Law reviews.

- For article discussing liability of corporate directors, officers, and shareholders under the Georgia Business Corporation Code, and as affected by provisions of the Georgia Civil Practice Act, see 7 Ga. St. B.J. 277 (1971). For article, "The Dynamics Among Shareholders, Directors, and Officers in Corporate Organizations Under Georgia Law," see 37 Mercer L. Rev. 79 (1985). For article, "Some Distinctive Features of the Georgia Business Corporation Code," 28 Ga. St. B. J. 101 (1991).

COMMENT

Source: Model Act, § 7.25. This replaces former § 14-2-116.

The Code has been altered to reflect voting by voting groups, which are defined in Section 14-2-140 as all shares of one or more classes or series that under the articles of incorporation are entitled to vote collectively. On most matters coming before shareholders' meetings, only a single voting group, consisting of a class of voting shares, will be involved, and action on such a matter is effective when approved by that voting group pursuant to Section 14-2-725. See Section 14-2-726(a).

Under the Code, classes or series of shares are generally not entitled to vote separately by voting group except to the extent specifically authorized by the articles of incorporation. But Section 14-2-1004 of the Code grants classes or series of shares the right to vote separately when fundamental changes are proposed in the articles of incorporation that may adversely affect that class. Section 14-2-1004 provides, further, that when two or more series are affected in essentially the same way, the series are lumped together and must vote as a single voting group rather than as multiple voting groups on the matter. Similarly, votes of a class may be required to waive preemptive rights for the class under Code Section 14-2-630.

Following this approach, subsection (a) provides that a voting group may take action only if a quorum of those shares exists, and provides a default rule of a majority of the shares, in the absence of a contrary provision in the articles of incorporation or this Code.

The articles of incorporation may modify the quorum and voting requirements of Section 14-2-725 for a single voting group or for all voting groups entitled to vote on any matter. The articles of incorporation may increase the quorum and voting requirements to any extent desired up to and including unanimity upon compliance with Section 14-2-727; they may also require that shares of different classes or series are entitled to vote separately or together on specific issues or provide that actions are approved only if they receive the favorable vote of a majority of the shares of a voting group present at a meeting at which a quorum is present. Higher voting requirements may also be imposed through bylaws adopted pursuant to Section 14-2-1021, or for business combinations through bylaws adopted pursuant to Sections 14-2-1113 and 14-2-1133.

Subsection (a) imposes no limit of one-third on quorums the articles of incorporation or a shareholder adopted bylaw might provide to alter the basic majority rule. Section14-2-727(a) of the Code governs the limits on quorum provisions, setting a lower limit of one-third of all votes, preserving the rule of former § 14-2-116(a).

The phrase "or this chapter" in Section 14-2-725(a) and (c) makes clear that wherever the provisions of the Model Act provide more stringent voting or quorum requirements, they control over Section 14-2-725. More stringent requirements are provided for the approval of certain fundamental corporate changes - for example, certain amendments to the articles of incorporation, mergers, and the sale of all or substantially all the corporate property not in the ordinary course of business. See Sections 14-2-1003, 14-2-1103, and 14-2-1202. See also Section 14-2-863, which imposes a special voting and quorum requirement for approval of conflict of interest transactions by members of the board of directors, Article 11, Part 2, and Article 11A, both of which provide special voting requirements for business combinations with interested shareholders.

Subsection (b) provides that once a quorum is present, it continues, notwithstanding withdrawal of a shareholder from a meeting, unless the meeting is adjourned under circumstances where a new record date is or must be set. This latter provision is an addition to existing Georgia law.

The language "other than solely to object to holding the meeting or transacting business at the meeting" was added to the Model Act version of subsection (b). It follows the language of Section 14-2-706(b), permitting a shareholder to make a special appearance for purposes of objecting to the lack of notice or defective notice without being counted for purposes of a quorum.

Subsection (c) provides that an action (other than the election of directors, which is governed by Section14-2-728) is approved by a voting group at a meeting at which a quorum is present if the votes cast in favor of the action exceed the votes cast opposing the action. This section changes the traditional rule of former § 14-2-116(b) that an action was approved at a meeting at which a quorum was present if it received the affirmative vote "of the majority of the shares represented at that meeting." The traditional rule in effect treated abstentions as negative votes; the Code treats them truly as abstentions.

Subsection (c) of the Model Act originally permitted supermajority shareholder voting only through the articles of incorporation or the statute. Subsection (c) was amended to refer to supermajority voting requirements imposed in bylaws adopted by shareholders pursuant to Section14-2-1021 of the Code. This follows the general approach of former § 14-2-116(b), which permitted supermajority voting to be imposed in the bylaws; subject, of course to the concurrent power of shareholders and directors to amend bylaws in former § 14-2-176(b). Under old § 14-2-176(c) bylaw amendments could be "locked in" with a supermajority amendment requirement by providing for this in the articles.

Subsection (d) of the Model Act was deleted as surplusage. It duplicates Section 14-2-727(b).

Georgia's fair price statute, formerly § 14-2-235, which now appears as Part 2 of Article 11, permits the board to "opt in" through a bylaw amendment that can only be repealed by a shareholder vote that includes the affirmative vote of a majority of all eligible shares, excluding those held by a related person - a requirement that makes abstentions "no" votes. A similar bylaw election can be made with respect to business combinations under Article 11A that contains restrictions on repeal.

Cross-References Adjourned meeting record date, see § 14-2-707. Amendment of articles of incorporation, see § 14-2-1003. Amendment of bylaws, see Article 10, Part 2. Business combination with interested shareholder, see §§ 14-2-1110 et seq. and14-2-1131 et seq. Bylaw requirements for voting, see § 14-2-1021. Dissolution, see § 14-2-1402. Election of directors, see § 14-2-728. Merger and share exchange, see § 14-2-1103. Multiple voting groups, see § 14-2-726. Proxy voting, see § 14-2-722. Quorum and voting requirements for directors' conflicting interest transactions, see § 14-2-863. Record date, see § 14-2-707. Sale of assets, see § 14-2-1202. Supermajority requirements, see §§ 14-2-727 &14-2-1021. "Voting group" defined, see § 14-2-140.

JUDICIAL DECISIONS

RESEARCH REFERENCES