COMMENT

Source: Model Statutory Close Corporation Supplement, § 21. There was no counterpart in former Georgia law. Former § 14-2-150 permitted the articles of incorporation to provide that all officers or that specified officers shall be elected by the shareholders.

Subsection (a) permits a statutory close corporation to dispense with a board of directors if a statement to that effect is included in its articles of incorporation. See the Comment to Section 14-2-902. It was derived from the Maryland close corporation statute.

Subsection (c)(1) provides that the shareholders of a statutory close corporation operating without a board of directors have the usual duties of directors and must either hold a meeting or join in a written consent to initiate or to approve action required by statute to be taken by directors.

Subsection (c)(2) provides that the shareholder vote on action normally requiring director approval is tallied in the same manner as at any meeting of shareholders, i.e., the vote is tallied by shares rather than per capita by individual shareholders. This rule may be changed by an appropriate provision in the articles of incorporation. A weighted voting plan that gives one or more shareholders either a general veto power or the power to veto in designated cases is also permissible. If a corporation has different classes or series of shares with voting rights or the Code grants voting rights to all classes or series of shares on a particular issue, either together or as separate voting groups, the requisite vote of the various classes or series of shares must be obtained to validate the action. Shareholder action taken under subsection (c)(2) satisfies any requirement for director approval of proposed action. Subsection (c)(4) restates this rule for purposes of certificates that must be filed evidencing director approval with governmental officials.

Subsection (c)(3) of the Model Close Corporation Supplement provided that a shareholder was not liable for his act or omission, although a director would be, "unless the shareholder was entitled to vote on the action." This was replaced with language intended to provide those persons exercising the powers of the board with the liabilities of the board, and under the same circumstances. It follows the general approach of Section 14-2-920(c).

Subsection (c)(5) authorizes "designated directors" to satisfy a party dealing with the corporation who requests that certain documents be signed or approved by the "directors." Some banks and creditors have in the past refused to accept documents that do not meet specified corporate formalities. This subsection creates an admittedly artificial but practical method of satisfying this objection. The designated directors do not expose themselves to additional liability by signing documents as designated directors.

Although unanimous approval is necessary to elect to dispense with a board of directors, the election can be terminated under subsection (d) by a two-thirds vote of all shares. Operating without a board of directors is such a radical departure from traditional corporate law that it should not be undertaken unless all the shareholders agree because additional liabilities may be incurred as a result of the election. Terminating the election, however, reinstates the statutory requirements for a board of directors, and a two-thirds vote, which is the voting standard used in this article for most fundamental structural changes, seems sufficient.

If a corporation without a board of directors terminates its status as a statutory close corporation, it must immediately elect directors unless it has 50 or fewer shareholders and chooses to operate without a board under MBCA § 14-2-801. This election, which refers to Section14-2-731, will require consent of all shareholders.

Note to 1989 Amendment The 1989 amendment changed subsection (c)(2) to permit variance in shareholder governance rules to be placed in any document approved by the shareholders, including shareholder-approved bylaws or separate agreements. This is consistent with the treatment of such matters elsewhere in the Code.

Note to 1993 Amendment This amendment was based on Delaware Stat. Ann. tit. 8, § 351(2). It is intended to clarify that when the shareholders are functioning as the directors of the corporation, the provisions generally governing directors apply to them, including procedural requirements such as notice of meetings and quorum requirements.

Cross-References Articles of incorporation: amendment, see Article 10, Part 1; generally, see § 14-2-202. Board of directors: action, see § 14-2-801 et seq.; standards of conduct, see § 14-2-830 et seq. Bylaws: amendment, see Article 10, Part 2; generally, see § 14-2-206. Incorporators, see § 14-2-201. Number of directors, see § 14-2-803. Subscriptions for shares, see § 14-2-620. Voting by voting groups: amendment of articles of incorporation, see § 14-2-1004; generally, see §§ 14-2-725 &14-2-726. "Voting group" defined, see § 14-2-140.

JUDICIAL DECISIONS

RESEARCH REFERENCES