In Georgia, corporate law provides a protection known as dissenters’ rights for shareholders who disagree with major company decisions. This mechanism allows eligible shareholders to have their shares bought by the corporation at a “fair value” as a remedy for votes that fundamentally alter their investment. This article provides a guide to understanding these rights and the procedures involved.
Corporate Actions Triggering Dissenters’ Rights in Georgia
Dissenters’ rights in Georgia are not available for every corporate decision, but are triggered by specific, fundamental actions outlined in state law. According to O.C.G.A. § 14-2-1302, these actions include a plan of merger or share exchange where shareholder approval is required.1FindLaw. Georgia Code Title 14. Corporations, Partnerships, and Associations § 14-2-1302 Another event giving rise to these rights is the sale or exchange of all, or substantially all, of the corporation’s property outside the usual course of business.
Certain amendments to the articles of incorporation can also trigger these rights if they adversely affect a shareholder by altering share classes, changing rights or preferences, or limiting rights to acquire new shares. An exception, known as the “market-out” provision, may prevent dissent for holders of shares on a national securities exchange or in companies with over 2,000 shareholders. This is based on the idea that an unhappy shareholder can instead sell their shares on the open market.
Shareholder Eligibility for Dissenters’ Rights
A primary requirement for eligibility is that the individual must be a “record shareholder” on the date set for determining who can vote on the proposed action. A record shareholder is the person or entity officially registered as the owner in the corporation’s records. Individuals who own shares through a brokerage account, known as beneficial owners, may need to work with their broker to assert these rights.
A defining condition is that the shareholder must not vote their shares in favor of the proposed corporate action. Any vote in favor of the action results in the forfeiture of any claim to dissenters’ rights.
The Dissenters’ Rights Procedure in Georgia
The process for exercising dissenters’ rights follows a strict timeline. If a proposed action could trigger these rights, the corporation’s notice for the shareholders’ meeting must state this and include a copy of the relevant code. Before the vote, any shareholder intending to dissent must deliver a written notice to the corporation of their intent to demand payment. As required by O.C.G.A. § 14-2-1321, failing to provide this advance notice disqualifies the shareholder.2FindLaw. Georgia Code Title 14. Corporations, Partnerships, and Associations § 14-2-1321
If the action is approved, the corporation must send a “dissenters’ notice” within 10 days to all shareholders who submitted a proper notice of intent. This notice, governed by O.C.G.A. § 14-2-1322, specifies where to send the payment demand and deposit share certificates.3FindLaw. Georgia Code Title 14. Corporations, Partnerships, and Associations § 14-2-1322 It also sets a response deadline of 30 to 60 days.
Per O.C.G.A. § 14-2-1323, the shareholder must demand payment and deposit their shares as directed by the deadline to avoid losing the right to payment.4FindLaw. Georgia Code Title 14. Corporations, Partnerships, and Associations § 14-2-1323 Once the demand is made, the corporation must pay the dissenter its estimate of the shares’ fair value, plus accrued interest.
Understanding Fair Value for Your Shares
Under Georgia law, fair value is the value of the shares immediately before the corporate action that triggered the dissent, as defined in O.C.G.A. § 14-2-1301. This valuation excludes any appreciation or depreciation in anticipation of the action, unless ignoring such a change would be inequitable. The goal is to determine the intrinsic worth of the shares as if the disputed transaction were not going to happen.
Determining fair value is not an exact science, and the process often involves analyzing the company’s asset value, market value, and earnings value. This approach, sometimes known as the “Delaware block” method, provides a framework for valuation, though other techniques may be used. The valuation should reflect what a willing buyer would pay for the entire company, with the dissenter receiving their proportionate share of that total value.
The Judicial Appraisal Option
If the shareholder and corporation cannot agree on fair value, the issue can be resolved in court through a judicial appraisal proceeding. Under O.C.G.A. § 14-2-1330, if a payment demand is unsettled, the corporation must petition a superior court within 60 days to determine the fair value. If the corporation fails to file within this window, it must pay the amount the dissenter demanded.
The proceeding is a nonjury hearing in the county of the corporation’s registered office, and all unsettled dissenters are made parties to the action. The court has broad jurisdiction and may appoint one or more appraisers to receive evidence and make a recommendation on the fair value of the shares. The final judgment will include this value plus interest.
Costs are assessed against the corporation. However, if the court finds a party acted arbitrarily, vexatiously, or not in good faith, it may assess costs and even attorneys’ fees against that party.