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(Code 1981, §14-2-803, enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1989, p. 946, § 31; Ga. L. 2016, p. 225, § 1-2/SB 128.)
The 2016 amendment, effective July 1, 2016, substituted the present provisions of subsection (b) for the former provisions, which read: "The articles of incorporation or bylaws may authorize the shareholders or the board of directors to fix or change the number of directors or may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or, if the articles or bylaws so provide, by the board of directors."
- For article, "The Dynamics Among Shareholders, Directors, and Officers in Corporate Organizations Under Georgia Law," see 37 Mercer L. Rev. 79 (1985).
Source: 1984 Model Act § 8.03, amendment proposed, 54 Bus. Law. 1233 (1999), adopted, 55 Bus. Law. 1247 (2000). This replaces provisions formerly found in § 14-2-141.
Note to 2016 Amendment This Note to 2016 Amendment supersedes and replaces the Comment to Code Section 14-2-803 and the Note to 1989 Amendment. The 2016 amendments to Subsection (b) of Code Section 14-2-803, which were adopted for purposes of conformity with the Model Act, simplify and modernize the statutory rules relating to the number and election of directors. As a result of the changes in subsection (b), a corporation has the ability to achieve the combination of flexibility for the board of directors and protection for the shareholders that it deems appropriate. The revised provision states that the number of directors may be increased or decreased in the manner provided in the articles of incorporation or in the bylaws.
Section 14-2-803 prescribes rules for the determination of the size of the board of directors of corporations that have not dispensed with a board of directors under Section 14-2-801(b), and for changes in the size of the board of directors once it is established.
Subsection (a) provides explicit permission for corporations to have any number of directors. Former § 14-2-141 required a board of directors to consist of at least three directors, unless there were fewer than three shareholders.
Section (b) provides a corporation with the freedom to design its articles of incorporation and bylaw provisions relating to the size of the board with a view to achieving the combination of flexibility for the board of directors and protection for shareholders that it deems appropriate. The articles of incorporation could provide for a specified number of directors or a board of a variable size within a range, thereby requiring shareholder action to change the fixed size of the board, to change the limits established for the size of the variable-range board or to change from a variable-range board to a fixed board or vice versa. An alternative would be to have the bylaws provide for a specified number of directors or a variable range for the board of directors. Any change would be made in the manner provided by the bylaws. The bylaws could permit amendment by the board of directors or the bylaws could require that any amendment, in whole or in part, be made only by the shareholders in accordance with Section 14-2-1020(a). Typically the board of directors would be permitted to change the board size within the established variable range. If a corporation wishes to ensure that any change in the number of directors be approved by shareholders, then an appropriate restriction would have to be included in the articles or bylaws.
Experience has shown, particularly in larger corporations, that it is desirable to grant the board of directors authority to change its size without incurring the expense of obtaining shareholder approval. Similarly, it may be desirable for the ability to change the size of the board of directors to rest solely with the board of directors. In closely held corporations, shareholder approval for a change in the size of the board of directors may be readily accomplished if that is desired. In many closely held corporations a board of directors of a fixed size may be an essential part of a control arrangement. In these situations, an increase or decrease in the size of the board of directors by even a single member may significantly affect control. In order to maintain control arrangements dependent on a board of directors of a fixed size, the power of the board of directors to change its own size must be negated. This may be accomplished by fixing the size of the board of directors in the articles of incorporation or by expressly negating the power of the board of directors to change the size of the board, whether by amendment of the bylaws or otherwise. See Section 14-2-1020.
Subsection (c) is also an addition to the Model Act, and restores the protection of cumulative voting rights formerly provided by § 14-2-141(b).
Subsection (d) makes it clear that all directors are elected annually unless the terms of members of the board are staggered. See Section 14-2-805 and its Comment.
Cross-References Annual shareholders' meeting, see § 14-2-701. Articles of incorporation, see § 14-2-202 and Article 10, Part 1. Bylaws, see § 14-2-206, Article 10, Part 2. Staggered terms of directors, § 14-2-806. Cumulative voting, see § 14-2-728. Deadlocked board of directors as ground for dissolution, see § 14-2-1430. Deadlocked board of directors as ground for judicial relief in close corporation, see § 14-2-940. Staggered terms, see § 14-2-806. Terms generally, see § 14-2-805.
- In light of the similarity of the statutory provisions, decisions under former Code 1933, § 22-702 and former Code Section 14-2-141, which were repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, are included in the annotations for this Code section.
- The number of stockholders of a corporation is based on in whom legal title to that stock is vested. Trauner v. Trust Co. Bank (In re Valles Mechanical Indus., Inc.), 21 Bankr. 542 (Bankr. N.D. Ga. 1982) (decided under former Code 1933, § 22-702).
- Action by two directors, one of whom held 20 percent of the corporation's stock and the other of whom held 80 percent of the stock as trustee for two beneficiaries, was valid since the trustee and not the beneficiaries had legal title to the stock, and therefore the number of directors was not less than the number of stockholders. Trauner v. Trust Co. Bank (In re Valles Mechanical Indus., Inc.), 21 Bankr. 542 (Bankr. N.D. Ga. 1982) (decided under former Code 1933, § 22-702).
- As owners of more than two-thirds of the outstanding stock, the other three shareholders under the shareholders' agreement and by law had the right to vote a member of the board of directors out of office. Matthews v. Tele-Systems, Inc., 240 Ga. App. 871, 525 S.E.2d 413 (1999).
- 18B Am. Jur. 2d, Corporations, §§ 1148 et seq., 1159.
- 19 C.J.S., Corporations, §§ 522, 532, 533.
- Eligibility as corporate director of one who was not stockholder in fact, or not stockholder of record, at time of election, but who afterwards became such, 130 A.L.R. 156.
Provision authorizing directors to fill vacancies as applicable to newly created directorships, 6 A.L.R.2d 174.
Construction, application, and effect of constitutional provisions or statutes relating to cumulative voting of stock for corporate directors, 43 A.L.R.2d 1322.
Construction and effect of corporate bylaws or articles relating to change in number of directors, 3 A.L.R.3d 623.
Validity of agreement in conjunction with sale of corporate shares that majority of directors will be replaced by purchaser's designees, 13 A.L.R.3d 361.
No results found for Georgia Code 14-2-803.