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- For note on 2000 amendment of O.C.G.A. § 14-2-825, see 17 Ga. St. U.L. Rev. 46 (2000).

COMMENT

Source: 1984 Model Act §§ 8.25(a)-(e) amended and 8.25(g) added, proposed, 54 Bus. Law. 1233 (1999), adopted, 55 Bus. Law. 1247 (2000).

Note to 2016 Amendment This Note to 2016 Amendment supersedes and replaces the Comment to Code Section 14-2-825 and the Note to 2000 Amendment. The 2016 amendments to Code Section 14-2-825, which were adopted for purposes of conformity with the Model Act, include revisions designed to simplify the language, to delete the approval of a plan of merger not requiring shareholder approval from the list of non-delegable powers in subsection (d), which was removed from Model Act § 8.25 in 2000, and to add a new subsection (f) to make provision for the replacement of absent or disqualified members of a committee.

Subsection (a) makes explicit the common law power of a board of directors to act through committees of directors and specifies the powers of the board of directors that are nondelegable, that is, powers that only the full board of directors may exercise. Subsection (a) permits a committee to consist of a single director. This accommodates situations in which only one director may be present or available to make a decision on short notice, as well as situations in which it is unnecessary or inconvenient to have more than one member on a committee. The Code leaves it to the discretion and business judgment of the board to determine when and to whom such delegations are prudent. However, certain Code Sections, such as Section 14-2-855, relating to a determination that indemnification is permissible, Section 14-2-744, regarding the maintenance of a derivative suit, and Section 14-2-862, relating to the approval of a director conflicting interest transaction require a committee to consist of at least two directors.

Subsection (b) of the Model Act, which required creation and appointment of a committee to be approved by a majority of the entire number of directors, was deleted from the Code. Such strict provisions could easily create some illegal committees, since boards might not be aware of special voting rules for creation of committees. Thus the Code takes the position that creation and appointment of committees should be governed by the usual rules for board action, which permit action by a majority of a quorum, as provided in § 14-2-824(c), unless other voting rules have been adopted by the corporation for board action under Section14-2-824(a).

Subsection (c) merely applies the usual procedural requirements for board action to committee action. Modification of these rules for particular committees would be permitted to the same extent, and in the same manner, as modification of these rules for board action.

The statement of nondelegable functions set out in subsection (d) is based on the principle that prohibitions against delegation to board committees should be limited generally to actions that substantially affect the rights of shareholders or are fundamental to the governance of the corporation. As a result, delegation of authority to committees under subsection (d) may be broader than mere authority to act with respect to matters arising within the ordinary course of business.

Model Act limitations regarding the authorization of distributions, including dividends, were deleted from the Code. Section 14-2-825(d)(3) is based on Del. Code Ann. tit. 8, § 141(c)(1) and is intended to eliminate any question that a committee of the board, such as a pricing committee, may be authorized by board action to approve an amendment to the articles of incorporation that fixes the designations, preferences, limitations and relative rights of shares under Code Section 14-2-602(a) or increases or decreases the number of shares in a series (but not below the number of such shares then issued) under Code Section 14-2-602(e).

Subsection (e) makes clear that although the board of directors may delegate to a committee the authority to take action, the designation of the committee, the delegation of authority to it, and action by the committee does not alone constitute compliance by a noncommittee board member with the director's responsibility under Section 14-2-830. On the other hand, a noncommittee director also does not automatically incur personal risk should the action of the particular committee fail to meet the standards of conduct set out in Section 14-2-830. The noncommittee member's liability in these cases will depend upon whether the director's conduct was actionable under Section 14-2-830(d).

Section 14-2-825(e) has no application to a member of the committee itself. The standards of conduct applicable to a committee member are set forth in Section 14-2-830.

Section 14-2-825(f) is a rule of convenience that permits the board or the other committee members to replace an absent or disqualified member during the time that the member is absent or disqualified. Unless otherwise provided (for example, in order to maintain a quorum), replacement of an absent or disqualified member is not necessary to permit the other committee members to continue to perform their duties.

Cross-References Amendment of articles of incorporation by board of directors, see § 14-2-1002. Articles of incorporation, see § 14-2-202 and Article 10, Part 1. Bylaws, see § 14-2-206 and Article 10, Part 2. Directors' standards of conduct, see §§ 14-2-830 &14-2-831. Dissolution, see Article 14. Distributions, see § 14-2-640. Duties of board of directors, see § 14-2-801. Indemnification determination and authorization, see § 14-2-855. Issuance of shares, see §§ 14-2-601 &14-2-602. Mergers, see Article 11. Quorum and voting, see § 14-2-824. Reacquisition of shares, see §§ 14-2-603 &14-2-631. Terms of class or series determined by board of directors, see § 14-2-602. Vacancies on board, see § 14-2-810.

JUDICIAL DECISIONS

RESEARCH REFERENCES

PART 3 S TANDARDS OF CONDUCT