Code Commission notes.

- Pursuant to Code Section 28-9-5, in 2003, "of this Code section" was inserted in subsection (c).

Law reviews.

- For article, "The Acquisition Process and the Closely-Held Corporation: Selected Legal Aspects," see 36 Mercer L. Rev. 567 (1985).

COMMENT

Source: Model Act, section 11.04. This replaces former § 14-2-214.

Subsection (a) defines a "parent" corporation as one that owns at least 90 percent of the outstanding shares of each class of another corporation, and a "subsidiary" corporation as one whose shares are so owned. Section 14-2-1104 permits merger of a subsidiary into its parent corporation upon adoption of a plan of merger by the board of directors of the parent alone.

Further, the merger transaction need not be approved by the shareholders of either corporation. Approval by the shareholders of the subsidiary is meaningless because the parent's share ownership is sufficient to ensure the plan will be approved. Approval by the parent's shareholders is also unnecessary because the transaction does not materially change their rights: the ownership of the parent corporation is being changed only from 90 percent indirect ownership to 100 percent direct ownership of the assets, and no significant amendment of the parent's articles of incorporation is being made. For the same reason, shareholders of the parent corporation do not have the right to dissent from the transaction under Article 13.

The provisions governing short form mergers are intended to authorize, subject to the provisions of Section 14-2-1107 of this Code, mergers with foreign corporations that are subsidiaries of Georgia corporations.

Subsection (b) requires the board of directors of the parent to approve a plan of merger. Previously § 14-2-214(a) required both Boards of directors to approve the plan. Separate action by the board of directors of the subsidiary is unnecessary because the share ownership of the parent corporation is normally sufficient to permit it to elect or remove the subsidiary's board of directors.

Subsection (c) requires a copy or summary of the plan of merger to be sent to each shareholder of the subsidiary who does not waive the mailing requirement in writing. Previously § 14-2-214(b) did not provide for such a waiver. Subsection (c) of the Model Act was amended to provide a time requirement for notice of the short form merger to shareholders. The ten day notice preserves the rule of prior law, in O.C.G.A. § 14-2-214(b), and is consistent with the notice of dissenter's rights required under Section14-2-1322.

Minority shareholders of the subsidiary corporation may receive shares, obligations, or other securities of the parent or any other corporation, or cash or other property in whole or in part in exchange for their shares. Shareholders of the subsidiary corporation have a right to dissent from the merger transaction under Article 13.

Subsection (d) of the Model Act was deleted entirely. The intent is to preserve the approach of former Georgia law, which did not require 30 days advance notice to shareholders of a short form merger. The flexibility of accomplishing a short form merger without a 30 day delay can be important in corporate restructuring. Shareholder rights are adequately protected by the subsequent notice and the availability of dissenter's rights.

Subsection (d) provides that articles of merger or a certificate of merger may not contain amendments to the articles of incorporation of the parent corporation, other than the routine amendments that any board of directors may adopt under Section 14-2-1002. Thus, if the merger requires issuance of more parent corporation shares than are currently authorized, it must be accomplished under Section 14-2-1103, in order to amend the parent's articles to authorize additional shares.

Note to 1999 Amendment This section was amended to permit a short form merger of a parent corporation into a subsidiary corporation. The amendment allows a parent corporation owning at least 90% of the outstanding shares of each class of a subsidiary corporation's stock to merge into the subsidiary corporation without the approval of the parent corporation's shareholders if all of the conditions in subsection (b) are met.

Note to 2003 Amendment Code Section 14-2-1104 was amended in 1999 to allow the short-form merger of a parent into a subsidiary (a reverse merger) without shareholder approval. The Model Business Corporation Act (the "Model Act") was also amended in 1999 to permit a reverse merger pursuant to the short-form merger statute (MBCA § 1105). As amended, the Model Act short-form merger statute does not dispense with the requirement of approval by the parent's shareholders if the parent is not the surviving corporation. The amendment to Code Section 14-2-1104 follows the approach of the Model Act, in that it only dispenses with board and shareholder approval requirements at the subsidiary level. The revised Code Section 14-2-1104 does not in itself dispense with approval by the shareholders of the parent, but under Code Section 14-2-1103(h), a merger of the subsidiary upstream into the parent would usually not require approval of the parent's shareholders, because in such cases the parent's articles of incorporation are usually not affected by the merger and the parent usually does not issue stock exceeding the number and kind of shares authorized by its articles of incorporation. If, however, a parent is merged downstream into the subsidiary, approval by the parent's shareholders would be required under this revision of Code Section 14-2-1104 (as is the case under Section 253 of the Delaware General Corporation Law). Because the vote of the parent's shareholders will now be required for a downstream merger of a parent into a subsidiary, the former requirements of Section 14-2-1104(b) (identical articles of incorporation and bylaws, no change in shareholder rights, etc.) are eliminated from Section 14-2-1104. A concurrent amendment to Code Section 14-2-1302 also follows the Delaware approach by eliminating dissenters' rights in a downstream merger of the parent into the subsidiary if shareholders of the parent receive the same number and kind of shares of the surviving corporation and no additional shares are required to be authorized. In addition to conforming to the Model Act, the amendment clarifies any potential ambiguity in the 1999 amendment to Code Section 14-2-1104 as to whether notice had to be given to the shareholders of the parent where a subsidiary was merged into the parent pursuant to Code Section 14-2-1104. The 1999 amendment was not intended to require such notice.

Code Section 14-2-1104(e) is added to allow any of the terms of the plan of merger with a subsidiary at least 90% owned to be made dependent upon "facts" ascertainable outside of the plan of merger, in the same way that may be done with a plan of merger under Code Section 14-2-1101(d). The same definition of "facts" is added to Code Section 14-2-1104(e) as is found in Code Sections 14-2-1101(d), 14-2-1102(d), 14-2-601, 14-2-602 and 14-2-624. This added flexibility for a subsidiary merger follows Delaware General Corporation Law Section 253.

Note to 2006 Amendment The amendments to subsection (b)(2) of Code Section 14-2-1104, which are consistent with the amendments to subsection (b)(3) of Code Section 14-2-1101, subsection (b)(3) of Code Section 14-2-1102 and clause (C) of subsection (d)(1) of Code Section 14-2-1109, are intended to clarify existing law by expressly recognizing the possibility of different treatment of shareholders in a plan of merger with a subsidiary. See comment to Section 14-2-1101.

Cross-References Amendment of articles of incorporation by directors, see § 14-2-1002. Articles of merger, see § 14-2-1105. Certificate of merger, see § 14-2-1105. Director standards of conduct, see §§ 14-2-830 &14-2-831. Dissenters' rights, see § 14-2-1302(a) and Article 13. Foreign corporations, mergers with, see § 14-2-1107. "Notice" defined, see § 14-2-141. Notice of short form merger, see § 14-2-1320(b). Notice of corporate action to dissenters, see § 14-2-1322.

JUDICIAL DECISIONS

RESEARCH REFERENCES