Derivative Proceedings

O.C.G.A. tit. 14, ch. 2, art. 7, pt. 4

in effect

O.C.G.A. § 14-2-740 Definitions.

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.)

O.C.G.A. § 14-2-741 Standing.

14-2-741. Standing. A shareholder may not commence or maintain a derivative proceeding unless the shareholder: (1) Was a shareholder of the corporation at the time of the act or omission complained of or became a shareholder through transfer by operation of law from one who was a shareholder at that time; (2) Fairly and adequately represents the interests of the corporation in enforcing the right of the corporation; and (3) For a corporation with one or more classes of shares described in subsection (c) of Code Section 14-2-601 listed on a national securities exchange, at the time of the act or omission complained of, owns a number of the shares described in paragraph (2) of subsection (c) of Code Section 14-2-601 sufficient to meet an ownership threshold to commence a derivative proceeding in the right of the corporation identified in the corporation's articles of incorporation or bylaws, provided that the ownership threshold established by the corporation in its articles of incorporation or bylaws does not exceed 1 percent of the outstanding shares described in paragraph (2) of subsection (c) of Code Section 14-2-601. (Code 1981, § 14-2-741, enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1989, p. 946, § 29.) (Amended by Ga. L. 2026, Act 460 (HB 1185), eff. July 1, 2026.)

O.C.G.A. § 14-2-742 Demand.

14-2-742. Demand. A shareholder may not commence a derivative proceeding until: (1) A written demand has been made upon the corporation to take suitable action; and (2) Ninety days have expired from the date the demand was made unless the shareholder has earlier been notified that the demand has been rejected by the corporation or unless irreparable injury to the corporation would result by waiting for the expiration of the 90 day period. (Code 1981, § 14-2-742, enacted by Ga. L. 1988, p. 1070, § 1.)

O.C.G.A. § 14-2-743 Stay of proceedings.

14-2-743. Stay of proceedings. If the corporation commences an inquiry into the allegations made in the demand or complaint, the court may stay any derivative proceeding for such period as the court deems appropriate. (Code 1981, § 14-2-743, enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1989, p. 946, § 30.)

O.C.G.A. § 14-2-744 Dismissal.

14-2-744. Dismissal. (a) The court may dismiss a derivative proceeding if, on motion by the corporation, the court finds that one of the groups specified in subsection (b) of this Code section has made a determination in good faith after conducting a reasonable investigation upon which its conclusions are based that the maintenance of the derivative suit is not in the best interests of the corporation. The corporation shall have the burden of proving the independence and good faith of the group making the determination and the reasonableness of the investigation. (b) The determination in subsection (a) of this Code section shall be made by: (1) A majority vote of independent directors present at a meeting of the board of directors if the independent directors constitute a quorum; (2) A majority vote of a committee consisting of two or more independent directors appointed by a majority vote of independent directors present at a meeting of the board of directors, whether or not such independent directors constitute a quorum; or (3) A panel of one or more independent persons appointed by the court upon motion by the corporation. (c) None of the following shall by itself cause a director to be considered not independent for purposes of subsection (b) of this Code section: (1) The nomination or election of the director by directors who are not independent; (2) The naming of the director as a defendant in the derivative proceeding; or (3) The fact that the director approved the action being challenged in the derivative proceeding so long as the director did not receive a personal benefit as a result of the action. (Code 1981, § 14-2-744, enacted by Ga. L. 1988, p. 1070, § 1.)

O.C.G.A. § 14-2-745 Discontinuance or settlement.

14-2-745. Discontinuance or settlement. A derivative proceeding may not be discontinued or settled without the court's approval. If the court determines that a proposed discontinuance or settlement will substantially affect the interests of the corporation's shareholders or a class of shareholders, the court shall direct that notice be given to the shareholders affected. (Code 1981, § 14-2-745, enacted by Ga. L. 1988, p. 1070, § 1.)

O.C.G.A. § 14-2-746 Payment of expenses.

14-2-746. Payment of expenses. (a) On termination of the derivative proceeding, the court may: (1) Order the corporation to pay the plaintiff's reasonable expenses, including attorneys' fees, incurred in the proceeding if it finds that the proceeding has resulted in a substantial benefit to the corporation; or (2) Order the plaintiff to pay any defendant's reasonable expenses, including attorneys' fees, incurred in defending the proceeding if it finds that the proceeding was commenced or maintained without reasonable cause or for an improper purpose. (b) For the purposes of subsection (a) of this Code section, the term 'substantial benefit to the corporation' does not include additional or amended disclosures made to shareholders, regardless of materiality. (Code 1981, § 14-2-746, enacted by Ga. L. 1988, p. 1070, § 1.) (Amended by Ga. L. 2026, Act 460 (HB 1185), eff. July 1, 2026.)

O.C.G.A. § 14-2-747 Applicability to foreign corporations.

14-2-747. Applicability to foreign corporations. In any derivative proceeding in the right of a foreign corporation, the matters covered by this part shall be governed by the laws of the jurisdiction of incorporation of the foreign corporation except for Code Sections 14-2-743, 14-2-745, and paragraph (2) of subsection (a) of Code Section 14-2-746. (Code 1981, § 14-2-747, enacted by Ga. L. 1988, p. 1070, § 1.) (Amended by Ga. L. 2026, Act 460 (HB 1185), eff. July 1, 2026.)

Source: Official Code of Georgia (Legislative Counsel's copy via Public.Resource.Org) + acts (legis.ga.gov)URL: https://archive.org/download/gov.ga.ocga.2024/T14%20%28V12%29%202017.txtFetched: 10/24/2026