O.C.G.A. § 14-2-631 (2019)

Annotations

Law reviews. - For article discussing the rights of a corporation to acquire, encumber, and dispose of its own shares under the Georgia Business Corporation Code, see 3 Ga. L. Rev. 11 (1968). For article discussing treasury shares and restrictions placed upon their use by the corporation, see 3 Ga. L. Rev. 11 (1968). For article discussing ‘‘earned’’ surplus and ‘‘capital’’ surplus concepts under Georgia Business Corporation Code, see 3

Ga. L. Rev. 11 (1968). For article discussing the issuance of and limitations on redeemable shares under the Georgia Business Corporation Code, see 3 Ga. L. Rev. 11 (1968). For article, ‘‘Estate Planning: The Use of Insurance to Fund Stock Purchase Agreements,’’ see 9 Ga. St. B. J. 303 (1973). For article, ‘‘Some Distinctive Features of the Georgia Business Corporation Code,’’ 28 Ga. St. B. J. 101 (1991).

COMMENT Source: Model Act, § 6.31. This replaces former §§ 14-2-92 & 94. Subsection (a) restates the fundamental power of a corporation to reacquire its own shares. Such a transaction constitutes a ‘‘distribution’’ by the corporation (see the definition of that term in Section 14-2-140) and is subject to the limitations of Section 14-2-640. Repurchased shares do not become treasury shares, as they did under former § 14-2-94(b); they are returned to the status of authorized but unissued shares. Subsection (b) requires cancellation only where articles of incorporation prohibit reissue of acquired shares. Former § 14-2-94(a) required that if shares were acquired out of stated capital they must be canceled. No comparable provision exists in the Code. Subsection (c) requires a simplified official filing to reflect the reduction of authorized shares. This provision is included in order that there be a public record of the number of authorized shares that a corporation may issue. The amendment may be made without shareholder action. See Section 14-2-1002. Until the amendment is effective, the corporation has power to reissue the reacquired shares despite a prohibition in the articles of incorporation. In such a case, the action of the directors in issuing the shares may be challengeable but the shares so issued would be fully paid and nonassessable if issued in conformity with Section

Note to 1989 Amendment Subsection (a) was amended in 1989 to restore the concept of treasury shares to the Code on an optional basis. For corporations with shares listed on stock exchanges, listing fees may be avoided where treasury shares are sold by a corporation, while fees may be incurred if authorized but unissued shares are sold, even though they represent shares previously purchased by the corporation. Subsection (c) was amended by striking requirements that the articles of amendment be delivered to the Secretary of State for filing and that they contain the name of the corporation, since these matters are covered in Code Section 14-2-1006. Subsection (d) was added to permit directors to adopt articles of amendment providing for treasury shares without shareholder approval. Note to 1997 Amendments Subsection (f ) [subsection (e)] was added in 1997. It is intended to allow a corporation to pledge its own treasury shares as collateral for corporate obligations. Cross-References Acquisition as ‘‘distribution,’’ see § 14-2-140. Amendment of articles of incorporation, see Article 10, Part 1. Amendment of articles of incorporation by board of directors, see § 14-2-1002. Annual registration, see § 14-2-1622. ‘‘Deliver’’ includes mail, see § 14-2-140. Director standards of conduct, see §§ 14-2-830 & 14-2-831. Distributions generally, see § 14-2-640. Effective time and date of amendment, see § 14-2-123. Filing fees, see § 14-2-122. Filing requirements, see § 14-2-120. Issuance of shares, see § 14-2-621. JUDICIAL DECISIONS Editor’s notes. - In light of the similarity of the statutory provisions, decisions under former Code 1933, § 22-513 and former Code Section 14-2-92, which were repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, are included in the annotations for this Code section. Former Code 1933, § 22-513 (see now O.C.G.A. § 14-2-631) merely sanctioned corporate purchase of its own shares to eliminate any conflict with the legal principle in some jurisdictions that such a purchase is never permissible without an express grant of authority, and does not grant a corporation an absolute right to purchase its own stock regardless of the circumstances. Comolli v. Comolli, 241 Ga. 471, 246 S.E.2d 278 (1978) (decided under former Code 1933, § 22-513). If issuance of debenture is prohibited by law, repurchasing contract is void and cannot be enforced. Hullender v. Acts II, 153 Ga. App. 119, 264 S.E.2d 486

(1980) (decided under former Code 1933, § 22-513). Specific performance of stock repurchase agreement with insolvent corporation. - In a case in which the book value of the stock in question is $0.00 and no creditors or other shareholders could be injured by the enforcement of a stock repurchase agreement because no actual payment of corporate funds would be required thereunder, a decree of specific performance would not be erroneous notwithstanding the corporation’s insolvency. McCreery v. RSA Mgt., Inc., 249 Ga. 43, 287 S.E.2d 203 (1982) (decided under former Code 1933, § 22-513). Cited in Bridges v. 20th Century Travel, Inc., 149 Ga. App. 837, 256 S.E.2d 102 (1979); Scroggins v. Powell, Goldstein, Frazer & Murphy (In re Kaleidoscope, Inc.), 25 Bankr. 729 (N.D. Ga. 1982); Corporate Jet Aviation, Inc. v. Vantress, 82 Bankr. 619 (N.D. Ga. 1987).

CORPORATIONS & PARTNERSHIPS

RESEARCH REFERENCES Am. Jur. 2d. - 18A Am. Jur. 2d, Corporations, § 391. 18B Am. Jur. 2d, Corporations, § 1755 et seq. C.J.S. - 18 C.J.S., Corporations, § 204. 19 C.J.S., Corporations, § 660 et seq. ALR. - Unwarranted payment of dividends as ground for ousting foreign corporation, 41 ALR 997. Transfer of bank or other corporate stock to corporation issuing it, as releasing transferrer from stockholders’ statutory added liability, 86 ALR 72. Validity, construction, and effect of provisions of articles of incorporation or certificates of stock relating to redemption or retirement of stock, 88 ALR 1131. Voting power of corporation stock as confined to issued and outstanding stock to exclusion of authorized unissued stock or stock which has been reacquired by the corporation, 90 ALR 315. Validity and effect of agreement by a corporation contemporaneously with issue

or sale of stock, to repurchase or redeem the stock or to cancel the subscription therefor and refund consideration paid, 101 ALR 154. Issuance by corporation of new stock certificates without requiring surrender of old, 150 ALR 148. Reduction of capital stock and distribution of capital assets upon reduction, 35 ALR2d 1149. Minority stockholders’ right to enjoin further or additional issuance of stock, 38 ALR2d 1366. Rights of creditors of corporation with respect to its purchase or acquisition of its own stock, 47 ALR2d 758. Transfer of, and voting rights in, stock of co-operative apartment association, 99 ALR2d 236. Construction and operation of statute restricting corporation’s right to purchase its own stock to purchase from surplus, 61 ALR3d 1049.

PART 4 DISTRIBUTIONS