2020 Georgia Code
Title 14 - Corporations, Partnerships, and Associations
Chapter 2 - Business Corporations
Article 8 - Directors and Officers
Part 1 - Board of Directors
§ 14-2-801. Requirement for and Functions of Board of Directors

1. Except as provided in Article 9 of this chapter or in a written agreement meeting the requirements of Code Section 14-2-732, each corporation must have a board of directors.
2. All corporate powers shall be exercised by or under the authority of the board of directors of the corporation, and the business and affairs of the corporation shall be managed by or under the direction, and subject to oversight, of its board of directors, subject to any limitation set forth in the articles of incorporation, in rights, options, or warrants permitted by paragraph (2) of subsection (d) of Code Section 14-2-624, or except as provided in an agreement among the shareholders meeting the requirements of Code Section 14-2-732.
3. No limitation upon the authority of the directors, whether contained in the articles of incorporation or an agreement among the shareholders meeting the requirements of Code Section 14-2-732, shall be effective against persons, other than shareholders and directors, who are without actual knowledge of the limitation.

(Code 1981, §14-2-801, enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 2000, p. 1567, § 6; Ga. L. 2001, p. 4, § 14; Ga. L. 2016, p. 225, § 1-1/SB 128.)

The 2016 amendment, effective July 1, 2016, in subsection (a), substituted "Except" for "Each corporation must have a board of directors, except" at the beginning, and added ", each corporation must have a board of directors" at the end; in subsection (b), inserted "the board of directors of the corporation", inserted "shall be", inserted "by or" in the middle, substituted "direction, and subject to oversight, of" for "direction of, its", and inserted "except as provided" near the end.

- Qualifications for officers, directors, and stockholders of pharmacy corporations, § 26-4-101.

- For article, "Foreign Corporations in Georgia," see 10 Ga. St. B. J. 243 (1973). For article, "Excessive Corporate Risk-Taking and the Decline of Personal Blame," see 65 Emory L.J. 533 (2015). For note on the 2000 amendment of this Code section, see 17 Ga. St. U. L. Rev. 46 (2000). For comment on the survivability of the dead hand provision in corporate America, see 48 Emory L.J. 991 (1999). For comment, "Poison Pills: Are Dead Hand Pills Dead in Georgia?," see 50 Mercer L. Rev. 809 (1999).

Note to 2016 Amendment Source: 1984 Model Act § 8.01 (a)-(b), amended 46 Bus. Law. 297 (1990), § 8.01(b), amendment proposed, 54 Bus. Law. 1233 (1999), adopted, 55 Bus. Law. 1247 (2000); and 1984 Model Act §§ 8.01(b) amended and 8.01(c) added by amendment, proposed, 59 Bus. Law. 569 (2004), adopted, 60 Bus. Law. 943 (2005). Subsections (a) and (b) of this Code section are based on the Model Act § 8.01, which was revised subsequent to the enactment of former Code Section 14-2-801.

This Note to 2016 Amendment supersedes and replaces the Comment to Code Section 14-2-801 and the Note to 2000 Amendment. The 2016 amendments to Code Section 14-2-801, which were adopted for purposes of conformity with the Model Act, added the phrase "subject to the oversight" to differentiate between the board's decision-making and oversight functions.

Subsection (a) requires that every corporation have a board of directors unless otherwise provided in accordance with Article 9 (governing statutory close corporations) or as provided in a written agreement meeting the requirements of Section 14-2-732, which may be set forth in the articles of incorporation, the bylaws or a separate shareholders' agreement, approved in each case by all persons who are shareholders at the time of the agreement. The purpose is to provide corporations that do not elect statutory close corporation status with as much flexibility in managing their business as those that do elect. The reference to Section 14-2-732 effectively limits such arrangements to corporations that do not have shares regularly traded in public securities markets.

Subsection (b) states that if a corporation has a board of directors "all corporate powers shall be exercised by or under the authority of the board of directors of the corporation, and the business and affairs of the corporation shall be managed by or under the direction, and subject to the oversight, of" the board of directors. The quoted language is chosen to reflect the role and functions of boards of directors in all varieties of corporations. In a small corporation and in some larger corporations where the board of directors is composed entirely of persons actively involved in the management of the corporate business, it may be reasonable to describe management as being "by" the board of directors. But a different model may be appropriate for the boards of directors of publicly held corporations and in some larger privately held corporations, which often include individuals not actively involved in management. In these corporations the appropriate model may be that the business and affairs be managed "under the direction, and subject to the oversight, of" the board of directors, since operational management is delegated to executive officers and other professional managers.

The references in subsection (b) and subsection (c) to shareholder approved bylaws were replaced with a reference to an agreement meeting the requirements of Section 14-2-732, which section was added to the Code as a part of the amendment to the Code in 2000. See Official Comment to Code Section 14-2-732. Section 14-2-624(d)(2) is referenced in subsection (b) because that subsection authorizes provisions in a rights agreement or "poison pill" which restrict the power of future directors to redeem, modify or terminate such rights, subject to certain time limitations.

Subsection (b) should be read in conjunction with Section 14-2-732(b)(1), which provides that if the articles of incorporation, the bylaws or a separate agreement restrict the power of the board to manage the business, it must be approved or signed (as applicable) by all of the shareholders at the time of the agreement in order to be insulated from attack as an attempt to manage the corporation as if it were a partnership.

Subsection (b) should also be read in the context of subsection (c), which follows former Section 14-2-140(b), which codified the apparent authority of the board in dealing with third parties not on notice of restrictions on the board's authority.

For corporations with fewer than 50 shareholders, election of statutory close corporation status does not provide the exclusive means for limiting or transferring board authority. See Zion v. Kurtz, 50 N.Y.2d 92, 405 N.E.2d 681 (Ct. App. 1980).

Any arrangement under Section 14-2-801 may also be established by a statutory close corporation election under Section 14-2-920.

Cross-References Amendment of articles of incorporation, see Article 10, Part 1. Articles of incorporation, see § 14-2-202. Close corporations, see Article 9. Director standards of conduct, see §§ 14-2-830 &14-2-831. Directors' conflicting interest transactions, see § 14-2-860 et seq. Indemnification, see § 14-2-850 et seq. Number of shareholders, see § 14-2-142. Officers, see §§ 14-2-840 &14-2-841. Shareholder agreements, see § 14-2-732. Shareholder agreements restricting board powers, see §§ 14-2-731 and14-2-920.

JUDICIAL DECISIONS

Editor's notes.

- In light of the similarity of the statutory provisions, decisions under former Code Section 14-2-140, which was repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, are included in the annotations for this Code section.

- Nothing in Georgia law renders it unlawful for the shareholders of a close corporation, who are also the directors and officers of the corporation, to divest themselves of ultimate control over the fiscal and credit policy of the corporation. To the contrary, this type of arrangement is expressly sanctioned by § 14-2-120(b) (now see subsection (c) of § 14-2-731). Walton Motor Sales, Inc. v. Ross, 736 F.2d 1449 (11th Cir. 1984) (decided under former § 14-2-140).

Board of directors had authority to adopt a shareholders rights plan with a continuing director feature to protect against hostile takeovers without amendment of the articles of incorporation or bylaws. Invacare Corp. v. Healthdyne Technologies, Inc., 968 F. Supp. 1578 (N.D. Ga. 1997).

Cited in Tallant v. Executive Equities, Inc., 232 Ga. 807, 209 S.E.2d 159 (1974).

RESEARCH REFERENCES

Am. Jur. 2d.

- 18B Am. Jur. 2d, Corporations, §§ 1139, 1143 et seq.

- 19 C.J.S., Corporations, §§ 543, 545.

- Power of board of directors to rescind or modify its action in calling stock for redemption or retirement, 148 A.L.R. 839.

Test in stockholder's actions as to reasonableness of compensation of corporate officers who as directors determine own compensation, 53 A.L.R.3d 358.

Validity of stockholders' agreement allegedly infringing on directors' management powers - modern cases, 15 A.L.R.4th 1078.