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(Code 1981, §14-2-1604, enacted by Ga. L. 1988, p. 1070, § 1.)
- For annual survey on business associations, see 61 Mercer L. Rev. 45 (2009).
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.
- 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 and14-2-1604, 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).
- 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).
- 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).
- 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).
- 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).
- 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).
- 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).
- 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).
(Code 1981, §14-2-1620, enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 2004, p. 508, § 21.)
Source: Model Act, § 16.20, and former § 14-2-122(f).
The Model Act version of subsection (a) required that a corporation regularly submit financial statements to shareholders. This requirement was first added as an amendment in 1979 to the 1969 Model Act. Subsection (a) of the Code preserves the approach of former § 14-2-122(f), which required corporations to prepare balance sheets and income statements, but required that they be furnished to shareholders only if requested. A requirement that financial statements be mailed to all shareholders automatically was seen as unduly burdensome for some small corporations with small revenues, and perhaps with records kept only in the form of a check register. If the corporation's financial records are kept more formally, subsection (a) requires the income statement and balance sheet to be accompanied by a statement of sources and application of funds and a statement of changes in shareholders' equity, but only if these documents are prepared for other purposes.
Subsection (a) does not require financial statements to be prepared on the basis of generally accepted accounting principles ("GAAP"). Many small corporations have never prepared financial statements on the basis of GAAP. In light of these considerations, it would be too burdensome on some small and closely held corporations to require GAAP statements. If a corporation does prepare financial statements on a GAAP basis for any purpose for the particular year, however, it must send those statements to the shareholders as provided by subsection (a).
Subsection (b) requires an accompanying report or statement in one of two forms: (1) if the financial statements have been reported upon by a public accountant, his report must be furnished; or (2) in other cases, a statement of the president or the person responsible for the corporation's accounting records must be furnished (i) stating his reasonable belief as to whether the financial statements were prepared on the basis of generally accepted accounting principles, and, if not, describing the basis on which they were prepared, and (ii) describing any respects in which the financial statements were not prepared on a basis of accounting consistent with those prepared for the previous year. In requiring a statement by the president or person responsible for the corporation's financial affairs, it is recognized that in many cases this person will not be a professionally trained accountant and that he should not be held to the standard required of a professional. To emphasize the difference, Section 14-2-1620 requires a "statement" (rather than a "report" or "certificate") and calls for the person to express his "reasonable belief" (rather than "opinion") about whether or not the statements are prepared on the basis of GAAP or, if not, to describe the basis of presentation and any inconsistencies in the basis of the presentation as compared with the previous year. He is not required to describe any inconsistencies between the basis of presentation and GAAP. If the statements are not prepared on a GAAP basis, the description would normally follow guidelines of the accounting professional as to the reporting format considered appropriate for a presentation which departed from GAAP. (See, e.g., "Statement on Auditing Standards No. 14" of the American Institute of Certified Public Accountants.) For example, the description might state, with respect to a cash basis statement of receipts and disbursements, that the statement was prepared on that basis and that it presents the cash receipts and disbursements of the entity for the period but does not purport to present the results of operations on the accrual basis of accounting.
Formerly § 14-2-122(g) provided a $500 fine for refusal to furnish such reports when requested by a shareholder. This has not been preserved in the Code.
Note to 2004 Amendment The 2004 amendments permit a shareholder to submit a request by electronic transmission for certain financial statements of the corporation.
Cross-References Inspection of records, see § 14-2-1602. "Shareholder" defined, see § 14-2-140.
- In light of the similarity of the statutory provisions, a decision under former Code 1933, § 22-613, which was repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, is included in the annotations for this Code section.
- A request for a copy of the corporation's most recent balance sheet and profit and loss statement was completely independent from the stockholder's right under former Code 1933, § 22-613(b) to inspect the books and records. No question of good-faith can be raised to defeat a stockholder's unbridled right to this information Shelters, Inc. v. Reeve, 131 Ga. App. 18, 205 S.E.2d 108 (1974) (decided under former Code 1933, § 22-613).
- 18A Am. Jur. 2d, Corporations, § 278, 618.
- 18 C.J.S., Corporations, § 410.
No results found for Georgia Code 14-2-1604.