2020 Georgia Code
Title 14 - Corporations, Partnerships, and Associations
Chapter 2 - Business Corporations
Article 12 - Sale of Assets
§ 14-2-1202. Sale of Assets Requiring Shareholder Approval

1. A corporation may sell, lease, exchange, or otherwise dispose of all or substantially all of its property (with or without the good will), otherwise than pursuant to Code Section 14-2-1201, on the terms and conditions and for the consideration determined by the corporation's board of directors, if the board of directors proposes and its shareholders approve the proposed transaction.
2. For a transaction to be authorized:
   1. The board of directors shall also transmit to the shareholders a recommendation that the shareholders approve the proposed disposition, unless the board of directors makes a determination that, because of conflicts of interest or other special circumstances, it should either refrain from making such a recommendation or recommend that the shareholders reject or vote against the plan, in which case the board of directors shall transmit to the shareholders the basis for such determination; and
   2. The shareholders entitled to vote must approve the transaction.
3. The board of directors may condition its submission of the proposed transaction, the effectiveness of the proposed transaction, or both on any basis.
4. The corporation shall notify each shareholder entitled to vote of the proposed shareholders' meeting in accordance with Code Section 14-2-705. The notice must also state that the purpose, or one of the purposes, of the meeting is to consider the sale, lease, exchange, or other disposition of all or substantially all of the property of the corporation and contain or be accompanied by a description of the transaction.
5. Unless the articles of incorporation, the bylaws, or the board of directors (acting pursuant to subsection (c) of this Code section) require a greater vote or a vote by voting groups, the transaction to be authorized must be approved by a majority of all the votes entitled to be cast on the transaction.
6. After a sale, lease, exchange, or other disposition of property is authorized, the transaction may be abandoned (subject to any contractual rights) without further shareholder action.
7. A transaction that constitutes a distribution is governed by Code Section 14-2-640 and not by this Code section.

(Code 1981, §14-2-1202, enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1997, p. 1165, § 11; Ga. L. 2004, p. 508, § 19; Ga. L. 2006, p. 825, § 15/SB 469.)

- For article on the definition of a security in light of the 1973 Georgia Securities Act and the need for maximizing investor protection, see 30 Emory L.J. 73 (1981). For article, "Some Distinctive Features of the Georgia Business Corporation Code," 28 Ga. St. B. J. 101 (1991).

Source: Model Act, § 12.02.

Section 14-2-1202 requires the board of directors to propose the sale and then submit the proposal to the shareholders. The original Model Act reference in subsection (a) to sales otherwise than in the usual and regular course of business has been replaced with a reference to Section 14-2-1201, since the "ordinary course of business" exception has been deleted and replaced with a specific list of exceptions to the requirement of a shareholder vote.

Former § 14-2-231(3) provided that the shareholders may authorize the sale, and "may approve or fix, or may authorize the board of directors to fix, any or all of the terms and conditions thereof. . . ." This language suggested that the shareholders retained the power to alter the terms of the plan proposed by the board, and thus to approve an ultimate form of agreement that varied substantially from that approved by the board. In contrast, subsection (a) makes it clear that a corporation may sell only on the terms and conditions determined by the corporation's board of directors. Under the Code the role of the shareholders is only to vote to approve (or disapprove) the proposed transaction, as formulated by the board.

Subsection (b) provides that when proposing an asset sale, the board of directors must make a recommendation to the shareholders that the transaction be approved, unless it elects, because of conflict of interest or other special circumstances, to make no recommendation. If the board of directors so elects, it must describe the conflict or circumstance, and communicate the basis for its election, when presenting the proposed amendment to the shareholders. This parallels Section 14-2-1103(b), including changes to the Model Act language. See the Comment to Section 14-2-1103.

The board of directors may condition its submission of a proposal to the shareholders under subsection (c) on any basis - for example, on its receiving a certain percentage of shareholders' affirmative votes or that specified classes or series of shares, voting by separate voting groups, must approve the transaction or on some other basis; see the discussion of conditional submissions in the Comment to Section 14-2-1003. The disclosure of these conditions, as in disclosure of other matters submitted for shareholder approval, is governed by fiduciary principles of candor.

In subsection (d), the phrase in the Model Act, "whether or not" has been deleted before the words "entitled to vote," consistent with changes in Sections 14-2-1003, 14-2-1103, and elsewhere. See the Comments to Section 14-2-1003 and 14-2-1103.

Subsection (e) requires that the proposed sale, to be approved, must receive the vote of a majority of the outstanding votes entitled by the articles of incorporation to be cast on the proposal. Unlike former § 14-2-231(3), this contemplates that some shares may have more or less than one vote. This is a greater vote than that required for ordinary matters under Section14-2-725.

Former § 14-2-231(3) provided for class voting on asset sales if the resolution contained any provisions that would, if contained in a proposed amendment to the articles, require class voting. Nonvoting classes of shares are not given a statutory right to vote on proposed sales (either as separate voting groups or together with voting shares) by the Code on the theory that classes or series of shares that are made nonvoting by the articles of incorporation generally did not retain a voice in the areas of business the corporation may engage in the future. The articles of incorporation, however, may stipulate that specified classes or series of shares are entitled to vote by separate voting groups. Thus, in the absence of special provision in the articles of incorporation, only the shares of the corporation entitled to vote generally by the articles of incorporation are entitled to vote on sales of substantially all the assets of the corporation. The articles of incorporation may also specify that a greater percentage of votes is required to approve the proposal than specified in Section14-2-1202. If the asset sale involves a "business combination" with an "interested shareholder" within the meaning of Section14-2-1110, it will be subject to the requirements of Sections14-2-1111 -14-2-1113 for electing corporations. Further, if the company is a "resident domestic corporation," it will be subject to the requirements of Sections14-2-1131 -14-2-1133 for electing corporations.

Subsection (f) authorizes a board of directors to abandon a proposed sale without shareholder approval after it has been previously approved by the shareholders. An abandonment does not affect contractual rights that third persons may have against the corporation.

Certain corporate divisions, often called "spin offs," "split offs," or "split ups," sometimes involve transactions that may be formally characterized as sales of "all or substantially all" the corporate assets when in fact they are only a step in a corporate division that does not give rise to the problem of a major change in corporate direction and therefore does not need shareholder approval. Subsection (g) is designed to make clear that transactions like this, which actually constitute a distribution, are not subject to Section 14-2-1202. See Siegal, "When Corporations Divide: A Statutory and Financial Analysis," 79 Harv. L. Rev. 534 (1966).

The approval of most sales of the corporation's assets under this section gives rise to dissenters' rights under Article 13 to shareholders if a shareholder vote is required on the transaction and if they avail themselves of the procedures described in that article. Sales subject to Section 14-2-1202 that do not give rise to dissenters' rights even for voting shares include (1) sales pursuant to a court order and (2) sales that require all or substantially all of the net proceeds to be distributed to the shareholders in accordance with their respective interests within one year after the date of sale. See Section 14-2-1302.

Note to 1997 Amendment Subsection (e) was amended by the addition of the words "or bylaws" following "articles of incorporation."

Note to 2004 Amendment The amendment to Code Section 14-2-1202(c) is modeled on Section 7-112-102(4) of the Colorado Business Corporation Act. It extends the authority of the board of directors under Model Act Section 12.02(c) to condition a proposal for the sale, lease, exchange or other disposal of all or substantially all the corporation's assets beyond mere submission to the shareholders to the effectiveness of the proposal. The amendment combines the Colorado Act and the Model Act concepts, such that the board will now have the flexibility to make conditional both its submission of the proposal to the shareholders and the effectiveness of that proposal.

Note to 2006 Amendment The changes in subsection (b)(1) of Code Section 14-2-1202 clarify that the board of directors has the authority not only to withhold its recommendation of a disposition requiring shareholder approval because of conflicts of interest or other special circumstances, but also to recommend that the shareholders reject or vote against such a disposition.

Cross-References Asset sale as "Business Combination," see § 14-2-1011. Director standards of conduct, see §§ 14-2-830 &14-2-831. Dissenters' rights, see Article 13. "Distribution" defined, see § 14-2-140. "Notice" defined, see § 14-2-141. Limits on business combination with interested shareholder of resident domestic corporation, see § 14-2-1131 et seq. Notice of shareholders' meeting, see § 14-2-705. Quorum at shareholders' meeting, see § 14-2-725. Supermajority quorum and voting requirements, see § 14-2-727. Voting by voting group, see §§ 14-2-725 &14-2-726. Voting for business combination with interested shareholder, see § 14-2-1111. Voting entitlement of shareholders generally, see § 14-2-721. "Voting group" defined, see § 14-2-140.

JUDICIAL DECISIONS

Editor's notes.

- In light of the similarity of the statutory provisions, decisions under former Code Section 14-2-231, which was repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, are included in the annotations for this Code section.

Cited in Gunter v. Hutcheson, 674 F.2d 862 (11th Cir. 1982); Quinn v. Cardiovascular Physicians, 254 Ga. 216, 326 S.E.2d 460 (1985); Augusta Surgical Ctr., Inc. v. Walton & Heard Office Venture, 235 Ga. App. 283, 508 S.E.2d 666 (1998).

RESEARCH REFERENCES

ALR.

- Stockholders of corporation which transfers its assets as creditors within Bulk Sales Act, 16 A.L.R.2d 1315.

Who may assert invalidity of sale, mortgage, or other disposition of corporate property without approval of stockholders, 58 A.L.R.2d 784.

Sale of business or of real estate upon which business is conducted as transferring good will by implication, in absence of covenant not to compete, 65 A.L.R.2d 502.

Valuation of stock of dissenting stockholders in case of consolidation or merger of corporation, sale of its assets, or the like, 48 A.L.R.3d 430.

Validity of obligation given by corporation incident to purchase of entire stock by sole shareholder, 71 A.L.R.3d 639.

Valuation of stock of dissenting stockholders in case of consolidation or merger of corporation, sale of its assets, or the like - equitable remedy of quasi-appraisal, 17 A.L.R.7th 6.

ARTICLE 13 DISSENTERS' RIGHTS

Law reviews.

- For article discussing financial statements required under the Georgia Business Corporation Code, see 3 Ga. L. Rev. 11 (1968). For article, "The Acquisition Process and the Closely-Held Corporation: Selected Legal Aspects," see 36 Mercer L. Rev. 567 (1985). For article, "The Civil Jurisdiction of State and Magistrate Courts," see 24 Ga. St. B. J. 29 (1987). For article, "Georgia's New Business Corporation Code," see 24 Ga. St. B. J. 158 (1988). For article, "Changes in Corporate Practice under Georgia's New Business Corporation Code," see 40 Mercer L. Rev. 655 (1989). For article, "Why Discounts Are Now Inappropriate Under Georgia's Dissenters' Rights Statute," see 6 Ga. St. B. J. 12 (2001).

ANALYSIS

• General Consideration
• Fair Value

General Consideration

Editor's notes.

- In light of the similarity of the statutory provisions, decisions under former Code 1933, § 22-1202 and former Code Sections 14-2-251 and 14-2-252, which were repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, are included in the annotations for this article.

- The general purpose of former § 14-2-251 was to provide an orderly and fair method to evaluate the ownership interests of shareholders who are forced from the corporation by their dissent from certain corporate action. Atlantic States Constr., Inc. v. Beavers, 169 Ga. App. 584, 314 S.E.2d 245 (1984) (decided under former § 14-2-251).

- There is a substantial difference between corporation's attempting to reserve right to impair vested rights of its shareholders through altering or amending its internal structure and retention by state of power to modify or withdraw charters granted to corporations created by the state. Baugh v. Citizens & S. Nat'l Bank, 248 Ga. 180, 281 S.E.2d 531 (1981) (decided under former Code 1933, § 22-1202).

- Application of provisions dealing with merger and consolidation of state banks does not impair shareholder's rights in such a way as to offend constitutional prohibition against retroactivity. Baugh v. Citizens & S. Nat'l Bank, 248 Ga. 180, 281 S.E.2d 531 (1981) (decided under former Code 1933, § 22-1202).

- Former Code 1933, § 41A-2408 (see now O.C.G.A. § 7-1-537) and former Code 1933, § 22-1202 (former § 14-2-251) make no provision for conditional dissent by shareholder to plan or propose merger. Baugh v. Citizens & S. Nat'l Bank, 248 Ga. 180, 281 S.E.2d 531 (1981) (decided under former Code 1933, § 22-1202).

- Consideration of the minority nature of the dissenting shareholders' interest is not against public policy for purposes of determining fair value. Atlantic States Constr., Inc. v. Beavers, 169 Ga. App. 584, 314 S.E.2d 245 (1984) (decided under former § 14-2-251).

- If a corporation is unable to eliminate a minority stockholder by simply adopting a bylaw or voting to purchase the minority's stock, its majority stockholders cannot accomplish the same purpose by setting up a second corporation wholly owned by them whose sole purpose is to enable it to take advantage of the merger statutes. Bryan v. Brock & Blevins Co., 490 F.2d 563 (5th Cir.), cert. denied, 419 U.S. 844, 95 S. Ct. 77, 42 L. Ed. 2d 72 (1974) (decided under former Code 1933, § 22-1202).

- The minority shareholders of a railroad company were not entitled to enjoin a merger between the railroad and a non-railroad corporation, having offered no facts to support the merger, and having an adequate remedy at law under former § 14-2-251 and § 14-4-143, which provide for a fair and adequate price to dissenting shareholders. Long v. Atlanta & W.P.R.R., 253 Ga. 257, 320 S.E.2d 530 (1984) (decided under former § 14-2-251).

- Nothing in former § 14-2-251 abrogates the general rule allowing the trier of fact to reject an expert opinion. Atlantic States Constr., Inc. v. Beavers, 169 Ga. App. 584, 314 S.E.2d 245 (1984) (decided under former § 14-2-251).

- An appraisal proceeding pursuant to former § 14-2-251 is legal, not equitable, in character; and thus no right of direct appeal to the Supreme Court lies from such a proceeding. Atlantic States Constr., Inc. v. Beavers, 250 Ga. 828, 301 S.E.2d 635 (1983) (decided under former § 14-2-251).

Cited in Schnorbach v. Fuqua, 70 F.R.D. 424 (S.D. Ga. 1975); Gunter v. Hutcheson, 674 F.2d 862 (11th Cir. 1982); Multitex Corp. of Am. v. Dickinson, 683 F.2d 1325 (11th Cir. 1982); Atlantic States Constr., Inc. v. Beavers, 169 Ga. App. 584, 314 S.E.2d 245 (1984); Quinn v. Cardiovascular Physicians, 254 Ga. 216, 326 S.E.2d 460 (1985).

Fair Value

"Fair market value" defined.

- For discussion of establishment of "fair market value" under former Code 1933, § 22-1202 and pertinent jury instructions, see Multitex Corp. of Am. v. Dickinson, 683 F.2d 1325 (11th Cir. 1982) (decided under former Code 1933, § 22-1202).

- The "willing seller, willing buyer" test should not be used to define "fair value," but should be limited to defining "market value." Atlantic States Constr., Inc. v. Beavers, 169 Ga. App. 584, 314 S.E.2d 245 (1984) (decided under former §§ 14-2-251 and14-2-252).

- When determining "fair value" of dissenting stockholder's shares under paragraph (4) of subsection (g) of former § 14-2-251, the trial court should maintain a flexible standard by considering all factors relevant to the per share fair value in each case, including market, earnings or investment, and asset value, and apply a reasonable methodology supported by the evidence. Atlantic States Constr., Inc. v. Beavers, 169 Ga. App. 584, 314 S.E.2d 245 (1984) (decided under former §§ 14-2-251 and14-2-252).

Initial burden of proof of "fair value" rests with the corporation. Atlantic States Constr., Inc. v. Beavers, 169 Ga. App. 584, 314 S.E.2d 245 (1984) (decided under former §§ 14-2-251 and14-2-252).

Burden of proof for establishment of fair market value of stock under former § 14-2-251 is upon the corporation and is similar to establishing price under a condemnation action. Multitex Corp. of Am. v. Dickinson, 683 F.2d 1325 (11th Cir. 1982) (decided under former § 14-2-251).

PART 1 RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES

RESEARCH REFERENCES

- Right of stockholder to redeem corporate property from execution or mortgage sale, 39 A.L.R. 1056.

Statute for protection of dissenting shareholder upon change of corporate structure affecting his preferential rights, 78 A.L.R. 1118.

Construction and effect of provisions for payment of dissenting stockholders in statutes relating to merger, consolidation, or reorganization of banks or other corporations, 87 A.L.R. 597; 162 A.L.R. 1237; 174 A.L.R. 960.

Duty and liability of closely held corporation, its directors, officers, or majority stockholders, in acquiring stock of minority shareholder, 7 A.L.R.3d 500.

Dominant shareholder's accountability to minority for profit, bonus, or the like, received on sale of stock to outsiders, 38 A.L.R.3d 738.