Georgia law gives shareholders the right to object when significant corporate changes could affect their investment. Dissenters’ rights allow them to exit the company and receive fair value for their shares, instead of accepting decisions like mergers or asset sales they disagree with.
This protection is important in closely held corporations, where minority shareholders may have little influence over strategic choices. Understanding these rights helps investors protect their financial interests during major corporate changes.
Legal Requirements for Dissenters
To use dissenters’ rights under Georgia law, a shareholder must meet requirements in the Georgia Business Corporation Code. The individual must be a shareholder on the record date for voting on the proposed corporate action. Those acquiring shares after this date, or after the action’s approval, cannot claim dissenter status.
The shareholder also must not have voted for the corporate action. Voting in favor implies agreement and gives up the right to dissent. O.C.G.A. Section 14-2-1302 details the conditions for a shareholder to dissent and receive fair payment.1Justia Law. § 14-2-1302 – Right to Dissent Abstaining from a vote is permissible and does not disqualify a shareholder if other conditions are met; the key is not voting for the action.
Events That Grant Dissenters Rights
Certain corporate actions trigger dissenters’ rights under Georgia law, including:
- Consummation of a merger plan requiring shareholder approval, where the shareholder is entitled to vote.
- A share exchange plan where the corporation’s shares are acquired, and the shareholder is entitled to vote.
- A sale or exchange of all, or substantially all, of the corporation’s property, if requiring shareholder approval where the shareholder can vote. “Substantially all” means a sale leaving the corporation without significant ongoing business.
- Amendments to the articles of incorporation that materially and adversely affect a shareholder’s rights, such as changes that alter or abolish preferential, redemption, or preemptive rights, or that limit voting rights.
- Corporate conversions or domestications requiring shareholder approval.
- Any corporate action where the articles of incorporation, bylaws, or a board resolution explicitly grant shareholders the ability to dissent and seek payment.
Dissenters’ rights may not apply if the shareholder’s shares remain unchanged or are exchanged for shares in a liquid market (the market-out exception). This exception applies if the resulting shares are listed on a national securities exchange or meet certain thresholds for shareholder numbers and market value.
Notice and Demand Requirements
When a corporate action that could trigger dissenters’ rights is proposed, specific notices and demands are required. The corporation first notifies shareholders. If a proposed action requiring a shareholder vote might lead to dissenters’ rights, the meeting notice must state this and include a copy of the relevant Georgia Business Corporation Code article (O.C.G.A. Section 14-2-1320).2LexisNexis. O.C.G.A. § 14-2-1320 – Notice of Dissenters’ Rights
A shareholder wanting to dissent must deliver written notice of their intent to demand payment to the corporation before the vote on the proposed action (O.C.G.A. Section 14-2-1321).3Justia Law. § 14-2-1321 – Notice of Intent to Demand Payment Not providing this pre-vote notice, or voting for the action, disqualifies the shareholder from payment as a dissenter.
If the corporation approves the action, it must send a written dissenters’ notice within ten days of the action taking effect to all shareholders who properly submitted their intent to demand payment. Under O.C.G.A. Section 14-2-1322, this notice must:4FindLaw. Georgia Code § 14-2-1322 – Dissenters’ Notice
- Specify where the payment demand should be sent.
- State where share certificates must be deposited.
- Detail restrictions on uncertificated shares.
- Provide a payment demand form.
- Set a deadline for the corporation to receive the demand and certificates (between 30 and 60 days after the notice is delivered).
- Include information on relevant statutory provisions.
After receiving the dissenters’ notice, the shareholder must demand payment and deposit their share certificates by the deadline (O.C.G.A. Section 14-2-1323).5Justia Law. § 14-2-1323 – Duty to Demand Payment Shareholders who comply keep their shareholder rights until modified by the corporate action. Missing this deadline means the shareholder is not entitled to payment.
Share Valuation Process
Once a shareholder properly asserts dissenters’ rights, the Georgia Business Corporation Code outlines how fair value is determined and paid. The corporation must pay each dissenter its estimated fair value of their shares, plus accrued interest (O.C.G.A. Section 14-2-1325).6Justia Law. § 14-2-1325 – Offer of Payment
Fair value (O.C.G.A. Section 14-2-1301) is the shares’ value immediately before the corporate action, excluding any change in value from anticipating the action unless this exclusion is unfair.7LexisNexis. O.C.G.A. § 14-2-1301 – Definitions Interest accrues from the action’s effective date until payment, at a rate based on the corporation’s bank loans or a fair rate.
With this payment, the corporation must provide:
- The corporation’s most recent annual balance sheet, income statement, and statement of changes in shareholders’ equity (for a fiscal year ending no more than 16 months before payment).
- The latest available interim financial statements.
- A statement of the corporation’s estimated fair value of the shares and how interest was calculated.
- Information on the dissenter’s right to demand further payment if dissatisfied, with details on relevant statutory provisions.
If a dissenter disagrees with the corporation’s payment or fair value estimate, O.C.G.A. Section 14-2-1327 allows them to notify the corporation in writing of their own estimate and demand that amount, less any sum already paid.8Justia Law. Georgia Code § 14-2-1327 (2020) – Procedure if Shareholder Dissatisfied With Payment or Offer This demand must be made within 30 days after the corporation made or offered payment; otherwise, the dissenter only receives the corporation’s initial payment.
Judicial Intervention
If the dissenting shareholder and corporation cannot agree on fair value or interest, Georgia law allows for court resolution. If the corporation receives a payment demand under O.C.G.A. Section 14-2-1327 and either fails to pay the dissenter’s estimated amount within 60 days or disagrees with the estimate, it must start a court proceeding within that 60-day period. This action is filed in the superior court where the corporation’s registered office is located (O.C.G.A. Section 14-2-1330).9Justia Law. Georgia Code § 14-2-1330 (2024) – Court Action If the corporation does not start this proceeding, it must pay the amount the dissenter demanded.
In the proceeding, the corporation asks the court to determine the fair value and accrued interest, naming all unsettled dissenters as defendants. The court may appoint appraisers to evaluate evidence and recommend a decision on fair value. Dissenters in the proceeding have standard discovery rights.
The court will issue a judgment determining the fair value and interest, directing the corporation to pay this amount to each dissenter. Under O.C.G.A. Section 14-2-1331, the court determines all proceeding costs, including appraiser compensation, assessing them against the corporation.10Justia Law. § 14-2-1331 – Court Costs and Counsel Fees
Costs may be assessed against dissenters if the court finds they acted arbitrarily, vexatiously, or not in good faith when demanding further payment. The court can also assess counsel and expert fees against the corporation if it did not comply with statutory notice or payment requirements, or against any party who acted in such a manner. If a dissenter’s counsel provides substantial benefit to other similar dissenters, the court may award reasonable fees from the amounts awarded to those dissenters.