O.C.G.A. § 14-2-1604 (2019)

Annotations

Law reviews. - For annual survey on business associations, see 61 Mercer L. Rev. 45 (2009).

COMMENT

Source: Model Act, § 16.04. This replaces former § 14-2-122(d) & (e).

Section 14-2-1604 provides a judicial remedy if a corporation refuses to grant the right of inspection provided by Section 14-2-1602.

Subsection (a) provides for judicial enforcement of the shareholders' right of inspection under Section 14-2-1602(b). As to these records, no showing of proper purpose need be made.

Subsection (b) provides, by contrast, that if inspection is demanded under Section 14-2-1602(c) and (d), the shareholder's good faith and purpose may be in issue; in this situation subsection (b) directs the court to handle the proceeding "on an expedited basis." The purpose of this phrase is to discourage dilatory tactics to avoid or delay inspection without requiring the court to resolve these issues on a summary basis.

While subsection (a) provides that the corporation shall bear the costs of inspection and copying of the records covered therein, subsection (c) does not address who should bear the cost of reproducing other records ordered by the court; this is a matter for the courts to decide in light of the policy of the Code that costs of reproduction are generally the responsibility of the requesting shareholder and should be assessed against him. The principal sanction against unreasonable delay or refusal to grant inspection is provided by subsection (c), which imposes on the corporation that plaintiff's costs, including attorneys' fees, unless the corporation can establish that it acted reasonably. The corporation may avoid these costs by showing that the corporation refused inspection in good faith because it had a reasonable basis for doubt about the right of the shareholder to inspect the records demanded. The phrase "in good faith because if had a reasonable basis for doubt" establishes a partially objective standard, in that the corporation must be able to point to some objective basis for its doubt that the shareholder was acting in good faith or had a purpose that was proper.

Subsection (d) authorizes the court to enter such protective orders as it shall deem necessary on the use or distribution of records to be produced for a shareholder.

Cross-References Corporate records, see §§ 14-2-1601 & 14-2-1602. "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; required, see §§ 14-2-202 & 14-2-501. Service on corporation, see § 14-2-504. Shareholders' list inspection, see § 14-2-720. Voluntary inspection, see § 14-2-1602.

JUDICIAL DECISIONS

Editor's notes. - In light of the similarity of the statutory provisions, decisions under former Code 1933, § 22-613 and former Code Section 14-2-122, which were repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, are included in the annotations for this Code section.

Construction with O.C.G.A. § 14-2-940. - Language of O.C.G.A. § 14-2-940(b), governing closely held corporations, did not preclude a shareholder from availing oneself of the provisions of O.C.G.A. §§ 14-2-1602 and 14-2-1604, relating to inspection of corporate records, in a separate suit despite the shareholder's pending action against the corporation for breach of fiduciary duty. Advanced Automation, Inc. v. Fitzgerald, 312 Ga. App. 406, 718 S.E.2d 607 (2011).

Shareholders protected from arbitrary denial of right to inspect corporate books by former Code 1933, § 22-613 (see now O.C.G.A. § 14-2-1604), which provided, in effect, for judicial review of a refusal by a corporation to allow inspection. The order for inspection may be restricted or limited as the court may see fit. Master Mtg. Corp. v. Craven, 132 Ga. App. 404, 208 S.E.2d 158 (1974) (decided under former Code 1933, § 22-613).

Shareholder inspection of invoices authorized. - The court did not abuse its discretion by determining that a shareholder was allowed to look at the corporation's invoices with only the name and address of the customer redacted. G.I.R. Sys. v. Lance, 228 Ga. App. 329, 491 S.E.2d 530 (1997).

Corporation not liable for costs of inspection by shareholder's accountant. - Trial court erred in ordering a corporation to split with its shareholder the cost of having the shareholder's accountant inspect corporate records since the costs assessed to the corporation were not costs incurred by the shareholder in obtaining the inspection order and the corporation had acted in good faith when it denied the shareholder's inspection application. G.I.R. Sys. v. Lance, 219 Ga. App. 829, 466 S.E.2d 597 (1995).

Party who contracted to sell stock is still shareholder of record. - The fact that a plaintiff has entered into a contract for the sale of plaintiff's shares was of no concern to the corporation and plaintiff was "a shareholder of record" for the purposes of former Code 1933, § 22-613 (see now O.C.G.A. § 14-2-1620). Shelters, Inc. v. Mankin, 130 Ga. App. 859, 204 S.E.2d 810 (1974) (decided under former Code 1933, § 22-613).

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).

Enforcement action to be brought against corporation. - Minority shareholder's claims against other shareholders for refusing the minority shareholder's request to inspect corporate records was properly dismissed; such a claim could only be brought against the corporation pursuant to O.C.G.A. § 14-2-1604. The minority shareholder's claim for misappropriation of corporate assets was also dismissed because it was a derivative claim, required to be brought on behalf of the corporation pursuant to O.C.G.A. § 14-2-740 et seq. Barnett v. Fullard, 306 Ga. App. 148, 701 S.E.2d 608 (2010).

Direct appeal. - Even though the amount of attorney fees awarded by a trial court was less than $10,000, a petition for inspection and copying of records was not an action for damages necessitating a discretionary appeal under O.C.G.A. § 5-6-35(a)(6). Motor Whse., Inc. v. Richard, 235 Ga. App. 835, 510 S.E.2d 600 (1998).

Award of attorney fees as costs under O.C.G.A. § 14-2-1604(c), and not damages under O.C.G.A. § 13-6-11, was directly appealable. Motor Whse., Inc. v. Richard, 235 Ga. App. 835, 510 S.E.2d 600 (1998).

Dismissal of appeal proper. - Notice of appeal filed by several related companies in an action under O.C.G.A. § 14-2-1604 was properly dismissed for failure to timely pay a bill of costs pursuant to O.C.G.A. § 5-6-48(c) as the 64-day delay in paying was due to counsel's failure to confirm that payment had been made; thus, the delay was inexcusable and unreasonable. Langdale Co. v. Langdale, 295 Ga. App. 372, 671 S.E.2d 863 (2008).

Attorney's fees. - A pro se litigant who was not an attorney could not recover attorney fees under O.C.G.A. § 14-2-1604 because of the lack of any meaningful standard for calculating the amount of the award. JarAllah v. American Culinary Fed'n., Inc., 242 Ga. App. 595, 529 S.E.2d 919 (2000).

Cited in Parker v. Clary Lakes Rec. Ass'n, 243 Ga. App. 681, 534 S.E.2d 154 (2000); Bell v. Waffle House, Inc., 331 Ga. App. 443, 771 S.E.2d 132 (2015).

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PART 2 REPORTS