2020 Georgia Code
Title 14 - Corporations, Partnerships, and Associations
Chapter 2 - Business Corporations
Article 7 - Shareholders
Part 4 - Derivative Proceedings
§ 14-2-740. Definitions

As used in this part, the term:

1. "Derivative proceeding" means a civil suit in the right of a domestic corporation or, to the extent provided in Code Section 14-2-747, in the right of a foreign corporation.
2. "Shareholder" includes a beneficial owner whose shares are held in a voting trust or held by a nominee on the owner's behalf.

(Code 1981, §14-2-740, enacted by Ga. L. 1988, p. 1070, § 1.)

- For article, "The Development of the Shareholder's Direct Action Damage Remedy," see 28 Ga. St. B. J. 195 (1992). For article, "Litigation Discovery and Corporate Governance: The Missing Story About the 'Genius of American Corporate Law,"' see 63 Emory L.J. 1383 (2014). For annual survey on business associations, see 70 Mercer L. Rev. 19 (2018).

Source: Model Act, Part 4 (under consideration, 1987). The proposals of the ABA Committee on Corporate Laws were ultimately published, after further revision, as Changes in the Model Business Corporation Act - Amendments Pertaining to Derivative Proceedings, 44 Bus. Law. 543 (1989).

The definition of "derivative proceeding" makes it clear that the part applies to foreign corporations only to the extent provided in Section 14-2-747. Section 14-2-747 provides that the law of the jurisdiction of incorporation governs except for Sections 14-2-743 (stay of proceedings), 14-2-745 (discontinuance or settlement) and 14-2-746 (payment of expenses). See the Comment to Section 14-2-747.

The definition of "shareholder," which applies only to Part 4, includes all beneficial owners and therefore goes beyond the definition in Section 14-2-140, which includes only recordholders and beneficial owners who are certified by a nominee pursuant to the procedure specified in Section 14-2-723. In the context of Part 4, beneficial owner means a person having a direct economic interest in the shares. The definition is not intended to adopt the broad definition of beneficial ownership in SEC Rule 13d-2 under the Securities Exchange Act of 1934 which includes persons with the right to vote or dispose of the shares even though they have no economic interest in them. Similar definitions are found in Section 14-2-1301 (dissenters' rights) and Section 14-2-1602(g) (inspection of records by a shareholder).

Subsection (2) defines "shareholder" so that the plaintiff may be either a registered or beneficial owner of shares held by a nominee in his behalf. Former Georgia law required derivative actions to be brought by a "shareholder of record," in § 14-2-123(b). This limiting requirement was dropped in light of the widespread use of street name or nominee ownership of shares. Subsection (2) expands the right to bring derivative actions to include voting trust certificate holders, who could not formerly bring such actions in Georgia. Former § 14-2-123(b)(3) only permitted former voting trust certificate holders to sue, if they were certificate holders at the time of the alleged wrong; but they must be holders of record in order to bring suit.

Cross-References Beneficial owner treated as record owner, see § 14-2-723. "Domestic corporation" defined, see § 14-2-140. "Foreign corporation" defined, see § 14-2-140. "Proceeding" defined, see § 14-2-140. "Shareholder" defined, see § 14-2-140. Voting trusts, see § 14-2-730.

RESEARCH REFERENCES

Am. Jur. 2d.

- 19 Am. Jur. 2d, Corporations, § 1932 et seq.

- 18 C.J.S., Corporations, §§ 372, 373, 482 et seq.

- Causation in private civil actions by minority shareholders under proxy provisions of § 14 (a) of the Securities Exchange Act of 1934 (15 USCS § 78n (a)) and Securities Exchange Act (SEC) Rules thereunder - Post Virginia bankshares, 137 A.L.R. Fed 293.