TITLE 14 CORPORATIONS, PARTNERSHIPS, AND ASSOCIATIONS

Section 2. Business Corporations, 14-2-101 through 14-2-1703.

ARTICLE 16 RECORDS AND REPORTS

14-2-1620. Financial statements for shareholders.

1. Not later than four months after the close of each fiscal year and in any case prior to the annual meeting of shareholders, each corporation shall prepare (1) a balance sheet showing in reasonable detail the financial condition of the corporation as of the close of its fiscal year and (2) a profit and loss statement showing the results of its operation during its fiscal year. Upon request in writing or by electronic transmission, the corporation promptly shall mail to any shareholder of record a copy of the most recent balance sheet and profit and loss statement. If prepared for other purposes, the corporation shall also furnish upon request in writing or by electronic transmission a statement of sources and applications of funds and a statement of changes in shareholders' equity for the fiscal year. If financial statements are prepared by the corporation on the basis of generally accepted accounting principles, the annual financial statements must also be prepared and disclose that they are prepared on that basis. If financial statements are prepared otherwise than on the basis of generally accepted accounting principles, they must so disclose and must be prepared on the same basis as other reports or statements prepared by the corporation for the use of others.
2. If the annual financial statements are reported upon by a public accountant, his report must accompany them. If not, the statements must be accompanied by a statement of the president or the person responsible for the corporation's accounting records:
   1. Stating his reasonable belief whether the statements were prepared on the basis of generally accepted accounting principles and, if not, describing the basis of preparation; and
   2. Describing any respects in which the statements were not prepared on a basis of accounting consistent with the statements prepared for the preceding year.

(Code 1981, §14-2-1620, enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 2004, p. 508, § 21.)

COMMENT

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.