Law reviews.

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

COMMENT

Source: Model Act, Section 10.03. The procedures are substantially similar to those of prior law, in § 14-2-191(b).

Significant amendments to articles of incorporation must be approved by the shareholders after being proposed by the board of directors.

Subsection (b) provides that when proposing an amendment, the board of directors must make a recommendation to the shareholders that the amendment be approved, unless it elects, because of conflict of interest or other special circumstances, to make no recommendation. If the board of directors so elects, it must describe the conflict or circumstance, and communicate the basis for its election, when presenting the proposed amendment to the shareholders.

Subsection (b)(1) of the Model Act has been amended by replacing references to "determination" with "election," to eliminate any negative implications that a board with a conflict of interest may not recommend action to its shareholders; candid communication remains appropriate, and fair recommendations remain permissible, even for a board with a conflict of interests. It is intended that a board of directors may recommend the amendment to the shareholders in those cases where the directors determine that there is a conflict of interest, or other special circumstances, so long as the board determines that, in light of all the circumstances and the disclosures made to such shareholders, such recommendation should be made. Whether the board has a duty, in a particular case, to make a recommendation is a matter for judicial interpretation.

Subsection (c) permits the board to submit its recommendation on a conditional basis. Amendments could be conditioned upon the receipt of a supermajority vote, or the affirmative vote of the majority of the shares held by persons other than "related shareholders" or "affiliates", or upon no more than a specified percentage of a class filing written dissents.

Subsection (d) departs from the Model Act in that it does not require notice to holders of classes of shares not entitled to vote, whether by the terms of the articles of incorporation or the provisions of a resolution creating a series, or by reason of Section 14-2-1004. Section 14-2-1004 grants voting rights to holders of non-voting shares whenever significant rights are to be affected by a merger, which will entitle holders of non-voting shares to notice if their rights are adversely affected.

Subsection (e) departs from the Model Act by eliminating subparagraph (1), which granted the same voting rights to a voting group with dissenter's rights as the Code grants to all voting groups. By eliminating subparagraph (1), the Code requires approval by a majority of the outstanding shares of all classes entitled to vote on the amendment, rather than of only those classes with dissenter's rights.

Subsection (e) also departs from the Model Act provision by amending subparagraph (2) to require approval of a majority of the shares entitled to be cast on the amendment in each voting group entitled to vote. This restores the practice of existing Georgia law. The Model Act provisions in Section 14-2-725 state that if a quorum of a voting group is present, shareholder action is approved if the votes cast for a proposition exceed those cast against it. Thus the votes of a majority of the shares present at a meeting could be withheld, and an amendment to the articles approved by the remaining votes, though considerably less than a majority of a quorum. On amendments to the basic shareholder contract, such a vote seems too weak to legitimate the contractual justification. Further, such a low voting requirement could open an amendment to equitable challenge by a minority shareholder.

If an amendment to articles of incorporation creates dissenters' rights, the notice of the shareholders' meeting must contain a statement of the rights of shareholders to dissent, under Section 14-2-1320 of the Code. If corporate action is taken without a meeting of shareholders, Section 14-2-1320 requires notice of dissenter's rights to all shareholders.

Note to 2004 Amendment The amendment to Code Section 14-2-1003(c) is modeled on Section 7-110-103(3) of the Colorado Business Corporation Act, which extends the authority granted the board of directors under Model Act Section 10.03(c) to condition a proposed amendment to the articles of incorporation beyond mere submission to the shareholders to the effectiveness of the amendment. The amendment to Code Section 14-2-1003(c) combines the Colorado Act and the Model Act concepts, so as to make clear that the board has the flexibility to make conditional both its submission of the amendment to the shareholders and effectiveness of that amendment.

New subsection (f) of Code Section 14-2-1003 is modeled on Section 242(c) of the General Corporation Law of the State of Delaware and is designed to grant the board of directors the same degree of flexibility with respect to amendments to the articles of incorporation as it has in cases of mergers and share exchanges under Code Section 14-2-1103(i) and sales or other disposals of assets requiring shareholder approval under Code Section 14-2-1202(f). In addition, in recognition of the board of director's ability under Code Section 14-2-123 to delay the effective time of a transaction beyond the filing of the effectuating document, new subsection (f) would permit the board of directors to abandon an amendment to the articles of incorporation already approved by the shareholders not only prior to the filing of the articles but also between the time of filing of such document and any delayed effective date specified therein. The language of this Code Section amendment is based on Model Act Section 11.08(b), added in 1999, although that provision addresses mergers and share exchanges. A concurrent amendment to Code Section 14-2-1103 specifies a similar procedure with respect to the abandonment of mergers and share exchanges. Cf. Section 103(d) of the General Corporation Law of the State of Delaware, which specifies the procedures for terminating any type of transaction with respect to which a document specifying a future effective date or time has been filed with the secretary of state.

Note to 2006 Amendment The changes in subsection (b)(1) of Code Section 14-2-1003 clarify that the board of directors has the authority not only to withhold its recommendation of an amendment because of conflicts of interest or other special circumstances, but also to recommend that the shareholders reject or vote against such an amendment.

Cross-References Articles of amendment, see § 14-2-1006. Director standards of conduct, see §§ 14-2-830 &14-2-831. Dissenters' rights, see § 14-2-1302. "Notice" defined, see § 14-2-141. Notice of dissenters' rights, see §§ 14-2-1320 &14-2-1322. Notice of shareholders' meeting, see § 14-2-705. Quorum at shareholders' meeting, see § 14-2-725. Restatement of articles of incorporation, see § 14-2-1007. Supermajority quorum and voting requirements, see § 14-2-727. Voting by voting group, see §§ 14-2-725,14-2-726, &14-2-1004. Voting entitlement of shareholders generally, see § 14-2-721. "Voting group" defined, see § 14-2-140.

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