(Code 1981, §14-2-602, enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1989, p. 946, § 15; Ga. L. 2000, p. 1567, § 2; Ga. L. 2003, p. 897, § 3; Ga. L. 2004, p. 508, § 4; Ga. L. 2005, p. 60, § 14/HB 95.)
Editor's notes.- Ga. L. 2005, p. 60, § 14/HB 95, purported to amend this Code section but actually amended only subsection (e) of this Code section.
Law reviews.- For article discussing issuance and characteristics of shares of stock under the Georgia Business Corporation Code, see 3 Ga. L. Rev. 11 (1968). For article discussing the issuance of and limitations on redeemable shares under the Georgia Business Corporation Code, see 3 Ga. L. Rev. 11 (1968).
COMMENT
Source: Model Act, § 6.02; former § 14-2-81(b)(1) and (2).
Section 14-2-602 permits the board of directors, if authority to do so is contained in the articles of incorporation, to fix the terms of a class of shares to meet corporate needs, including current requirements of the securities market or the exigencies of negotiations for acquisition of other corporations or properties, without the necessity of holding a shareholders' meeting to amend the articles of incorporation. This section therefore permits prompt action and gives desirable flexibility. The articles of incorporation may also create "series" of shares within a class (rather than designating that "series" as a separate class) if that is deemed desirable.
The board of directors may set the terms of a class only if there are not outstanding shares of that class. Similarly, the board may designate the terms of a series only if there are not outstanding shares of that series.
The power to vary the terms of "blank stock" for series of the same class extends to all the permitted variables set forth in Section 14-2-601(c). The proviso added to subsection (c) parallels that added to Section 14-2-601(a).
Subsection (d) requires a simple official filing to amend the articles so there will be a public record of the class or series the corporation intends to issue. The amendment may be made without shareholder action. Under former § 14-2-81(c), the effect of a certificate filed by the board was not clear. Subsection (d) eliminates that ambiguity, and is intended to avoid the outcome of Telvest v. Olson, Del. Ch., (C.A. No. 5798, 1979), where the court held that the certificate of directors' action constituted an unauthorized charter amendment altering common voting rights. See Section14-2-1002.
Subsection (e) was added to the Model Act by the Code. It restores the ability to reduce the number of shares authorized in a series where not all shares of the series are issued, formerly contained in § 14-2-81(b)(1).
Subparagraph (f) is a transition rule to provide authority similar to that formerly granted by § 14-2-81(b)(2), where the articles fail to grant the board authority to determine rights and preferences of series.
One significant change from former law is elimination of the provision of § 14-2-80(b)(3), which prohibited issuance of shares with priority over dividends or on assets at liquidation, over any currently outstanding class entitled to such priority over other shares. Holders of senior securities obtain such protection from the provisions of the articles of incorporation designating their rights and preferences, rather than from an absolute statutory prohibitions.
Note to 1989 Amendment The 1989 amendment to subsection (a) eliminated a cross reference to the limits contained in section 14-2-601 that was thought to be superfluous. Section 14-2-601 deals with classes of shares, while section 14-2-602 deals with series within a class.
The 1989 amendment to subsection (c) deleted the phrase "or any amendment thereto" following the phrase "the articles of incorporation" as redundant.
Note to 2000 Amendment The 2000 amendments to subsection (c) clarify that the preferences, limitations and relative rights of shares within a class or a series, determined by the board of directors under this Code section, are subject to the requirements consistent with those that are set forth in Code Section 14-2-601(a) and (b). Consistent with the 2000 amendments to Code Section 14-2-601(a) and (b), this subsection has also been amended to clarify that compliance with the provisions of Code Section 14-2-624 shall not result in a conflict with this subsection.
Subsection (e) was amended to empower the board of directors, without shareholder action, to eliminate a series of shares where no shares of that series are issued.
Former subsection (f), which allowed the rights and preferences of a series of stock to be established by shareholder vote for corporations formed prior to July 1, 1989, was eliminated by the 2000 amendment, because the 2000 amendments to Code Section 14-2-601 eliminate any question that the board of directors and shareholders may divide a class of shares into series through an amendment to the articles of incorporation under Code Section 14-2-1003. The amendments to Code Section 14-2-601 make clear that, in the absence of board authority to determine the preferences, limitations and relative rights of a class or series of shares or to designate a series of shares, the proper procedure for taking such action is set forth in Code Section 14-2-1003. New subsection (f) was added to clarify that the provisions of Code Section 14-2-602 shall not limit the authority or discretion of the board of directors to determine the terms of rights, options or warrants issuable pursuant to Code Section 14-2-624.
Note to 2003 Amendment The amendment to Code Section 14-2-602 adds the same definition of 'facts' ascertainable outside the articles of incorporation as was added to Code Section 14-2-601 in order to make the two sections consistent with each other.
Note to 2004 Amendment The amendment to Code Section 14-2-602(e) is based on Section 151(g) of the Delaware General Corporation Act. Barring a restriction in the articles of incorporation, including one imposed by the articles of amendment pursuant to which the series in questions was created, the amendment would restore the shares of a series the terms of which have been designated under the authority of subsection (a) but none of which are outstanding, either because shares of the series were never issued or were issued but have since been redeemed, to the undesignated class they occupied prior to the action of the board of directors that created the series. Such shares may then be retained for future designation by the board of directors under the original "blank check" authority granted in the articles of incorporation. This flexibility is consistent with that created by the 2002 amendments to Model Act Section 6.02, which permit a board of directors to both "classify" and "reclassify" unissued shares of the corporation.
The amendment to subsection (e) also makes clear that, in the case of a series that has been designated by an amendment to the articles of incorporation filed in accordance with subsection (d) but as to which no shares have ever been issued, the board may amend the terms of the series by filing a subsequent amendment, rather than having to file both an amendment eliminating the first series and a second amendment designating a new series.
Cross-References Amendment to articles of incorporation, see § 14-2-1003 and Article 10, Part 1. Authorized shares, see § 14-2-601. Certificateless shares, see § 14-2-626. Certificates for shares, see § 14-2-625. Committees, see § 14-2-825. "Deliver" includes mail, see § 14-2-140. Director standards of conduct, see §§ 14-2-830 &14-2-831. Distributions, see § 14-2-640. Effective time and date of filing, see § 14-2-123. Filing fees, see § 14-2-122. Filing requirements, see § 14-2-120. Options, see § 14-2-624. Redemption, see §§ 14-2-601 &14-2-631. Series or class as voting group, see §§ 14-2-140,14-2-725,14-2-726, &14-2-1004. Voting by voting group, see §§ 14-2-725 &14-2-726. "Voting group" defined, see § 14-2-140.
RESEARCH REFERENCES
Am. Jur. 2d.
- 18A Am. Jur. 2d, Corporations, §§ 349 et seq., 353 et seq.
C.J.S.- 18 C.J.S., Corporations, § 211.
ALR.
- Right to issue corporate stock without voting power, 21 A.L.R. 643.
Construction and effect of provision for preference or redemption of preferred stock in respect of capital value, 33 A.L.R. 1257; 124 A.L.R. 1069.
Power to create preferred stock as against existing preferred stock, 44 A.L.R. 72.
Right of holders of preferred stock to have receiver appointed, 50 A.L.R. 261.
Issuance by corporation of new stock certificates without requiring surrender of old, 61 A.L.R. 436; 150 A.L.R. 148.
Rights of holders of preferred stock in respect of dividends, 67 A.L.R. 765; 98 A.L.R. 1526; 133 A.L.R. 653.
Validity and effect of agreement by a corporation contemporaneously with issue or sale of stock, to repurchase or redeem the stock or to cancel the subscription therefor and refund consideration paid, 101 A.L.R. 154.
Instrument issued by a corporation as certificate of preferred stock or as evidence of indebtedness, 123 A.L.R. 856.
Power of board of directors to rescind or modify its action in calling stock for redemption or retirement, 148 A.L.R. 839.
Preferred stockholders' rights, upon liquidation or dissolution, to dividends, 25 A.L.R.2d 788.
Rights of preferred stockholders as to passed or accumulated dividends in going concern, 27 A.L.R.2d 1073.
Patent rights, copyrights, trademarks, secret processes, formulas, or the like, as "property" within provisions of law or charter forbidding issuance of corporate stock except for money paid or property received, 37 A.L.R.2d 913.
Minority stockholders' right to enjoin further or additional issuance of stock, 38 A.L.R.2d 1366.