O.C.G.A. § 14-2-870 (2019)
Procedures for disclaimer of business opportunities
(a) A corporation may disclaim, in its articles of incorporation or bylaws or by action of its shareholders or board of directors, any interest of the corporation in, or in being offered, or in excluding directors or officers from taking advantage of or participating in, specific business opportunities or classes or categories of business opportunities that are, have been, or may be in the future presented to the corporation or to one or more of its directors or officers. For purposes of this part, the terms ‘‘director’’ and ‘‘directors’’ include a person or persons other than directors to the extent discretion or powers of the board of directors are vested in such person or persons pursuant to Code Sections 14-2-732, 14-2-920, or 14-2-922.
(b) A director’s or officer’s taking advantage of, or participating in, directly or indirectly, a specific business opportunity may not be the subject of equitable relief, or give rise to an award of damages or other sanctions against the director or officer, in a proceeding by a shareholder or by or in the right of the corporation on the ground that such opportunity should have been first offered to the corporation or that the corporation had an interest in, or in being offered, or in excluding the director or officer from taking advantage of or participating in, such opportunity, to the extent the corporation has disclaimed any such interest with respect to such business opportunity pursuant to subsection (a) of this Code section, either with respect to the specific business opportunity or with respect to a class or category of business opportunities that includes such opportunity.
(c) Action by the shareholders or board of directors of the corporation approving a disclaimer pursuant to subsection (a) of this Code section that applies to a director with respect to a specific past, present, or future business opportunity shall be effective for all purposes if the director brings such opportunity to the attention of the corporation (if such opportunity is not known to the corporation) and:
(1) Such disclaimer is approved by qualified directors in compliance with the procedures set forth in Code Section 14-2-862, as if the decision being made concerned a director’s conflicting interest transaction; or
(2) Such disclaimer is approved by shareholders’ action taken in compliance with the procedures set forth in Code Section 14-2-863, as
CORPORATIONS & PARTNERSHIPS if the decision being made concerned a director’s conflicting interest transaction; except that, rather than making ‘‘required disclosure’’ as defined in Code Section 14-2-860, in each case the director shall have made prior disclosure to those approving such disclaimer on behalf of the corporation of all material facts concerning the business opportunity that are then known to the director, subject to subsection (e) of this Code section, and that a ‘‘qualified director’’ is a director who, at the time action is to be taken under paragraph (1) of subsection (c) of this Code section, would be a qualified director under subsection (d) of Code Section 14-2-862 if the business opportunity were a director’s conflicting interest transaction.
(d) Action by the board of directors or shareholders of the corporation approving a disclaimer pursuant to subsection (a) of this Code section that applies to an officer with respect to a specific past, present, or future business opportunity shall be effective for all purposes if the officer brings such opportunity to the attention of the corporation (if such opportunity is not known to the corporation) and such disclaimer is approved by the board of directors or shareholders in compliance with the procedures set forth in Code Section 14-2-864, as if the decision being made concerned an officer’s conflicting interest transaction, except that, rather than making ‘‘required disclosure’’ as defined in Code Section 14-2-864, in each case the officer shall have made prior disclosure to those approving such disclaimer on behalf of the corporation of all material facts concerning the business opportunity that are then known to the officer, subject to subsection (e) of this Code section.
(e) Notwithstanding subsection (c) or (d) of this Code section, a director or officer is not obligated to make prior disclosure to those approving a disclaimer on behalf of the corporation pursuant to subsection (c) or (d) of this Code section of all material facts concerning the business opportunity subject to such disclaimer that are then known to the director or officer to the extent that the director or officer reasonably believes that doing so would violate a duty imposed under law, a legally enforceable obligation of confidentiality, or a professional ethics rule, provided that such director or officer discloses to those acting on behalf of the corporation:
(1) All information required to be disclosed that is not so violative; and
(2) The nature of the director’s or officer’s duty not to disclose the confidential information.
(f ) In any proceeding seeking equitable relief or other remedies based upon an alleged improper taking advantage of or participation in a business opportunity by a director or officer, directly or indirectly, the fact that the director or officer did not employ the procedures described in this Code section before taking advantage of the opportunity shall not:
(1) Create an inference that the opportunity should have been first presented to the corporation, that the corporation had an interest in, or in being offered, or in excluding the director or officer from taking advantage of or participating in, such opportunity or that the director or officer has or will have appropriated the opportunity in violation of his or her duties by taking advantage of or participating in the opportunity; or
(2) Alter the burden of proof otherwise applicable to establish that the director or officer breached a duty to the corporation in the circumstances.
History
(Code 1981, § 14-2-870, enacted by Ga. L. 2016, p. 225, § 1-11/SB 128; Ga. L. 2017, p. 774, § 14/HB 323.)
Annotations
COMMENT Source: 1984 Model Act § 8.70, added by amendment, proposed, 59 Bus. Law. 569 (2004), adopted, 60 Bus. Law. 943 (2005); 1984 Model Act § 1.43, added by amendment, proposed, 60 Bus. Law. 341 (2004), adopted, 60 Bus. Law. 943 (2005); Del. Code Ann. tit. § 122(17). New Code Section 14-2-870 is generally based on Model Act §8.70 and statutes in various states that address the power of a corporation to disclaim any interest the corporation may have in certain business opportunities. Mississippi, Virginia, Wyoming, Maine, Connecticut, Iowa and the District of Columbia have adopted versions of Model Act § 8.70. See Miss. Code Ann. § 79-4-8.70 (West. 1999); Va. Code Ann. § 13.1-691.1 (West. 2007); Wyo. Stat. Ann. § 17-16-870 (West. 2007); Me. Rev. Stat. Ann. Tit. 13-C, § 881 (West. 2005); Conn. Gen. Stat. § 33-785 (West. 2005); Iowa Code Ann. § 490.870 (West. 2009); D.C. Code § 29-306.80 (West. 2001). Those statutes generally address the procedure by which the corporation may disclaim any interest in a specific business opportunity presented to a director. The legislatures of Delaware, Missouri, Oklahoma, Texas, New Jersey and Puerto Rico have also adopted statutory provisions addressing business opportunities, but have generally only confirmed the corporation’s fundamental power to renounce an interest in a business opportunity, including in advance of the existence of the opportunity, without addressing procedural aspects of the renunciation in detail. See Del. Code Ann. tit. 8 §122 (17); Mo. Ann. Stat. § 351.385 (20) (West. 2001); Okla. Stat. Ann. tit. 18, § 1016(17) (West. 1999); Tex. Business Organizations Code Ann. § 2.101(21) (West. 2008); N.J. Stat. Ann. § 14A:3-1 (West. 2003); 2009 P.R. Laws Act 164. New Code Section 14-2-870 combines these approaches, covering not only the corporation’s power to disclaim an interest in an opportunity, but also providing ‘‘safe harbor’’ procedures for approving disclaimers with respect to particular opportunities. New Code Section 14-2-870 generally uses the Model Act’s terminology, referring to a ‘‘disclaimer,’’ rather than a ‘‘renunciation,’’ as used in some of the statutes adopted in other states, but these terms were deemed synonymous and broadly to
CORPORATIONS & PARTNERSHIPS
encompass corporate action forgoing a business opportunity whether expressly styled as a disclaimer or renunciation or in other terms (e.g., approval, authorization, waiver). This Section also follows the Model Act in referring to disclaimers of an ‘‘interest’’ in an opportunity. This term is intended to refer to any right or entitlement of the corporation with respect to an opportunity under any applicable test for determining that a business opportunity is one for which a director or officer could be liable for misappropriation. Subsection (a) confirms the basic power of the corporation to disclaim, in its articles of incorporation or bylaws or by action of its shareholders or board, the corporation’s interest in a specific business opportunity or in particular classes or categories of opportunities. Among other things, subsection (a) clarifies that a corporation may determine in advance whether an opportunity within a particular class or category of business opportunities is a corporate opportunity to be presented to the corporation, rather than to address such opportunities as they arise. This will allow corporations to attract, for example, directors who might be reluctant to jeopardize future business opportunities through service on the board without an advance agreement clarifying any obligation they might have to present opportunities to the corporation or to refrain from pursuing opportunities presented to them. Without an advance agreement, a corporation could have difficulty in attracting directors engaged in venture capital financing, financial advisory services or other businesses in which they receive, in the ordinary course of business, a variety of business opportunities from third parties with no relationship to the corporation. Subsection (a) is not intended to change existing law in this area, but to confirm and make explicit the corporation’s power to enter into these advance agreements. Such clarification will also facilitate use of a corporation, as opposed to a limited liability company or other entity, as a business vehicle where desired. Limited liability companies and various other entities are already free to eliminate or define the duties of their members and managers with respect to business opportunities. See e.g., O.C.G.A. §§ 14-11-305(4)(A)(limited liability company); 14-9-108(b)(1) (limited partnership). Subsection (a) also confirms that the corporation has the power to determine these matters after the fact, permitting the corporation to disclaim any arguable interest it may have had in a business opportunity in which a director or officer is participating. This deviates from Model Act § 8.70(a), which would only allow a business opportunity disclaimer before a director has become obligated in connection with an opportunity. Nothing currently restricts such after the fact disclaimers, and permitting them is consistent with the authority in Code Sections 14-2-862, 14-2-863 and 14-2-864, which permit after the fact approvals of director’s conflicting interest transactions and officer’s conflicting intent transactions. It was felt that a restriction on after the fact disclaimers would unnecessarily limit the discretion of the board, particularly since the need for board disclaimers might not be apparent until after the director or officer had become committed to participate in the business opportunity. After the fact board and shareholder ratification of corporate acts is commonplace, and the proposed authority to permit after the fact disclaimers in the business opportunity arena is considered comparable. Subsection (a) is not intended to affect the level of judicial scrutiny that would apply to a board’s action in disclaiming the corporation’s interest in a business opportunity or in permitting a director or officer to participate in an opportunity, which will continue to be determined based on compliance with the directors’ normal duties. See Code Section 14-2-830. The classes or categories of business opportunities referred to in subsection (a) may be specified by any manner of defining or delineating business opportunities or the corporation’s or any other party’s entitlement thereto or interest therein,
including, without limitation, by line or type of business, identity of the originator of the business opportunity, identity of the party or parties to or having an interest in the business opportunity, identity of the recipient or potential recipient of the business opportunity, periods of time or geographical location. A number of the statutes adopted in other states expressly authorize renunciation of opportunities presented to shareholders or other persons in addition to directors and officers. Subsection (a) covers shareholders and such other persons only to the extent that the discretion or powers of the board of directors are vested in such persons pursuant to Code Sections 14-2-732, 14-2-920 or 14-922. The Code does not create or codify the common law corporate opportunity doctrine applicable to directors and officers or define its parameters. Nevertheless, certain Code provisions touch on issues that relate to the application of that doctrine to directors and officers, such as by limiting the corporation’s power to exculpate a director for appropriating a business opportunity of the corporation in violation of his or her duties. See O.C.G.A. § 14-2-202(b)(4). See also O.C.G.A. §§14-2-831(a)(1)(c), 14-2-856(b)(1), and 14-2-857(a)(2)(A)). Under these circumstances, it is appropriate to make the clarifications intended by this new subsection (a), confirming the corporation’s power to disclaim an interest in certain business opportunities, specifically or by type, in favor of directors and officers. On the other hand, a corporation would not normally have any interest in opportunities available to a shareholder in the shareholder’s capacity as such, except to the extent that the discretion or powers of the board of directors are vested in the shareholder pursuant to Code Sections 14-2-732 or 14-2-920 or such corporation is a statutory close corporation operating without a board of directors under Code Section