O.C.G.A. § 14-2-922 (2019)

shareholder agreements, noncompetition agreements, and employment agreements, as well as in established principles of agency and other law. Corporations remain free to address business opportunity matters with respect to such persons, including shareholders in their capacity as such, in advance or otherwise. Subsection (b) is derived from Section 8.70(a) of the Model Act and is a corollary to the general grant of authority in subsection (a). It confirms that an effective disclaimer under subsection (a) forecloses a claim against the director or officer based on the matters disclaimed, whether based on the Code or common law. Subsection (c) describes a procedure available to a director who elects to subject a business opportunity, regardless of whether the opportunity would be classified as an opportunity in which the corporation has an interest, to the disclosure and approval procedures set forth therein. Subsection (c) is intended to make clear that use of the approval procedures described in Section 861 or 862 for director’s conflicting interest transactions provides a safe harbor with respect to the approval process, eliminating any concern that approval of a disclaimer relating to a particular, business opportunity is ineffective due to, for example, participation in the vote on the disclaimer by a director who may participate in the opportunity. As subsection (f ) makes clear, failure to follow the procedures in subsection (c) would not taint a particular disclaimer or imply that the director should have presented an opportunity to the corporation. In the case of advance disclaimers with respect

CORPORATIONS & PARTNERSHIPS to particular classes or categories of business opportunities, particularly if given when a specific opportunity may not yet exist, compliance with the disclosure concepts contemplated by subsection (c) would generally not be possible or meaningful. The efficacy and consequences of disclaimers approved outside the parameters of the safe harbor provision of subsection (c) would be governed by the rules otherwise applicable to corporate decisions, including, as noted above, any applicable duties of directors approving the disclaimer. The safe harbor provided is as broad as that provided for a director’s conflicting interest transaction in Code Section 14-2-861: if the director makes required disclosure of the facts specified and the corporation’s interest in the opportunity is disclaimed by action by qualified directors under subsection (c)(1) or shareholder action under subsection (c)(2), the director has foreclosed any claim of breach of the duty of loyalty and may not be subject to equitable relief, damages or other sanctions if the director thereafter takes the opportunity for his or her own account or for the benefit of another person. As a general proposition, disclaimer by action by qualified directors under subsection (c)(1) must meet all of the requirements provided in Code Section 14-2-862 with respect to a director’s conflicting interest transaction if the business opportunity were a director’s conflicting interest transaction and disclaimer by shareholder action under subsection (c)(2) must likewise comply with all of the requirements for shareholder action under Code Section 14-2-863. Note, however, one important difference. In contrast to director or shareholder action under Code Sections 14-2-862 and 14-2-863, which employ Code Section 14-2-860’s definition of ‘‘required disclosure,’’ subsection (c) instead requires the disclosure to those acting for the corporation of ‘‘all material facts concerning the business opportunity that are then known to the director.’’ As a technical matter, Code Section 14-2-860 calls for, in part, disclosure of ‘‘the existence and nature’’ of the director’s conflicting interest - that information is not only non-existent but irrelevant for purposes of subsection (c). But there is another consideration justifying replacement of the Code Section 14-2-860 definition. In the case of the director’s conflicting interest transaction, the director proposing to enter into a transaction with the corporation has presumably completed due diligence and made an informed judgment respecting the matter; accordingly, that interested director is in a position to disclose ‘‘all facts known to the director respecting the subject matter of the transaction that a director free of such conflicting interest would reasonably believe to be material in deciding whether to proceed with the transaction.’’ The conflicted director, placing himself or herself in the independent director’s position, should be able to deal comfortably with the objective materiality standard. In contrast, the director proffering a business opportunity will often not have undertaken due diligence and made an informed judgment to pursue the opportunity following a corporate disclaimer. Thus, the disclosure obligation of subsection (c) requires only that the director reveal all material facts concerning the business opportunity that, at the time when disclosure is made, are known to the director. The safe-harbor procedure shields the director even if a material fact regarding the business opportunity is not disclosed, so long as the proffering director had no knowledge of such fact. In sum, the disclosure requirement for subsection (c) must be and should be different from that called for by the provisions of Article 8, part 6. Subsection (d) of Code Section 14-2-870, which has no counterpart in the Model Act, describes a safe harbor for officers comparable to that available to directors under subsection (c). Subsection (d) is based on Code Section 14-2-864, which restored the safe harbor for conflicting interest transactions between the corporation and its officers formerly provided by O.C.G.A. § 14-2-155 (1982). Because Code Section 14-2-864 specifically provides a safe harbor for officer’s conflicting interest transactions, it was feared that negative implications might arise were similar protections not provided by new Code Section 14-2-870 for business opportunities. The discussion of subsection (c) above applies equally to subsection (d). Subsection (e), which has no counterpart in the Model Act, is designed to deal, in a manner similar to subsection (b) of Code Section 14-2-862, with situations in which a director or officer is not able to comply fully with the disclosure requirements of subsection (c) or (d) because of an extrinsic duty of confidentiality. Under certain circumstances, subsection (e) makes it possible for such a matter to be brought to the board or shareholders for consideration under subsection (c) or (d) and thus enable both the company and the director or officer to secure the protection afforded by subsection (c) or (d), as the case may be, for the business opportunity even though the director or officer cannot make the full disclosure usually required by those subsections. To comply with subsection (e), the director or officer must inform the directors or shareholders who vote on the disclaimer of the nature of the duty of confidentiality (e.g., inform them that it arises out of an attorney-client privilege or a duty as a director of another company that prevents him or her from making the disclosure called for by subsection (c) or (d)), and disclose all material facts concerning the business opportunity that are then known to the director to the extent such disclosure is not violative of such duty. Subsection (f ) reflects a fundamental difference between the coverage of Parts 6 and 7 of Article 8. Because Part 6 provides an exclusive definition of ‘‘director’s conflicting interest transaction,’’ any transaction meeting the definition that is not approved in accordance with the provisions of Part 6 is not entitled to its safe harbor. Unless the interested director can, upon challenge, establish the transaction’s fairness, the director’s conduct is presumptively actionable and subject to the full range of remedies that might otherwise be awarded by a court. In contrast, the concept of ‘‘business opportunity’’ under Code Section 14-2-870 is not defined, but is intended to refer generically to any business opportunity in a broad sense, with no implication that the corporation has or might have an interest therein of any type. This approach recognizes that, given the vagueness of the judicially-created corporate opportunity doctrine and related director and officer duties with respect to business opportunities, a director or officer might be inclined to seek safe-harbor protection under Code Section 14-2-870 before pursuing an opportunity that someone might argue at a later point was one that the director or officer should have presented to the corporation. By the same token, a director or officer might conclude that under applicable law the corporation has no cognizable interest in a particular business opportunity and that participation in it does not violate any duty and might choose to pursue it without seeking a disclaimer by the corporation under Code Section 14-2-870. Accordingly, subsection (f ) provides that a decision not to employ the procedures of Code Section 14-2-870 neither creates any negative inference nor alters the burden of proof in any subsequent proceeding seeking damages or equitable relief based upon an alleged misappropriation of or participation in a particular business opportunity.

ARTICLE 9 CLOSE CORPORATIONS