Law reviews.

- For article on the definition of a security in light of the 1973 Georgia Securities Act and the need for maximizing investor protection, see 30 Emory L.J. 73 (1981). For article, "Some Distinctive Features of the Georgia Business Corporation Code," 28 Ga. St. B. J. 101 (1991).

COMMENT

Source: Model Act, § 12.02.

Section 14-2-1202 requires the board of directors to propose the sale and then submit the proposal to the shareholders. The original Model Act reference in subsection (a) to sales otherwise than in the usual and regular course of business has been replaced with a reference to Section 14-2-1201, since the "ordinary course of business" exception has been deleted and replaced with a specific list of exceptions to the requirement of a shareholder vote.

Former § 14-2-231(3) provided that the shareholders may authorize the sale, and "may approve or fix, or may authorize the board of directors to fix, any or all of the terms and conditions thereof. . . ." This language suggested that the shareholders retained the power to alter the terms of the plan proposed by the board, and thus to approve an ultimate form of agreement that varied substantially from that approved by the board. In contrast, subsection (a) makes it clear that a corporation may sell only on the terms and conditions determined by the corporation's board of directors. Under the Code the role of the shareholders is only to vote to approve (or disapprove) the proposed transaction, as formulated by the board.

Subsection (b) provides that when proposing an asset sale, the board of directors must make a recommendation to the shareholders that the transaction 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. This parallels Section 14-2-1103(b), including changes to the Model Act language. See the Comment to Section 14-2-1103.

The board of directors may condition its submission of a proposal to the shareholders under subsection (c) on any basis - for example, on its receiving a certain percentage of shareholders' affirmative votes or that specified classes or series of shares, voting by separate voting groups, must approve the transaction or on some other basis; see the discussion of conditional submissions in the Comment to Section 14-2-1003. The disclosure of these conditions, as in disclosure of other matters submitted for shareholder approval, is governed by fiduciary principles of candor.

In subsection (d), the phrase in the Model Act, "whether or not" has been deleted before the words "entitled to vote," consistent with changes in Sections 14-2-1003, 14-2-1103, and elsewhere. See the Comments to Section 14-2-1003 and 14-2-1103.

Subsection (e) requires that the proposed sale, to be approved, must receive the vote of a majority of the outstanding votes entitled by the articles of incorporation to be cast on the proposal. Unlike former § 14-2-231(3), this contemplates that some shares may have more or less than one vote. This is a greater vote than that required for ordinary matters under Section14-2-725.

Former § 14-2-231(3) provided for class voting on asset sales if the resolution contained any provisions that would, if contained in a proposed amendment to the articles, require class voting. Nonvoting classes of shares are not given a statutory right to vote on proposed sales (either as separate voting groups or together with voting shares) by the Code on the theory that classes or series of shares that are made nonvoting by the articles of incorporation generally did not retain a voice in the areas of business the corporation may engage in the future. The articles of incorporation, however, may stipulate that specified classes or series of shares are entitled to vote by separate voting groups. Thus, in the absence of special provision in the articles of incorporation, only the shares of the corporation entitled to vote generally by the articles of incorporation are entitled to vote on sales of substantially all the assets of the corporation. The articles of incorporation may also specify that a greater percentage of votes is required to approve the proposal than specified in Section14-2-1202. If the asset sale involves a "business combination" with an "interested shareholder" within the meaning of Section14-2-1110, it will be subject to the requirements of Sections14-2-1111 -14-2-1113 for electing corporations. Further, if the company is a "resident domestic corporation," it will be subject to the requirements of Sections14-2-1131 -14-2-1133 for electing corporations.

Subsection (f) authorizes a board of directors to abandon a proposed sale without shareholder approval after it has been previously approved by the shareholders. An abandonment does not affect contractual rights that third persons may have against the corporation.

Certain corporate divisions, often called "spin offs," "split offs," or "split ups," sometimes involve transactions that may be formally characterized as sales of "all or substantially all" the corporate assets when in fact they are only a step in a corporate division that does not give rise to the problem of a major change in corporate direction and therefore does not need shareholder approval. Subsection (g) is designed to make clear that transactions like this, which actually constitute a distribution, are not subject to Section 14-2-1202. See Siegal, "When Corporations Divide: A Statutory and Financial Analysis," 79 Harv. L. Rev. 534 (1966).

The approval of most sales of the corporation's assets under this section gives rise to dissenters' rights under Article 13 to shareholders if a shareholder vote is required on the transaction and if they avail themselves of the procedures described in that article. Sales subject to Section 14-2-1202 that do not give rise to dissenters' rights even for voting shares include (1) sales pursuant to a court order and (2) sales that require all or substantially all of the net proceeds to be distributed to the shareholders in accordance with their respective interests within one year after the date of sale. See Section 14-2-1302.

Note to 1997 Amendment Subsection (e) was amended by the addition of the words "or bylaws" following "articles of incorporation."

Note to 2004 Amendment The amendment to Code Section 14-2-1202(c) is modeled on Section 7-112-102(4) of the Colorado Business Corporation Act. It extends the authority of the board of directors under Model Act Section 12.02(c) to condition a proposal for the sale, lease, exchange or other disposal of all or substantially all the corporation's assets beyond mere submission to the shareholders to the effectiveness of the proposal. The amendment combines the Colorado Act and the Model Act concepts, such that the board will now have the flexibility to make conditional both its submission of the proposal to the shareholders and the effectiveness of that proposal.

Note to 2006 Amendment The changes in subsection (b)(1) of Code Section 14-2-1202 clarify that the board of directors has the authority not only to withhold its recommendation of a disposition requiring shareholder approval because of conflicts of interest or other special circumstances, but also to recommend that the shareholders reject or vote against such a disposition.

Cross-References Asset sale as "Business Combination," see § 14-2-1011. Director standards of conduct, see §§ 14-2-830 &14-2-831. Dissenters' rights, see Article 13. "Distribution" defined, see § 14-2-140. "Notice" defined, see § 14-2-141. Limits on business combination with interested shareholder of resident domestic corporation, see § 14-2-1131 et seq. Notice of shareholders' meeting, see § 14-2-705. Quorum at shareholders' meeting, see § 14-2-725. Supermajority quorum and voting requirements, see § 14-2-727. Voting by voting group, see §§ 14-2-725 &14-2-726. Voting for business combination with interested shareholder, see § 14-2-1111. Voting entitlement of shareholders generally, see § 14-2-721. "Voting group" defined, see § 14-2-140.

JUDICIAL DECISIONS

RESEARCH REFERENCES