Application of Business Corporation Code and Professional Corporation Act

(a) This chapter applies to statutory close corporations to the extent not inconsistent with the provisions of this article. (b) This article applies to a professional corporation organized under Chapter 7 of this title, known as the ‘‘Georgia Professional Corporation Act,’’ whose articles of incorporation contain the statement required by Code Section 14-7-3, except insofar as the ‘‘Georgia Professional Corporation Act’’ contains inconsistent provisions, if such professional corporation’s articles of incorporation also contain the statement required by subsection (a) of Code Section 14-2-902. (c) This article does not repeal or modify any statute or rule of law that is or would apply to a corporation that is organized under this chapter or Chapter 7 of this title, known as the ‘‘Georgia Professional Corporation Act’’ and that does not elect to become a statutory close corporation under Code Section 14-2-902. (Code 1981, § 14-2-901, enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1995, p. 482, § 6.) COMMENT Source: Model Statutory Close Corporation Supplement, § 2. There was no comparable comprehensive set of provisions in former Georgia law. Previously § 14-2-120(b) expressly validated shareholders’ agreements that varied the form of management of the corporation (much as Code § 14-2-731(c) does), and § 14-2-141(a) permitted the board of directors to consist of one or two persons, rather than three, under specified conditions. Former § 14-2-142 permitted the court to appoint provisional directors. Provisions in the Georgia Business Corporation Code apply to all statutory close corporations except to the extent they are not consistent with the provisions in this article. Whenever this article is silent on an issue, the corresponding provision of the remainder of the Code applies. One provision of the Code only becomes applicable upon election of statutory close corporation status. Section 14-2-627 provides that corporations formed under the Code do not have preemptive rights unless they elect them in their articles of 314 14-2-902 incorporation. However, under Section 14-2-627(b) election of statutory close corporation status is treated as an election of preemptive rights, unless they are denied in the articles of incorporation. Under subsection (b) the provisions of this article apply to all professional corporations that elect to be statutory close corporations. Subsection (c) is derived from section 356 of the Delaware Corporation Law, and makes clear that enactment of this article does not affect the law applicable to corporations, including closely held corporations, that are not statutory close corporations. Election of statutory close corporation status is not intended to provide the exclusive means of varying the corporate form, where authority to do so exists under other provisions of the Code, or has previously been a normal incident of Georgia corporations. This article has independent legal significance, as does each other provision of the Code. See Zion v. Kurtz, 50 N.Y.2d 92, 405 N.E.2d 681 (Ct. App. 1980) (applying Delaware law), for a judicial approach consistent with the intent of this article. The Code departs from the Model Close Corporation Supplement in Sections 14-2-731(c) and 801(a) to make clear that the flexibility provided by election of statutory close corporation status can effectively be obtained by provisions in articles of incorporation, bylaws or shareholder agreements, provided all shareholders approve in writing, and provided the corporation’s shares are not regularly traded in public securities markets. Cross-References Election of statutory close corporation status, see § 14-2-902. Business Corporation Code definitions, see § 14-2-140. Shareholders’ agreements to vary management of the corporation, see §§ 14-2-731 and 14-2-801. 14-2-902. Definition and election of statutory close corporation status. (a) A statutory close corporation is a corporation whose articles of incorporation contain a statement that the corporation is a statutory close corporation. (b) A corporation having 50 or fewer shareholders may become a statutory close corporation by amending its articles of incorporation to include the statement required by subsection (a) of this Code section. The amendment must be approved by the holders of at least two-thirds of the votes of each class or series of shares of the corporation, voting as separate voting groups, whether or not otherwise entitled to vote on amendments. If the amendment is adopted, a shareholder who voted against the amendment is entitled to assert dissenters’ rights under Article 13 of this chapter. (Code 1981, § 14-2-902, enacted by Ga. L. 1988, p. 1070, § 1.) COMMENT Source: Model Statutory Close Corporation Supplement, § 3. There was no counterpart in former Georgia law. Special provisions validating shareholders’ agreements appeared in former § 14-2-120(b), and applied only to corporations with shares not listed on a national securities exchange or generally traded in the 315 14-2-902 CORPORATIONS & PARTNERSHIPS 14-2-902 markets maintained by securities dealers or brokers. See Section 14-2-731 for comparable provisions for corporations not electing statutory close corporation status. This article is designed to be entirely elective. Those corporations choosing to be governed by its provisions, in whole or in part, must elect close corporation status in their articles of incorporation. This article has no effect on corporations not electing statutory close corporation status, and its provisions do not limit the authority of such corporations to vary their form by provisions in their articles of incorporation, bylaws, or agreements among shareholders. The provisions of this article are designed to provide a standard set of provisions suitable for most closely held corporations. They, too, are subject to variation by agreement among the contracting parties. All corporations, except those with more than 50 shareholders at the time of the election, are eligible to elect statutory close corporation status under this article. The election is made by including in the articles of incorporation a statement that the corporation is a statutory close corporation. An electing corporation continues to be governed by this article unless the shareholders revoke the election. A new corporation may elect this status, regardless of the number of subscribers for shares. Thereafter, regardless of the number of shareholders, it may continue to act as a statutory close corporation. Subsection (b), in addition to limiting election of this status by existing corporations to those with 50 or fewer shareholders, imposes special voting rules for amending the articles of incorporation for this election. The amendment must be approved by holders of at least two thirds of the votes of each class or series, voting as a separate voting group. All classes and series are entitled to vote on this amendment, in contrast to the rules provided in Section 14-2-1004 of the Code for voting on other amendments. Holders of shares voted against the amendment are expressly granted dissenters’ rights under Article 13, provided they comply with the conditions of that article. Cross-References Amendment of articles of incorporation, see Article 10, Part 1. Application to existing corporations, see § 14-2-950. Articles of incorporation, see § 14-2-202. Dissenter’s rights, see Article 13. Filing fees, see § 14-2-122. Number of shareholders, see § 14-2-142. Voting by voting groups: amendment of articles of incorporation, see § 14-2-1004; generally, see § 14-2-726. ‘‘Voting group’’ defined, see § 14-2-140.