of the state the same fees as are payable by corporations not in bankruptcy upon the filing of like articles, certificates, agreements, reports, or other papers. (Code 1981, § 14-2-104 , enacted by Ga. L. 2006, p. 825, § 1/SB 469.)

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

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.

PART 2 F ILING DOCUMENTS

Cross references. - Requirements for written solicitations for services relating to corporate filing, § 10-1-393.16 .

Law reviews. - For article discussing developments in law of business associations from June 1, 1996 through May 31, 1997, see 49 Mercer L. Rev. 71 (1997).

14-2-120. Filing requirements.

  1. A document must satisfy the requirements of this Code section and of any other Code section that adds to or varies these requirements to be entitled to filing by the Secretary of State.
  2. This chapter must require or permit filing the document in the office of the Secretary of State.
  3. The document must contain the information required by this chapter. It may contain other information as well.
  4. The document must be typewritten or printed.
  5. The document must be in the English language. A corporate name need not be in English if written in English letters or Arabic or Roman numerals, and the certificate of existence required of foreign corporations need not be in English if accompanied by a reasonably authenticated English translation.
  6. The document must be executed:
    1. By the chairperson of the board of directors of a domestic or foreign corporation, by its president, or by another of its officers;
    2. If directors have not been selected or the corporation has not been formed, by an incorporator; or
    3. If the corporation is in the hands of a receiver, trustee, or other court appointed fiduciary, by that fiduciary;

      provided, however, that the person executing the document may do so as an attorney in fact. Powers of attorney relating to the execution of the document do not need to be shown to or filed with the Secretary of State.

  7. The person executing the document shall sign it and state beneath or opposite his or her signature his or her name and the capacity in which he or she signs; provided, however, that if the document is electronically transmitted, the electronic version of such person's name may be used in lieu of a signature. The document may but need not contain:
    1. The corporate seal;
    2. An attestation by the secretary or an assistant secretary; or
    3. An acknowledgment, verification, or proof.
  8. The document must be delivered to the office of the Secretary of State for filing and must be accompanied by one exact or conformed copy (except as provided in Code Sections 14-2-503 and 14-2-1509), the correct filing fee, any certificate required by Code Section 14-2-201.1, 14-2-1006.1, 14-2-1105.1, or 14-2-1403.1, and any penalty required by this chapter or other law.
  9. Notwithstanding the provisions of this chapter, the Secretary of State may authorize the filing of documents by electronic transmission, following the provisions of Chapter 12 of Title 10, the "Uniform Electronic Transactions Act," and the Secretary of State shall be authorized to promulgate such rules and regulations as are necessary to implement electronic filing procedures. (Code 1981, § 14-2-120 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1989, p. 946, § 2; Ga. L. 1999, p. 405, § 1; Ga. L. 2009, p. 698, § 2/HB 126.)

Cross references. - Limits on General Assembly's powers as to corporations, Ga. Const. 1983, Art. III, Sec. VI, Para. V.

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 14-2-1403.1 . 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.

14-2-121. Forms.

The Secretary of State may prescribe and furnish on request forms for:

  1. An application for a certificate of existence;
  2. A foreign corporation's application for a certificate of authority to transact business in this state;
  3. A foreign corporation's application for a certificate of withdrawal;
  4. The annual registration; and
  5. Such other forms not in conflict with this chapter as may be prescribed by the Secretary of State. (Code 1981, § 14-2-121 , enacted by Ga. L. 1988, p. 1070, § 1.)

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 .

14-2-121.1. Valid period for annual registration.

Notwithstanding any other law to the contrary, the Secretary of State may provide for the annual registration required under this chapter to be valid for a period up to and including three years. The Secretary of State is authorized to adopt the necessary rules and regulations to implement such a registration process.

(Code 1981, § 14-2-121.1 , enacted by Ga. L. 2017, p. 145, § 1-1/HB 87.)

Effective date. - This Code section became effective July 1, 2017.

14-2-122. Filing fees and penalties.

The Secretary of State shall collect the following fees and penalties when the documents described in this Code section are delivered to him or her for filing:

Document Fee -------- --- (1) Articles of incorporation $ 100.00 (2) Application for certificate of authority 225.00 (3) Annual registration 50.00 (4) Penalty for late filing of annual registration 25.00 (5) Agent's statement of resignation No fee (6) Certificate of judicial dissolution No fee (7) Articles of dissolution or intent to dissolve No fee (8) Application of withdrawal No fee (9) Application for reservation of a corporate name 25.00 (10) Civil penalty for a foreign corporation transacting business in this state without a certificate of authority 500.00 (11) Statement of change of address of registered agent . . . . $5.00 per corporation but not less than 20.00 (12) Application for reinstatement 250.00 (13) Certificate of conversion 95.00 (14) Any other document required or permitted to be filed by this chapter 20.00

(Code 1981, § 14-2-122 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1989, p. 946, § 3; Ga. L. 1997, p. 1165, § 1; Ga. L. 2002, p. 989, § 2; Ga. L. 2003, p. 883, § 1; Ga. L. 2007, p. 455, § 1/SB 234; Ga. L. 2008, p. 253, § 1/SB 436; Ga. L. 2010, p. 9, § 1-34/HB 1055; Ga. L. 2011, p. 430, § 1/SB 64.)

Law reviews. - For survey article on business associations, see 60 Mercer L. Rev. 35 (2008). For note, "Skimming from the 2%: The Status of Georgia's Restrictions on Shareholder Access to Corporate Information," 46 Ga. L. Rev. 835 (2012).

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.

14-2-123. Effective time and date of document.

  1. Except as provided in subsection (b) of this Code section and subsection (c) of Code Section 14-2-124, a document accepted for filing is effective:
    1. At the time of filing on the date it is filed, as evidenced by the Secretary of State's date and time endorsement on the original document; or
    2. At the time specified in the document as its effective time on the date it is filed.
  2. A document may specify a delayed effective time and date, and if it does so the document shall become effective at the time and date specified. If a delayed effective date but no time is specified, the document shall become effective at the close of business on that date. A delayed effective date for a document may not be later than the ninetieth day after the date on which it is filed.
  3. If a document is determined by the Secretary of State to be incomplete and inappropriate for filing, the Secretary of State may return the document to the person or corporation filing it, together with a brief written explanation of the reason for the refusal to file, in accordance with subsection (c) of Code Section 14-2-125 and, if the applicant returns the document with corrections in accordance with the rules and regulations of the Secretary of State, the filing date of the document will be the filing date that would have been applied had the original document not been deficient. (Code 1981, § 14-2-123 , enacted by Ga. L. 1988, p. 1070, § 1.)

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 .

14-2-124. Correcting filed document.

  1. A domestic or foreign corporation may correct a document filed by the Secretary of State if the document:
    1. Contains an incorrect statement; or
    2. Was defectively executed, attested, sealed, verified, or acknowledged.
  2. A document is corrected:
    1. By preparing articles of correction that:
      1. Describe the document (including its filing date);
      2. Specify the incorrect statement and the reason it is incorrect or the manner in which the execution was defective; and
      3. Correct the incorrect statement or defective execution; and
    2. By delivering the articles to the Secretary of State for filing.
  3. Articles of correction are effective on the effective date of the document they correct except as to persons relying on the uncorrected document and adversely affected by the correction. As to those persons, articles of correction are effective when filed. (Code 1981, § 14-2-124 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1989, p. 946, § 4; Ga. L. 2002, p. 989, § 3.)

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 .

14-2-125. Filing duty of Secretary of State.

  1. If a document delivered to the office of the Secretary of State for filing satisfies the requirements of Code Section 14-2-120, the Secretary of State shall file it.
  2. The Secretary of State files a document by stamping or otherwise endorsing his official title and the date and time of receipt on both the original and the document copy. After filing a document, except as provided in Code Sections 14-2-503 and 14-2-1510, the Secretary of State shall deliver the document copy to the domestic or foreign corporation or its representative.
  3. If the Secretary of State refuses to file a document, he shall return it to the domestic or foreign corporation or its representative within ten days after the document was delivered, together with a brief, written explanation of the reason for his refusal.
  4. The Secretary of State's duty to file documents under this Code section is ministerial. His filing or refusing to file a document does not:
    1. Affect the validity or invalidity of the document in whole or part;
    2. Relate to the correctness or incorrectness of information contained in the document; or
    3. Create a presumption that the document is valid or invalid or that information contained in the document is correct or incorrect. (Code 1981, § 14-2-125 , enacted by Ga. L. 1988, p. 1070, § 1.)

Law reviews. - For annual survey on business associations, see 68 Mercer L. Rev. 71 (2016).

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 .

14-2-126. Appeal from Secretary of State's refusal to file document.

  1. If the Secretary of State refuses to file a document delivered to his office for filing, the domestic or foreign corporation may appeal the refusal within 30 days after the return of the document to the superior court of the county where the corporation's registered office is or will be located. The appeal is commenced by petitioning the court to compel filing the document and by attaching to the petition the document and the Secretary of State's explanation of his refusal to file.
  2. The matter shall promptly be tried de novo by the court without a jury. The court may summarily order the Secretary of State to file the document or take other action the court considers appropriate.
  3. The court's final decision may be appealed as in other civil proceedings. (Code 1981, § 14-2-126 , enacted by Ga. L. 1988, p. 1070, § 1.)

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 .

14-2-127. Evidence of filing.

A certificate attached to a copy of a document or electronic transmission filed by the Secretary of State, bearing his or her signature, which may be in facsimile, and the printed or embossed seal of this state, or its electronic equivalent, is prima-facie evidence that the original document has been filed with the Secretary of State.

(Code 1981, § 14-2-127 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1999, p. 405, § 2.)

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).

14-2-128. Certificate of existence.

  1. Any person may apply to the Secretary of State to furnish a certificate of existence for a domestic corporation or a certificate of authorization for a foreign corporation.
  2. A certificate of existence or authorization sets forth:
    1. The domestic corporation's corporate name or the foreign corporation's corporate name used in this state;
    2. That the domestic corporation is duly incorporated under the law of this state and the date of its incorporation, or that the foreign corporation is authorized to transact business in this state;
    3. That its most recent annual registration required by Code Section 14-2-1622 has been delivered to the Secretary of State; and
    4. That articles of dissolution have not been filed.
  3. Subject to any qualification stated in the certificate, a certificate of existence or authorization issued by the Secretary of State may be relied upon as prima-facie evidence that the domestic or foreign corporation is in existence or is authorized to transact business in this state. (Code 1981, § 14-2-128 , enacted by Ga. L. 1988, p. 1070, § 1.)

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 .

14-2-129. Penalty for signing false document.

A person who signs a document he knows is false in any material respect with intent that the document be delivered to the Secretary of State for filing shall be guilty of a misdemeanor and, upon conviction thereof, shall be punished by a fine not to exceed $500.00.

(Code 1981, § 14-2-129 , enacted by Ga. L. 1988, p. 1070, § 1.)

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 .

PART 3 S ECRETARY OF STATE

Cross references. - Limits on General Assembly's powers as to corporations, Ga. Const. 1983, Art. III, Sec. VI, Para. V.

14-2-130. Powers.

The Secretary of State has the power reasonably necessary to perform the duties required of him by this chapter.

(Code 1981, § 14-2-130 , enacted by Ga. L. 1988, p. 1070, § 1.)

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 .

PART 4 D EFINITIONS

14-2-140. Definitions.

As used in this chapter, the term:

  1. "Articles of incorporation" include amended and restated articles of incorporation and articles of merger.
  2. "Authorized shares" means the shares of all classes a domestic or foreign corporation is authorized to issue.
  3. "Conspicuous" or "conspicuously" means so written that a reasonable person against whom the writing is to operate should have noticed it. For example, printing in italics or boldface or contrasting color or typing in capitals or underlined is conspicuous.
  4. "Corporation" or "domestic corporation" means a corporation for profit, which is not a foreign corporation, incorporated under or subject to the provisions of this chapter.
  5. "Deliver" includes delivery by hand, mail, private carrier, and electronic transmission.
  6. "Distribution" means a direct or indirect transfer of money or other property except its own shares or rights to acquire its own shares or incurrence of indebtedness by a corporation to or for the benefit of its shareholders in respect of any of its shares. A distribution may be in the form of a declaration or payment of a dividend; a purchase, redemption, or other acquisition of shares; a distribution of indebtedness; or otherwise.
  7. "Effective date of notice" is defined in Code Section 14-2-141.
  8. "Electronic network" means any medium for sending, receiving, and viewing electronic transmissions among persons.
  9. "Electronic transmission" or "electronically transmitted" means any form of communication not directly involving the physical transmission of paper that creates a record that may be retained, retrieved, and reviewed by a recipient thereof and that may be directly reproduced in paper form by such a recipient through an automated process. Electronic transmissions include, but are not limited to, telegraphs, telegrams, cablegrams, teletypes, e-mail, and facsimile transmissions.
  10. "Employee" includes an officer but not a director. A director may accept duties that make him or her also an employee.
  11. "Entity" includes corporation and foreign corporation; nonprofit corporation and foreign nonprofit corporation; profit and nonprofit unincorporated association; business trust, estate, general partnership, limited partnership, trust, two or more persons having a joint or common economic interest; limited liability company and foreign limited liability company; limited liability partnership and foreign limited liability partnership; and state, United States, and foreign government.
  12. "First class" includes, when used with a reference to postage or mail, any class of postage or mail that is the equivalent of or better than first class under the then prevailing mail classifications.
  13. "Foreign corporation" means a corporation for profit, including, but not limited to, a benefit corporation, social purpose corporation, or a substantially similar entity, incorporated under a law other than the law of this state.

    (13.1) "Foreign limited liability company" means a limited liability company formed under the laws of a jurisdiction other than this state.

  14. "Governmental subdivision" includes authority, county, district, and municipality.
  15. "Includes" denotes a partial definition.
  16. "Individual" includes the estate of an incompetent or deceased individual.

    (16.1) "Limited liability company" means any limited liability company formed under Chapter 11 of this title.

  17. "Mail" means the United States mail.
  18. "Means" denotes an exhaustive definition.
  19. "National securities exchange" means any securities exchange or securities quotation system if the securities listed on that exchange or system are exempt from the registration requirements of Chapter 5 of Title 10, known as the "Georgia Uniform Securities Act of 2008," pursuant to Code Section 10-5-10 or any successor provision.
  20. "Notice" is defined in Code Section 14-2-141.
  21. "Person" includes an individual and an entity.
  22. "Principal office" means the office in or out of this state so designated in the annual registration where the principal executive offices of a domestic or foreign corporation are located.
  23. "Proceeding" includes civil suit and criminal, administrative, and investigatory action.
  24. "Record date" means the date established under Article 6 or 7 of this chapter on which a corporation determines the identity of its shareholders and their shareholdings for purposes of this chapter. The determinations shall be made as of the close of business on the record date unless another time for doing so is specified when the record date is fixed.
  25. "Secretary" means the corporate officer to whom the board of directors has delegated responsibility under subsection (c) of Code Section 14-2-840 for custody of the minutes of the meetings of the board of directors and of the shareholders and for authenticating records of the corporation.
  26. "Share exchange" means a plan of exchange of all of the outstanding shares of one or more classes or series of shares in accordance with Code Section 14-2-1102.
  27. "Shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation.
  28. "Shares" means the units into which the proprietary interests in a corporation are divided.
  29. "Sign" or "signature" includes any manual, facsimile, conformed, or electronic signature.
  30. "State," when referring to a part of the United States, includes a state and commonwealth and their agencies and governmental subdivisions and a territory and insular possession and their agencies and governmental subdivisions of the United States.
  31. "Subscriber" means a person who subscribes for shares in a corporation, whether before or after incorporation.
  32. "Treasury shares" means shares of a corporation which have been issued and which subsequently have been acquired by the corporation if the articles of incorporation of such corporation provide that shares so acquired become treasury shares. Treasury shares shall be deemed to be issued shares but not outstanding shares.
  33. "United States" includes district, authority, bureau, commission, department, and any other agency of the United States.
  34. "Voting group" means all shares of one or more classes or series that under the articles of incorporation or this chapter are entitled to vote and be counted together collectively on a matter at a meeting of shareholders. All shares entitled by the articles of incorporation or this chapter to vote generally on the matter are for that purpose a single voting group. (Code 1981, § 14-2-140 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1989, p. 946, § 5; Ga. L. 1990, p. 257, § 1; Ga. L. 1993, p. 1231, § 1; Ga. L. 1995, p. 482, § 1; Ga. L. 1996, p. 1203, § 2; Ga. L. 1999, p. 405, § 3; Ga. L. 2004, p. 508, § 1; Ga. L. 2005, p. 60, § 14/HB 95; Ga. L. 2008, p. 381, § 7/SB 358; Ga. L. 2016, p. 225, § 2-1/SB 128; Ga. L. 2020, p. 305, § 2-1/HB 230.)

The 2016 amendment, effective July 1, 2016, added paragraphs (13.1) and (16.1).

The 2020 amendment, effective January 1, 2021, inserted ", including, but not limited to, a benefit corporation, social purpose corporation, or a substantially similar entity," in the middle of paragraph (13).

Cross references. - Status of corporations as persons, § 1-2-1 .

Law reviews. - For article discussing "earned" surplus and "capital" surplus concepts under Georgia Business Corporation Code, see 3 Ga. L. Rev. 11 (1968). For article discussing rights granted owners of unpaid and partly paid shares under the Georgia Business Corporation Code, see 3 Ga. L. Rev. 11 (1968). For article discussing treasury shares and restrictions placed upon their use by a corporation, see 3 Ga. L. Rev. 11 (1968). For article discussing "stated capital" concept under the Georgia Business Corporation Code, see 3 Ga. L. Rev. 11 (1968). For article, "Foreign Corporations in Georgia," see 10 Ga. St. B. J. 243 (1973). For article discussing establishment and transaction of business in Georgia by a foreign corporation, see 27 Mercer L. Rev. 629 (1976). For review of 1996 corporation, partnership, and association legislation, see 13 Ga. St. U. L. Rev. 70.

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

Editor's notes. - In light of the similarity of the statutory provisions, decisions under former Code 1873, § 1670; former Civil Code 1895, § 1831; former Civil Code 1910, § 2188; and former Code 1933, §§ 22-101, 22-102 and decisions under former Code Section 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.

Corporation and individual separate entities. - A person may own all the stock of a corporation and still such individual shareholder and the corporation would, in law, be two separate and distinct persons. Barnes v. Finnegan Enters., Inc., 150 Ga. App. 430 , 258 S.E.2d 55 (1979), (decided under former Code 1933, §§ 22-101, 22-102).

Person may transact business as individual in corporate name. - To be the alter ego of the corporation the sole stockholder cannot disregard the entity of the corporation, although the stockholder may transact business as an individual in the corporate name, in which case there still would be no merger. Barnes v. Finnegan Enters., Inc., 150 Ga. App. 430 , 258 S.E.2d 55 (1979), (decided under former Code 1933, §§ 22-101, 22-102).

Workers' compensation applies to both nonprofit and profit-making business corporations. - The 1975 amendment to Ga. L. 1970, p. 196, § 1 (see now O.C.G.A. § 34-9-4 ) eliminated the exempted status for nonprofit business corporations as set out in Part 1, Title 22 of the Georgia Business Corporation Code (see now O.C.G.A. Ch. 3, T. 14) and made the workers' compensation law apply to them as it does to profit-making corporations as set forth in Part II, Title 22 (see now O.C.G.A. Ch. 2, T. 14). Fulton-DeKalb Hosp. Auth. v. Gaither, 241 Ga. 572 , 247 S.E.2d 89 (1978), (decided under former Code 1933, § 22-102).

Authority of court to order accounting. - Trial court properly dismissed the tobacco farmers' claim for an equitable accounting of a tobacco cooperative because it was undisputed that the tobacco cooperative was a foreign corporation organized under North Carolina law and, therefore, the trial court lacked the authority to order an inspection of the tobacco cooperative's records. Rigby v. Flue-Cured Tobacco Coop. Stabilization Corp., 327 Ga. App. 29 , 755 S.E.2d 915 (2014).

Estate administrator had right to inspect. - Order granting an estate administrator of a deceased shareholder the right to inspect the defendant's corporate books and denying the defendant's motions to compel and stay pending arbitration was affirmed because the statutes governing the transfer of stock to the estate vested ownership of the shares in the administrator of the estate and the probate court's order granted the administrator trustee's powers over those shares. Regal Nissan, Inc. v. Scott, 348 Ga. App. 91 , 821 S.E.2d 561 (2018).

Cited in Corbin v. Corbin, 429 F. Supp. 276 (M.D. Ga. 1977); Forest Managers, Inc. v. Wilkes County, 152 Ga. App. 639 , 263 S.E.2d 478 (1979); Nicholson v. Core (In re Carolee's Combine, Inc.), 3 Bankr. 324 (Bankr. N.D. Ga. 1980); Miller & Meier & Assocs. v. Diedrich, 174 Ga. App. 249 , 329 S.E.2d 918 (1985); Corporate Jet Aviation, Inc. v. Vantress, 45 Bankr. 629 (Bankr. N.D. Ga. 1985); Resourcing Servs. Atlanta, LLC v. Ga. Dep't of Revenue, 288 Ga. App. 532 , 654 S.E.2d 649 (2007); Akridge v. Silva, 298 Ga. App. 862 , 681 S.E.2d 667 (2009).

Company

Term "company" imports a corporation until the contrary is shown. Caroline Realty Inv., Inc. v. Kuniansky, 127 Ga. App. 478 , 194 S.E.2d 291 (1972), (decided under former Code 1933, § 22-101).

Corporation

Corporation is an artificial being, an entity. Simmons v. Georgia Iron & Coal Co., 117 Ga. 305 , 43 S.E. 780 , 61 L.R.A. 739 (1903); Garmany v. Lawton, 124 Ga. 876 , 53 S.E. 669 , 110 Am. St. R. 207 (1906) (decided under former Civil Code 1895, § 1831).

No existence before grant of certificate of incorporation. - A corporation is not a person in law until after the grant of its charter (now certificate of incorporation). Venable Bros. v. Southern Granite Co., 135 Ga. 508 , 69 S.E. 822 (1910) (decided under former Civil Code 1910, § 2188).

Corporations have been divided into three classes - corporations de jure, corporations de facto, and corporations by estoppel. Cason v. State, 16 Ga. App. 820 , 86 S.E. 644 (1914) (decided under former Civil Code 1910, § 2189).

When corporation not impliedly a person. - Though the term "person" will ordinarily include a corporation, a corporation is not impliedly within a statutory provision applicable to persons, if it is not within the purpose and intent of such provision, or an attempt to exclude it otherwise appears. Georgia R.R. Bank & Trust Co. v. Liberty Nat'l Bank & Trust Co., 180 Ga. 4 , 177 S.E. 803 (1934) (decided under former Civil Code 1910, § 2188).

Corporation and individual separate entities though one person owns entire stock. - Though one person owns the entire stock of a corporation, still, in law, the corporation and the individual are separate entities. A corporation is an artificial person created by law. This legal entity retains its separate and independent character regardless of the ownership of its capital stock. Jones v. Major, 80 Ga. App. 223 , 55 S.E.2d 846 (1949) (decided under former Code 1933, § 22-101).

Effect of bankruptcy. - The bankruptcy of a corporation does not put an end to the corporate existence, nor vacate the office of its directors. The creating state alone can destroy. 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 1873, § 1670, and former Civil Code 1895, § 1831).

Corporations Engaged In Any Business

Phrase "corporations engaged in any business" in Ga. L. 1970, p. 196, § 1 (see now O.C.G.A. § 34-9-4 ) included only those corporations governed by the Georgia Business Corporation Code (see now O.C.G.A. § 14-2-101 ). Hospital authorities are not governed by the Georgia Business Corporation Code, but are expressly exempted therefrom. Fulton-DeKalb Hosp. Auth. v. Gaither, 241 Ga. 572 , 247 S.E.2d 89 (1978), (decided under former Code 1933, § 22-102).

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 .

14-2-141. Notice.

  1. Notice under this chapter shall be in writing unless oral notice is reasonable under the circumstances.
  2. Notice may be communicated in person; by telephone, electronic transmission, or other form of wire or wireless communication; or by mail or private carrier. If these forms of personal notice are impracticable, notice may be communicated by a newspaper of general circulation in the area where published or by radio, television, or other form of public broadcast communication. Unless otherwise provided in the articles of incorporation, bylaws, or this chapter, notice by electronic transmission shall be deemed to be notice in writing for purposes of this chapter.
  3. Written notice by a domestic or foreign corporation to its shareholders, if in a comprehensible form, is effective when mailed, if mailed with first-class postage prepaid and correctly addressed to the shareholder's address shown in the corporation's current record of shareholders. If at the record date fixed to determine the shareholders entitled to receive a notice the corporation has a class or series of shares listed on a national securities exchange or has more than 500 shareholders of record, it may utilize a class of mail other than first class; provided, however, that if the notice is of a meeting of shareholders, the notice is mailed, with adequate postage prepaid, not less than 30 days before the date of the meeting.
  4. Written notice to a domestic or foreign corporation (authorized to transact business in this state) may be addressed to its registered agent at its registered office or to the corporation or its secretary at its principal office shown in its most recent annual registration or, in the case of a foreign corporation that has not yet delivered an annual registration, in its application for a certificate of authority.
  5. Except as provided in subsection (c) of this Code section, written notice, if in a comprehensible form, is effective at the earliest of the following:
    1. When received, or when delivered, properly addressed, to the addressee's last known principal place of business or residence;
    2. Five days after its deposit in the mail, as evidenced by the postmark, or such longer period as shall be provided in the articles of incorporation or bylaws, if mailed with first-class postage prepaid and correctly addressed; or
    3. On the date shown on the return receipt, if sent by registered or certified mail or statutory overnight delivery, return receipt requested, and the receipt is signed by or on behalf of the addressee.
  6. Oral notice is effective when communicated if communicated in a comprehensible manner.
  7. In calculating time periods for notice under this chapter, when a period of time measured in days, weeks, months, years, or other measurement of time is prescribed for the exercise of any privilege or the discharge of any duty, the first day shall not be counted but the last day shall be counted.
  8. Without limiting the manner by which notice otherwise may be given effectively under this chapter:
    1. Any notice by a corporation under any provision of this chapter, the articles of incorporation, or the bylaws to record or beneficial holders of its shares shall be effective if given by a single written notice to two or more such holders who share an address if consented to by those holders. Any such consent shall be revocable by a holder by written notice to the corporation. Except as provided in paragraph (2) of this subsection, any such consent shall be in writing and signed by each record or beneficial holder with respect to which such single written notice is to be effective.
    2. Any record or beneficial holder of shares of any class or series which are either listed on a national securities exchange or held of record by more than 500 shareholders who fails to object in writing to the corporation, within 60 days of having been given written notice by the corporation of its intention to send the single notice permitted under paragraph (1) of this subsection to such holders, shall be deemed to have consented to receiving such single written notice.
  9. If this chapter prescribes notice requirements for particular circumstances, those requirements govern. If articles of incorporation or bylaws prescribe notice requirements, not inconsistent with this Code section or other provisions of this chapter, those requirements govern.
    1. Without limiting the manner by which notice otherwise may be given effectively to shareholders, any notice to shareholders given by the corporation under any provision of this chapter, the articles of incorporation, or the bylaws shall be effective if given by a form of electronic transmission consented to by the shareholder to whom the notice is given. Any such consent shall be revocable by the shareholder by written notice to the corporation. Any such consent shall be deemed revoked if:
      1. The corporation is unable to deliver by electronic transmission two consecutive notices given by the corporation in accordance with such consent; and
      2. Such inability becomes known to the secretary or an assistant secretary of the corporation or to the transfer agent or other person responsible for the giving of notice; provided, however, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action.
    2. Notice given pursuant to paragraph (1) of this subsection shall be deemed effective:
      1. If by facsimile telecommunication, when transmitted to a telephone number at which the shareholder has consented to receive notice;
      2. If by e-mail, when transmitted to an e-mail address at which the shareholder has consented to receive notice;
      3. If by a posting on an electronic network together with separate notice to the shareholder of such specific posting, upon the later of (i) such posting or (ii) the giving of such separate notice; or
      4. If by any other form of electronic transmission, when transmitted to the shareholder.
  10. An affidavit, certificate, or other written confirmation of the secretary or an assistant secretary or of the transfer agent or other agent of the corporation that the notice has been given under this Code section shall, in the absence of fraud, be prima-facie evidence of the facts stated therein.
  11. The corporation may be obligated to accept from a shareholder consents, requests, demands, or notices given and delivered under this chapter to the principal place of business of the corporation or to an officer or agent of the corporation having custody of the books in which proceedings of meetings of shareholders are recorded by electronic transmission only as provided by resolution of the board of directors of the corporation or in the articles of incorporation.
  12. Unless the registered agent of the corporation provides written consent to the corporation to the receipt of a shareholder's consent, request, demand, or notice by electronic transmission under this chapter, delivery made to a corporation's registered office shall be made by hand or by certified or registered mail or statutory overnight delivery, return receipt requested. (Code 1981, § 14-2-141 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1989, p. 946, § 6; Ga. L. 1997, p. 1165, § 1.1; Ga. L. 2000, p. 1589, § 3; Ga. L. 2003, p. 897, § 1; Ga. L. 2004, p. 508, § 2.)

Editor's notes. - Ga. L. 2000, p. 1589, § 16, not codified by the General Assembly, provided that the amendment to paragraph (e)(3) was applicable with respect to notices delivered on or after July 1, 2000.

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.

14-2-142. Number of shareholders.

  1. For purposes of this chapter, the following identified as a shareholder in a corporation's current record of shareholders constitute one shareholder:
    1. Three or fewer co-owners;
    2. A corporation, partnership, trust, estate, or other entity;
    3. The trustees, guardians, custodians, or other fiduciaries of a single trust, estate, or account.
  2. For purposes of this chapter, shareholdings registered in substantially similar names constitute one shareholder if it is reasonable to believe that the names represent the same person. (Code 1981, § 14-2-142 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1994, p. 97, § 14.)

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.

PART 5 E XECUTION OF DOCUMENTS

14-2-150. Signatures.

The signatures of the officers of a corporation and the seal of the corporation upon any bond, debenture, interest coupon, or other debt security may be facsimiles if the instrument is authenticated or countersigned by a trustee or transfer agent or registered by a registrar other than the corporation or an employee of the corporation. The transfer agent or registrar may sign manually or in facsimile.

(Code 1981, § 14-2-150 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1989, p. 946, § 7.)

Law reviews. - For article discussing issuance of debt securities under the Georgia Business Corporation Code, see 3 Ga. L. Rev. 11 (1968).

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.

14-2-151. Secretary or assistant secretary of corporation to authenticate records of corporation; reliance on affixed seal by third party.

  1. With respect to any contract, conveyance, or similar document executed by or on behalf of a domestic or foreign corporation, the presence of the corporate seal, or a facsimile thereof, attested by the secretary or assistant secretary of the corporation, or other officer to whom the bylaws or the directors have delegated the responsibility for authenticating records of the corporation, shall attest:
    1. That the corporate seal or facsimile thereof affixed to the document is in fact the seal of the corporation or a true facsimile thereof, as the case may be;
    2. That any officer of the corporation executing the document does in fact occupy the official position indicated, that one in such position is duly authorized to execute such document on behalf of the corporation, and that the signature of such officer subscribed thereto is genuine; and
    3. That the execution of the document on behalf of the corporation has been duly authorized.
  2. With respect to any contract, conveyance, or similar document executed by or on behalf of a domestic or foreign corporation, execution by the president or vice-president of the corporation, attested by the secretary or assistant secretary of the corporation or other officer to whom the bylaws or the directors have delegated the responsibility for authenticating records of the corporation, shall attest:
    1. That the person executing the document as president or vice-president of the corporation does in fact occupy the official position, that one in such position is duly authorized to execute such document on behalf of the corporation, and that the signature of such officers subscribed thereto is genuine; and
    2. That the execution of the document on behalf of the corporation has been duly authorized.
  3. When the seal of a corporation or the facsimile thereof is affixed to any document, or where a document is executed by the president or a vice-president of a corporation, and in either case is attested by the secretary or assistant secretary of that corporation or other officer to whom the bylaws or the directors have delegated the responsibility for authenticating records of the corporation, a third party without knowledge or reason to know to the contrary may rely on such document as being what it purports to be.
  4. The seal of the corporation may be affixed to any document executed by the corporation, but the absence of the seal shall not impair the validity of the document or of any action taken in pursuance thereof or in reliance thereon. (Code 1981, § 14-2-151 , enacted by Ga. L. 1989, p. 946, § 8; Ga. L. 1992, p. 1180, § 1.)

Editor's notes. - Ga. L. 1992, p. 1180, § 3, not codified by the General Assembly, provided that the amendment to this Code section was applicable to acts occurring prior to July 1, 1992, as well as to acts occurring on or after such date.

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).

ARTICLE 2 INCORPORATION

Administrative Rules and Regulations. - Articles of Incorporation, Official Compilation of the Rules and Regulations of the State of Georgia, Office of Secretary of State, Commissioner of Corporations, Chapter 590-7-3.

Law reviews. - For article discussing the advantage of incorporation by farmers, see 4 Ga. St. B. J. 335 (1968). For article, "Comparison of Features of Old and New Business Corporation Laws Relating to Domestic Corporations," see 5 Ga. St. B. J. 13 (1968). For article, "Foreign Corporations in Georgia," see 10 Ga. St. B. J. 243 (1973). For article, "Changes in Corporate Practice under Georgia's New Business Corporation Code," see 40 Mercer L. Rev. 655 (1989). For article, "Georgia's New Business Corporation Code," see 24 Ga. St. B. J. 158 (1988).

RESEARCH REFERENCES

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

Organization sought to be incorporated under an unconstitutional statute as a de facto corporation, 136 A.L.R. 187 .

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

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

14-2-201. Incorporators.

One or more persons may act as the incorporator or incorporators of a corporation by delivering articles of incorporation to the Secretary of State for filing.

(Code 1981, § 14-2-201 , enacted by Ga. L. 1988, p. 1070, § 1.)

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.

14-2-201.1. Publication of notice of intent to file articles of incorporation.

  1. Together with the articles of incorporation, the incorporator or incorporators shall deliver to the Secretary of State an undertaking (which may appear in the articles of incorporation or be set forth in a letter or other instrument executed by an incorporator or any person authorized to act on behalf of the corporation) to publish a notice of the filing of the articles of incorporation as required by subsection (b) of this Code section.
  2. No later than the next business day after filing the articles of incorporation, the incorporator shall deliver to the publisher of a newspaper which is the official organ of the county where the initial registered office of the corporation is to be located or which is a newspaper of general circulation published within such county whose most recently published annual statement of ownership and circulation reflects a minimum of 60 percent paid circulation a request to publish a notice in substantially the following form: The request for publication of the notice shall be accompanied by a check, draft, or money order in the amount of $40.00 in payment of the cost of publication. The notice shall be published once a week for two consecutive weeks commencing within ten days after receipt of the notice by the newspaper. Failure on the part of the incorporator to deliver the notice or payment therefor or failure on the part of the newspaper to publish the notice in compliance with this subsection shall not invalidate the incorporation of the corporation or the filing of the articles of incorporation. (Code 1981, § 14-2-201.1 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1989, p. 946, § 9; Ga. L. 1990, p. 257, § 2; Ga. L. 1993, p. 1231, § 2.)

"NOTICE OF INCORPORATION

Notice is given that articles of incorporation which incorporate ________________________________________________________ (name of corporation) have been delivered to the Secretary of State for filing in accordance with the Georgia Business Corporation Code. The initial registered office of the corporation is located at ______________________________________________ (address of registered office) and its initial registered agent at such address is ________________________________________ (name of agent)."

Cross references. - Limits on General Assembly's powers as to corporations, Ga. Const. 1983, Art. III, Sec. VI, Para. V.

Law reviews. - For survey article on business associations, see 34 Mercer L. Rev. 13 (1982). For article, "Some Distinctive Features of the Georgia Business Corporation Code," 28 Ga. St. B. J. 101 (1991).

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 .

14-2-202. Articles of incorporation.

  1. The articles of incorporation must set forth:
    1. A corporate name for the corporation that satisfies the requirements of Code Section 14-2-401;
    2. The number of shares the corporation is authorized to issue;
    3. The street address and county of the corporation's initial registered office and the name of its initial registered agent at that office;
    4. The name and address of each incorporator; and
    5. The mailing address of the initial principal office of the corporation, if different from the initial registered office.
  2. The articles of incorporation may set forth:
    1. The names and addresses of the individuals who are to serve as the initial directors;
    2. Provisions not inconsistent with law regarding:
      1. The purpose or purposes for which the corporation is organized;
      2. Managing the business and regulating the affairs of the corporation;
      3. Defining, limiting, and regulating the powers of the corporation, its board of directors, and shareholders;
      4. A par value for authorized shares or classes of shares; and
      5. The imposition of personal liability on shareholders for the debts of the corporation to a specified extent and upon specified conditions;
    3. Any provision that under this chapter is required or permitted to be set forth in the bylaws;
    4. A provision eliminating or limiting the liability of a director to the corporation or its shareholders for monetary damages for any action taken, or any failure to take any action, as a director, except liability:
      1. For any appropriation, in violation of his or her duties, of any business opportunity of the corporation;
      2. For acts or omissions which involve intentional misconduct or a knowing violation of law;
      3. For the types of liability set forth in Code Section 14-2-832; or
      4. For any transaction from which the director received an improper personal benefit,

        provided that no such provision shall eliminate or limit the liability of a director for any act or omission occurring prior to the date when such provision becomes effective; and

    5. A provision that, in discharging the duties of their respective positions and in determining what is believed to be in the best interests of the corporation, the board of directors, committees of the board of directors, and individual directors, in addition to considering the effects of any action on the corporation or its shareholders, may consider the interests of the employees, customers, suppliers, and creditors of the corporation and its subsidiaries, the communities in which offices or other establishments of the corporation and its subsidiaries are located, and all other factors such directors consider pertinent; provided, however, that any such provision shall be deemed solely to grant discretionary authority to the directors and shall not be deemed to provide to any constituency any right to be considered.
  3. The articles of incorporation need not set forth any of the corporate powers enumerated in this chapter. (Code 1981, § 14-2-202 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1989, p. 946, § 10; Ga. L. 1996, p. 1203, § 3; Ga. L. 1999, p. 405, § 4.)

Law reviews. - For article summarizing law relating to jurisdiction and venue over domestic and foreign corporations in Georgia, and service therein, see 21 Mercer L. Rev. 457 (1970). For article, "Some Distinctive Features of the Georgia Business Corporation Code," 28 Ga. St. B. J. 101 (1991). For article, "A Statutory Model for Corporate Constituency Concerns," see 49 Emory L.J. 1085 (2000). For review of 1996 corporation, partnership, and association legislation, see 13 Ga. St. U. L. Rev. 70.

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.

14-2-203. Incorporation.

  1. Unless a delayed effective date is specified, the corporate existence begins when the articles of incorporation are filed.
  2. The Secretary of State's filing of the articles of incorporation is conclusive proof that the incorporators satisfied all conditions precedent to incorporation except in a proceeding by the state to cancel or revoke the incorporation or involuntarily dissolve the corporation. (Code 1981, § 14-2-203 , enacted by Ga. L. 1988, p. 1070, § 1.)

Law reviews. - For comment, "An Empirical Study of Defective Incorporation," see 39 Emory L.J. 523 (1990).

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.

Personal liability not an option when corporation existed. - Grant of summary judgment to a founder of a company was upheld because O.C.G.A. § 14-2-204 only imposed personal liability on a person who acted on behalf of a non-existent corporation, but the undisputed evidence showed that the company existed, so the statute did not apply. G & E Constr. v. Rubicon Constr., 357 Ga. App. 55 , 849 S.E.2d 785 (2020).

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.

14-2-204. Liability for preincorporation transactions.

All persons purporting to act as or on behalf of a corporation, knowing there was no incorporation under this chapter, are jointly and severally liable for all liabilities created while so acting.

(Code 1981, § 14-2-204 , enacted by Ga. L. 1988, p. 1070, § 1.)

Law reviews. - For article discussing liability of corporate directors, officers, and shareholders under the Georgia Business Corporation Code, and as affected by provisions of the Georgia Civil Practice Act, see 7 Ga. St. B. J. 277 (1971). For survey article on business associations, see 34 Mercer L. Rev. 13 (1982). For survey article discussing developments in law of business associations for the period from June 1, 1998 through May 31, 1999, see 51 Mercer L. Rev. 127 (1999). For comment, "An Empirical Study of Defective Incorporation," see 39 Emory L.J. 523 (1990).

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).

Personal liability not an option when corporation existed. - Grant of summary judgment to a founder of a company was upheld because O.C.G.A. § 14-2-204 only imposed personal liability on a person who acted on behalf of a non-existent corporation, but the undisputed evidence showed that the company existed, so the statute did not apply. G & E Constr. v. Rubicon Constr., 357 Ga. App. 55 , 849 S.E.2d 785 (2020).

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.

14-2-205. Organization of corporation.

  1. After incorporation:
    1. If initial directors are named in the articles of incorporation, the initial directors shall hold an organizational meeting at the call of a majority of the directors to complete the organization of the corporation by appointing officers, adopting bylaws, and carrying on any other business brought before the meeting;
    2. If initial directors are not named in the articles, the incorporator or incorporators shall hold an organizational meeting at the call of a majority of the incorporators:
      1. To elect directors and complete the organization of the corporation; or
      2. To elect a board of directors who shall complete the organization of the corporation.
  2. Action required or permitted by this chapter to be taken by incorporators at an organizational meeting may be taken without a meeting if the action taken is evidenced by one or more consents in writing or by electronic transmission describing the action taken and signed by each incorporator.
  3. An organizational meeting may be held in or out of this state. (Code 1981, § 14-2-205 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 2004, p. 508, § 3.)

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.

14-2-206. Bylaws.

  1. The incorporators or board of directors of a corporation shall adopt initial bylaws for the corporation.  Bylaws adopted by the incorporators or board of directors prior to or contemporaneously with the issuance of any of the corporation's shares shall constitute bylaws adopted by the shareholders for all purposes of this chapter.
  2. The bylaws of a corporation may contain any provision for managing the business and regulating the affairs of the corporation that is not inconsistent with law or the articles of incorporation. (Code 1981, § 14-2-206 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1993, p. 1231, § 3.)

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.

14-2-207. Emergency bylaws.

  1. Unless the articles of incorporation provide otherwise, the board of directors of a corporation may adopt bylaws to be effective only in an emergency defined in subsection (d) of this Code section. The emergency bylaws, which are subject to amendment or repeal by the shareholders, may make all provisions necessary for managing the corporation during the emergency, including:
    1. Procedures for calling a meeting of the board of directors;
    2. Quorum requirements for the meeting; and
    3. Designation of additional or substitute directors.
  2. All provisions of the regular bylaws consistent with the emergency bylaws remain effective during the emergency. The emergency bylaws are not effective after the emergency ends.
  3. Corporate action taken in good faith in accordance with the emergency bylaws:
    1. Binds the corporation; and
    2. May not be used to impose liability on a corporate director, officer, employee, or agent.
  4. An emergency exists for purposes of this Code section if a quorum of the corporation's directors cannot readily be assembled because of some catastrophic event. (Code 1981, § 14-2-207 , enacted by Ga. L. 1988, p. 1070, § 1.)

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.

ARTICLE 3 PURPOSES AND POWERS

Law reviews. - For article, "Changes in Corporate Practice under Georgia's New Business Corporation Code," see 40 Mercer L. Rev. 655 (1989). For article, "Georgia's New Business Corporation Code," see 24 Ga. St. B. J. 158 (1988).

14-2-301. Purposes.

Every corporation incorporated under this chapter has the purpose of engaging in any lawful business unless a more limited purpose is set forth in the articles of incorporation.

(Code 1981, § 14-2-301 , enacted by Ga. L. 1988, p. 1070, § 1.)

Law reviews. - For note, "Ultra Vires in Georgia," see 16 Mercer L. Rev. 320 (1964).

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 .

14-2-302. General powers.

Every corporation has perpetual duration and succession in its corporate name, unless its articles of incorporation adopted on or after April 1, 1969, or an amendment thereto adopted on or after April 1, 1969, provides otherwise. Unless its articles of incorporation provide otherwise, every corporation has the same powers as an individual to do all things necessary or convenient to carry out its business and affairs, including without limitation power:

  1. To sue, be sued, complain, and defend in its corporate name;
  2. To have a corporate seal which may be altered at will, and to use it, or a facsimile of it, by impressing or affixing it or in any other manner reproducing it;
  3. To make and amend bylaws, not inconsistent with its articles of incorporation or with the laws of this state, for managing the business and regulating the affairs of the corporation;
  4. To purchase, receive, lease, or otherwise acquire, own, hold, improve, use, and otherwise deal with real or personal property or any legal or equitable interest in property, wherever located;
  5. To sell, convey, mortgage, pledge, lease, exchange, and otherwise dispose of all or any part of its property;
  6. To purchase, receive, subscribe for, or otherwise acquire, own, hold, vote, use, sell, mortgage, lend, pledge, or otherwise dispose of, and deal in and with shares or other interests in, or obligations of, any other entity;
  7. To make contracts and guarantees, incur liabilities, borrow money, issue its notes, bonds, and other obligations (which may be convertible into or include the option to purchase other securities of the corporation), and secure any of its obligations by mortgage or pledge of any of its property, franchises, or income;
  8. To lend money, invest and reinvest its funds, and receive and hold real and personal property as security for repayment;
  9. To be a promoter, partner, member, associate, or manager of any partnership, joint venture, trust, or other entity;
  10. To conduct its business, locate offices, and exercise the powers granted by this chapter within or without this state;
  11. To elect directors and appoint officers, employees, and agents of the corporation, define their duties, fix their compensation, and lend them money and credit;
  12. To pay pensions and establish pension plans, pension trusts, profit sharing plans, share bonus plans, share option plans, and benefit or incentive plans for any or all of its current or former directors, officers, employees, and agents;
  13. To make donations for the public welfare or for charitable, scientific, or educational purposes;
  14. To transact any lawful business that will aid governmental policy;
  15. To provide insurance for its benefit on the life or physical or mental ability of any of its directors, officers, or employees or any other person whose death or physical or mental disability might cause financial loss to the corporation; or, pursuant to any contractual arrangement with any shareholder concerning the reacquisition of shares owned by him at his death or disability, on the life or physical or mental ability of that shareholder, for the purpose of carrying out such contractual arrangement; or, pursuant to any contract obligating the corporation, as part of compensation arrangements, or pursuant to any contract obligating the corporation as guarantor or surety, on the life of the principal obligor, and for these purposes the corporation is deemed to have an insurable interest in such persons; and
  16. To make payments or donations or do any other act not inconsistent with law that furthers the business and affairs of the corporation. (Code 1981, § 14-2-302 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1989, p. 946, § 11; Ga. L. 1990, p. 257, § 3.)

Law reviews. - For article analyzing legal basis for corporate contributions to private educational institutions, see 5 Mercer L. Rev. 249 (1954). For article discussing issuance of debt securities under the Georgia Business Corporation Code, see 3 Ga. L. Rev. 11 (1968). For article summarizing law relating to jurisdiction and venue over domestic and foreign corporations in Georgia, and service thereon, see 21 Mercer L. Rev. 457 (1970). For article, "Use of Limited Partnership to Invest in Depreciable Realty," see 21 Mercer L. Rev. 481 (1970). For article, "Foreign Corporations in Georgia," see 10 Ga. St. B. J. 243 (1973). For article discussing establishment and transaction of business in Georgia by a foreign corporation, see 27 Mercer L. Rev. 629 (1976). For article on the limit of corporate social responsibility, see 33 Mercer L. Rev. 519 (1982). For note on statutory restrictions upon corporate ownership of real property, see 13 Mercer L. Rev. 410 (1962). For note, "Ultra Vires in Georgia," see 16 Mercer L. Rev. 320 (1964).

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.

14-2-303. Emergency powers.

  1. In anticipation of or during an emergency defined in subsection (d) of this Code section, the board of directors of a corporation may:
    1. Modify lines of succession to accommodate the incapacity of any director, officer, employee, or agent; and
    2. Relocate the principal office, designate alternative principal offices or regional offices, or authorize the officers to do so.
  2. During an emergency defined in subsection (d) of this Code section, unless emergency bylaws provide otherwise:
    1. Notice of a meeting of the board of directors need be given only to those directors whom it is practicable to reach and may be given in any practicable manner, including by publication and radio; and
    2. One or more officers of the corporation present at a meeting of the board of directors may be deemed to be directors for the meeting, in order of rank and within the same rank in order of seniority, as necessary to achieve a quorum.
  3. Corporate action taken in good faith during an emergency under this Code section to further the ordinary business affairs of the corporation:
    1. Binds the corporation; and
    2. May not be used to impose liability on a corporate director, officer, employee, or agent.
  4. An emergency exists for purposes of this Code section if a quorum of the corporation's directors cannot readily be assembled because of some catastrophic event. (Code 1981, § 14-2-303 , enacted by Ga. L. 1988, p. 1070, § 1.)

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.

14-2-304. Ultra vires.

  1. Except as provided in subsection (b) of this Code section, the validity of corporate action may not be challenged on the ground that the corporation lacks or lacked power to act.
  2. A corporation's power to act may be challenged:
    1. In a proceeding by a shareholder against the corporation to enjoin the act;
    2. In a proceeding by the corporation, directly, derivatively, or through a receiver, trustee, or other legal representative, against an incumbent or former director, officer, employee, or agent of the corporation; or
    3. In a proceeding by the Attorney General under Code Section 14-2-1430.
  3. In a shareholder's proceeding under paragraph (1) of subsection (b) of this Code section to enjoin an unauthorized corporate act, the court may enjoin or set aside the act, if equitable and if all affected persons are parties to the proceeding, and may award damages for loss, other than anticipated profits, suffered by the corporation or another party because of enjoining the unauthorized act. (Code 1981, § 14-2-304 , enacted by Ga. L. 1988, p. 1070, § 1.)

Law reviews. - For article analyzing legal basis for corporate contributions to private educational institutions, see 5 Mercer L. Rev. 249 (1954). For article discussing liability of corporate directors, officers, and shareholders under the Georgia Business Corporation Code, and as affected by provisions of the Georgia Civil Practice Act, see 7 Ga. St. B. J. 277 (1971). For note, "Ultra Vires in Georgia," see 16 Mercer L. Rev. 320 (1964).

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.

14-2-305. Submission of certain matters to shareholder vote.

Subject to the requirements set forth in paragraph (1) of subsection (b) of Code Section 14-2-1003, with respect to the submission of amendments to the articles of incorporation to shareholders; paragraph (1) of subsection (b) of Code Section 14-2-1103, with respect to the submission of a plan of merger or share exchange to shareholders; paragraph (1) of subsection (b) of Code Section 14-2-1202, with respect to the submission of a disposition of assets requiring shareholder approval to shareholders; and paragraph (1) of subsection (b) of Code Section 14-2-1402, with respect to the submission of a proposed dissolution to shareholders, a corporation may agree to submit a matter to a vote of its shareholders regardless of whether the board of directors determines at any time subsequent to adopting or approving such matter that such matter is no longer advisable and recommends that the shareholders reject or vote against the matter.

(Code 1981, § 14-2-305 , enacted by Ga. L. 2006, p. 825, § 2/SB 469.)

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).

ARTICLE 4 NAME

Law reviews. - For article, "Changes in Corporate Practice under Georgia's New Business Corporation Code," see 40 Mercer L. Rev. 655 (1989). For article, "Georgia's New Business Corporation Code," see 24 Ga. St. B. J. 158 (1988).

RESEARCH REFERENCES

ALR. - Construction and effect of statutes as to doing business under an assumed or fictitious name or designation not showing the names of the persons interested, 45 A.L.R. 198 ; 42 A.L.R.2d 516.

Use of abbreviations of name of municipal body or private corporation in designating party to judicial proceedings, 167 A.L.R. 1217 .

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.

14-2-401. Corporate name.

  1. A corporate name:
    1. Must contain the word "corporation," "incorporated," "company," or "limited," or the abbreviation "corp.," "inc.," "co.," or "ltd.," or words or abbreviations of like import in another language;
    2. May not contain language stating or implying that the corporation is organized for a purpose other than that permitted by Code Section 14-2-301 and its articles of incorporation;
    3. May not contain anything which, in the reasonable judgment of the Secretary of State, is obscene; and
    4. Shall not in any instance exceed 80 characters, including spaces and punctuation.
  2. Except as authorized by subsections (c) and (d) of this Code section, a corporate name must be distinguishable upon the records of the Secretary of State from:
    1. The corporate name of a corporation incorporated or authorized to transact business in this state;
    2. A corporate name reserved under Code Section 14-2-402;
    3. The fictitious name adopted by a foreign corporation authorized to transact business in this state because its real name is unavailable;
    4. The corporate name of a nonprofit corporation incorporated or authorized to transact business in this state;
    5. The name of a limited partnership or professional association filed with the Secretary of State; and
    6. The name of a limited liability company formed or authorized to transact business in this state.
  3. A corporation may apply to the Secretary of State for authorization to use a name that is not distinguishable upon his records from one or more of the names described in subsection (b) of this Code section. The Secretary of State shall authorize use of the name applied for if the other corporation consents to the use in writing and files with the Secretary of State articles of amendment to its articles of incorporation changing its name to a name that is distinguishable upon the records of the Secretary of State from the name of the applying corporation.
  4. A corporation may use the name (including the fictitious name) of another domestic or foreign corporation that is used in this state if the other corporation is incorporated or authorized to transact business in this state and:
    1. The proposed user corporation has merged with the other corporation;
    2. The proposed user corporation has been formed by reorganization of the other corporation; or
    3. The other domestic or foreign corporation has taken the steps required by this chapter to change its name to a name that is distinguishable upon the records of the Secretary of State from the name of the foreign corporation applying to use its former name.
  5. This chapter does not control the use of fictitious or trade names. Issuance of a name under this chapter means that the name is distinguishable for filing purposes on the records of the Secretary of State pursuant to subsection (b) of this Code section. Issuance of a corporate name does not affect the commercial availability of the name. (Code 1981, § 14-2-401 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1989, p. 946, § 12; Ga. L. 1995, p. 482, § 2; Ga. L. 2006, p. 825, § 3/SB 469.)

Cross references. - Permissible corporate names for financial institutions, § 7-1-130 . Registration of trade name used by corporation in lieu of corporate name, § 10-1-490 et seq.

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.

14-2-402. Reserved name.

  1. A person may apply to reserve a name for the purpose of incorporation by paying the fee specified in Code Section 14-2-122. If the Secretary of State finds that the corporate name applied for is available, he or she shall reserve the name for the applicant's use for 30 days or until articles of incorporation are filed, whichever is sooner. If the Secretary of State finds that the name applied for is not distinguishable for filing purposes upon the records of the Secretary of State, he or she shall notify the applicant who may then submit another reservation request within ten days of the date of the rejection notice without payment of an additional reservation fee.
  2. Upon expiration of a name reservation after 30 days without the filing of articles of incorporation, the name may again be reserved for another 30 day period by the same or another applicant under the same guidelines of subsection (a) of this Code section.
  3. A person who has in effect a name reservation under subsection (a) of this Code section may transfer the reservation to another person by delivering to the Secretary of State a signed notice of the transfer that states the name and address of the transferee. (Code 1981, § 14-2-402 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1989, p. 946, § 13; Ga. L. 1990, p. 257, § 4; Ga. L. 2003, p. 883, § 2.)

Cross references. - Reservation of corporate name by financial institutions, § 7-1-131 .

Administrative Rules and Regulations. - Reservation of Corporate Name, Official Compilation of the Rules and Regulations of the State of Georgia, Office of Secretary of State, Commissioner of Corporations, Chapter 590-7-2.

Law reviews. - For article, "Comparison of Features of Old and New Business Corporation Laws Relating to Domestic Corporations," see 5 Ga. St. B. J. 13 (1968).

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.

14-2-403. Registered name.

Repealed by Ga. L. 2002, p. 989, § 4, effective July 1, 2002.

Editor's notes. - This Code section was based on Code 1981, § 14-2-403 , enacted by Ga. L. 1988, p. 1070, § 1.

ARTICLE 5 OFFICE AND AGENT

Cross references. - Maintenance, change of registered offices by financial institutions, § 7-1-132 .

Law reviews. - For article discussing aspects of third party practice (impleader) under the Georgia Civil Practice Act, see 4 Ga. St. B. J. 355 (1968).

PART 1 R EGISTERED AGENTS AND SERVICE OF PROCESS

Administrative Rules and Regulations. - Service of Process, Official Compilation of the Rules and Regulations of the State of Georgia, Office of Secretary of State, Commissioner of Corporations, Chapter 590-7-9.

14-2-501. Registered office and registered agent.

Each corporation must continuously maintain in this state:

  1. A registered office that may be the same as any of its places of business; and
  2. A registered agent, who may be:
    1. A person who resides in this state and whose business office is identical with the registered office;
    2. A domestic corporation, nonprofit domestic corporation, or domestic limited liability company whose business office is identical with the registered office; or
    3. A foreign corporation, nonprofit foreign corporation, or foreign limited liability company authorized to transact business in this state whose business office is identical with the registered office. (Code 1981, § 14-2-501 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1999, p. 405, § 5; Ga. L. 2016, p. 225, § 3-1/SB 128.)

The 2016 amendment, effective July 1, 2016, substituted ", nonprofit domestic corporation, or domestic limited liability company" for "or nonprofit domestic corporation" in subparagraph (2)(B); and substituted ", nonprofit foreign corporation, or foreign limited liability company" for "or nonprofit foreign corporation" in subparagraph (2)(C).

Law reviews. - For article, "The Georgia Long Arm Statute: A Significant Advance in the Concept of Personal Jurisdiction," see 4 Ga. St. B. J. 13 (1967). For article summarizing law relating to jurisdiction and venue over domestic and foreign corporations in Georgia, and service thereon, see 21 Mercer L. Rev. 457 (1970). For comment on Lamex, Inc. v. Sterling Extruder Corp., 109 Ga. App. 92 , 135 S.E.2d 445 (1964), see 2 Ga. St. B. J. 127 (1965). For comment discussing the drawbacks of using the county of incorporation to determine the proper place for filing financial statement, in light of In re Carmichael Enterprises, Inc., 334 F. Supp. 94 (N.D. Ga. 1971), aff'd per curiam, 460 F.2d 1405 (5th Cir. 1972), see 9 Ga. St. B. J. 388 (1973).

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 § 14-2-1405 . 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), overruled on other grounds by Bowen v. Savoy, 308 Ga. 204 , 839 S.E.2d 546 (2020).

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.

14-2-502. Change of registered office or registered agent.

  1. A corporation may change its registered office or registered agent by delivering to the Secretary of State for filing an amendment to its annual registration that sets forth:
    1. The name of the corporation;
    2. The street address of its current registered office;
    3. If the current registered office is to be changed, the street address of the new registered office;
    4. The name of its current registered agent;
    5. If the current registered agent is to be changed, the name of the new registered agent; and
    6. That after the change or changes are made, the street addresses of its registered office and the business office of its registered agent will be identical.
  2. If a registered agent changes the street address of his business office, he may change the street address of the registered office of any corporation for which he is the registered agent by notifying the corporation in writing of the change and signing, either manually or in facsimile, and delivering to the Secretary of State for filing a statement of change setting forth the new address and all corporations for which he is the registered agent. (Code 1981, § 14-2-502 , enacted by Ga. L. 1988, p. 1070, § 1.)

Law reviews. - For comment discussing the drawbacks of using the county of incorporation to determine the proper place for filing financial statement, in light of In re Carmichael Enters., Inc., 334 F. Supp. 94 (N.D. Ga. 1971), aff'd, 460 F.2d 1405 (5th Cir. 1972), see 9 Ga. St. B. J. 388 (1973).

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 § 14-2-1408 . 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.

14-2-503. Resignation of registered agent.

  1. A registered agent may resign his agency appointment by signing and delivering to the Secretary of State for filing a statement of resignation. The statement may include a statement that the registered office is also discontinued.
  2. On or before the date of the filing of the statement of resignation, the registered agent shall deliver or mail a written notice of the agent's intention to resign to the chief executive officer, chief financial officer, secretary of the corporation, or a person holding a position comparable to any of the foregoing, as named and at the address shown in the annual registration, or in the articles of incorporation if no annual registration has been filed.
  3. The agency appointment is terminated, and the registered office discontinued if so provided, on the earlier of the filing by the corporation of an amendment to its annual registration designating a new registered agent and registered office if also discontinued or the thirty-first day after the date on which the statement was filed. (Code 1981, § 14-2-503 , enacted by Ga. L. 1988, p. 1070, § 1.)

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 § 14-2-1408 . 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.

14-2-504. Service on corporation.

  1. A corporation's registered agent is the corporation's agent for service of process, notice, or demand required or permitted by law to be served on the corporation.
  2. If a corporation has no registered agent or the agent cannot with reasonable diligence be served, the corporation may be served by registered or certified mail or statutory overnight delivery, return receipt requested, addressed to the secretary of the corporation at its principal office. Service is perfected under this subsection at the earliest of:
    1. The date the corporation receives the mail;
    2. The date shown on the return receipt, if signed on behalf of the corporation; or
    3. Five days after its deposit in the mail, as evidenced by the postmark, if mailed postage prepaid and correctly addressed.
  3. This Code section does not prescribe the only means, or necessarily the required means, of serving a corporation. (Code 1981, § 14-2-504 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 2000, p. 1589, § 3.)

Editor's notes. - Ga. L. 2000, p. 1589, § 16, not codified by the General Assembly, provided that the amendment to this Code section was applicable with respect to notices delivered on or after July 1, 2000.

Law reviews. - For article summarizing law relating to jurisdiction and venue over domestic and foreign corporations in Georgia, and service thereon, see 21 Mercer L. Rev. 457 (1970). For survey article on business associations, see 34 Mercer L. Rev. 13 (1982). For annual survey of trial practice and procedure, see 38 Mercer L. Rev. 383 (1986). For survey article on trial practice and procedure, see 59 Mercer L. Rev. 423 (2007). For comment on Rossville Crushed Stone, Inc. v. Massey, 219 Ga. 467 , 133 S.E.2d 874 (1963), see 1 Ga. St. B. J. 116 (1964). For comment advocating a "single-act" jurisdictional statute as basis for jurisdiction over a foreign corporation, in light of Singer v. Walker, 21 A.D.2d 285, 250 N.Y.S.2d 216 (1964), see 2 Ga. St. B. J. 131 (1965).

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

Editor's notes. - In light of the similarity of the provisions, decisions under former Civil Code 1910, § 2258, former Code 1933, §§ 22-403 and 22-1101 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.

The true test of jurisdiction is not residence or nonresidence of the plaintiff, or the place where the cause of action originated, but whether the defendant can be found and served in the jurisdiction where the cause of action is asserted. A corporation can be found in any jurisdiction where it transacts business through agents located in that jurisdiction, and suits may be maintained against it in that jurisdiction if the laws of the jurisdiction provide a method for perfecting service on it by serving its agents. Southern Ry. v. Parker, 194 Ga. 94 , 21 S.E.2d 94 (1942) (decided under former Code 1933, § 22-1101).

Domestic corporations not denied equal protection. - The statutory scheme providing different procedures for handling service upon foreign and domestic corporations does not deny domestic corporations equal protection under the state and federal constitutions. Ticor Constr. Co. v. Brown, 255 Ga. 547 , 340 S.E.2d 923 (1986) (decided under former § 14-2-62).

Substituted mode of service to be strictly construed. - The substituted mode of service upon domestic corporations, in lieu of personal service, being a creature of statute and in derogation of common law must be strictly construed. Lexington Developers, Inc. v. O'Neal Constr. Co., 142 Ga. App. 434 , 236 S.E.2d 98 , rev'd on other grounds, 240 Ga. 376 , 240 S.E.2d 856 (1977) (decided under former Code 1933, § 22-403).

Judgment void if service not in conformity with statute. - In the absence of service in conformity with the statute, or the waiver thereof, no jurisdiction over defendant is obtained and the judgment is void. Lexington Developers, Inc. v. O'Neal Constr. Co., 142 Ga. App. 434 , 236 S.E.2d 98 , rev'd on other grounds, 240 Ga. 376 , 240 S.E.2d 856 (1977) (decided under former Code 1933, § 22-403).

If the pleadings show the officer charged with executing the process does not comply with former by attempting "with reasonable diligence" to perfect service of the summons and complaint at the registered address, the service is not irregular but defective and the judgment is void. Lexington Developers, Inc. v. O'Neal Constr. Co., 142 Ga. App. 434 , 236 S.E.2d 98 , rev'd on other grounds, 240 Ga. 376 , 240 S.E.2d 856 (1977) (decided under former Code 1933, § 22-403).

Service need not be during hours when corporation is open to public. - The court is not restricted in perfecting service of its processes on individuals or on corporations, whether by serving officers or agents or by substituted service, to the hours during which a corporation opens its doors to the public. Clements v. Sims T.V., Inc., 105 Ga. App. 769 , 125 S.E.2d 705 (1962) (decided under former Code 1933, § 22-1101).

Summons proper when party appeared and answered. - In suit against receiver of railroad for loss of hogs allegedly destroyed by negligent operation of a train, court properly overruled demurrer (motion to dismiss) on grounds that receiver did not have an agent or office upon whom service could be made and that it did not appear whether the action was brought against the receiver or the railroad, because the receiver appeared and pleaded in answer to the summons and would not be heard to say that the receiver and the railroad were not one and the same for the purposes of the suit. Pidcock v. Stripling, 66 Ga. App. 692 , 19 S.E.2d 178 (1942) (decided under former Code 1933, § 22-1101).

Cited in American Photocopy Equip. Co. v. Lew Deadmore & Assocs., 127 Ga. App. 207 , 193 S.E.2d 275 (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); Jere Power Car Land, Inc. v. Moss, 134 Ga. App. 523 , 215 S.E.2d 288 (1975); Adams Drive, Ltd. v. All-Rite Trades, Inc., 136 Ga. App. 703 , 222 S.E.2d 174 (1975); Frazier v. HMZ Property Mgt., Inc., 161 Ga. App. 195 , 291 S.E.2d 4 (1982); KMM Indus., Inc. v. Professional Ass'n, 164 Ga. App. 475 , 297 S.E.2d 512 (1982); S. Donald Norton Properties, Inc. v. Triangle Pac., Inc., 253 Ga. 761 , 325 S.E.2d 160 (1985); Bricks v. Walker Showcase, Inc., 255 Ga. 122 , 336 S.E.2d 37 (1985); Lovett Sports, Inc. v. Atlantic Exhibit Servs., Inc., 178 Ga. App. 278 , 342 S.E.2d 726 (1986); D & C Trading Co. v. Indian Prods., Ltd., 179 Ga. App. 198 , 345 S.E.2d 865 (1986); Due W. Assocs. v. Renfroe Mining & Grading Co., 194 Ga. App. 397 , 391 S.E.2d 13 (1990); Castellana v. Conyers Toyota, Inc., 200 Ga. App. 161 , 407 S.E.2d 64 (1991); Ritts v. Dealers Alliance Credit Corp., 989 F. Supp. 1475 (N.D. Ga. 1997); Teledata World Servs., Inc. v. Tele-Mart, Inc., 242 Ga. App. 842 , 531 S.E.2d 372 (2000); Stephens v. McDonald's Corp., 245 Ga. App. 109 , 536 S.E.2d 566 (2000); Munoz v. Pac. Ins. Co., 261 Ga. App. 246 , 582 S.E.2d 207 (2003).

Service Upon Registered Agent

Legislative intent. - In creating registered agent service statute, the legislature intended to virtually eliminate the possibility of evasion of service of process by domestic corporations. American Consol. Serv. Corp. v. Nationwide Mut. Ins. Co., 156 Ga. App. 193 , 273 S.E.2d 898 (1980) (decided under former Code 1933, § 22-403).

"Agent" taken in ordinary sense. - Service of a corporation may be perfected by serving any agent of such corporation; and the word "agent" is to be taken in its ordinary sense, but the agent served must be an agent of the defendant company as distinguished from a mere servant or employee. Georgia Power & Light Co. v. Wilson, 48 Ga. App. 764 , 173 S.E. 220 (1934) (decided under former Civil Code 1910, § 2258).

Agent not mere employee or servant. - The representative of a corporation, such as will meet the requirements of law governing service upon it by serving the representative personally, must be an officer of the corporation or any agent who has some sort of control or authority over some department or sphere of the corporation's business, but not a mere employee or servant. Dowe v. Debus Mfg. Co., 49 Ga. App. 412 , 175 S.E. 676 (1934) (decided under former Civil Code 1910, § 2258).

Service is to give notice and afford hearing. - Since the object of service is to give notice and afford a hearing, it will be sufficient if made upon an agent whose character and rank are such as to afford reasonable assurance that the agent will inform the company that such process has been served. Louisville & N.R.R. v. Meredith, 194 Ga. 106 , 21 S.E.2d 101 (1942) (decided under former Code 1933, § 22-1101).

An execution or process against named person, with the added words "agent for" another, is a process against the person named, and not against the principal. Georgia Power & Light Co. v. Wilson, 48 Ga. App. 764 , 173 S.E. 220 (1934) (decided under former Civil Code 1910, § 2258).

Process to be handed to agent personally. - In serving the corporation by serving an officer or agent, the process must be handed to the agent personally. Leaving the process at the agent's most notorious place of abode is not good service. Clements v. Sims T.V., Inc., 105 Ga. App. 769 , 125 S.E.2d 705 (1962) (decided under former Code 1933, § 22-1101).

It is mandatory that service upon the agent be personal. If follows that leaving a copy of the petition and process at the "most notorious place of abode" of the agent of the corporation constitutes no service upon the corporation. Georgia Power & Light Co. v. Wilson, 48 Ga. App. 764 , 173 S.E. 220 (1934) (decided under former Civil Code 1910, § 2258).

Service on proper officer or agent is considered personal service. - In one sense, all service of process on corporations is either substituted or constructive, for the reason that the corporate entity is incapable of service other than through persons who represent it; but for practical purposes, service on the proper officer or agent of the corporation is considered personal, rather than substituted or constructive, service. Clements v. Sims T.V., Inc., 105 Ga. App. 769 , 125 S.E.2d 705 (1962) (decided under former Code 1933, § 22-1101).

Service on agent employed to solicit business and perform duties. - Service was perfected on a corporation, otherwise doing business within the jurisdiction of the court, by serving an agent who is employed to solicit business and perform other duties for the corporation, such agent is an agent for service. Southern Bell Tel. & Tel. Co. v. Jackson, 102 Ga. App. 699 , 117 S.E.2d 550 (1960) (decided under former Code 1933, § 22-1101).

Casual salaried laborer not agent. - A casual salaried laborer with neither discretionary power nor managing authority, hired as a service station attendant and working solely in that capacity, is not an agent in the sense contemplated by former Code 1933, § 22-403. Thoni Oil Co. v. Tinsley, 140 Ga. App. 887 , 232 S.E.2d 162 (1977) (decided under former Code 1933, § 22-403).

Company employees not agents of second company. - Although a corporation, at its own expense, provided group insurance through certain master group policies, and, at its own expense, provided assistance to its employees in presenting their claims and collecting their benefits under such policies, the employees of such corporation rendering such assistance were not for that reason, agents of the insurance company upon whom process could be legally served. Blaylock v. Prudential Ins. Co. of Am., 84 Ga. App. 641 , 67 S.E.2d 173 (1951) (decided under former Code 1933, § 22-1101).

In a tort action brought because of the alleged negligent construction and maintenance of rented property belonging to a corporation, the agent of the corporation in charge of its office in that county, and also in charge of the renting, repairing, and keeping in repair of such property, is the agent of the company to be served in that county, and the superior court of such county has jurisdiction of the suit. Home Owners Loan Corp. v. Brazzeal, 62 Ga. App. 683 , 9 S.E.2d 773 (1940) (decided under former Code 1933, § 22-1101).

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).

Reasonable Diligence

Who is authorized to determine whether agent can be found. - Persons required to determine whether the "registered agent cannot with reasonable diligence be found at the registered office," are those persons authorized to serve the "summons and complaint" - those designated by the applicable statute. Lexington Developers, Inc. v. O'Neal Constr. Co., 142 Ga. App. 434 , 236 S.E.2d 98 , rev'd on other grounds, 240 Ga. 376 , 240 S.E.2d 856 (1977) (decided under former Code 1933, § 22-403).

The person designated by statute, and not the plaintiff, is to determine whether the defendant corporation or its registered agent can be found at the registered address. Lexington Developers, Inc. v. O'Neal Constr. Co., 142 Ga. App. 434 , 236 S.E.2d 98 , rev'd on other grounds, 240 Ga. 376 , 240 S.E.2d 856 (1977) (decided under former Code 1933, § 22-403).

Court will presume regularity of proceedings. - Although the record does not affirmatively reveal full compliance with the statutory provisions as to reasonable diligence, absent a contrary showing by the defendant, the court will presume the regularity of the proceedings. Stesu, Inc. v. Roger Toole Drywall, Inc., 141 Ga. App. 636 , 234 S.E.2d 102 (1977) (decided under former Code 1933, § 22-403).

Failure to attempt service after summons issued. - Service held defective because deputy marshal attempting service made no attempt to serve the defendant corporation or the registered agent at the registered address, after the summons had issued - which is the date the determination must be made as to whether defendant or its agent is at the registered location, and should be made by one designated in the statute. Lexington Developers, Inc. v. O'Neal Constr. Co., 142 Ga. App. 434 , 236 S.E.2d 98 , rev'd on other grounds, 240 Ga. 376 , 240 S.E.2d 856 (1977) (decided under former Code 1933, § 22-403).

Failure to fully investigate. - In a personal injury action, because plaintiff failed to investigate fully and correctly identify the parent corporation of a corporation which leased and occupied the premises in question, a default judgment would be set aside because of the resulting ambiguity created by naming the wrong defendant or improperly serving the named defendant. Charming Shoppes of Del., Inc. v. Parrish, 214 Ga. App. 729 , 448 S.E.2d 781 (1994).

Reasonable diligence established. - Because the plaintiff presented sufficient evidence that, after filing its complaint, it provided the sheriff's office with the defendant's correct address, and a few weeks later, contacted the sheriff's office to inquire whether service had been completed upon the defendant and learned that repeated service attempts were unsuccessful, evidence of reasonable diligence supporting the denial of a motion to set aside a default judgment was found; moreover, unlike O.C.G.A. § 9-11-4(e)(1), service via overnight delivery was supported and did not violate the defendant's due process rights. B&B Quick Lube, Inc. v. G&K Servs. Co., 283 Ga. App. 299 , 641 S.E.2d 198 (2007).

Duty of registered agent. - Under O.C.G.A. § 14-2-504 , a registered agent must receive service of process on behalf of the company, but the statute does not require an agent to perform any particular acts in receiving service of process. Because Georgia law is silent on the duty that a registered agent owes to an LLC, a registered agent simply owes a duty of reasonable care in receiving service of process. Azalea House LLC v. Nat'l Registered Agents, Inc., F.3d (11th Cir. Feb. 25, 2011)(Unpublished).

Effect on Other Manner of Service

Former Code 1933, § 22-403 and Ga. L. 1966, p. 604 (see now O.C.G.A. §§ 14-2-504 and 9-11-4(d)(1)) were cumulative and alternative methods of perfecting service upon domestic corporations, except former Code 1933, § 22-403 could be used notwithstanding any inconsistent provisions of Ga. L. 1966, p. 604 (see now O.C.G.A. § 9-11-1 et seq.). Lexington Developers, Inc. v. O'Neal Constr. Co., 142 Ga. App. 434 , 236 S.E.2d 98 , rev'd on other grounds, 240 Ga. 376 , 240 S.E.2d 856 (1977) (decided under former Code 1933, § 22-403).

Former Code 1933, § 22-403 (see now O.C.G.A. § 14-2-504 ) was designed to supplement Ga. L. 1966, p. 604 (see now O.C.G.A. § 9-11-4(d) ) by adding the registered agent to the list of those who may be served and thus virtually to eliminate the possibility of a domestic corporations evading service of process. O'Neal Constr. Co. v. Lexington Developers, Inc., 240 Ga. 376 , 240 S.E.2d 856 (1977) (decided under former Code 1933, § 22-403).

Service on Secretary of State. - Because it was shown that defendant corporation had vacated the addresses it had given the Secretary of State for both its principal and registered offices, plaintiff was authorized to effect substituted service under O.C.G.A § 9-11-4(d)(1) without making any additional efforts to effect personal service. Daly's Driving Sch., Inc. v. Scott, 238 Ga. App. 443 , 519 S.E.2d 1 (1999).

Foreign Corporations

This section has been held to embrace foreign corporations. Hirsch v. Shepherd Lumber Corp., 194 Ga. 113 , 20 S.E.2d 575 , answer conformed to, 67 Ga. App. 474 , 21 S.E.2d 110 (1942) (decided under former Code 1933, § 22-1101).

A foreign corporation doing business in this state is subject to the jurisdiction of the courts of this state, if it can be served with process, and Georgia law provides for the service of process upon foreign as well as domestic corporations. Louisville & N.R.R. v. Meredith, 66 Ga. App. 488 , 18 S.E.2d 51 (1941), aff'd, 194 Ga. 106 , 21 S.E.2d 101 (1942) (decided under former Code 1933, § 22-1101).

A foreign corporation doing business in this state and having agents located therein for this purpose may be sued and served in the same manner as domestic corporations upon any transitory cause of action whether originating in this state or otherwise; and it is immaterial whether the plaintiff be a nonresident or a resident of this state, provided the enforcement of the cause of action would not be contrary to the laws and policy of this state. Southern Ry. v. Parker, 194 Ga. 94 , 21 S.E.2d 94 (1942) (decided under former Code 1933, § 22-1101).

Having an agent within a county of such kind as could be served is alone sufficient to give jurisdiction of the nonresident corporation if service upon the agent is had, and maintaining an office within the county by the corporation is not necessary in such a case. The rule is the same as to both resident and nonresident corporations except that in the case of resident corporations, jurisdiction of the corporation in contract actions requires that it have an agent transacting business and that it maintain an office. Swift & Co. v. Lawson, 95 Ga. App. 35 , 97 S.E.2d 168 (1957) (decided under former Code 1933, §§ 22-1101 and 22-1102).

When a corporation is engaged in the exercise of its franchises in a state other than that of its creation, it cannot be said that the corporate entity is confined to its principal office in the latter; in fact, for the purpose of being sued, in personam, it may be treated as a resident of each state in which it does business under state laws. Louisville & N.R.R. v. Meredith, 66 Ga. App. 488 , 18 S.E.2d 51 (1941), aff'd, 194 Ga. 106 , 21 S.E.2d 101 (1942) (decided under former Code 1933, § 22-1101).

If foreign corporation is not subject to equitable action in county because it has no agent in that county, it cannot be made subject to the jurisdiction of the court because an agent of the corporation may come into the county and there be personally served with process. Modern Homes Constr. Co. v. Mack, 218 Ga. 795 , 130 S.E.2d 725 (1963) (decided under former Code 1933, § 22-1101).

Service on foreign insurer. - The reference to other methods of service in former Code 1933, § 56-1204 (see now O.C.G.A. § 33-4-4 ) included that of serving "any agent" of the company as provided in by former Code § 22-1101 (see now O.C.G.A. § 14-2-504 ). Aetna Cas. & Sur. Co. v. Sampley, 108 Ga. App. 617 , 134 S.E.2d 71 (1963) (decided under former Code 1933, § 22-1101).

Service on foreign corporation's American subsidiary. - Service upon the designated agent of a German corporation's wholly-owned American subsidiary did not constitute adequate service of process upon the German corporation. May v. Volkswagen of Am., Inc., 125 F.R.D. 521 (N.D. Ga. 1989) (decided under former § 14-2-62).

Neither O.C.G.A. § 9-11-4 , the general service of process statute, nor O.C.G.A. § 14-2-504 authorized service on an agent of a domestic subsidiary as constituting proper service on a foreign parent corporation. Rovema Verpackungsmaschinen v. Deloache, 232 Ga. App. 212 , 500 S.E.2d 647 (1998).

Service on railroad through its freight agent. - Legal service may be perfected on a defendant railroad corporation which does business in this state, i.e., has tracks in the state, by serving its soliciting freight agent who has an office in the county in which the present suit is filed and service perfected, although the defendant does no business in the county other than that of the soliciting of freight. Louisville & N.R.R. v. Meredith, 66 Ga. App. 488 , 18 S.E.2d 51 (1941), aff'd, 194 Ga. 106 , 21 S.E.2d 101 (1942) (decided under former Code 1933, § 22-1101).

Service on foreign corporations in wrongful death actions. - 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 the seller's state of Delaware and Georgia law. Vibratech, Inc. v. Frost, 291 Ga. App. 133 , 661 S.E.2d 185 (2008), overruled on other grounds by Bowen v. Savoy, 308 Ga. 204 , 839 S.E.2d 546 (2020).

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.

PART 2 V ENUE

14-2-510. Venue.

  1. Venue in proceedings against a corporation shall be determined in accordance with the pertinent constitutional and statutory provisions of this state in effect as of July 1, 1989, or thereafter.
  2. Each domestic corporation and each foreign corporation authorized to transact business in this state shall be deemed to reside and to be subject to venue as follows:
    1. In civil proceedings generally, in the county of this state where the corporation maintains its registered office; or if the corporation fails to maintain a registered office, it shall be deemed to reside in the county where its last named registered office or principal office, as shown by the records of the Secretary of State, was maintained;
    2. In actions based on contracts, in that county in this state where the contract to be enforced was made or is to be performed, if the corporation has an office and transacts business in that county;
    3. In actions for damages because of torts, wrong, or injury done, in the county where the cause of action originated, if the corporation has an office and transacts business in that county;
    4. In actions for damages because of torts, wrong, or injury done, in the county where the cause of action originated. If venue is based solely on this paragraph, the defendant shall have the right to remove the action to the county in Georgia where the defendant maintains its principal place of business. A notice of removal shall be filed within 45 days of service of the summons. Upon motion by the plaintiff filed within 45 days of the removal, the court to which the case is removed may remand the case to the original court if it finds that removal is improper under the provisions of this paragraph. Upon the defendant's filing of a notice of removal, the 45 day time period for filing such notice shall be tolled until the remand, the entry of an order by the court determining that the removal is valid, or the expiration of the time period for the plaintiff to file a motion challenging the removal, whichever occurs first; and
    5. In garnishment proceedings, in the county of this state in which is located the corporate office or place of business where the employee who is the defendant in the main action is employed.
  3. Any residences established by this Code section shall be in addition to, and not in limitation of, any other residence that any domestic or foreign corporation may have by reason of other laws.
  4. Whenever this chapter either requires or permits a proceeding to be brought in the county where the registered office of the corporation is maintained, if the proceeding is against a corporation having a principal office as required under a prior general corporation law, the action or proceeding may be brought in the county where the principal office is located. (Code 1981, § 14-2-510 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 2000, p. 228, § 4.)

Cross references. - Venue generally, Ga. Const. 1983, Art. VI, Sec. II.

Editor's notes. - Ga. L. 2000, p. 228, § 1, not codified by the General Assembly, provides: "The Act shall be known and may be cited as the 'Civil Litigation Improvement Act of 2000.'"

Law reviews. - For article summarizing law relating to jurisdiction and venue over domestic and foreign corporations in Georgia, and service thereon, see 21 Mercer L. Rev. 457 (1970). For article, "Foreign Corporations in Georgia," see 10 Ga. St. B. J. 243 (1973). For article, "Current Problems with Venue in Georgia," see 12 Ga. St. B. J. 71 (1975). For article, "Defending the Lawsuit: A First-Round Checklist," see 22 Ga. St. B. J. 24 (1985). For annual review of Georgia Corporation and Business Organization Law, see 15 (No. 7) Ga. St. B. J. 20 (2010). For article, "2015 Georgia Corporation and Business Organization Case Law Developments," see 21 Ga. St. B. J. 30 (Apr. 2016). For annual survey on business associations, see 68 Mercer L. Rev. 71 (2016). For article, "2016 Georgia Corporation and Business Organization Case Law Developments," see 22 Ga. St. B. J. 58 (April 2017). For annual survey on business associations, see 69 Mercer L. Rev. 33 (2017). For annual survey on trial practice and procedure, see 69 Mercer L. Rev. 321 (2017). For article, "Georgia's Unconstitutional Business Venue Provision: A Kingdom with Impermissible Borders," see 69 Mercer L. Rev. 433 (2018). For annual survey on business associations, see 70 Mercer L. Rev. 19 (2018). For annual survey on trial practice and procedure, see 70 Mercer L. Rev. 253 (2018). For annual survey on commercial transportation: a two-year survey, see 71 Mercer L. Rev. 39 (2019). For note discussing complications created by alternative places of venue for corporations, see 11 Ga. L. Rev. 149 (1976). For note, "Venue in Multidefendant Civil Practice in Georgia," see 6 Ga. State U. L. Rev. 427 (1990). For note on 2000 amendment of O.C.G.A. § 14-2-510 , see 17 Ga. St. U. L. Rev. 37 (2000). For comment on Rives v. Atlanta Newspapers, Inc., 110 Ga. App. 184 , 138 S.E.2d 100 (1964), see 1 Ga. St. B. J. 236 (1964). For comment on Lamex, Inc. v. Sterling Extruder Corp., 109 Ga. App. 92 , 135 S.E.2d 445 (1964), see 2 Ga. St. B. J. 127 (1965). For comment advocating a "single-act" jurisdictional statute as basis for jurisdiction over a foreign corporation, in light of Singer v. Walker, 21 A.D.2d 285, 250 N.Y.S.2d 216 (1964), see 2 Ga. St. B. J. 131 (1965).

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

Editor's notes. - In light of the similarity of the provisions, decisions under former Code 1933, §§ 22-404, 22-1102, Ga. L. 1946, p. 687, § 4 and former Code Section 14-2-63, which were repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, are included in the annotations for this Code section.

Legislative power to declare residence. - Legislature, under the Constitution, has the power to declare the residence of a corporation. Jones v. Chandler, 88 Ga. App. 103 , 76 S.E.2d 237 (1953) (decided under Ga. L. 1946, p. 687, § 4).

Legislative right to designate venue. - The right of the General Assembly to create a corporation carries with it the power to designate its venue. Davenport v. Petroleum Delivery Serv. of Ga., Inc., 134 Ga. App. 418 , 214 S.E.2d 692 , aff'd, 235 Ga. 116 , 218 S.E.2d 848 (1975) (decided under former Code 1933, § 22-404).

Venue provisions of former § 14-2-63 were cumulative. Savannah Laundry & Mach. Co. v. Owenby, 186 Ga. App. 130 , 366 S.E.2d 787 , cert. denied, 186 Ga. App. 918 , 366 S.E.2d 787 (1988) (decided under former § 14-2-63).

Special venue statutes not exclusive. - There is no authority that special venue statutes are exclusive and the inference in the cases is that they are cumulative of other venue statutes. Jahncke Serv., Inc. v. Department of Transp., 134 Ga. App. 106 , 213 S.E.2d 150 (1975), later appeal, 137 Ga. App. 179 , 223 S.E.2d 228 (1976) (decided under former Code 1933, § 22-404).

Residence of foreign corporation. - A foreign railway company can have a residence in this state, which will subject it to suit in the courts; whenever it is present in any county of this state conducting therein a part of the business for which it was organized, it becomes a resident of such county. Jones v. Chandler, 88 Ga. App. 103 , 76 S.E.2d 237 (1953) (decided under Ga. L. 1946, p. 687, § 4).

Foreign corporation without agent or office to do business. - In the event that a corporation does have an agent or office for the purpose of doing business within the state, the venue will be in the county where such office exists. However, if a foreign corporation doing business within this state does not have an agent or office for the purpose of doing business, but does have an agent for the purpose of service, venue may be laid in any county. Diamond Alkali Co. v. Godwin, 100 Ga. App. 799 , 112 S.E.2d 365 (1959), aff'd, 215 Ga. 839 , 114 S.E.2d 40 (1960) (decided under Ga. L. 1946, p. 687, § 4).

Removal rights of foreign corporation. - Lower appellate court properly reversed the grant of removal to a Maryland foreign limited liability company sued in Georgia because applying O.C.G.A. § 14-2-510(b)(4), if the principal place is in a county in Georgia, a corporate defendant sued for tort in a complaint asserting jurisdiction under subsection (b)(4) has a right to remove to a court in that county, but if that place is not in Georgia, the right to remove is not applicable. Pandora Franchising, LLC v. Kingdom Retail Group, LLLP, 299 Ga. 723 , 791 S.E.2d 786 (2016).

Removal precluded by Georgia Motor Carrier Act. - In a wrongful death action based on a motor vehicle accident, the state court of one county erred in denying the plaintiff's motion to remand the case to another county because the general provision for venue for a defendant corporation provided that a plaintiff could file certain causes of action against a corporation in the county where a plaintiff's cause of action originated; if there was a separate basis for venue, the plain language of the general provision precluded a corporation from removing the case to the county where its principal place of business was located; and the Georgia Motor Carrier Act, O.C.G.A. § 40-1-50 et seq., supplied an independent basis for venue against a motor carrier in the county where the cause of action or some part thereof arose. Blakemore v. Dirt Movers, Inc., 344 Ga. App. 238 , 809 S.E.2d 827 (2018), cert. denied, No. S18C0731, 2018 Ga. LEXIS 469 (Ga. 2018).

Impleading of a third-party defendant is an independent suit or case and must satisfy within itself the jurisdiction and venue requirements of the Constitution of the State of Georgia. Central of Ga. R.R. v. Georgia Kraft Co., 140 Ga. App. 8 , 230 S.E.2d 74 (1976) (decided under former Code 1933, § 22-404).

Presumption of continuing valid venue. - When an action was brought against a contractor alleging that it was an out-of-state corporation doing business in Rabun County, with such an allegation being admitted by the contractor, and thereafter the complaint was amended by adding additional party defendants, any contention by defendants that venue was lacking because contractor was not transacting business in Rabun County when the plaintiffs filed the amended complaint is without merit because under the doctrine of continuity, the transaction of business by the contractor is presumed to have continued in Rabun County, absent any evidence to the contrary. Tomberlin Assocs., Architects, Inc. v. Free, 174 Ga. App. 167 , 329 S.E.2d 296 (1985) (decided under former § 14-2-63).

The burden is on defendant to establish its plea to the jurisdiction by a preponderance of the evidence. Rocker v. Windsor Forest, Inc., 112 Ga. App. 363 , 145 S.E.2d 291 (1965) (decided under Ga. L. 1946, p. 687, § 4).

Jurisdiction over corporation as joint defendant. - A court otherwise without jurisdiction over a domestic corporation may acquire jurisdiction by virtue of the court's having jurisdiction of a joint defendant. Byrd v. Moore Ford Co., 116 Ga. App. 292 , 157 S.E.2d 41 (1967) (decided under Ga. L. 1946, p. 687, § 4).

No jurisdiction over nonresident absent determination of liability of resident. - Absent a determination of liability of the resident defendant, the trial court had no jurisdiction to render a final judgment against the nonresident defendant corporation even if it was in default. Byrd v. Moore Ford Co., 116 Ga. App. 292 , 157 S.E.2d 41 (1967) (decided under Ga. L. 1946, p. 687, § 4).

Action against nonresident motor common carrier. - Even though a nonresident interstate motor common carrier was registered in Georgia and had a registered agent for service of process, venue of a personal injury action against the carrier and nonresident driver was proper only in the county in which the accident occurred. Southern Drayage, Inc. v. Williams, 216 Ga. App. 721 , 455 S.E.2d 418 (1995).

Corporation subject to attachment when about to leave domicile county. - For a mercantile corporation that does business in one county and has its principal office and place of business, and therefore its domicile or residence in that county, but all the officers of the corporation reside in another county and the corporation has decided to discontinue its business in the county in which it is domiciled, and the business of the corporation and the stock of goods belonging to it are about to be removed to the other county and the principal office and place of business in the city of the corporation's domicile is to be discontinued, the inference is authorized that the corporation is actually removing or about to remove from the county of its domicile and it is therefore subject to attachment. U.S. Fid. & Guar. Co. v. Lawrence, 53 Ga. App. 111 , 184 S.E. 922 (1936), rev'd on other grounds, 184 Ga. 83 , 190 S.E. 346 (1937) (decided under former Code 1933, ch. 22-15).

Abandonment of issue on appeal. - In a breach of contract action, because the company failed to set forth any argument in the company's appellate brief that the trial court erred in failing to transfer the case because it was not jointly liable with the resident co-defendants, either as joint tortfeasors or as joint obligors, the appellate court deemed the issue of venue abandoned on appeal. Liberty Capital, LLC v. First Chatham Bank, 338 Ga. App. 48 , 789 S.E.2d 303 (2016).

Indemnity action. - In an indemnity action brought by a defendant in a third-party complaint, the cause of action originated in the place where the act or omission to act by the defendant occurred, not where the original suit was filed. Central of Ga. R.R. v. Georgia Kraft Co., 140 Ga. App. 8 , 230 S.E.2d 74 (1976) (decided under former Code 1933, § 22-404).

Sale of product in county where suit brought. - Venue may not be had over a manufacturer simply because a retailer, which is a separate legal entity, sells its product in the county in which suit is brought. Barnes v. Destiny Indus., Inc., 185 Ga. App. 630 , 365 S.E.2d 488 (1988).

Suit against insurance company. - For administrator of insured's estate who sued insurance company on alleged agreement to settle claim on behalf of its insured, the venue provisions of former § 56-1201 (see now O.C.G.A. § 33-4-1 ) rather than those of former § 22-404 were applicable even though it was not a claim between the insurer and its insured, since the suit arose out of the insurance company's role as insurer. Liberty Mut. Ins. Co. v. Lott, 246 Ga. 423 , 271 S.E.2d 833 (1980) (decided under former Code 1933, § 22-404).

Venue of action when Certificate of Need contested. - Trial court did not err in the court's denial of the motion to transfer venue in a case involving an application for a Certificate of Need (CON) because the company began the process of purchasing property and applied for a CON to develop a psychiatric hospital in Coweta County; therefore, the company engaged in business activities such that venue was proper there. Tanner Med. Ctr., Inc. v. Vest Newnan, LLC, 337 Ga. App. 884 , 789 S.E.2d 258 (2016).

Obligation to determine where venue existed. - Because 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).

Dismissal of distribution EMCs was proper. - In suits by classes of former and current members of distribution electric membership corporations (EMCs) seeking to recover millions of dollars in patronage capital from two wholesale EMCs, in which the members lacked privity with the wholesale EMCs which were the only defendants as to whom venue was proper, dismissal of the distribution EMCs was proper. Walker v. Oglethorpe Power Corp., 341 Ga. App. 647 , 802 S.E.2d 643 (2017), overruled on other grounds, Hanham v. Access Mgmt. Group L.P., 305 Ga. 414 , 825 S.E.2d 217 (2019).

Discretion of trial court on venue. - When a plaintiff brings suit in the same county on two claims arising from the same transaction and the Georgia Constitution designates that county as the venue for one of those claims, the trial court has the discretion to entertain both claims. Liberty Capital, LLC v. First Chatham Bank, 338 Ga. App. 48 , 789 S.E.2d 303 (2016).

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); Radcliffe v. Boyd Motor Lines, 129 Ga. App. 725 , 201 S.E.2d 4 (1973); Orkin Exterminating Co. v. Gilland, 130 Ga. App. 788 , 204 S.E.2d 469 (1974); Europa Hair, Inc. v. Browning, 133 Ga. App. 753 , 212 S.E.2d 862 (1975); Lukas v. Pittman Hwy. Contracting Co., 134 Ga. App. 305 , 214 S.E.2d 398 (1975); Citizens & S. Nat'l Bank v. Bougas, 138 Ga. App. 706 , 227 S.E.2d 434 (1976); Campbell v. Jim Walter Homes, Inc., 140 Ga. App. 435 , 231 S.E.2d 450 (1976); Thoni Oil Co. v. Tinsley, 140 Ga. App. 887 , 232 S.E.2d 162 (1977); Adams v. Upjohn Co., 142 Ga. App. 264 , 235 S.E.2d 584 (1977); Woods v. Long Mfg., N.C., Inc., 150 Ga. App. 499 , 258 S.E.2d 592 (1979); Lake Lanier Islands Dev. Auth. v. Village Harbor, Inc., 152 Ga. App. 705 , 264 S.E.2d 23 (1979); Fosgate v. American Mut. Liab. Ins. Co., 154 Ga. App. 510 , 268 S.E.2d 780 (1980); Evans v. Montgomery Elevator Co., 159 Ga. App. 834 , 285 S.E.2d 263 (1981); Ball v. Brunswick Pulp & Paper Co., 248 Ga. 106 , 281 S.E.2d 571 (1981); Cassells v. Bradlee Mgt. Servs., Inc., 161 Ga. App. 325 , 291 S.E.2d 48 (1982); Bradlee Mgt. Servs., Inc. v. Cassells, 249 Ga. 614 , 292 S.E.2d 717 (1982); Southern Ry. v. Lawson, 174 Ga. App. 101 , 329 S.E.2d 288 (1985); Gault v. National Union Fire Ins. Co., 208 Ga. App. 134 , 430 S.E.2d 63 (1993); Ford v. Uniroyal Goodrich Tire Co., 231 Ga. App. 11 , 497 S.E.2d 596 (1998); M&M Mortg. Co. v. Grantville Mill, LLC, 302 Ga. App. 46 , 690 S.E.2d 630 (2010); Mauer v. Parker Fibernet, LLC, 306 Ga. App. 160 , 701 S.E.2d 599 (2010); WMW, Inc. v. Am. Honda Motor Co., 291 Ga. 683 , 733 S.E.2d 269 (2012).

Office

"Office" defined. - "Office," as that term was used in former § 22-404, is synonymous with "place of business." Scott v. Atlanta Dairies Coop., 239 Ga. 721 , 238 S.E.2d 340 (1977); Gillis v. Orkin Exterminating Co., 155 Ga. App. 804 , 272 S.E.2d 728 (1980) (decided under former Code 1933, § 22-404).

A corporation that has a place where its business is being carried on, and has an agent in charge of it, performing such acts as are necessary in carrying on its business, has an office and place of business within the meaning of former § 22-404. Musgrove v. Kirksey Ford Sales, Inc., 159 Ga. App. 276 , 283 S.E.2d 292 (1981) (decided under former Code 1933, § 22-404).

The term "office" as used in O.C.G.A. § 14-2-510(b) includes any place where a particular kind of business is transacted or a service is supplied by a corporation, and an office can be operated without being open to the public. McLendon v. Albany Whse. Co., 203 Ga. App. 865 , 418 S.E.2d 130 (1992).

Corporation is deemed to reside in county only if it has office and transacts business there. Hagood v. Garner, 159 Ga. App. 289 , 283 S.E.2d 355 (1981) (decided under former Code 1933, § 22-404).

Office and place of business within statute. - If a corporation has a place where its business is being carried on, and has an agent in charge of it, performing such acts as are necessary in carrying on its business, it has an office and place of business within the meaning of the statute. Gillis v. Orkin Exterminating Co., 155 Ga. App. 804 , 272 S.E.2d 728 (1980) (decided under former Code 1933, § 22-404).

Office need not be open to public. - An office (place of business) may be operated to perform services for or transact a particular kind of business for the corporation without being open to the public. Gillis v. Orkin Exterminating Co., 155 Ga. App. 804 , 272 S.E.2d 728 (1980) (decided under former Code 1933, § 22-404).

The term "office," as used in paragraphs (2) and (3) of subsection (b) of former Code 1933, § 22-404, was any "place where a particular kind of business is transacted or a service is supplied" by a corporation, and which could be operated without being open to public. Musgrove v. Kirksey Ford Sales, Inc., 159 Ga. App. 276 , 283 S.E.2d 292 (1981) (decided under former Code 1933, § 22-404).

Office must be maintained at time action filed. - The fact that defendant corporation had an office in a county at the time the cause of action arose does not constitute grounds for venue in that county under paragraphs (2) and (3) of subsection (b) of former § 14-2-63 unless the corporation had an office at the time the action was filed. Jernigan v. Patterson Contracting Co., 169 Ga. App. 963 , 315 S.E.2d 679 (1984) (decided under former § 14-2-63).

Dissolved corporation. - The county in which a corporation maintained its registered office prior to its dissolution was the proper venue as to an action which is commenced against the corporation subsequent to its dissolution, and not the county in which the cause of action originated. Savannah Laundry & Mach. Co. v. Owenby, 186 Ga. App. 130 , 366 S.E.2d 787 , cert. denied, 186 Ga. App. 918 , 366 S.E.2d 787 (1988).

Trial court erred in denying the defendants' motion to dismiss and in finding that venue was proper in DeKalb County, because while it was undisputed that the cause of action arose in DeKalb County, by March 2013, when the plaintiff filed the renewal suit, the defending orthopedic practice had been administratively dissolved and no longer had an office or transacted business there; thus, venue was where the practice last maintained a registered office prior to dissolution, which was in Fulton County. Ross v. Waters, 332 Ga. App. 623 , 774 S.E.2d 195 (2015).

In a products liability action against a nonresident automobile manufacturer whose agreement with a dealership provided that the agreement did not make either party the agent or legal representative of the other for any purpose whatsoever, and the manufacturer's sales representatives came only when requested for consultation, intermittent visits by service representatives were not sufficient to establish that the manufacturer maintained an office and place of business and thus failed to establish that venue was proper in that county. Barrow v. GMC, 172 Ga. App. 287 , 322 S.E.2d 900 (1984) (decided under former § 14-2-63).

Uncontradicted sworn affidavit of an officer of a corporation stating it maintains no office in the county where suit was filed is sufficient to establish lack of venue. Barnes v. Destiny Indus., Inc., 185 Ga. App. 630 , 365 S.E.2d 488 (1988) (decided under former § 14-2-63).

Venue in a borrower's action for fraud against a corporate lender was proper in Coffee County, even though the lender, a foreign corporation registered to do business in Georgia, had its registered office in Fulton County, because it transacted business in Coffee County. Chrysler Credit Corp. v. Brown, 198 Ga. App. 653 , 402 S.E.2d 753 (1991).

Office and transacting business. - Venue for two lawsuits arising out of the collision of two vehicles was proper in the county where the lawsuits were originally filed not only because the accident occurred there, but also because no dispute existed but that the owner of the truck involved in the collision had an office and transacted business in that county, and, thus, the trial court in the county to which the lawsuits were removed did not err in entering an order that remanded the lawsuits back to the original county. Mohawk Indus. v. Clark, 259 Ga. App. 26 , 576 S.E.2d 16 (2002).

Trial court's order that venue was proper in Twiggs County was proper in a declaratory judgment action between an owner and a corporation arising from leases between the parties for facilities because one of the facilities at issue was located in Twiggs County and the corporation's subsidiary, a co-defendant, had an office and transacted business in Twiggs County. Mariner Healthcare, Inc. v. Foster, 280 Ga. App. 406 , 634 S.E.2d 162 (2006).

Registered Office

Registered office is in addition to other residences. - The registered office shall be in addition to, and not in limitation of, any other residences that any domestic corporation may have by reason of other laws. Thus, if it has an office and transacts business or has a principal office located in another county, service in the other county would establish venue there. Victoria Corp. v. Fulton Plumbing Co., 150 Ga. App. 540 , 258 S.E.2d 252 (1979), reversed on other grounds, 272 Ga. 188 , 526 S.E.2d 339 (2000) (decided under former Code 1933, § 22-404).

Foreign LLC's principal place of business was not LLC's registered office in Georgia. - Under O.C.G.A. §§ 14-2-510(b)(4) and 14-11-1108(b) , venue for a Georgia corporation's suit against a foreign LLC lay in the county where the tort occurred, Thomas County; the provision allowing the LLC to transfer venue to the LLC's principal place of business did not apply because the statute permitted transfer only to a county in Georgia and the LLC's principal place of business was in Maryland as shown in the LLC's application for a certificate of authority under O.C.G.A. § 14-11-702(a)(6). Kingdom Retail Group, LLC v. Pandora Franchising, LLC, 334 Ga. App. 812 , 780 S.E.2d 459 (2015), aff'd, 299 Ga. 723 , 791 S.E.2d 786 (2016).

Corporation generally sued in county of registered office. - Generally, a corporation must be sued in the county wherein it has its registered office and if it has no registered office, it shall be deemed to reside in the county where its last registered office was located or where its place of business is located, or where it maintains its principal office and place of business. Victoria Corp. v. Fulton Plumbing Co., 150 Ga. App. 540 , 258 S.E.2d 252 (1979), reversed on other grounds, 272 Ga. 188 , 526 S.E.2d 339 (2000) (decided under former Code 1933, § 22-404).

In an action against a trucking company, venue was proper in the county in which the company had its office properly registered with the Secretary of State, not in the county of residence of the company's designated registered agent for service of process. Rock v. Ready Trucking, Inc., 218 Ga. App. 774 , 463 S.E.2d 355 (1995).

When an out-of-state seller sued an in-state buyer in Georgia, despite a provision in the parties' contract for the jurisdiction of the courts of Texas, and the seller did not respond, venue was proper in the courts of Georgia under O.C.G.A. § 14-2-510(b)(1) because the buyer was incorporated in Georgia and was served with process at its registered agent's office in Georgia, and because the parties waived the forum selection clause by either filing suit in Georgia or not responding. Euler-Siac S.P.A. (Creamar Spa) v. Drama Marble Co., 274 Ga. App. 252 , 617 S.E.2d 203 (2005).

Principal Office

"Principal office" applies to incorporations prior to 1968. - The references in subsection (f) (now see subsection (d)) to "principal office" can apply only to corporations incorporated prior to the effective date of the 1968 Corporation Act. Davenport v. Petroleum Delivery Serv. of Ga., Inc., 235 Ga. 116 , 218 S.E.2d 848 (1975) (decided under former Code 1933, § 22-404).

Office designated under prior law. - The former statutory provisions did not mean a principal office in a factual sense, but meant the principal office which was designated by the corporation under the prior corporation law. Davenport v. Petroleum Delivery Serv. of Ga., Inc., 235 Ga. 116 , 218 S.E.2d 848 (1975) (decided under former Code 1933, § 22-404).

Corporation incorporated under former Code 1933, § 22-404 did not have a "principal office" as required under prior law. It only had a "registered office." Davenport v. Petroleum Delivery Serv. of Ga., Inc., 235 Ga. 116 , 218 S.E.2d 848 (1975) (decided under former Code 1933, § 22-404).

Tort Actions

Where tort actions to be filed. - As to corporations formed after the Corporation Act of 1968, tort actions must be filed either in the county where the corporate agent is registered or, under certain circumstances, in the county where the tort is committed. Buice v. Satellite Sec. Corp., 156 Ga. App. 348 , 274 S.E.2d 608 (1980) (decided under former § 22-404).

A foreign corporation's residence for purposes of venue in a tort action is both the county in which it has its registered office and the county in which the tort occurred if the corporation has an office and transacts business in that county. WBC Holdings, Inc. v. Thornton, 213 Ga. App. 48 , 443 S.E.2d 686 (1994).

Purpose of 1975 amendment to former § 14-2-63. - The purpose of Ga. L. 1975, p. 583 (subsections (c) and (d) of former § 14-2-63 prior to the 1976 amendment to subsection (d), adding the requirement of an office) was to unify the venue requirements for suits against foreign and domestic corporations rather than to dramatically alter the requirement established by judicial construction under former Code 1933, § 22-5301 (repealed by Ga. L. 1975, p. 583), and that the corporation have an agent or a place of business in the county where the tort occurred. C.W. Matthews Contracting Co. v. Capital Ford Truck Sales, Inc., 149 Ga. App. 354 , 254 S.E.2d 426 (1979) (decided under former Code 1933, § 22-404).

Venue of a civil action for libel against a corporate publisher to be laid in any county in which the newspaper is circulated is permitted under paragraph (3) of subsection (b), provided the corporation has an office and transacts business in that county. Carroll City/County Hosp. Auth. v. Cox Enters., 243 Ga. 760 , 256 S.E.2d 443 (1979) (decided under former Code 1933, § 22-404).

In a suit against a newspaper for the publication of a libelous item, the cause of action arises in the county where the edition of the paper containing the item is first generally circulated. Rives v. Atlanta Newspapers, Inc., 110 Ga. App. 184 , 138 S.E.2d 100 , rev'd on other grounds, 220 Ga. 485 , 139 S.E.2d 395 (1964) (decided under former Code 1933, § 22-1102).

Teenager's motion to remand was properly denied as: (1) a police officer was the only defendant who resided in Toombs County; (2) venue in Toombs County "vanished" when the officer was granted summary judgment, so the teenager could not rely on the joint tortfeasor venue provision of the Georgia Constitution; (3) the newspaper defendants did not have an office in Toombs County so as to preclude venue there pursuant to O.C.G.A. § 14-2-510(b)(3); (4) although the newspaper defendants transacted business in Toombs County, they did not maintain an office there; and (5) venue was not properly based on O.C.G.A. § 14-11-1108(b) , even though some defendants were limited liability companies. Torrance v. Morris Publ'g Group, LLC, 281 Ga. App. 563 , 636 S.E.2d 740 (2006), cert. denied, 2007 Ga. LEXIS 160 (Ga. 2007).

Venue of employee's action against railroad under the Federal Employer's Liability Act (45 U.S.C. § 51) for injuries received in another state was properly transferred from the county of employee's residence to the county in which the railroad's registered representative and office were located. Neal v. CSX Transp., Inc., 213 Ga. App. 707 , 445 S.E.2d 766 (1994).

Venue in auto accident cases. - In a vehicular collision that occurred in Fulton County between the plaintiff and another driver, who was acting in the course and scope of the driver's employment with the employer, the order transferring venue to another county was reversed as venue was proper in Fulton County because the cause of action originated in Fulton County, where the collision occurred; the other driver's employer did not avail itself of the procedure for removal from Fulton County afforded by O.C.G.A. § 14-2-510 ; and venue was proper in Fulton County as to the other driver because it was proper as to the employer, the other joint tortfeasor in the case. Burchfield v. West Metro Glass Co., 340 Ga. App. 324 , 797 S.E.2d 225 (2017).

Agent to be served in negligent construction and maintenance action. - In a tort action brought because of the alleged negligent construction and maintenance of rented property belonging to a corporation, the agent of such corporation in charge of its office in that county, and also in charge of the renting, repairing, and keeping in repair of such property, is the agent of such company to be served in that county, and the superior court of the county has jurisdiction of the suit. Home Owners Loan Corp. v. Brazzeal, 62 Ga. App. 683 , 9 S.E.2d 773 (1940) (decided under former Code 1933, § 22-1102).

Negligent handling of toxic chemicals. - Venue established pursuant to subsection (c) (now see paragraph (2) of subsection (b)) held inappropriate for a homeowner's complaint against exterminator, alleging negligent handling of toxic chemicals, sounded in tort. Orkin Exterminating Co. v. Morrison, 187 Ga. App. 780 , 371 S.E.2d 407 , cert. denied, 187 Ga. App. 908 , 371 S.E.2d 407 (1988) (decided under former § 14-2-63).

Opportunity to amend complaints on venue in tort action. - Legal guardians alleged sufficient facts to initially support venue of case involving two lawsuits arising from a pickup truck collision in the county where the collision occurred; thus, the trial court in the second county to which the case had been removed did not err in entering a remand order to remand the case to the county in which it was initially filed when the legal guardians amended their complaints to allege they had also learned that the truck owner had an office and transacted business in the county where the lawsuits were initially filed as the initial complaints were not deficient but informed the truck owner of the basis for venue regarding the initial county where the lawsuits were filed. Mohawk Indus. v. Clark, 259 Ga. App. 26 , 576 S.E.2d 16 (2002).

Employer having office in county at time of filing suit by employee. - In a tort action, venue over an employer was assessed based upon the facts existing at the time the action was originally filed because the employer was added as a party to a lawsuit under the relation back provision of O.C.G.A. § 9-11-15(c) . Thus, venue under O.C.G.A. § 14-2-510 was proper based on the employer's having had an office and transacted business in the county at the time the suit was originally filed. HD Supply, Inc. v. Garger, 299 Ga. App. 751 , 683 S.E.2d 671 (2009).

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.

ARTICLE 6 SHARES AND DISTRIBUTIONS

Cross references. - Regulation of securities generally, § 10-5-1 et seq.

Requirement of approval by Public Service Commission prior to issuance of stocks and bonds by companies under jurisdiction of commission, § 46-2-28 .

Law reviews. - For article, "Corporate Finance Under the Georgia Business Corporation Code of 1968," see 3 Ga. L. Rev. 11 (1968). For article, "Comparison of Features of Old and New Business Corporation Laws Relating to Domestic Corporations," see 5 Ga. St. B. J. 13 (1968). For article, "Georgia's New Business Corporation Code," see 24 Ga. St. B. J. 158 (1988). For article, "Changes in Corporate Practice under Georgia's New Business Corporation Code," see 40 Mercer L. Rev. 655 (1989). For note, "Exclusionary Tender Offers: A Reasonably Formulated Takeover Defense or a Discriminatory Attempt to Regain Control?," see 20 Ga. L. Rev. 627 (1986).

RESEARCH REFERENCES

Proof of a "Security" under Federal and State Statutes, 22 POF3d 485.

Legal Malpractice in a Securities Offering, 22 POF3d 559.

Use of Statistical Evidence in Proving Churning of Securities Accounts, 27 POF3d 213.

Liability of Shareholder for Wrongfully Transferring Or Assigning Corporate Common Stock Shares To Third Party, 47 POF3d 139.

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

Right of stockholder not a director, officer, or employee of the corporation to compensation for services in selling stock or corporate property in absence of express contract, 3 A.L.R. 778 .

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 .

Guaranteeing future price of, or dividends on, corporate stock as contrary to public policy, 24 A.L.R. 986 .

Certificate of stock as conclusive and exclusive evidence of stockholder's rights, 31 A.L.R. 1326 .

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

Duty of promoter to account for proceeds of sale of stock issued to him, 43 A.L.R. 1363 .

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 .

Failure to enter transfer of stock on corporate books as affecting liability of transferrer for calls or assessments, 45 A.L.R. 137 ; 104 A.L.R. 638 .

Implied obligation of purchaser of corporate stock to indemnify vendor against future calls or assessments, 45 A.L.R. 168 ; 141 A.L.R. 1351 .

Liability on stock subscription as affected by reorganization, consolidation, or merger of corporation, 45 A.L.R. 1031 ; 89 A.L.R. 770 ; 154 A.L.R. 427 .

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 .

Pledge of unissued corporate stock, 51 A.L.R. 1134 .

Validity of restrictions by corporation on alienation or transfer of corporate stock, 65 A.L.R. 1159 ; 61 A.L.R.2d 1318.

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

Liability as for conversion of stock or securities as affected by fact that party charged with conversion was in possession of other stock or securities of same type, 104 A.L.R. 1114 .

Rights, powers, and duties in respect of sale or transfer of corporate stock in which one holds a legal life estate, 126 A.L.R. 1298 .

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

Presumption as to value of corporate stock or bonds, 6 A.L.R.2d 189.

Right of corporate officer to purchase corporate assets from corporation, 24 A.L.R.2d 71.

Application of "blockage rule" or "blockage discount theory" in determining stock valuation, for purposes of taxation of intangibles, 33 A.L.R.2d 607.

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

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

Awarding damages for delay, in addition to specific performance, of contract for sale of corporate stock, 28 A.L.R.3d 1401.

What constitutes waiver of stockholder's or corporation's right to enforce first-option stock purchase agreement, 55 A.L.R.3d 723.

Corporation's measure of recovery against promoter who has made secret profit in sale of property to corporation, 84 A.L.R.3d 162.

Lis pendens in suit to compel stock transfer, 48 A.L.R.4th 731.

PART 1 S HARES

Law reviews. - For note on 2000 amendment of O.C.G.A. §§ 14-2-601 and 14-2-602 , see 17 Ga. St. U. L. Rev. 46 (2000).

14-2-601. Authorized shares.

  1. The articles of incorporation must prescribe the classes of shares and the number of shares of each class that the corporation is authorized to issue. If more than one class of shares is authorized, the articles of incorporation must prescribe a distinguishing designation for each class and, prior to the issuance of shares of a class, the preferences, limitations, and relative rights of that class must be described in the articles of incorporation. Except to the extent otherwise permitted by Code Section 14-2-624, unless such class is divided into a series, all shares of a class must have preferences, limitations, and relative rights identical with those of other shares of the same class; provided, however, that any of the voting powers, designations, preferences, rights, qualifications, limitations, or restrictions of or on the shares of a class, or the holders thereof, may be made dependent upon facts ascertainable outside the articles of incorporation or of any amendment thereto if the manner in which the facts shall operate upon the voting powers, designations, preferences, rights, qualifications, limitations, or restrictions of or on the shares, or the holders thereof, is clearly and expressly set forth in the articles of incorporation.
  2. The articles of incorporation may create one or more series of shares within a class of shares. If more than one series within a class of shares is authorized, the articles of incorporation must prescribe the number of shares of and a distinguishing designation for each series and, prior to the issuance of shares of a series, the preferences, limitations, and relative rights of that series must be described in the articles of incorporation. Except to the extent otherwise permitted by Code Section 14-2-624, all shares of a series must have preferences, limitations, and relative rights identical with those of other shares of the same series and, except to the extent otherwise provided in the description of the series, with those of other series of the same class; provided, however, that any of the voting powers, designations, preferences, rights, qualifications, limitations, or restrictions of or on the shares of a series, or the holders thereof, may be made dependent upon facts ascertainable outside the articles of incorporation or of any amendment thereto if the manner in which the facts shall operate upon the voting powers, designations, preferences, rights, qualifications, limitations, or restrictions of or on the shares, or the holders thereof, is clearly and expressly set forth in the articles of incorporation.
  3. The articles of incorporation must authorize:
    1. One or more classes of shares that together have unlimited voting rights; and
    2. One or more classes of shares (which may be the same class or classes as those with voting rights) that together are entitled to receive the net assets of the corporation upon dissolution.
  4. The articles of incorporation may authorize one or more classes or series of shares that:
    1. Have special, conditional, or limited voting rights, or no right to vote, except to the extent prohibited by this chapter;
    2. Are redeemable, exchangeable, or convertible as specified in the articles of incorporation:
      1. At the option of the corporation, the shareholder, or another person or upon the occurrence of a designated event;
      2. For cash, indebtedness, securities, or other property; or
      3. In a designated amount or in an amount determined in accordance with a designated formula or by reference to extrinsic data or events;
    3. Entitle the holders to distributions calculated in any manner, including dividends that may be cumulative, noncumulative, or partially cumulative; and
    4. Have preference over any other class or series within a class of shares with respect to distributions, including dividends and distributions upon the dissolution of the corporation.
  5. If at the time the corporation issues shares or other securities that are redeemable or exchangeable for or convertible into shares of another class or series, the corporation does not have authorized and unissued shares sufficient to satisfy the rights if and when exercised, the granting of the rights is not invalid solely by reason of the lack of sufficient authorized but unissued shares to honor the exercise of the rights.
  6. The description of the designations, preferences, limitations, and relative rights of share classes and series in subsection (d) of this Code section is not exhaustive.
  7. Solely for the purpose of any statute or regulation imposing any tax or fee based upon the capitalization of a corporation, all authorized shares of a corporation organized under this chapter shall be deemed to have a nominal or par value of 1› per share. If any federal or other statute or regulation applicable to a particular corporation requires that the shares of the corporation have a par value, the shares shall be deemed to have the par value determined by the board solely for the purpose of satisfaction of the requirements of the statute or regulation imposing a tax or fee based upon the capitalization of the corporation.
  8. As used in this Code section, the term "facts" includes, but is not limited to, the occurrence of any event, including a determination or action by any person or body, including the corporation.
  9. Nothing contained in this Code section shall be deemed to limit the board of directors' authority or discretion to determine the terms and conditions of rights, options, or warrants issuable pursuant to Code Section 14-2-624 . (Code 1981, § 14-2-601 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1989, p. 946, § 14; Ga. L. 2000, p. 1567, § 1; Ga. L. 2001, p. 4, § 14; Ga. L. 2003, p. 897, § 2.)

Law reviews. - For article discussing issuance and characteristics of shares of stock under the Georgia Business Corporation Code, see 3 Ga. L. Rev. 11 (1968). For article discussing the issuance and characteristics of convertible shares under the Georgia Business Corporation Code, see 3 Ga. L. Rev. 11 (1968). For article discussing the issuance of and limitations on redeemable shares under the Georgia Business Corporation Code, see 3 Ga. L. Rev. 11 (1968). For article, "Some Distinctive Features of the Georgia Business Corporation Code," 28 Ga. St. B. J. 101 (1991). 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, § 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.

14-2-602. Terms of class or series determined by board of directors.

  1. If the articles of incorporation so provide, the board of directors may determine, in whole or in part, the preferences, limitations, and relative rights of (1) any class of shares before the issuance of any shares of that class or (2) one or more series within a class, and designate the number of shares within that series, before the issuance of any shares of that series.
  2. Each series of a class must be given a distinguishing designation.
  3. Except to the extent otherwise permitted by Code Section 14-2-624, all shares of a class or, if applicable, series within a class must have preferences, limitations, and relative rights identical with those of other shares of the same class or series and, except to the extent otherwise provided in the description of the series, all shares of a series must have preferences, limitations, and relative rights identical with those of other series of the same class; provided, however, that any of the voting powers, preferences, designations, rights, qualifications, limitations, or restrictions of or on the class or series of shares, or the holders thereof, may be made dependent upon facts ascertainable outside the articles of incorporation if the manner in which the facts shall operate upon the voting powers, designations, preferences, rights, qualifications, limitations, or restrictions of or on the shares, or the holders thereof, is clearly and expressly set forth in the articles of incorporation. As used in this Code section, the term "facts" includes, but is not limited to, the occurrence of any event, including a determination or action by any person or body, including the corporation.
  4. Before issuing any shares of a class or series created under this Code section, the corporation must deliver to the Secretary of State for filing articles of amendment, which are effective without shareholder action, that set forth:
    1. The name of the corporation;
    2. The text of the amendment determining the terms of the class or series of shares;
    3. The date it was adopted; and
    4. A statement that the amendment was duly adopted by the board of directors.
  5. Unless otherwise provided in the articles of incorporation, if a board of directors has established a series in accordance with the terms of this Code section, the board of directors may at any time and from time to time amend the preferences, limitations, and relative rights of the series before any shares of the series have been issued; increase or decrease the number of shares contained in the series, but not below the number of shares then issued; or eliminate the series where no shares are issued. In each case the board shall do so by filing articles of amendment, which are effective without shareholder action, in the manner provided in subsection (d) of this Code section. In case the number of shares contained in a series shall be decreased or a series of shares shall be eliminated, the shares that are the subject of the decrease or that compose the series being eliminated shall resume the status that they had prior to the adoption of the articles of amendment that first established such series unless otherwise provided in the articles of incorporation or unless the board of directors causes such shares to become treasury shares.
  6. Nothing contained in this Code section shall be deemed to limit the board of directors' authority or discretion to determine the terms and conditions of rights, options, or warrants issuable pursuant to Code Section 14-2-624 . (Code 1981, § 14-2-602 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1989, p. 946, § 15; Ga. L. 2000, p. 1567, § 2; Ga. L. 2003, p. 897, § 3; Ga. L. 2004, p. 508, § 4; Ga. L. 2005, p. 60, § 14/HB 95.)

Editor's notes. - Ga. L. 2005, p. 60, § 14/HB 95, purported to amend this Code section but actually amended only subsection (e) of this Code section.

Law reviews. - For article discussing issuance and characteristics of shares of stock under the Georgia Business Corporation Code, see 3 Ga. L. Rev. 11 (1968). For article discussing the issuance of and limitations on redeemable shares under the Georgia Business Corporation Code, see 3 Ga. L. Rev. 11 (1968).

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.

14-2-603. Issued and outstanding shares.

  1. A corporation may issue the number of shares of each class or series authorized by the articles of incorporation. Shares that are issued are outstanding shares until they are reacquired, redeemed, converted, or canceled.
  2. The reacquisition, redemption, or conversion of outstanding shares is subject to the limitations of subsection (c) of this Code section and to Code Section 14-2-640.
  3. At all times that shares of the corporation are outstanding, one or more shares that together have unlimited voting rights and one or more shares (which may be of the same class or classes as those with voting rights) that together are entitled to receive the net assets of the corporation upon dissolution must be outstanding. (Code 1981, § 14-2-603 , enacted by Ga. L. 1988, p. 1070, § 1.)

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.

14-2-604. Fractional shares.

  1. A corporation may:
    1. Issue fractions of a share or pay in money the value of fractions of a share;
    2. Arrange for disposition of fractional shares by or for the account of the shareholders;
    3. Issue scrip in registered or bearer form entitling the holder to receive a full share upon surrendering enough scrip to equal a full share.
  2. Each certificate representing scrip must be conspicuously labeled "scrip" and must contain the information required by subsection (b) of Code Section 14-2-625.
  3. The holder of a fractional share is entitled to exercise the rights of a shareholder, including the right to vote, to receive dividends, and to participate in the assets of the corporation upon liquidation. The holder of scrip is not entitled to any of these rights unless the scrip provides for them.
  4. The board of directors may authorize the issuance of scrip subject to any condition considered desirable, including:
    1. That the scrip will become void if not exchanged for full shares before a specified date; and
    2. That the shares for which the scrip is exchangeable may be sold and the proceeds paid to the scripholders. (Code 1981, § 14-2-604 , enacted by Ga. L. 1988, p. 1070, § 1.)

Law reviews. - For article discussing rights pertaining to and value of fractional shares under the Georgia Business Corporation Code, see 3 Ga. L. Rev. 11 (1968).

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.

PART 2 I SSUANCE OF SHARES

14-2-620. Subscription for shares before incorporation.

  1. A written subscription for shares entered into before incorporation is irrevocable for six months unless the subscription agreement provides a longer or shorter period or all the subscribers agree to revocation.
  2. The board of directors may determine the payment terms of subscriptions for shares that were entered into before incorporation, unless the subscription agreement specifies them. A call for payment by the board of directors must be uniform so far as practicable as to all shares of the same class or series, unless the subscription agreement specifies otherwise.
  3. Shares issued pursuant to subscriptions entered into before incorporation are fully paid and nonassessable when the corporation receives the consideration specified in the subscription agreement.
  4. If a subscriber defaults in payment of money or property under a subscription agreement entered into before incorporation, the corporation may collect the amount owed as any other debt. Alternatively, unless the subscription agreement provides otherwise, the corporation may rescind the agreement and may sell the shares if the debt remains unpaid more than 20 days after the corporation sends written demand for payment to the subscriber.
  5. A subscription agreement entered into after incorporation is a contract between the subscriber and the corporation subject to Code Section 14-2-621 . (Code 1981, § 14-2-620 , enacted by Ga. L. 1988, p. 1070, § 1.)

Law reviews. - For article discussing guidelines governing share subscription agreements, see 3 Ga. L. Rev. 11 (1968).

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.

14-2-621. Issuance of shares.

  1. The powers granted in this Code section to the board of directors may be reserved to the shareholders by the articles of incorporation.
  2. The board of directors may authorize shares to be issued for consideration consisting of any tangible or intangible property or benefit to the corporation, including cash, promissory notes, services performed, contracts for services to be performed, or other securities of the corporation.
  3. Before the corporation issues shares, the board of directors must determine that the consideration received or to be received for shares to be issued is adequate.  That determination by the board of directors is conclusive insofar as the adequacy of consideration for the issuance of shares relates to whether the shares are validly issued, fully paid, and nonassessable, and the authorization by the board of directors of the issuance of shares constitutes such determination.
  4. When the corporation receives the consideration for which the board of directors authorized the issuance of shares, the shares issued therefor are fully paid and nonassessable.
  5. The corporation may place in escrow shares issued for a contract for future services or benefits or a promissory note, or make other arrangements to restrict the transfer of the shares, and may credit distributions in respect of the shares against their purchase price, until the services are performed, the note is paid, or the benefits received. If the services are not performed, the note is not paid, or the benefits are not received, the shares escrowed or restricted and the distributions credited may be canceled in whole or in part. (Code 1981, § 14-2-621 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1993, p. 1231, § 4.)

Law reviews. - For article discussing the consideration required by the issuance of par and no-par shares under the Georgia Business Corporation Code, see 3 Ga. L. Rev. 11 (1968). For article discussing issuance of debt securities under the Georgia Business Corporation Code, see 3 Ga. L. Rev. 11 (1968). For article discussing treasury shares and restrictions placed upon their use by the corporation, see 3 Ga. L. Rev. 11 (1968).

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).

Actual receipt of certificates not necessary. - Grant of summary judgment to the defendants on the plaintiff's claim for breach of contract was reversed because an issue of fact remained as to whether or not timely performance of the agreement was waived as the trial court erred in ruling that the plaintiff's execution of a Share Subscription Agreement was insufficient to establish the plaintiff as a shareholder of the partnership since the plaintiff never paid the purchase price for the stock as one may have an ownership interest in a corporation without having received stock certificates. Laymac v. Kushner, 349 Ga. App. 727 , 824 S.E.2d 768 (2019), cert. denied, No. S19C1091, 2019 Ga. LEXIS 871 (Ga. 2019).

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.

14-2-622. Liability of shareholders.

  1. A purchaser from a corporation of its own shares is not liable to the corporation or its creditors with respect to the shares except to pay the consideration for which the shares were authorized to be issued (Code Section 14-2-621) or specified in the subscription agreement (Code Section 14-2-620).
  2. Unless otherwise provided in the articles of incorporation, a shareholder of a corporation is not personally liable for the acts or debt of the corporation except that he may become personally liable by reason of his own acts or conduct. (Code 1981, § 14-2-622 , enacted by Ga. L. 1988, p. 1070, § 1.)

Law reviews. - For article, "Liability Limbo: Are Incorporated Lawyers in Georgia Really Free from Personal Liability When Their Fellow Shareholders Misbehave?," see 15 Ga. St. U. L. Rev. 1047 (1999).

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.

14-2-623. Share dividends.

  1. Unless the articles of incorporation provide otherwise, shares may be issued pro rata and without consideration to the corporation's shareholders or to the shareholders of one or more classes or series. An issuance of shares under this subsection is a share dividend.
  2. Shares of one class or series may not be issued as a share dividend in respect of shares of another class or series unless:
    1. The articles of incorporation so authorize;
    2. A majority of the votes entitled to be cast by the class or series to be issued approve the issue; or
    3. There are no outstanding shares of the class or series to be issued.
  3. If the board of directors does not fix the record date for determining shareholders entitled to a share dividend, it is the date the board of directors authorizes the share dividend.
  4. If a corporation which has treasury shares declares a share dividend, such dividend shall not be deemed to include a dividend on treasury shares unless the resolution declaring the dividend expressly so provides. (Code 1981, § 14-2-623 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1997, p. 1165, § 2.)

Law reviews. - For article discussing the payment of dividends to shareholders, see 3 Ga. L. Rev. 11 (1968). For article discussing "earned" surplus and "capital" surplus concepts under Georgia Business Corporation Code, see 3 Ga. L. Rev. 11 (1968). For article discussing the statute of limitations applicable to shareholders' rights to unclaimed dividends and distributions, see 3 Ga. L. Rev. 11 (1968). For article discussing treasury shares and restrictions placed upon their use by the corporation, see 3 Ga. L. Rev. 11 (1968). For note discussing effect of Georgia law on dividend restrictions, see 24 Ga. B. J. 254 (1961).

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.

14-2-624. Share options.

  1. A corporation may issue rights, options, or warrants with respect to the shares of the corporation whether or not in connection with the issuance and sale of any of its shares or other securities. The board of directors shall determine the terms upon which the rights, options, or warrants are issued, their form and content, the consideration for which they are to be issued, and the terms and conditions relating to their exercise, including the time or times, the conditions precedent, and the prices at which and the holders by whom the rights, options, or warrants may be exercised.
  2. If at the time the corporation issues rights, the corporation does not have authorized and unissued shares sufficient to satisfy the rights if and when exercised, the granting of the rights is not invalid solely by reason of the lack of sufficient authorized but unissued shares to honor the exercise of the rights.
  3. The terms of the rights, options, or warrants, including the time or times, the conditions precedent, and the prices at which and the holders by whom the rights, options, or warrants may be exercised, as well as their duration, (1) may preclude or limit the exercise, transfer, or receipt of such rights, options, or warrants or invalidate or void any rights, options, or warrants and (2) may be made dependent upon facts ascertainable outside the documents evidencing the rights, or the resolution providing for the issue of the rights, options, or warrants adopted by the board of directors, if the manner in which the facts shall operate upon the exercise of rights is clearly and expressly set forth in the document evidencing the rights or in the resolution. Such terms and conditions need not be set forth in the articles of incorporation. As used in this Code section, the term "facts" includes, but is not limited to, the occurrence of any event, including a determination or action by any person or body, including the corporation.
  4. The terms and conditions of rights, options, or warrants issuable pursuant to this Code section may include provisions that:
    1. Preclude or limit the exercise, transfer, or receipt of such rights, options, or warrants by, or invalidate or void any such rights, options, or warrants held by, any person that is a beneficial owner of a specified amount of the outstanding equity securities or percentage of the outstanding voting power of the corporation, or by any transferee of such person, except that such provisions shall not affect any person whose beneficial ownership at the date of adoption of any such provision exceeds such specified amount or percentage, unless the amount of outstanding equity securities beneficially owned by such person is subsequently increased; and
    2. Limit, restrict, or condition the power of a future director to vote for the redemption, modification, or termination of the rights, options, or warrants for a period not to exceed 180 days from the initial election of the director, provided that such 180 day time limitation shall not apply to any such limitation, restriction, or condition that is based solely on a director's current or former status as an employee or officer of the corporation; as a director, officer, employee, affiliate, or associate of any interested shareholder or person seeking to become an interested shareholder; or as a director, officer, or employee of an affiliate of an interested shareholder or person seeking to become an interested shareholder.
  5. The provisions of subsection (d) of this Code section shall be applied as follows:
    1. The definition of "beneficial owner" contained in Code Section 14-2-1110 shall be applicable to this Code section, except (A) any exclusion from such definition shall be permitted, and (B) that the effective date of this paragraph shall be December 31, 2000, insofar as it may be deemed to apply to any right, option, or warrant issued or issuable at the date of enactment of this paragraph;
    2. The definition of "affiliate," "associate," and "interested shareholder" contained in Code Section 14-2-1110 shall be applicable to this Code section; provided, however, that the inclusion of a person as a nominee for election as a director of the corporation by an interested shareholder or person seeking to become an interested shareholder shall not create an implication that such nominee is an affiliate of an interested shareholder or person seeking to become an interested shareholder; and
    3. Any rights, options, or warrants issued or issuable pursuant to this Code section that contain a provision otherwise permitted by paragraph (2) of subsection (d) of this Code section but which do not purport to comply with the 180 day time limitation specified therein shall not be rendered invalid, but any such provision shall be deemed to be effective only to the extent permitted by paragraph (2) of subsection (d) of this Code section.
  6. The board of directors may, by a resolution adopted by the board, authorize one or more officers of the corporation to do one or both of the following:
    1. Designate officers and employees of the corporation or of any of its subsidiaries to be recipients of rights, options, or warrants to be issued by the corporation; or
    2. Determine the number of rights, options, or warrants to be received by such officers and employees; provided, however, that the resolution authorizing such officer or officers shall specify the total number of rights, options, or warrants such authorized officer or officers may award. The board of directors may not authorize an officer to designate himself or herself as a recipient of any rights, options, or warrants. (Code 1981, § 14-2-624 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1989, p. 946, § 16; Ga. L. 2000, p. 1567, § 3; Ga. L. 2001, p. 4, § 14; Ga. L. 2003, p. 897, § 4; Ga. L. 2004, p. 508, § 5.)

Law reviews. - For article discussing treasury shares and restrictions placed upon their use by the corporation, see 3 Ga. L. Rev. 11 (1968). For article discussing corporate authority to create and issue share rights and options, see 3 Ga. L. Rev. 11 (1968). For article, "Some Distinctive Features of the Georgia Business Corporation Code," 28 Ga. St. B. J. 101 (1991). For note on 2000 amendment of O.C.G.A. § 14-2-624 , see 17 Ga. St. U. L. Rev. 46 (2000). For comment on the survivability of the dead hand provision in corporate America, see 48 Emory L.J. 991 (1999). For comment, "Poison Pills: Are Dead Hand Pills Dead in Georgia?," see 50 Mercer L. Rev. 809 (1999). For comment, "Locking the Boardroom Dorr: What Can Georgia Courts Learn from Recent Delaware Poison Pill Decisions," see 32 Georgia St. U. L. Rev. 727 (2016).

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.

14-2-625. Form and content of certificates.

  1. Shares may but need not be represented by certificates. Unless this chapter or another statute expressly provides otherwise, there shall be no differences in the rights and obligations of shareholders based on whether or not their shares are represented by certificates.
  2. At a minimum each share certificate must state on its face:
    1. The name of the issuing corporation and that it is organized under the law of this state;
    2. The name of the person to whom issued; and
    3. The number and class of shares and the designation of the series, if any, the certificate represents.
  3. If the issuing corporation is authorized to issue different classes of shares or different series within a class, a reference on the certificate to the state of incorporation shall be deemed to be a reference to the articles of incorporation and its provisions governing the designations, relative rights, preferences, and limitations applicable to each class and the variations in rights, preferences, and limitations determined for each series (and the authority of the board of directors to determine variations for future series). Alternatively, each certificate may describe the designations, relative rights, preferences, and limitations, or may state conspicuously on its front or back that the corporation will furnish the shareholder this information on request in writing and without charge.
  4. Each share certificate:
    1. Must be signed, either manually or in facsimile, by one or more officers designated in the bylaws or by the board of directors; and
    2. May bear the corporate seal or its facsimile.

      If the certificate is signed in facsimile, then it must be countersigned by a transfer agent or registered by a registrar other than the corporation itself or an employee of the corporation. The transfer agent or registrar may sign either manually or by facsimile.

  5. If the person who signed a share certificate, either manually or in facsimile, no longer holds office when the certificate is issued, the certificate is nevertheless valid.
  6. No certificate valid when issued shall cease to be valid by reason of any changes in the information required or permitted to be stated on the certificate and, in the event of a change in the capital structure of a corporation, it shall not be necessary to recall any previously issued share certificate for revision of the information placed thereon pursuant to this Code section. (Code 1981, § 14-2-625 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1989, p. 946, § 17.)

Law reviews. - For article discussing requirements governing the issuance of share certificates, see 3 Ga. L. Rev. 11 (1968). For article discussing rights granted owners of unpaid and partly paid shares under the Georgia Business Corporation Code, see 3 Ga. L. Rev. 11 (1968).

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.

14-2-626. Shares without certificates.

  1. Unless the articles of incorporation or bylaws provide otherwise, the board of directors of a corporation may authorize the issue of some or all of the shares of any or all of its classes or series without certificates. The authorization does not affect shares already represented by certificates until they are surrendered to the corporation.
  2. Within a reasonable time after the issue or transfer of shares without certificates, the corporation shall send the shareholder a written statement of the information required on certificates by subsection (b) of Code Section 14-2-625 and, if applicable, Code Section 14-2-627 . (Code 1981, § 14-2-626 , enacted by Ga. L. 1988, p. 1070, § 1.)

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.

14-2-627. Restriction on transfer of shares and other securities.

  1. The articles of incorporation, bylaws, an agreement among shareholders, or an agreement between shareholders and the corporation may impose restrictions on the transfer or registration of transfer of shares of the corporation. A restriction does not affect shares issued before the restriction was adopted unless the holders of the shares are parties to the restriction agreement or voted in favor of the restriction.
  2. A restriction on the transfer or registration of transfer of shares is valid and enforceable against the holder or a transferee of the holder if the restriction is authorized by this Code section and its existence is noted conspicuously on the front or back of the certificate or is contained in the information statement required by subsection (b) of Code Section 14-2-626. Unless so noted, a restriction is not enforceable against a person without knowledge of the restriction. A restriction authorized under this Code section, whether or not so noted, is enforceable against a person with knowledge of the restriction.
  3. A restriction on the transfer or registration of transfer of shares is authorized:
    1. To maintain the corporation's status when it is dependent on the number or identity of its shareholders;
    2. To preserve exemptions under federal or state securities law;
    3. For any other reasonable purpose.
  4. A restriction on the transfer or registration of transfer of shares may:
    1. Obligate the shareholder first to offer the corporation or other persons (separately, consecutively, or simultaneously) an opportunity to acquire the restricted shares;
    2. Obligate the corporation or other persons (separately, consecutively, or simultaneously) to acquire the restricted shares;
    3. Require the corporation, the holders of any class of its shares, or another person to approve the transfer of the restricted shares, if the requirement is not manifestly unreasonable;
    4. Prohibit the transfer of the restricted shares to designated persons or classes of persons, if the prohibition is not manifestly unreasonable.
  5. For purposes of this Code section, the term "shares" includes a security convertible into or carrying a right to subscribe for or acquire shares. (Code 1981, § 14-2-627 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1989, p. 946, § 18.)

Law reviews. - For article, "2013 Georgia Corporation and Business Organization Case Law Developments," see 19 Ga. St. B. J. 28 (April 2014). For annual survey on business associations, see 66 Mercer L. Rev. 15 (2014).

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.

14-2-628. Expense of issue.

A corporation may pay the expenses of selling or underwriting its shares and of organizing or reorganizing the corporation from the consideration received for shares.

(Code 1981, § 14-2-628 , enacted by Ga. L. 1988, p. 1070, § 1.)

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.

PART 3 S UBSEQUENT ACQUISITION OF SHARES BY SHAREHOLDERS AND CORPORATION

14-2-630. Shareholders' preemptive rights.

  1. The shareholders of all corporations, other than those described in subsection (b) of this Code section, do not have a preemptive right to acquire the corporation's unissued or treasury shares, if any, except to the extent the articles of incorporation so provide.
  2. The shareholders of the following corporations shall have preemptive rights as provided in subsection (c) of this Code section, unless the articles of incorporation expressly provide otherwise:
    1. Corporations electing statutory close corporation status; and
    2. Corporations in existence on July 1, 1989, whose:
      1. Shareholders had such rights as of that date; or
      2. Articles of incorporation have been restated or amended on or after July 1, 1989, with notice to the shareholders that such restatement or amendment would cause the shareholders of the corporation to have preemptive rights.
  3. A statement included in the articles of incorporation that the corporation elects to have preemptive rights (or words of similar import) means that the following principles apply except to the extent the articles of incorporation expressly provide otherwise:
    1. The shareholders of the corporation have a preemptive right, granted on uniform terms and conditions prescribed by the board of directors to provide a fair and reasonable opportunity to exercise the right, to acquire proportional amounts of the corporation's unissued or treasury shares upon the decision of the board of directors to issue them;
    2. There is no preemptive right with respect to the issuance of:
      1. Shares issued as a share dividend;
      2. Fractional shares;
      3. Shares issued to effect a merger or share exchange;
      4. Shares issued as compensation to directors, officers, agents, or employees of the corporation, its subsidiaries, or affiliates upon terms and conditions approved or ratified by the affirmative vote of the holders of a majority of the shares entitled to vote thereon;
      5. Shares issued to satisfy conversion or option rights created to provide compensation to directors, officers, agents, or employees of the corporation, its subsidiaries, or affiliates upon terms and conditions approved or ratified by the affirmative vote of the holders of a majority of the shares entitled to vote thereon;
      6. Shares authorized in articles of incorporation that are issued within one year from the effective date of incorporation;
      7. Shares issued under a plan of reorganization approved in a proceeding under any applicable act of Congress relating to the reorganization of corporations;
      8. Shares sold otherwise than for money, deemed by the board of directors in good faith to be advantageous to the corporation's business, other than shares sold pursuant to subparagraph (A) or (B) of this paragraph; or
    3. A shareholder may waive his or her individual preemptive right at any time, and the holders of a class of shares may waive the preemptive rights of the class by the affirmative vote or consent in writing or by electronic transmission of the holders of two-thirds of the shares of the class with preemptive rights. The waiver of preemptive rights with respect to past issuances of shares shall be effective if made by the person who was the shareholder at the time the shares were issued. A waiver evidenced by a writing or by electronic transmission is irrevocable even though it is not supported by consideration;
    4. Holders of shares of any class without general voting rights or with preferential rights to distributions or assets have no preemptive rights with respect to shares of any class;
    5. Holders of shares of any class with general voting rights but without preferential rights to distributions or assets have no preemptive rights with respect to shares of any class with preferential rights to distributions or assets unless the shares with preferential rights are convertible into or carry a right to subscribe for or acquire shares without preferential rights; and
    6. Shares subject to preemptive rights that are not acquired by shareholders may be issued to any person at a consideration set by the board of directors that is not lower than the consideration set for the exercise of preemptive rights.
  4. For purposes of this Code section, the term "shares" includes a security convertible into or carrying a right to subscribe for or acquire shares.
  5. Shares that are otherwise validly issued and outstanding shall not be affected by reason of any violation of preemptive rights with respect to their issuance.
  6. No action shall be maintained to enforce any liability for violation of preemptive rights unless brought within three years of the discovery or notice of the violation, but in no event shall any action be brought to enforce a liability for violation of preemptive rights more than five years after the issuance giving rise to the violation.
  1. Shares released by waiver from their preemptive right by the affirmative vote or consent in writing or by electronic transmission of the holders of two-thirds of the shares of the class to be issued. Any vote or consent shall be binding on all shareholders and their transferees for the time specified in the vote or consent up to but not exceeding one year from the date thereof and shall protect the corporation, its management, and all persons who may within that time acquire the shares so released; (Code 1981, § 14-2-630 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1989, p. 946, § 19; Ga. L. 1993, p. 1231, § 5; Ga. L. 2004, p. 508, § 6.)

Law reviews. - For article, "Some Distinctive Features of the Georgia Business Corporation Code," 28 Ga. St. B. J. 101 (1991).

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.

14-2-631. Corporation's acquisition of its own shares.

  1. A corporation may acquire its own shares and shares so acquired constitute authorized but unissued shares, unless the articles of incorporation provide that reacquired shares become treasury shares or prohibit the reissue of reacquired shares.
  2. If the articles of incorporation prohibit the reissue of acquired shares, the number of authorized shares is reduced by the number of shares acquired, effective upon amendment of the articles of incorporation.
  3. The board of directors may adopt articles of amendment under this Code section without shareholder action. The articles must set forth:
    1. The reduction in the number of authorized shares, itemized by class and series; and
    2. The total number of authorized shares, itemized by class and series, remaining after reduction of the shares.
  4. The board of directors may adopt articles of amendment providing that reacquired shares become treasury shares without shareholder action.
  5. A corporation may create security interests in treasury shares. (Code 1981, § 14-2-631 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1989, p. 946, § 20; Ga. L. 1997, p. 1165, § 3.)

Law reviews. - For article discussing the rights of a corporation to acquire, encumber, and dispose of its own shares under the Georgia Business Corporation Code, see 3 Ga. L. Rev. 11 (1968). For article discussing treasury shares and restrictions placed upon their use by the corporation, see 3 Ga. L. Rev. 11 (1968). For article discussing "earned" surplus and "capital" surplus concepts under Georgia Business Corporation Code, see 3 Ga. L. Rev. 11 (1968). For article discussing the issuance of and limitations on redeemable shares under the Georgia Business Corporation Code, see 3 Ga. L. Rev. 11 (1968). For article, "Estate Planning: The Use of Insurance to Fund Stock Purchase Agreements," see 9 Ga. St. B. J. 303 (1973). For article, "Some Distinctive Features of the Georgia Business Corporation Code," 28 Ga. St. B. J. 101 (1991).

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.

PART 4 D ISTRIBUTIONS

14-2-640. Distributions to shareholders.

  1. A board of directors may authorize and the corporation may make distributions to its shareholders subject to restriction by the articles of incorporation and the limitation in subsection (c) of this Code section.
  2. If the board of directors does not fix the record date for determining shareholders entitled to a distribution (other than one involving a purchase, redemption, or other reacquisition of the corporation's shares), it is the date the board of directors authorizes the distribution.
  3. No distribution may be made if, after giving it effect:
    1. The corporation would not be able to pay its debts as they become due in the usual course of business; or
    2. The corporation's total assets would be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution.
  4. The board of directors may base a determination that a distribution is not prohibited under subsection (c) of this Code section either on financial statements prepared on the basis of accounting practices and principles that are reasonable in the circumstances or on a fair valuation or other method that is reasonable in the circumstances.
  5. Except as provided in subsection (g) of this Code section, the effect of a distribution under subsection (c) of this Code section is measured:
    1. In the case of distribution by purchase, redemption, or other acquisition of the corporation's shares, as of the earlier of:
      1. The date money or other property is transferred or debt incurred by the corporation; or
      2. The date the shareholder ceases to be a shareholder with respect to the acquired shares;
    2. In the case of any other distribution of indebtedness, as of the date the indebtedness is distributed; and
    3. In all other cases, as of:
      1. The date the distribution is authorized if payment occurs within 120 days after the date of authorization; or
      2. The date the payment is made if it occurs more than 120 days after the date of authorization.
  6. A corporation's indebtedness to a shareholder incurred by reason of a distribution made in accordance with this Code section is at parity with the corporation's indebtedness to its general, unsecured creditors except to the extent subordinated by agreement or except to the extent secured.
  7. Indebtedness of a corporation, including indebtedness issued as a distribution, is not considered a liability for purposes of determinations under subsection (c) of this Code section if its terms provide that payment of principal and interest are to be made only if and to the extent that payment of a distribution to shareholders could then be made under this Code section. If the indebtedness is issued as a distribution, each payment of principal or interest is treated as a distribution, the effect of which is measured on the date the payment is actually made. (Code 1981, § 14-2-640 , enacted by Ga. L. 1988, p. 1070, § 1.)

Cross references. - Criminal responsibility of corporations, § 16-2-22 .

Personal liability of corporate officer or employee for tax delinquency, § 48-2-52 .

Law reviews. - For article discussing distributions from capital surplus to shareholders, see 3 Ga. L. Rev. 11 (1968). For article discussing "earned" surplus and "capital" surplus concepts under Georgia Business Corporation Code, see 3 Ga. L. Rev. 11 (1968). For article discussing corporation director's liability for improper payments to shareholders, see 3 Ga. L. Rev. 11 (1968). For article discussing liability of corporate directors, officers, and shareholders under the Georgia Business Corporation Code, and as affected by provisions of the Georgia Civil Practice Act, see 7 Ga. St. B.J. 277 (1971). For note discussing effect of Georgia law on dividend restrictions, see 24 Ga. B. J. 254 (1961).

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.

14-2-641. Effect of failure to present securities for redemption, surrender, cancellation, or payment.

  1. As used in this Code section, the term:
    1. "Call" means a notice or demand, pursuant to a right contained in the articles of incorporation, resolution of the board of directors, or other document governing rights and preferences of shares or other securities, to redeem, cancel, or otherwise extinguish a part or all of a class or series of securities of an issuing corporation.
    2. "Registered holder" means the holder or owner of shares or other securities as shown upon the records maintained by or on behalf of the issuer for that purpose.
    3. "Redemption" includes the surrender, cancellation, or payment in satisfaction of or with respect to shares or other securities by an issuer.
  2. When a corporation has duly and properly called for redemption of any securities and the registered holder of the securities has been sent notice of call at his or her last address as it appears on the records of the corporation but fails to present the certificate for the securities or otherwise take action as required by the call within 60 days of the effective date of the call or such longer time as may be specified in the notice of the call, then the corporation may transfer the money or other property distributable upon the redemption to a trustee, for the benefit of the registered owner or his or her successors in title, and thereupon the securities shall be deemed as of the effective date of the call to have been redeemed, canceled, or paid and no longer outstanding.
  3. In order for the transfer to the trustee permitted by subsection (b) of this Code section to be effective for this purpose, the corporation must have adopted a plan therefor prior to the call, and must have sent notice to the registered holder of the securities of the details of the plan, including the name and address of the trustee, at the time of the sending of the notice of the call. The registered holder for whom the transfer in trust is made or his or her successors in title shall have only the right to obtain the money or other property from the trustee:
    1. In the case of certificated securities, upon surrender to the trustee of the certificates involved; and
    2. In the case of uncertificated securities, upon satisfying the trustee that he or she was the registered holder.
  4. Any money or other property held by the trustee which is not claimed by the registered holder within six years from the date of the transfer to the trustee shall be distributed to the persons and in the manner provided in the plan previously adopted or, if the provisions for distribution are held to be invalid or the plan does not contain provisions for distribution, shall be distributed to and become the property of the Board of Regents of the University System of Georgia, to be used for educational purposes. The trustee appointed under this Code section must be a bank or trust company located in the State of Georgia.
  5. The procedures specified in subsections (b) through (d) of this Code section shall not be exclusive of other procedures, not otherwise inconsistent with law, specified in the articles of incorporation, including an amendment of the articles of incorporation adopted by the board of directors establishing and designating a series of preferred shares and fixing and determining the relative rights and preferences of a series of preferred shares, or in the instruments governing any other securities, with respect to the redemption of the securities, and, upon compliance by a corporation with any of those procedures, the shares or other securities shall be deemed as of the date provided in those procedures to have been redeemed, canceled, and no longer to be outstanding, regardless of whether the holders thereof shall have taken the steps provided in this Code section. (Code 1981, § 14-2-641 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 2004, p. 508, § 7.)

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.

ARTICLE 7 SHAREHOLDERS

Law reviews. - For article, "Comparison of Features of Old and New Business Corporation Laws Relating to Domestic Corporations," see 5 Ga. St. B.J. 13 (1968). For article, "Corporate Social-Reform, the Business Judgment Rule and Other Considerations," see 20 Ga. L. Rev. 565 (1986). For article, "Georgia's New Business Corporation Code," see 24 Ga. St. B. J. 158 (1988). For article, "Changes in Corporate Practice under Georgia's New Business Corporation Code," see 40 Mercer L. Rev. 655 (1989). For note, "Exclusionary Tender Offers: A Reasonably Formulated Takeover Defense or a Discriminatory Attempt to Retain Control?," see 20 Ga. L. Rev. 627 (1986).

RESEARCH REFERENCES

ALR. - Right of stockholder not a director, officer, or employee of the corporation to compensation for services in selling stock or corporate property in absence of express contract, 3 A.L.R. 778 .

Certificate of stock as conclusive and exclusive evidence of stockholder's rights, 31 A.L.R. 1326 .

Right of stockholder to redeem corporate property from execution or mortgage sale, 39 A.L.R. 1056 .

Duty of promoter to account for proceeds of sale of stock issued to him, 43 A.L.R. 1363 .

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 .

Informality of meeting of stockholders as affecting action taken thereat, 51 A.L.R. 941 .

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

Inherent power of equity, at instance of a stockholder, to appoint receiver for, or to wind up, a solvent, going corporation, on ground of fraud, mismanagement, or dissensions, 91 A.L.R. 665 .

Right of pledgee of corporate stock to have it transferred to him on books of company, 116 A.L.R. 571 .

Rights, powers, and duties in respect of sale or transfer of corporate stock in which one holds a legal life estate, 126 A.L.R. 1298 .

Judgment in action by or against corporation as res judicata in action by or against stockholder or officer of corporation, 129 A.L.R. 1041 .

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 .

Right of stockholder as individual to complain as against officers, directors, or large stockholders, of their transactions in corporation's outstanding stock involving its control or other purpose, 132 A.L.R. 260 .

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

Intervention by stockholder for purpose of interposing defense for corporation, 33 A.L.R.2d 473.

Construction, application, and effect of constitutional provisions or statutes relating to cumulative voting of stock for corporate directors, 43 A.L.R.2d 1322.

Propriety of attorney who has represented corporation acting for corporation in controversy with officer, director, or stockholder, 1 A.L.R.4th 1124.

PART 1 M EETINGS

14-2-701. (See Editor's notes.) Annual meeting.

  1. A corporation shall hold a meeting of shareholders annually at a time stated in or fixed in accordance with the bylaws.
    1. Except as provided for in paragraph (2) of this subsection, annual shareholders' meetings may be held in or out of this state at the place stated in or fixed in accordance with the bylaws. If no place is stated in or fixed in accordance with the bylaws, annual shareholders' meetings shall be held at the corporation's principal office.
    2. Unless the articles of incorporation or the bylaws provide otherwise, the board of directors may determine that an annual shareholders' meeting may be held wholly or partially by means of remote communication as authorized by Code Section 14-2-708.
  2. The failure to hold an annual meeting at the time stated in or fixed in accordance with a corporation's bylaws does not affect the validity of any corporate action. (Code 1981, § 14-2-701 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 2021, p. 103, § 1/SB 168; Ga. L. 2021, p. 115, § 1/HB 306.)

The 2021 amendments. The first 2021 amendment, effective April 27, 2021, in subsection (b), designated the existing provisions as paragraph (b)(1), in paragraph (b)(1), substituted "Except as provided for in paragraph (2) of this subsection, annual" for "Annual" at the beginning of the first sentence and inserted "shareholders"' in the middle of the second sentence, and added paragraph (b)(2). The second 2021 amendment, effective April 29, 2021, made identical changes and added the word "may” after "meeting”.

For application of this statute in 2020, see Executive Orders 03.20.20.02, 04.23.20.02, 05.12.20.02, 05.28.20.02, and 06.11.20.01.

A listing of Executive Orders issued in 2020 can be found at https://gov.georgia.gov/executive-action/executive-orders/2 020-executive-orders.

Law reviews. - For article, "Foreign Corporations in Georgia," see 10 Ga. St. B. J. 243 (1973). For article, "The Dynamics Among Shareholders, Directors, and Officers in Corporate Organizations Under Georgia Law," see 37 Mercer L. Rev. 79 (1985).

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.

14-2-702. (See Editor's notes.) Special meeting.

  1. A corporation shall hold a special meeting of shareholders:
    1. On call of its board of directors or the person or persons authorized to do so by the articles of incorporation or bylaws;
    2. Except as to corporations described in paragraph (3) of this subsection, if the holders of at least 25 percent, or such greater or lesser percentage as may be provided in the articles of incorporation or bylaws, of all the votes entitled to be cast on any issue proposed to be considered at the proposed special meeting, sign, date, and deliver to the corporation one or more demands in writing or by electronic transmission for the meeting describing the purpose or purposes for which it is to be held; or
    3. In the case of a corporation having 100 or fewer shareholders of record, if the holders of at least 25 percent, or such lesser percentage as may be provided in the articles of incorporation or bylaws, of all the votes entitled to be cast on any issue to be considered at the proposed special meeting sign, date, and deliver to the corporation one or more demands in writing or by electronic means for the meeting describing the purpose or purposes for which it is to be held.
  2. If not otherwise fixed under Code Section 14-2-703 or Code Section 14-2-707, the record date for determining shareholders entitled to demand a special meeting is the date the first shareholder signs the demand.
    1. Except as provided for under paragraph (2) of this subsection, special shareholders' meetings may be held in or out of this state at the place stated in or fixed in accordance with the bylaws.  If no place is stated or fixed in accordance with the bylaws, special shareholders' meetings shall be held at the corporation's principal office.
    2. Unless the articles of incorporation or the bylaws provide otherwise, the board of directors may determine that a special shareholders' meeting be held wholly or partially by means of remote communication as authorized by Code Section 14-2-708.
  3. Only business within the purpose or purposes described in the meeting notice required by subsection (c) of Code Section 14-2-705 may be conducted at a special shareholders' meeting.
  4. Unless otherwise provided in the articles of incorporation, a demand by a shareholder for a special meeting may be revoked by a written or electronic transmission to that effect by the shareholder received by the corporation prior to the call of the special meeting.
  5. A bylaw provision governing the percentage of shares required to call special meetings is not a quorum or voting requirement. (Code 1981, § 14-2-702 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1989, p. 946, § 21; Ga. L. 1997, p. 1165, § 4; Ga. L. 2004, p. 508, § 8; Ga. L. 2021, p. 103, § 2/SB 168; Ga. L. 2021, p. 115, § 2/HB 306.)

The 2021 amendments. The first 2021 amendment, effective April 27, 2021, in subsection (c), designated the existing provisions as paragraph (c)(1), in paragraph (c)(1), substituted "Except as provided for under paragraph (2) of this subsection, special" for "Special" at the beginning of the first sentence and inserted "shareholders"' in the middle of the second sentence, and added paragraph (c)(2). The second 2021 amendment, effective April 29, 2021, made identical changes.

For application of this statute in 2020, see Executive Orders 03.20.20.02, 04.23.20.02, 05.12.20.02, 05.28.20.02, and 06.11.20.01.

A listing of Executive Orders issued in 2020 can be found at https://gov.georgia.gov/executive-action/executive-orders/2 020-executive-orders.

Law reviews. - For article, "Some Distinctive Features of the Georgia Business Corporation Code," 28 Ga. St. B. J. 101 (1991).

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.

14-2-703. Court-ordered meeting.

  1. The superior court of the county where a corporation's registered office is located may summarily order a meeting to be held:
    1. On application of any shareholder of the corporation if an annual meeting was not held within the earlier of six months after the end of a fiscal year of the corporation or 15 months after its last annual meeting; or
    2. On application of a shareholder who signed a demand for a special meeting valid under Code Section 14-2-702, if:
      1. Notice of the special meeting was not given within 30 days after the date the demand was delivered to the corporation's secretary; or
      2. The special meeting was not held in accordance with the notice.
  2. After notice to the corporation, the superior court may order that the meeting be deemed an annual meeting or a special meeting. (Code 1981, § 14-2-703 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1989, p. 946, § 22; Ga. L. 1993, p. 1231, § 6.)

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 .

14-2-704. Action without meeting.

  1. Action required or permitted by this chapter to be taken at a shareholders' meeting may be taken without a meeting if the action is taken by all the shareholders entitled to vote on the action or, if so provided in the articles of incorporation, by persons who would be entitled to vote at a meeting shares having voting power to cast not less than the minimum number (or numbers, in the case of voting by groups) of votes that would be necessary to authorize or take the action at a meeting at which all shareholders entitled to vote were present and voted. The action must be evidenced by one or more written consents bearing the date of signature and describing the action taken, signed by shareholders entitled to take action without a meeting and delivered to the corporation for inclusion in the minutes or filing with the corporate records.
  2. No written consent signed under this Code section shall be valid unless:
    1. The consenting shareholder has been furnished the same material that, under this chapter, would have been required to be sent to shareholders in a  notice of a meeting at which the proposed action would have been submitted to the shareholders for action, including notice of any applicable dissenters' rights as provided in Code Section 14-2-1320; or
    2. The written consent contains an express waiver of the right to receive the material otherwise required to be furnished.
  3. If the articles of incorporation give the shareholders the right to cumulate their votes, action with respect to any election of directors may be taken without a meeting only by written consent signed by all the shareholders entitled to vote on the election of directors.
  4. If not otherwise fixed under Code Section 14-2-703 or Code Section 14-2-707, the record date for determining shareholders entitled to take action without a meeting is the date the first shareholder signs the consent. No written consent shall be effective to take the corporate action referred to therein unless, within 60 days of the earliest date appearing on a consent delivered to the corporation in the manner required by this Code section, evidence of written consents signed by shareholders sufficient to act by written consent are received by the corporation. A written consent may be revoked by a writing to that effect received by the corporation prior to the receipt by the corporation of unrevoked written consents sufficient in number to take corporate action.
  5. A consent signed under this Code section has the effect of a meeting vote and may be described as such in any document. A consent delivered to the corporation shall become effective on the date of delivery of the last consent required to take action under subsection (d) of this Code section or such later date as it may provide.
  6. If action is taken under this Code section by less than all of the shareholders entitled to vote on the action, all voting shareholders on the record date who did not participate in taking the action shall be given written notice of the action, together with the material described in paragraph (1) of subsection (b) of this Code section, not more than ten days after the taking of action without a meeting.
  7. If this chapter requires that notice of action by shareholders be given to nonvoting shareholders and the action is taken by voting shareholders without a meeting, the corporation must give its nonvoting shareholders written notice of the action not more than ten days after the taking of action without a meeting. The notice must contain or be accompanied by the same material that, under this chapter, would have been required to be sent to nonvoting shareholders in a notice of meeting at which the proposed action would have been submitted to the shareholders for action.
  8. An electronic transmission which is transmitted by a shareholder that evidences a shareholder's consent, requests or demands an action to be taken by the corporation, or provides notice to the corporation under this chapter shall be deemed to be written, signed,  and dated for the purposes of this chapter, provided that any such electronic transmission sets forth or is delivered with information from which the corporation can determine:
    1. That the electronic transmission was transmitted by the shareholder; and
    2. The date on which such shareholder transmitted such electronic transmission. The date on which such electronic transmission is transmitted shall be deemed to be the date on which such consent, request, demand, or notice was signed. (Code 1981, § 14-2-704 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1989, p. 946, § 23; Ga. L. 1993, p. 1231, § 7; Ga. L. 1997, p. 1165, § 5; Ga. L. 2004, p. 508, § 9; Ga. L. 2005, p. 60, § 14/HB 95.)

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.

14-2-705. (See Editor's notes.) Notice of meeting.

  1. A corporation shall notify shareholders of the date, time, and place of each annual and special shareholders' meeting no fewer than ten nor more than 60 days before the meeting date. Unless this chapter or the articles of incorporation require otherwise, the corporation is required to give notice only to shareholders entitled to vote at the meeting.
  2. Unless this chapter or the articles of incorporation require otherwise, notice of an annual meeting need not include a description of the purpose or purposes for which the meeting is called.
  3. Notice of a special meeting must include a description of the purpose or purposes for which the meeting is called.
  4. If not otherwise fixed under Code Section 14-2-703 or Code Section 14-2-707, the record date for determining shareholders entitled to notice of and to vote at an annual or special shareholders' meeting is the close of business on the day before the first notice is delivered to shareholders.
  5. Unless the bylaws require otherwise, if an annual or special shareholders' meeting is adjourned to a different date, time, or place, notice need not be given of the new date, time, or place if the new date, time, or place is announced at the meeting before adjournment. If a new record date for the adjourned meeting is or must be fixed under Code Section 14-2-707, however, notice of the adjourned meeting must be given under this Code section to persons who are shareholders as of the new record date.
  6. Notwithstanding the provisions of this Code section, a corporation need not provide any notice required by this Code section to a shareholder to whom:
    1. Notices of two consecutive annual meetings; or
    2. All and at least two payments of dividends or interest on securities or dividend reinvestment confirmations during a 12 month period have been mailed addressed to the shareholder's address shown in the corporation's current record of shareholders and have been returned as undeliverable. Any action or meeting which shall be taken or held without notice to any such shareholder shall have the same force and effect as if such notice had been duly given. If any such shareholder shall deliver to the corporation written notice setting forth such shareholder's then current address, the requirement that notice be given to such shareholder shall be reinstated. If the action taken by the corporation requires the filing of a document under any other provision of this chapter, the document need not state that notice was not given to shareholders to whom notice was not required to be given pursuant to this subsection. (Code 1981, § 14-2-705 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 2004, p. 508, § 10.)

For application of this statute in 2020, see Executive Orders 03.20.20.02 and 04.23.20.02.

A listing of Executive Orders issued in 2020 can be found at https://gov.georgia.gov/executive-action/executive-orders/2 020-executive-orders.

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 § 14-2-1402 ; 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.

14-2-706. Waiver of notice.

  1. A shareholder may waive any notice required by this chapter, the articles of incorporation, or bylaws before or after the date and time stated in the notice. The waiver must be in writing or by electronic transmission, be signed by the shareholder entitled to the notice, and be delivered to the corporation for inclusion in the minutes or filing with the corporate records.
  2. A shareholder's attendance at a meeting:
    1. Waives objection to lack of notice or defective notice of the meeting, unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting; and
    2. Waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the shareholder objects to considering the matter when it is presented.
  3. Unless required by the bylaws, neither the business transacted nor the purpose of the meeting need be specified in the waiver, except that any waiver by a shareholder of the notice of a meeting of shareholders with respect to an amendment of the articles of incorporation pursuant to Code Section 14-2-1003 , a plan of merger or share exchange pursuant to Code Section 14-2-1103 , a sale of assets pursuant to Code Section 14-2-1202 , or any other action which would entitle the shareholder to dissent pursuant to Code Section 14-2-1302 and obtain payment for his shares shall not be effective unless:
    1. Prior to the execution of the waiver, the shareholder shall have been furnished the same material that under this chapter would have been required to be sent to the shareholder in a notice of the meeting, including notice of any applicable dissenters' rights as provided in Code Sections 14-2-1320 and 14-2-1322 ; or
    2. The waiver expressly waives the right to receive the material required to be furnished. (Code 1981, § 14-2-706 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 2004, p. 508, § 11.)

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.

14-2-707. Record date.

  1. The bylaws may fix or provide the manner of fixing the record date for one or more voting groups in order to determine the shareholders entitled to notice of a shareholders' meeting, to demand a special meeting, to vote, or to take any other action. If the bylaws do not fix or provide for fixing a record date, the board of directors of the corporation may fix a future date as the record date.
  2. A record date fixed under this Code section may not be more than 70 days before the meeting or action requiring a determination of shareholders.
  3. A determination of shareholders entitled to notice of or to vote at a shareholders' meeting is effective for any adjournment of the meeting unless the board of directors fixes a new record date, which it must do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting.
  4. If a court orders a meeting adjourned to a date more than 120 days after the date fixed for the original meeting, it may provide that the original record date continues in effect or it may fix a new record date. (Code 1981, § 14-2-707 , enacted by Ga. L. 1988, p. 1070, § 1.)

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.

14-2-708. Shareholder and proxies' participation by remote communication.

When authorized by the board of directors, and subject to such guidelines and procedures as the board of directors may adopt, shareholders and holders of proxies of any class or series designated by the board of directors not physically present at a meeting of shareholders may, by means of remote communication:

  1. Participate in a meeting of shareholders; and
  2. Be deemed present in person and vote at a meeting of shareholders, whether such meeting is held at a designated place or held wholly by means of remote communication, provided that:
    1. The corporation implements reasonable procedures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a shareholder or holder of a proxy;
    2. The corporation implements reasonable procedures to provide such shareholders and holders of proxies a reasonable opportunity to participate in the meeting and to vote on matters submitted to such shareholders and holders of proxies, including, but not limited to, an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings; and
    3. When any shareholder or holder of a proxy votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the corporation. (Code 1981, § 14-2-708 , enacted by Ga. L. 2021, p. 103, § 3/SB 168; Ga. L. 2021, p. 115, § 3/HB 306.)

Effective date. - This Code section became effective April 29, 2021.

Code Commission notes. - Pursuant to Code Section 28-9-5, in 2021, the enactment of paragraph (2) of subsection (b) of this Code section by Ga. L. 2021, p. 103 § 3/SB 168, was treated as impliedly repealed and superseded by Ga. L. 2021, p. 115, § 3/HB 306, due to irreconcilable conflict.

PART 2 V OTING

14-2-720. (See Editor's notes.) Shareholders' list for meeting.

  1. After fixing a record date for a meeting, a corporation shall prepare an alphabetical list of the names of all its shareholders who are entitled to notice of a shareholders' meeting. The list must be arranged by voting group and within each voting group by class or series of shares and show the address of and number of shares held by each shareholder. Nothing contained in this Code section shall require the corporation to include e-mail addresses or other information for delivery of electronic transmissions on such list.
  2. The shareholders' list must be available for inspection by any shareholder, his or her agent, or his or her attorney:
    1. On a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting upon request; or
    2. During ordinary business hours at the principal place of business of the corporation.

      In the event that the corporation makes the list available on an electronic network, the corporation may take reasonable steps to ensure that such information is available only to shareholders of the corporation. If the meeting is to be held in person, then the list shall be produced and kept at the time and place of the meeting during the duration of the meeting and may be inspected by any shareholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any shareholder during the duration of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting.

  3. If the corporation refuses to allow a shareholder, his agent, or his attorney to inspect the shareholders' list at the meeting, the superior court of the county where a corporation's registered office is located, on application of the shareholder, may summarily order the inspection at the corporation's expense and may postpone the meeting for which the list was prepared until the inspection is complete.
  4. Refusal or failure to prepare or make available the shareholders' list does not affect the validity of action taken at the meeting. (Code 1981, § 14-2-720 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 2004, p. 508, § 12.)

For application of this statute in 2020, see Executive Order 03.20.20.02.

A listing of Executive Orders issued in 2020 can be found at https://gov.georgia.gov/executive-action/executive-orders/2 020-executive-orders.

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.

14-2-721. Voting entitlement of shares.

  1. Except as provided in subsections (b) and (c) of this Code section or unless the articles of incorporation provide otherwise, each outstanding share (other than shares of preferred stock issued or authorized before July 1, 1989), regardless of class, is entitled to one vote on each matter voted on at a shareholders' meeting. Only shares are entitled to vote. If articles of incorporation have been restated or amended on or after July 1, 1989, such amendment shall not be deemed to have granted voting rights to holders of preferred shares previously without voting rights unless notice was provided to shareholders that such restatement or amendment would cause the holders of preferred shares to have voting rights, and a shareholder vote approved the restatement or amendment.
  2. Absent special circumstances, the shares of a corporation are not entitled to vote if owned by the corporation as treasury shares or if they are held, directly or indirectly, by a second corporation, domestic or foreign, of which the first corporation owns, directly or indirectly, shares sufficient to elect a majority of the directors of the second corporation.
  3. Subsection (b) of this Code section does not limit the power of a corporation to vote any shares, including its own shares, held by it in a fiduciary capacity.
  4. Redeemable shares are not entitled to vote after notice of redemption is mailed to the holders and a sum sufficient to redeem the shares has been deposited with a bank, trust company, or other financial institution under an irrevocable obligation to pay the holders the redemption price on surrender of the shares. (Code 1981, § 14-2-721 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1989, p. 946, § 24; Ga. L. 1995, p. 482, § 3; Ga. L. 1997, p. 1165, § 6.)

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.

14-2-722. Proxies.

  1. A shareholder may vote his or her shares in person or by proxy.
  2. A shareholder or his or her agent or attorney in fact may appoint a proxy to vote or otherwise act for the shareholder by signing an appointment form or by an electronic transmission. An electronic transmission must contain or be accompanied by information from which it can be determined that the shareholder, the shareholder's agent, or the shareholder's attorney in fact authorized the electronic transmission.
  3. An appointment of a proxy is effective when a signed appointment form or electronic transmission of the appointment is received by the inspector of election or the officer or agent of the corporation authorized to tabulate votes. An appointment is valid for 11 months unless a longer period is expressly provided in the appointment.
  4. An appointment of a proxy is revocable unless the appointment form or electronic transmission states that it is irrevocable and the appointment is coupled with an interest. Appointments coupled with an interest include the appointment of:
    1. A pledgee;
    2. A person who purchased or agreed to purchase the shares;
    3. A creditor of the corporation who extended it credit under terms requiring the appointment;
    4. An employee of the corporation whose employment contract requires the appointment; or
    5. A party to a voting agreement created under Code Section 14-2-731.
  5. The death or incapacity of the shareholder appointing a proxy does not affect the right of the corporation to accept the proxy's authority unless notice of the death or incapacity is received by the secretary or other officer or agent authorized to tabulate votes before the proxy exercises his or her authority under the appointment.
  6. An appointment made irrevocable under subsection (d) of this Code section is revoked when the interest with which it is coupled is extinguished.
  7. A transferee for value of shares subject to an irrevocable appointment may revoke the appointment if he or she did not know of its existence when he or she acquired the shares and the existence of the irrevocable appointment was not noted conspicuously on the certificate representing the shares or on the information statement for shares without certificates.
  8. Subject to Code Section 14-2-724 and to any express limitation on the proxy's authority stated in the appointment form or electronic transmission, a corporation is entitled to accept the proxy's vote or other action as that of the shareholder making the appointment.
  9. Any copy, facsimile transmission, or other reliable reproduction of the writing or electronic transmission created pursuant to subsection (b) of this Code section may be substituted or used in lieu of the original writing or electronic transmission for any and all purposes for which the original writing or electronic transmission could be used, provided that such copy, facsimile transmission, or other reproduction shall be a complete reproduction of the entire original writing or electronic transmission.
  10. A corporation may adopt bylaws authorizing additional means or procedures for shareholders to exercise rights granted by this Code section. (Code 1981, § 14-2-722 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1993, p. 1231, § 8; Ga. L. 1997, p. 1165, § 7; Ga. L. 1999, p. 405, § 6.)

Law reviews. - For article, "The Dynamics Among Shareholders, Directors, and Officers in Corporate Organizations Under Georgia Law," see 37 Mercer L. Rev. 79 (1985). For note discussing revocation of proxy upon maker's incapacity, see 17 Ga. St. B. J. 88 (1980).

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.

14-2-723. Shares held by nominees.

  1. A corporation may establish a procedure by which the beneficial owner of shares that are registered in the name of a nominee is recognized by the corporation as the shareholder. The extent of this recognition may be determined in the procedure.
  2. The procedure may set forth:
    1. The types of nominees to which it applies;
    2. The rights or privileges that the corporation recognizes in a beneficial owner;
    3. The manner in which the procedure is selected by the nominee;
    4. The information that must be provided when the procedure is selected;
    5. The period for which selection of the procedure is effective; and
    6. Other aspects of the rights and duties created. (Code 1981, § 14-2-723 , enacted by Ga. L. 1988, p. 1070, § 1.)

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.

14-2-724. Corporation's acceptance of votes.

  1. If the name signed on a vote, consent, waiver, or proxy appointment corresponds to the name of a shareholder, the corporation if acting in good faith is entitled to accept the vote, consent, waiver, or proxy appointment and give it effect as the act of the shareholder.
  2. If the name signed on a vote, consent, waiver, or proxy appointment does not correspond to the name of its shareholder, the corporation if acting in good faith is nevertheless entitled to accept the vote, consent, waiver, or proxy appointment and give it effect as the act of the shareholder if:
    1. The shareholder is an entity and the name signed purports to be that of an officer or agent of the entity;
    2. The name signed purports to be that of an administrator, executor, guardian, or conservator representing the shareholder and, if the corporation requests, evidence of fiduciary status acceptable to the corporation has been presented with respect to the vote, consent, waiver, or proxy appointment;
    3. The name signed purports to be that of a receiver or trustee in bankruptcy of the shareholder and, if the corporation requests, evidence of this status acceptable to the corporation has been presented with respect to the vote, consent, waiver, or proxy appointment;
    4. The name signed purports to be that of a pledgee, beneficial owner, or attorney in fact of the shareholder and, if the corporation requests, evidence acceptable to the corporation of the signatory's authority to sign for the shareholder has been presented with respect to the vote, consent, waiver, or proxy appointment; or
    5. Two or more persons are the shareholder as cotenants or fiduciaries and the name signed purports to be the name of at least one of the co-owners and the person signing appears to be acting on behalf of all the co-owners.
  3. The corporation is entitled to reject a vote, consent, waiver, or proxy appointment if the secretary or other officer or agent authorized to tabulate votes, acting in good faith, has reasonable basis for doubt about the validity of the signature on it or about the signatory's authority to sign for the shareholder or about the faithfulness or completeness of the reproduction when the original has not been examined.
  4. The corporation and its officer or agent who accept or reject a vote, consent, waiver, or proxy appointment in good faith and in accordance with the standards of this Code section or subsection (b) of Code Section 14-2-722 are not liable in damages to the shareholder for the consequences of the acceptance or rejection.
  5. Corporate action based on the acceptance or rejection of a vote, consent, waiver, or proxy appointment under this Code section or subsection (b) of Code Section 14-2-722 is valid unless a court of competent jurisdiction determines otherwise. (Code 1981, § 14-2-724 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1997, p. 1165, § 8.)

Code Commission notes. - Pursuant to Code Section 28-9-5, in 1997, "co-owners" was substituted for "coowners" in two places in paragraph (b)(5).

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.

14-2-725. Quorum and voting requirements for voting groups.

  1. Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. Unless the articles of incorporation or this chapter provides otherwise, a majority of the votes entitled to be cast on the matter by the voting group constitutes a quorum of that voting group for action on that matter.
  2. Once a share is represented for any purpose at a meeting other than solely to object to holding the meeting or transacting business at the meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for that adjourned meeting.
  3. If a quorum exists, action on a matter (other than the election of directors) by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless the articles of incorporation, a bylaw adopted by the shareholders under Code Section 14-2-1021, or this chapter requires a greater number of affirmative votes.
  4. The election of directors is governed by Code Section 14-2-728 . (Code 1981, § 14-2-725 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1989, p. 946, § 25.)

Law reviews. - For article discussing liability of corporate directors, officers, and shareholders under the Georgia Business Corporation Code, and as affected by provisions of the Georgia Civil Practice Act, see 7 Ga. St. B.J. 277 (1971). For article, "The Dynamics Among Shareholders, Directors, and Officers in Corporate Organizations Under Georgia Law," see 37 Mercer L. Rev. 79 (1985). For article, "Some Distinctive Features of the Georgia Business Corporation Code," 28 Ga. St. B. J. 101 (1991).

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 § 14-2-1402 . 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 .

14-2-726. Action by single and multiple voting groups.

  1. If the articles of incorporation or this chapter provides for voting by a single voting group on a matter, action on that matter is taken when voted upon by that voting group as provided in Code Section 14-2-725.
  2. If the articles of incorporation or this chapter provides for voting by two or more voting groups on a matter, action on that matter is taken only when voted upon by each of those voting groups counted separately as provided in Code Section 14-2-725 . Action may be taken by one voting group on a matter even though no action is taken by another voting group entitled to vote on the matter. (Code 1981, § 14-2-726 , enacted by Ga. L. 1988, p. 1070, § 1.)

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.

14-2-727. Greater or lesser quorum or voting requirements.

  1. The articles of incorporation or a bylaw adopted under Code Section 14-2-1021 may provide for a greater or lesser quorum (but not less than one-third of the votes entitled to be cast) or a greater voting requirement for shareholders (or voting groups of shareholders) than is provided for by this chapter.
  2. An amendment to the articles of incorporation or bylaws that changes or deletes a greater quorum or voting requirement must meet the same quorum requirement and be adopted by the same vote and voting groups required to take action under the quorum and voting requirements prescribed in the provision being amended. (Code 1981, § 14-2-727 , enacted by Ga. L. 1988, p. 1070, § 1.)

Law reviews. - For article, "Some Distinctive Features of the Georgia Business Corporation Code," 28 Ga. St. B. J. 101 (1991).

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.

14-2-728. Voting for directors; cumulative voting.

  1. Unless otherwise provided in:
    1. The articles of incorporation; or
    2. A bylaw that fixes a greater voting requirement for the election of directors and that is adopted by the board of directors of a corporation having shares listed on a national securities exchange or regularly traded in a market maintained by one or more members of a national or affiliated securities association,

      directors are elected by a plurality of the votes cast by the shares entitled to vote in the election. Action to elect directors may be taken at a meeting only if a quorum is present.

  2. Shareholders do not have a right to cumulate their votes for directors unless the articles of incorporation so provide.
  3. A statement included in the articles of incorporation that all or a designated voting group of shareholders are entitled to cumulate their votes for directors (or words of similar import) means that the shareholders designated are entitled to multiply the number of votes they are entitled to cast by the number of directors for whom they are entitled to vote and cast the product for a single candidate or distribute the product among two or more candidates.
  4. Shares otherwise entitled to vote cumulatively may not be voted cumulatively at a particular meeting unless:
    1. The meeting notice or proxy statement accompanying the notice states that cumulative voting will be in effect; or
    2. A shareholder who has the right to cumulate his votes gives notice to the corporation not less than 48 hours before the time set for the meeting of his intent to cumulate his votes during the meeting, and if one shareholder gives this notice all other shareholders in the same voting group participating in the election are entitled to cumulate their votes without giving further notice. (Code 1981, § 14-2-728 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 2008, p. 253, § 2/SB 436.)

Law reviews. - For article, "Some Distinctive Features of the Georgia Business Corporation Code," 28 Ga. St. B. J. 101 (1991). For survey article on business associations, see 60 Mercer L. Rev. 35 (2008).

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.

14-2-729. Adjournment of meeting by majority of voting shares.

The holders of a majority of the voting shares represented at a meeting, whether or not a quorum is present, may adjourn such meeting from time to time.

(Code 1981, § 14-2-729 , enacted by Ga. L. 1989, p. 946, § 26.)

Law reviews. - For article, "Some Distinctive Features of the Georgia Business Corporation Code," 28 Ga. St. B. J. 101 (1991).

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 .

14-2-729.1. Inspectors.

  1. A corporation having any shares listed on a national securities exchange or regularly traded in a market maintained by one or more members of a national or affiliated securities association shall, and any other corporation may, appoint one or more inspectors to act at a meeting of shareholders and make a written report of the inspectors' determinations. Each inspector shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of the inspector's ability.
  2. The inspectors shall:
    1. Ascertain the number of shares outstanding and the voting power of each;
    2. Determine the shares represented at a meeting;
    3. Determine the validity of proxies and ballots;
    4. Count all votes; and
    5. Determine the result.
  3. An inspector may be an officer or employee of the corporation. (Code 1981, § 14-2-729.1 , enacted by Ga. L. 1997, p. 1165, § 9.)

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 .

PART 3 V OTING TRUSTS AND AGREEMENTS

14-2-730. Voting trusts.

  1. One or more shareholders may create a voting trust, conferring on a trustee the right to vote or otherwise act for them, by signing an agreement setting out the provisions of the trust (which may include anything consistent with its purpose) and transferring their shares to the trustee. When a voting trust agreement is signed, the trustee shall prepare a list of the names and addresses of all owners of beneficial interests in the trust, together with the number and class of shares each transferred to the trust, and deliver a copy of the list and agreement to the corporation's principal office.
  2. A voting trust becomes effective on the date the first shares subject to the trust are registered in the trustee's name. A voting trust is valid for not more than ten years after its effective date unless extended under subsection (c) of this Code section.
  3. All or some of the parties to a voting trust may extend it for additional terms of not more than ten years each by signing an extension agreement and obtaining the voting trustee's written consent to the extension. An extension is valid for ten years from the date the first shareholder signs the extension agreement. The voting trustee must deliver copies of the extension agreement and list of beneficial owners to the corporation's principal office. An extension agreement binds only those parties signing it. (Code 1981, § 14-2-730 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1989, p. 946, § 27.)

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 .

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, §§ 934 et seq.

C.J.S. - 18 C.J.S., Corporations, § 467 et seq.

ALR. - Corporation: right to reconsider vote in stockholders' or directors' meeting, 13 A.L.R. 131 .

Transactions incident to voting trusts as subject to tax imposed upon issuance or transfer of stock, 118 A.L.R. 1292 .

Powers of voting trustees, 159 A.L.R. 1067 .

Validity of provision of voting trust against transfer of beneficiary's interest, 11 A.L.R.2d 1000.

Removal of trustee of voting trust, 34 A.L.R.2d 1136.

Validity of voting trust or other similar agreement for control of voting power of corporate stock, 98 A.L.R.2d 376.

Validity of voting trust created by will, 77 A.L.R.4th 1194.

14-2-731. Shareholder agreements.

  1. Two or more shareholders may provide for the manner in which their shares will be voted by signing an agreement for that purpose. A voting agreement created under this Code section or under subsection (b), (f), or (g) of Code Section 14-2-920 is not subject to the provisions of Code Section 14-2-730.
  2. A voting agreement created under this Code section is specifically enforceable.
  3. The duration of any agreement created under this Code section shall not exceed 20 years. Failure to state a period of duration or stating a period of duration in excess of 20 years shall not invalidate the agreement, but in either case the period of duration shall be 20 years. Any such agreement may be renewed for a period not in excess of 20 years from the date of renewal by agreement of all the shareholders bound thereby at the date of renewal. (Code 1981, § 14-2-731 , enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1989, p. 946, § 28; Ga. L. 2000, p. 1567, § 4.)

Law reviews. - For article discussing liability of corporate directors, officers, and shareholders under the Georgia Business Corporation Code, and as affected by provisions of the Georgia Civil Practice Act, see 7 Ga. St. B. J. 277 (1971). For article, "The Dynamics Among Shareholders, Directors, and Officers in Corporate Organizations Under Georgia Law," see 37 Mercer L. Rev. 79 (1985). For note on 2000 amendment of O.C.G.A. § 14-2-731 , see 17 Ga. St. U. L. Rev. 46 (2000).

COMMENT

Source: Model Act, § 7.31. This replaces former § 14-2-120 .

Subsection (a) explicitly recognizes agreements among two or more shareholders as to the voting of shares and makes clear that these agreements are not subject to the rules relating to a voting trust. These agreements are often referred to as "pooling agreements." The only formal requirements are that they be in writing and signed by all the participating shareholders; in other respects their validity is to be judged as any other contract. They are not subject to the 10-year limitation applicable to voting trusts. Subsection (a) of the Model Act was amended to change the first sentence from:

"Two or more shareholders may provide for the manner in which they will vote their shares by signing an agreement for that purpose."

This was an attempt to clarify that a voting agreement may, by its terms, bind transferees of shares, subject, of course, to proper notice to bona fide purchasers for value under subsection (e) and Article 8 of the U.C.C.

Subsection (b) provides that voting agreements may be specifically enforceable. A voting agreement may provide its own enforcement mechanism, as by the appointment of a proxy to vote all shares subject to the agreement; the appointment may be made irrevocable under Section 14-2-722. If no enforcement mechanism is provided, a court may order specific enforcement of the agreement and order the votes cast as the agreement contemplates. This section recognizes that damages are not likely to be an appropriate remedy for breach of a voting agreement, and also avoids the result reached in Ringling Bros. Barnum & Bailey Combined Shows v. Ringling, 53 A.2d 441 (Del. 1947), where the court held that the appropriate remedy to enforce a pooling agreement was to refuse to permit any voting of the breaching party's shares.

Subsections (c)-(f) preserve the approach of former § 14-2-120 , and are designed to allow shareholders, by agreement, to obtain the flexibility of the Close Corporation article (Article 9) without electing statutory close corporation status.

Subsection (c) provides that no agreement in a non-publicly held corporation is invalid as an attempt to restrict the discretion of the board of directors. The definition of a publicly held corporation is broader than in former law, including not only those corporations whose shares are "generally traded," but also those that are "regularly quoted" in the pink sheets by securities dealers, regardless of the volume or regularity of trading activity. The language of former law has also been broadened to include provisions found in Code Section 14-2-920, dealing with statutory close corporations, by adding the phrase, "on the ground that it eliminates a board of directors, authorizes director proxies or weighted voting rights for directors, is an attempt to restrict the discretion or powers of the board of directors." This permits shareholder agreements to vary the usual corporate form in any way permitted for a statutory close corporation, and to deal with matters normally within the powers of directors, as long as no harm is brought or threatened to non-signing shareholders or third parties, such as creditors.

Subsection (d) provides that the duration of voting agreements is limited to 20 years, and where the agreement fails to specify a duration, the default rule is 20 years.

Subsection (e) provides that transferees are only bound if on notice of the voting agreement, which can be provided with a legend on the certificate.

Subsection (f) states that where a voting agreement covers powers normally exercised by the board, the directors are relieved of liability, and corresponding liability is imposed on the shareholders assenting to the acts taken.

Subsections (g) and (h) are taken from Code Section 14-2-920(f) and (g), which governs electing statutory close corporations, and are intended to apply the same rules to shareholder agreements concerning limiting or eliminating the board of directors for all corporations.

Note to 1989 Amendment Subsection (c) was amended to replace "between" with "among." Subsection (e) was amended by adding, at the end of the subsection, the phrase, "or upon the written statement required for shares without certificates by Code Section 14-2-626(b)." This corrects the earlier omission of any reference to the procedure for giving notice with respect to certificateless shares, and is consistent with the notice required for share transfer restrictions under Code Section 14-2-627(b).

Subsection (e) was amended to provide a notice procedure for uncertificated shares. This notice parallels that contained in Code section 14-2-627(b) for share transfer restrictions.

The 1989 amendment changed subsection (f) to add "board of" prior to the first reference to "directors."

Note to 2000 Amendment Source: Model Act, § 7.31. This Code section is based on the Model Act, § 7.31, which was revised subsequent to the enactment of former Code Section 14-2-731. Consistent with the revised Model Act, former subsections 14-2-731(c)-(h), concerning shareholder agreements creating alternative forms of corporate governance, are now dealt with in Code Section 14-2-732.

Subsection (c) differs from Model Act § 7.31 in that it retains the duration limitations for voting agreements that were found in former Code Section 14-2-731(d). Under subsection (c), the maximum duration for any voting agreement is 20 years. A voting agreement may provide for a lesser term, but if the agreement states a term greater than 20 years, or no term at all, the agreement is still valid, and the duration will automatically be 20 years. Model Act § 7.31 does not limit the term for a voting agreement.

Cross-References Agreements among shareholders of close corporations, see § 14-2-920 . Duties of board of directors, see § 14-2-801 . Irrevocable proxies, see § 14-2-722 . Shareholder agreements, see § 14-2-732 . Voting trust, see § 14-2-730 .

JUDICIAL DECISIONS

Editor's notes. - In light of the similarity of the statutory provisions, decisions under former Code Section 14-2-120, which was repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, are included in the annotations for this Code section.

Divesting control of fiscal and credit policy of close corporation. - Nothing in Georgia law renders it unlawful for the shareholders of a close corporation, who are also the directors and officers of the corporation, to divest themselves of ultimate control over the fiscal and credit policy of the corporation. To the contrary, this type of arrangement is expressly sanctioned. Walton Motor Sales, Inc. v. Ross, 736 F.2d 1449 (11th Cir. 1984) (decided under former § 14-2-120 ).

Cited in Givens v. Spencer, 232 Ga. 806 , 209 S.E.2d 157 (1974).

RESEARCH REFERENCES

Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, §§ 923 et seq.

C.J.S. - 18 C.J.S., Corporations, § 460.

ALR. - Corporation: right to reconsider vote in stockholders' or directors' meeting, 13 A.L.R. 131 .

Validity and effect of agreement controlling the vote of corporate stock, 45 A.L.R.2d 799.

14-2-732. Shareholder agreements.

  1. An agreement among the shareholders of a corporation that complies with this Code section is effective among the shareholders and the corporation even though it is inconsistent with one or more other provisions of this Code in that it:
    1. Eliminates the board of directors or restricts the discretion or powers of the board of directors;
    2. Governs the authorization or making of distributions whether or not in proportion to ownership of shares, subject to the limitations of Code Section 14-2-640;
    3. Establishes the directors or officers of the corporation, or their terms of office or manner of selection or removal;
    4. Governs, in general or in regard to specific matters, the exercise or division of voting power by or between the shareholders and directors or by or among any of them, including use of weighted voting rights or director proxies;
    5. Establishes the terms and conditions of any agreement for the transfer or use of property or the provision of services between the corporation and any shareholder, director, officer, or employee of the corporation or among any of them;
    6. Transfers to one or more shareholders or other persons all or part of the authority to exercise the corporate powers or to manage the business and affairs of the corporation, including the resolution of any issue about which there exists a deadlock among directors or shareholders;
    7. Requires dissolution of the corporation at the request of one or more of the shareholders or upon the occurrence of a specified event or contingency; or
    8. Otherwise governs the exercise of the corporate powers or the management of the business and affairs of the corporation or the relationship among the shareholders, the directors, and the corporation, or among any of them, and is not contrary to public policy.
  2. An agreement authorized by this Code section shall be:
    1. Set forth:
      1. In the articles of incorporation or bylaws and approved by all persons who are shareholders at the time of the agreement; or
      2. In a written agreement that is signed by all persons who are shareholders at the time of the agreement and is made known to the corporation;
    2. Subject to amendment only by:
      1. An amendment to the articles of incorporation or bylaws approved by all persons who are shareholders at the time of the amendment; or
      2. An agreement in writing by all persons who are shareholders at the time of the amendment, unless the agreement provides that it may be amended by less than all the shareholders; and
    3. Valid for no more than 20 years. Failure to state a period of duration or stating a period of duration in excess of 20 years shall not invalidate the agreement, but in either case the period of duration shall be 20 years. Any such agreement may be renewed for a period not in excess of 20 years from the date of renewal by agreement of all the shareholders at the date of renewal.
  3. The existence of an agreement authorized by this Code section shall be noted conspicuously on the front or back of each certificate for outstanding shares or on the information statement required by subsection (b) of Code Section 14-2-626. If at the time of the agreement the corporation has shares outstanding represented by certificates, the corporation shall recall the outstanding certificates and issue substitute certificates that comply with this subsection. The failure to note the existence of the agreement on the certificate or information statement shall not affect the validity of the agreement or any action taken pursuant to it. Any purchaser of shares who, at the time of purchase, did not have knowledge of the existence of the agreement shall be entitled to rescission of the purchase. A purchaser shall be deemed to have knowledge of the existence of the agreement if its existence is noted on the certificate or information statement for the shares in compliance with this subsection and, if the shares are not represented by a certificate, the information statement is delivered to the purchaser at or prior to the time of purchase of the shares. An action to enforce the right of rescission authorized by this subsection must be commenced within the earlier of 90 days after discovery of the existence of the agreement or two years after the time of purchase of the shares.
  4. An agreement authorized by this Code section shall cease to be effective when shares of the corporation are listed on a national securities exchange or regularly traded in a market maintained by securities dealers or brokers. If the agreement ceases to be effective for any reason, the board of directors may, if the agreement is contained or referred to in the corporation's articles of incorporation or bylaws, adopt an amendment to the articles of incorporation or bylaws, without shareholder action, to delete the agreement and any references to it.
  5. An agreement authorized by this Code section that limits the discretion or powers of the board of directors shall relieve the directors of, and impose upon the person or persons in whom such discretion or powers are vested, liability for acts or omissions imposed by law on directors to the extent that the discretion or powers of the directors are limited by the agreement.
  6. Except as provided in subsection (e) of this Code section, the existence or performance of an agreement authorized by this Code section shall not be a ground for imposing personal liability on any shareholder for the acts or debts of the corporation even if the agreement or its performance treats the corporation as if it were a partnership or results in failure to observe the corporate formalities otherwise applicable to the matters governed by the agreement.
  7. Incorporators or subscribers for shares may act as shareholders with respect to an agreement authorized by this Code section if no shares have been issued when the agreement is made. (Code 1981, § 14-2-732 , enacted by Ga. L. 2000, p. 1567, § 5; Ga. L. 2001, p. 4, § 14.)

Law reviews. - For article, "2008 Annual Review of Case Law Development," see 14 (No. 6) Ga. St. B. J. 28 (2009). For article, "Business Associations," see 63 Mercer L. Rev. 83 (2011). For note on 2000 amendment of O.C.G.A. § 14-2-732 , see 17 Ga. St. U. L. Rev. 46 (2000).

COMMENT

Source: Model Act, § 7.32. This Code section replaces former Code Section 14-2-731(c)-(h). This Code section is based on the Model Act § 7.32, which was adopted subsequent to the enactment of former Code Section 14-2-731.

This Code section is intended to add, within the context of the traditional corporate structure, legal certainty to shareholder agreements that embody various aspects of the business arrangement established by the shareholders to meet their business and personal needs. This Code section validates for nonpublicly held corporations various types of agreements among shareholders even when the agreements are inconsistent with the statutory norms otherwise contained in this Code.

This Code section varies from former Code Section 14-2-731(c)-(h) in that it allows nonpublicly held corporations a greater degree of flexibility by approving a wider breadth of shareholder agreements. Former Code Section 14-2-731(c)-(h) allowed for shareholder agreements that would eliminate the board of directors, authorize director proxies or weighted voting, restrict board power or discretion over business management as if it were a partnership, and arrange the relationships of shareholders in a manner that would be appropriate only between partners. Subsection (a) allows those types of agreements sanctioned by former Code Section 14-2-731 and also allows other types of agreements that generally restrict the discretion or powers of the board of directors; govern the authorization of distributions; establish who shall be a director or officer of the corporation, as well as the terms of office and manner of selection or removal for those positions; govern the use or transfer of property or services between the corporation and any shareholder, director, officer, or employee; transfer authority to exercise corporate powers, including deadlock resolution; and require the dissolution of the corporation upon shareholder request or the happening of a contingency.

Subsection (b)(3) differ from the Model Act in that it retains the duration limitations for shareholder agreements that were found in former Code Section 14-2-731(d). Under subsection (b)(3) the maximum duration for any shareholder agreement is 20 years. A shareholder agreement with a lesser term or no term at all will not be invalidated, but its duration will automatically be set for 20 years. Model Act § 7.32(b)(3) specifies no maximum duration for shareholder agreements and, in the event that no term is stated, the duration is set at 10 years.

The types of shareholder agreements sanctioned by this Code section require unanimous shareholder agreement (subsection (b)) and cease to be effective when the corporation becomes publicly held (subsection (d)). These provisions essentially adopt the interpretation of former Code Section 14-2-731(c) in Invacare Corp. v. Healthdyne Technologies, Inc., 968 F. Supp. 1578 (N.D. Ga. 1997), which held that the shareholders of a publicly held corporation cannot restrict the board of directors' powers or discretion (including the board's discretion as it relates to shareholders' rights plans) by amending the corporation's bylaws.

Cross-References Form and content of certificates, see § 14-2-265. Shares without certificates, see § 14-2-626 . Voting agreements, see § 14-2-731 . Articles of incorporation, see § 14-2-202 . Bylaws, see § 14-2-206 . Amendment of articles of incorporation, see § 14-2-1001 et seq. Amendments of bylaws, see § 14-2-1020 et seq. Requirements for and duties of board of directors, see § 14-2-801 .

JUDICIAL DECISIONS

Twenty-year time limit did not apply retroactively to affect prior existing shareholder agreements. - A 1992 shareholder's agreement that adopted the provisions of a 1987 shareholder's agreement did not expire in 2007, or 20 years after 1987, based on O.C.G.A. § 14-2-732 (b)(3), because O.C.G.A. § 14-2-732 was not enacted until 2000 and did not operate retroactively to affect the prior agreements. Ansley v. Ansley, 307 Ga. App. 388 , 705 S.E.2d 289 (2010).

Findings necessary for valuation of stock determination. - In a suit between brothers over the valuation of the stock of the family business, the judgment of the trial court was vacated and the case was remanded with directions for the trial court to find the facts and state the court's conclusions of law, including whether the bylaws, buy-sell agreement, or any other document governed the parties' dispute to ensure appropriate appellate review. Wallace v. Wallace, 301 Ga. 195 , 800 S.E.2d 303 (2017).

Cited in Wallace v. Wallace, 345 Ga. App. 764 , 813 S.E.2d 428 (2018), cert. denied, No. S18C1329, 2019 Ga. LEXIS 42, cert. denied, No. S18C1332, 2019 Ga. LEXIS 48 (Ga. 2019), cert. denied, 2019 U.S. LEXIS 6165, 205 L. Ed. 2 d 30 (U.S. 2019).

PART 4 D ERIVATIVE PROCEEDINGS

Cross references. - Class actions, § 9-11-23 .

Law reviews. - For article discussing liability of corporate directors, officers, and shareholders under the Georgia Business Corporation Code, and as affected by provisions of the Georgia Civil Practice Act, see 7 Ga. St. B. J. 277 (1971). For article, "Litigation Discovery and Corporate Governance: The Missing Story About the 'Genius of American Corporate Law,"' see 63 Emory L.J. 1383 (2014). For comment, "Dismissing Derivative Actions in the Federal Courts for Failure to Allege Demand Futility: Choosing a Standard of Appellate Review - Abuse of Discretion or De Novo?," see 61 Emory L.J. 201 (2014).

JUDICIAL DECISIONS

Editor's notes. - In light of the similarity of the statutory provisions, decisions under former Civil Code 1910, § 2224, Code 1933, § 22-711, and § 14-2-123 , which were repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, are included in the annotations for this part.

Wrong by officers and directors is wrong done to corporation. - Primarily the right to recover against defendants for a wrong was in the corporation itself, and not in its stockholders. The right to action against officers and directors to redress, or to recover damages for wrongs inflicted by them upon the corporation, is in the corporation and not in the stockholders. Greenwood v. Greenblatt, 173 Ga. 551 , 161 S.E. 135 (1931) (decided under former Civil Code 1910, § 2224).

Condition precedent to minority stockholder's suit in equity. - The conditions precedent with which a minority stockholder must comply before proceeding on behalf of oneself and other stockholders against the corporation, its officers, and those participating therein, when the minority stockholders are injured thereby are that the petitioner had made an earnest effort to obtain redress at the hands of the directors and stockholders, or why this could not be done, or that it was not reasonable to require it. Greenwood v. Greenblatt, 173 Ga. 551 , 161 S.E. 135 (1931) (decided under former Civil Code 1910, § 2224).

It is a condition precedent to the maintenance of a suit in equity by a minority stockholder against the corporation and its officers that it be shown that the stockholder has made an earnest effort to obtain redress at the hands of the directors and stockholders, or why it could not be done, or that it was not reasonable to require it. Peeples v. Peeples, 193 Ga. 358 , 18 S.E.2d 629 (1942); Chalverus v. Wilson Mfg. Co., 212 Ga. 612 , 94 S.E.2d 736 (1956) (decided under former Code 1933, § 22-711).

Petitioners standing upon the single statement that, under the circumstances, seeking redress at the hands of the directors or stockholders would have been impracticable and useless was not sufficient. Peeples v. Southern Chem. Corp., 194 Ga. 388 , 21 S.E.2d 698 (1942) (decided under former Code 1933, § 22-711).

Minority stockholder's duty to seek protection within corporation first. - It is the duty of a minority stockholder to seek protection within the corporation, and whatever complaint the stockholder may have the stockholder will not be allowed to assert it in a court of equity unless the petition shows that the stockholder has made an ea