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 note on 2000 amendment of O.C.G.A. § 14-2-731, see 17 Ga. St. U. L. Rev. 46 (2000).

COMMENT

Source: Model Act, § 7.31. This replaces former § 14-2-120.

Subsection (a) explicitly recognizes agreements among two or more shareholders as to the voting of shares and makes clear that these agreements are not subject to the rules relating to a voting trust. These agreements are often referred to as "pooling agreements." The only formal requirements are that they be in writing and signed by all the participating shareholders; in other respects their validity is to be judged as any other contract. They are not subject to the 10-year limitation applicable to voting trusts. Subsection (a) of the Model Act was amended to change the first sentence from:

"Two or more shareholders may provide for the manner in which they will vote their shares by signing an agreement for that purpose."

This was an attempt to clarify that a voting agreement may, by its terms, bind transferees of shares, subject, of course, to proper notice to bona fide purchasers for value under subsection (e) and Article 8 of the U.C.C.

Subsection (b) provides that voting agreements may be specifically enforceable. A voting agreement may provide its own enforcement mechanism, as by the appointment of a proxy to vote all shares subject to the agreement; the appointment may be made irrevocable under Section 14-2-722. If no enforcement mechanism is provided, a court may order specific enforcement of the agreement and order the votes cast as the agreement contemplates. This section recognizes that damages are not likely to be an appropriate remedy for breach of a voting agreement, and also avoids the result reached in Ringling Bros. Barnum & Bailey Combined Shows v. Ringling, 53 A.2d 441 (Del. 1947), where the court held that the appropriate remedy to enforce a pooling agreement was to refuse to permit any voting of the breaching party's shares.

Subsections (c)-(f) preserve the approach of former § 14-2-120, and are designed to allow shareholders, by agreement, to obtain the flexibility of the Close Corporation article (Article 9) without electing statutory close corporation status.

Subsection (c) provides that no agreement in a non-publicly held corporation is invalid as an attempt to restrict the discretion of the board of directors. The definition of a publicly held corporation is broader than in former law, including not only those corporations whose shares are "generally traded," but also those that are "regularly quoted" in the pink sheets by securities dealers, regardless of the volume or regularity of trading activity. The language of former law has also been broadened to include provisions found in Code Section 14-2-920, dealing with statutory close corporations, by adding the phrase, "on the ground that it eliminates a board of directors, authorizes director proxies or weighted voting rights for directors, is an attempt to restrict the discretion or powers of the board of directors." This permits shareholder agreements to vary the usual corporate form in any way permitted for a statutory close corporation, and to deal with matters normally within the powers of directors, as long as no harm is brought or threatened to non-signing shareholders or third parties, such as creditors.

Subsection (d) provides that the duration of voting agreements is limited to 20 years, and where the agreement fails to specify a duration, the default rule is 20 years.

Subsection (e) provides that transferees are only bound if on notice of the voting agreement, which can be provided with a legend on the certificate.

Subsection (f) states that where a voting agreement covers powers normally exercised by the board, the directors are relieved of liability, and corresponding liability is imposed on the shareholders assenting to the acts taken.

Subsections (g) and (h) are taken from Code Section 14-2-920(f) and (g), which governs electing statutory close corporations, and are intended to apply the same rules to shareholder agreements concerning limiting or eliminating the board of directors for all corporations.

Note to 1989 Amendment Subsection (c) was amended to replace "between" with "among." Subsection (e) was amended by adding, at the end of the subsection, the phrase, "or upon the written statement required for shares without certificates by Code Section 14-2-626(b)." This corrects the earlier omission of any reference to the procedure for giving notice with respect to certificateless shares, and is consistent with the notice required for share transfer restrictions under Code Section 14-2-627(b).

Subsection (e) was amended to provide a notice procedure for uncertificated shares. This notice parallels that contained in Code section 14-2-627(b) for share transfer restrictions.

The 1989 amendment changed subsection (f) to add "board of" prior to the first reference to "directors."

Note to 2000 Amendment Source: Model Act, § 7.31. This Code section is based on the Model Act, § 7.31, which was revised subsequent to the enactment of former Code Section 14-2-731. Consistent with the revised Model Act, former subsections 14-2-731(c)-(h), concerning shareholder agreements creating alternative forms of corporate governance, are now dealt with in Code Section 14-2-732.

Subsection (c) differs from Model Act § 7.31 in that it retains the duration limitations for voting agreements that were found in former Code Section 14-2-731(d). Under subsection (c), the maximum duration for any voting agreement is 20 years. A voting agreement may provide for a lesser term, but if the agreement states a term greater than 20 years, or no term at all, the agreement is still valid, and the duration will automatically be 20 years. Model Act § 7.31 does not limit the term for a voting agreement.

Cross-References Agreements among shareholders of close corporations, see § 14-2-920. Duties of board of directors, see § 14-2-801. Irrevocable proxies, see § 14-2-722. Shareholder agreements, see § 14-2-732. Voting trust, see § 14-2-730.

JUDICIAL DECISIONS

RESEARCH REFERENCES