House Bill 1185 (AS PASSED HOUSE AND SENATE)
By: Representatives Efstration of the 104th, Gambill of the 15th, Wade of the 9th, Seabaugh
of the 34th, Gunter of the 8th, and others
A BILL TO BE ENTITLED
AN ACT
To amend Titles 14 and 15 of the Official Code of Georgia Annotated, relating to
corporations, partnerships, and associations and courts, respectively, so as to provide for
certain shareholder claims to be brought before the Georgia State-wide Business Court; to
permit a corporation's bylaws or articles of incorporation to require certain claims to be heard
by the Georgia State-wide Business Court; to provide for removal of certain claims to the
Georgia State-wide Business Court; to provide for attorney's fees and costs; to exempt
payment of attorney's fees and costs in certain situations; to provide for definitions; to
provide for an effective date and applicability; to provide for related matters; to repeal
conflicting laws; and for other purposes.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF GEORGIA:
SECTION 1.
Title 14 of the Official Code of Georgia Annotated, relating to corporations, partnerships,
and associations, is amended in Chapter 1, which is reserved, as follows:
"CHAPTER 1
<ins>14-1-1.
As used in this title, the term 'internal entity claim' means a claim, action, or proceeding of
any nature arising out of this title, including, but not limited to, a claim in the right of the
entity, a claim that is based on a violation of a duty by a current or former director, officer,
shareholder, member, or partner that is based on, arises from, or relates to the internal
affairs of the entity, a valuation proceeding, or a proceeding related to the court ordered
inspection of an entity's records by a shareholder, member, or partner; provided, however,
that any action, claim, or proceeding brought by a shareholder or member challenging the
sufficiency of an entity's disclosures or otherwise alleging a breach of any duty of
disclosure against an entity organized under this title, or any director or officer of such
entity, shall be considered an internal entity claim, regardless of whether such action,
claim, or proceeding is characterized as derivative.</ins> <del>Reserved."
</del> SECTION 2.
Said title is further amended in Chapter 2, relating to business corporations, by revising
paragraphs (4) and (5) of subsection (b) of Code Section 14-2-202, relating to articles of
incorporation, and by adding a new paragraph to said subsection to read as follows:
"(4) A provision eliminating or limiting the liability of a director <ins>or officer</ins> to the
corporation or its shareholders for monetary damages for any action taken, or any failure
to take any action, as a director <ins>or officer,</ins> except liability:
(A) For any appropriation, in violation of his or her duties, of any business opportunity
of the corporation;
(B) For acts or omissions which involve intentional misconduct or a knowing violation
of law;
(C) For the types of liability set forth in Code Section 14-2-832; or
(D) For any transaction from which the director <ins>or officer</ins> received an improper
personal benefit, provided that no such provision shall eliminate or limit the liability of
a director <ins>or officer</ins> for any act or omission occurring prior to the date when such
provision becomes effective; <del>and
</del> (5) A provision that, in discharging the duties of their respective positions and in
determining what is believed to be in the best interests of the corporation, the board of
directors, committees of the board of directors, and individual directors, in addition to
considering the effects of any action on the corporation or its shareholders, may consider
the interests of the employees, customers, suppliers, and creditors of the corporation and
its subsidiaries, the communities in which offices or other establishments of the
corporation and its subsidiaries are located, and all other factors such directors consider
pertinent; provided, however, that any such provision shall be deemed solely to grant
discretionary authority to the directors and shall not be deemed to provide to any
constituency any right to be considered; <ins>and
(6) Consistent with applicable law, a provision requiring any or all internal entity claims,
including, but not limited to, proceedings related to the court ordered inspection of
corporate records by a shareholder, to be brought solely and exclusively in the Georgia
State-wide Business Court."
</ins> SECTION 3.
Said title is further amended in said chapter by adding a new subsection to Code Section
14-2-206, relating to bylaws, to read as follows:
<ins>"(c) The bylaws of a corporation may require, consistent with law, that any or all internal
entity claims, including, but not limited to, proceedings related to the court ordered
inspection of corporate records by a shareholder, be brought solely and exclusively in the
Georgia State-wide Business Court."
</ins>
SECTION 4.
Said title is further amended in said chapter by revising Code Section 14-2-741, relating to
standing, as follows:
"14-2-741.
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; <del>and
</del> (2) Fairly and adequately represents the interests of the corporation in enforcing the right
of the corporation; <ins>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."
</ins> SECTION 5.
Said title is further amended in said chapter by revising Code Section 14-2-746, relating to
payment of expenses, as follows:
"14-2-746.
<ins>(a)</ins> 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.
<ins>(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."
</ins> SECTION 6.
Said title is further amended in said chapter by revising Code Section 14-2-747, relating to
applicability to foreign corporations, as follows:
"14-2-747.
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, <del>and</del> 14-2-745, and paragraph (2) <ins>of
subsection (a)</ins> of Code Section 14-2-746."
SECTION 7.
Said title is further amended in said chapter by revising subsection (a) of Code Section
14-2-916, relating to court action to compel purchase, as follows:
"(a) If an offer to purchase shares made under Code Section 14-2-915 is rejected, or if no
offer is made, the person exercising the compulsory purchase right may commence a
proceeding against the corporation to compel the purchase in the superior court of the
county where the corporation's registered office is located <ins>or the Georgia State-wide
Business Court.</ins> The corporation at its expense shall notify in writing all of its
shareholders, and any other person the court directs, of the commencement of the
proceeding. The jurisdiction of the court in which the proceeding is commenced under this
subsection is plenary and exclusive."
SECTION 8.
Said title is further amended in said chapter by revising subsections (a) and (b) of Code
Section 14-2-940, relating to court action to protect shareholders, as follows:
"(a) Subject to satisfying the conditions of subsections (c) and (d) of this Code section, a
shareholder of a statutory close corporation may petition the superior court <ins>or the Georgia
State-wide Business Court</ins> for any of the relief described in Code Section 14-2-941,
14-2-942, or 14-2-943 if:
(1) The directors or those in control of the corporation have acted, are acting, or will act
in a manner that is illegal, oppressive, fraudulent, or unfairly prejudicial to the petitioner,
whether in his capacity as shareholder, director, or officer of the corporation;
(2) The directors or those in control of the corporation are deadlocked in the
management of the corporation's affairs, the shareholders are unable to break the
deadlock, and the corporation is suffering or will suffer irreparable injury or the business
and affairs of the corporation can no longer be conducted to the advantage of the
shareholders generally because of the deadlock; or
(3) There exists one or more grounds for judicial dissolution of the corporation under
Code Section 14-2-1430.
(b) A shareholder must commence a proceeding under subsection (a) of this Code section
in the superior court of the county where the corporation's principal office (or, if none in
this state, its registered office) is located <ins>or the Georgia State-wide Business Court.</ins> The
jurisdiction of the court in which the proceeding is commenced is plenary and exclusive."
SECTION 9.
Said title is further amended in said chapter by revising subsection (b) of Code Section
14-2-1330, relating to court action, as follows:
"(b) The corporation shall commence the proceeding, which shall be a nonjury equitable
valuation proceeding, in the <ins>Georgia State-wide Business Court or the</ins> superior court of the
county where a corporation's registered office is located. If the surviving corporation is a
foreign corporation without a registered office in this state, it shall commence the
proceeding in the county in this state where the registered office of the domestic
corporation merged with or whose shares were acquired by the foreign corporation was
located."
SECTION 10.
Said title is further amended in said chapter by revising subsection (g) of Code Section
14-2-1602, relating to inspection of records by shareholders, as follows:
"(g) <del>For purposes of</del> <ins>As used in</ins> this Code section, <ins>the term:
(1) 'Proper purpose' shall not include:
(A) An active or pending derivative proceeding in the right of the corporation that is,
or is reasonably expected to be, instituted or maintained by the shareholder; or
(B) An active or pending civil lawsuit to which the corporation and the shareholder are,
or are reasonably expected to be, adversarial named parties.
(2) 'Shareholder'</ins> <del>'shareholder'</del> includes a beneficial owner whose shares are held in a
voting trust or by a nominee on his <ins>or her</ins> behalf."
SECTION 11.
Said title is further amended in said chapter by revising subsections (a), (b), and (c) of Code
Section 14-2-1604, relating to court-ordered inspection, as follows:
"(a) If a corporation does not allow a shareholder who complies with subsection (b) of
Code Section 14-2-1602 to inspect and copy any records required by that subsection to be
available for inspection, the superior court of the county where the corporation's registered
office is located <ins>or the Georgia State-wide Business Court</ins> may summarily order inspection
and copying of the records demanded at the corporation's expense upon application of the
shareholder.
(b) If a corporation does not within a reasonable time allow a shareholder to inspect and
copy any other record, the shareholder who complies with subsections (c) and (d) of Code
Section 14-2-1602 may apply to the superior court in the county where the corporation's
registered office is located <ins>or the Georgia State-wide Business Court</ins> for an order to permit
inspection and copying of the records demanded. The court shall dispose of an application
under this subsection on an expedited basis.
(c) If the court orders inspection and copying of the records demanded, it <del>shall</del> <ins>may</ins> also,
<ins>after a hearing if requested by a party,</ins> order the corporation to pay the shareholder's costs,
(including reasonable attorneys' fees), incurred to obtain the order; <ins>provided, however, that
in no event shall costs be awarded if</ins> <del>unless</del> the corporation proves that it refused inspection
in good faith because it had a reasonable basis for doubt about the right of the shareholder
to inspect the records demanded. <ins>If the court does not order inspection and copying of
records demanded pursuant to Code Section 14-2-1602, it may, after a hearing if requested
by a party, order the shareholder to pay the corporation's costs, including but not limited
to reasonable attorneys' fees, incurred by the corporation in the proceeding if the court
determines that the shareholder's inspection demand was not made in good faith or for a
proper purpose that was reasonably relevant to his or her legitimate interest as a
shareholder."
</ins>
SECTION 12.
Said title is further amended in Chapter 9, the "Georgia Revised Uniform Limited Partnership
Act," by revising subparagraphs (a)(3)(B) and (a)(3)(C) and subsection (b) of and adding a
new subsection to Code Section 14-9-305, relating to inspection of partnership records and
information, to read as follows:
"(B) Promptly after becoming available, a copy of the limited partnership's <ins>filed
</ins> federal, state, and local income tax returns for each year; and
(C) Other information regarding the affairs of the limited partnership as is just, <del>and
</del> reasonable, <ins>and requested for a proper purpose;</ins> provided, however, that a general
partner shall have the right to keep confidential from limited partners for such period
of time as the general partner deems reasonable, any information which the general
partner reasonably believes to be in the nature of trade secrets or other information, the
disclosure of which the general partner in good faith believes is not in the best interests
of the limited partnership or could damage the limited partnership or its business or
which the limited partnership is required by law or by agreement with a third party to
keep confidential.
(b) If the limited partnership or a partner or agent of the limited partnership refuses to
permit the inspection authorized by subsection (a) of this Code section, the limited partner
demanding inspection may apply to the <ins>Georgia State-wide Business Court or the</ins> superior
court for the county in which the registered office of the limited partnership is located,
upon such notice as the court may require, for an order directing the limited partnership,
its partners, or agent to show cause why an order permitting such inspection by the
applicant should not be granted. The court shall hear the parties summarily, by affidavit or
otherwise, <ins>or by a hearing if requested by a party,</ins> and if the limited partnership fails to
establish that the applicant is not entitled to such inspection, the court shall grant an order
permitting such inspection, subject to any limitations which the court may prescribe, and
grant such other relief, including costs and reasonable attorneys' fees, as the court may
deem just and proper. <ins>If the court does not grant an order permitting such inspection and
determines that the request was not just, reasonable, or made for a proper purpose, it may
order the limited partner requesting inspection to pay the limited partnership's costs and
reasonable attorneys' fees.
(c) As used in this Code section, the term 'proper purpose' shall not include:
(1) An active or pending derivative proceeding in the right of the limited partnership that
is, or is reasonably expected to be, instituted or maintained by the limited partner; or
(2) An active or pending civil lawsuit to which the limited partnership and the limited
partner are, or are reasonably expected to be, adversarial named parties."
</ins> SECTION 13.
Said title is further amended in said chapter by revising Code Section 14-9-1002, relating to
requirements for plaintiffs, as follows:
"14-9-1002.
<ins>(1)</ins> Except to the extent provided by the partnership agreement, in a derivative action, the
plaintiff must be a <ins>limited</ins> partner at the time of bringing the action and:
<ins>(1)(A)</ins> Must have been a partner at the time of the transaction of which he <ins>or she
</ins> complains; or
<ins>(2)(B)</ins> His <ins>or her</ins> status as a partner <del>must</del> <ins>shall</ins> have devolved upon him <ins>or her</ins> by
operation of law or pursuant to the terms of the partnership agreement from a person
who was a partner at the time of the transaction.; <ins>and
(2) For a limited partnership with partnership interests listed on a national securities
exchange, at the time of the act or omission complained of, the limited partner owns a
number of partnership interests sufficient to meet the required ownership threshold to
institute a derivative action in the right of the limited partnership identified in the limited
partnership's governing agreement, provided that the required ownership threshold
</ins>
<ins>established by the governing agreement does not exceed 1 percent of the outstanding
partnership interests of the limited partnership."
</ins> SECTION 14.
Said title is further amended in said chapter by revising Code Section 14-9-1004, relating to
expenses, as follows:
"14-9-1004.
If a derivative action is successful, in whole or in part, or if anything is received by the
plaintiff as a result of a judgment, compromise, or settlement of an action or claim, the
court may award the plaintiff reasonable expenses, including reasonable attorneys' fees, and
shall direct him <ins>or her</ins> to remit to the limited partnership the remainder of those proceeds
received by him <ins>or her; provided, however, that the court shall not award plaintiffs
reasonable expenses and attorneys' fees if the sole relief received by the plaintiff as a result
of a judgment, compromise, or settlement of an action or claim is additional or amended
disclosures made to the partners, regardless of materiality."
</ins> SECTION 15.
Said title is further amended in Chapter 11, relating to limited liability companies, by
revising subparagraph (B) of paragraph (2) and paragraph (3) of and adding a new paragraph
to Code Section 14-11-313, relating to records and information, to read as follows:
"(B) Obtain from time to time upon reasonable demand:
(i) True and complete <del>information regarding the state of the business and financial
condition</del> <ins>financial statements</ins> of the limited liability company;
(ii) Promptly after becoming available, a copy of the limited liability company's <ins>filed
</ins> federal, state, and local income tax returns, if any, for each year; and
(iii) Other information regarding the affairs of the limited liability company as is just,
<del>and</del> reasonable, <ins>and demanded for a proper purpose;</ins> and
(3) If the limited liability company refuses to permit the inspection authorized by
paragraph (2) of this Code section, the member demanding inspection may apply to the
<ins>Georgia State-wide Business Court or the</ins> superior court for the county in which the
registered office of the limited liability company is located, upon such notice as the court
may require, for an order directing the limited liability company to show cause why an
order permitting such inspection by the applicant should not be granted. The court shall
hear the parties summarily, by affidavit or otherwise, <ins>or by a hearing if requested by a
party,</ins> and if the limited liability company fails to establish that the applicant is not
entitled to such inspection, the court shall grant an order permitting such inspection,
subject to any limitations which the court may prescribe, and grant such other relief,
including costs and reasonable attorneys' fees, as the court may deem just and proper. <ins>If
the court does not grant an order permitting such inspection and determines that the
demand was not just, reasonable, or made for a proper purpose, it may order the member
demanding inspection to pay the limited liability company's costs and reasonable
attorneys' fees.
(4) As used in this Code section, the term 'proper purpose' shall not include:
(A) An active or pending derivative proceeding in the right of the limited liability
company that is, or is reasonably expected to be, instituted or maintained by the
member; or
(B) An active or pending civil lawsuit to which the limited liability company and the
member are, or are reasonably expected to be, adversarial named parties."
</ins> SECTION 16.
Said title is further amended in said chapter by revising paragraph (4) of Code Section
14-11-801, relating to right of member to bring derivative action, as follows:
"(4) The plaintiff:
(A) <ins>Is</ins> <del>is</del> a member of the limited liability company at the time of bringing the action,;
and
(B) <ins>Was</ins> <del>was</del> a member of the limited liability company at the time of the transaction
of which he or she complains, or his or her status as a member of the limited liability
company has devolved upon him or her by operation of law from a person who was a
member at the time of the transaction; and"
SECTION 17.
Said title is further amended in said chapter by revising Code Section 14-11-807, relating to
applicability to foreign limited liability companies, as follows:
"14-11-807.
In any derivative action in the right of a foreign limited liability company, the matters
covered by this article shall be governed by the laws of the jurisdiction of organization of
the foreign limited liability company except for Code Sections 14-11-803 and 14-11-804
and <del>paragraph</del> <ins>subsection</ins> (b) of Code Section 14-11-806."
SECTION 18.
Said title is further amended in said chapter by revising subsection (b) of Code Section
14-11-1011, relating to court action, as follows:
"(b) The limited liability company shall commence the proceeding, which shall be a
nonjury equitable valuation proceeding, in the <ins>Georgia State-wide Business Court or the
</ins> superior court of the county where a limited liability company's registered office is located.
If the surviving entity is a foreign entity without a registered office in this state, it shall
commence the proceeding in the county in this state where the registered office of the
domestic entity merged with the foreign entity was located."
SECTION 19.
Title 15 of the Official Code of Georgia Annotated, relating to courts, is amended in Chapter
5A, relating to the State-wide Business Court, by revising division (a)(1)(A)(xi) of Code
Section 15-5A-3, relating to authority of court, as follows:
"(xi) That relate to the internal affairs of businesses, including, but not limited to,
<ins>internal entity claims, as such term is set forth in Code Section 14-1-1."
</ins> SECTION 20.
Said title is further amended in said chapter by revising subsections (a), (b), and (c) of Code
Section 15-5A-4, relating to process for bringing a claim before court and filings, as follows:
"(a) Except as provided in subsection (b) of this Code section, all claims provided for
under Code Section 15-5A-3 may only come before the Georgia State-wide Business
Court by:
(1) Any party filing a pleading with the Georgia State-wide Business Court to initiate
a civil action that is not already pending in superior court or state court unless any
defendant within 30 days after receipt by all defendants, through service of process, of
a copy of the initial pleading setting forth the claim for relief upon which such action
is based objects and petitions the Georgia State-wide Business Court to transfer such
action to the superior court or state court with which venue is otherwise proper. The
judge of the Georgia State-wide Business Court shall then compel transfer of the case
to such superior court or state court, unless the action involves:
<ins>(A) A</ins> <del>a</del> contract claim or dispute where all parties are business entities and such
contract provides that such dispute shall come before the Georgia State-wide Business
Court; <ins>or
(B) An internal entity claim, as such term is set forth in Code Section 14-1-1, if either:
(i) the entity’s articles of incorporation, articles of organization, certificate of
limited partnership, written partnership agreement, bylaws, written operating
</ins>
<ins>agreement, or other governing document requires such claim or proceeding to
come before the Georgia State-wide Business Court; or
(ii) the entity is a public company, a private company that conducts a Tier 2
offering under Regulation A of the Securities Act of 1933 or a sale of securities under
Regulation D of the Securities Act of 1933, or an entity composed exclusively of
individuals or entities who would otherwise qualify as accredited investors under Rule
501(a) of Regulation D under the Securities Act of 1933.
</ins> (2) All parties to a civil action already filed in superior court or state court agreeing to
remove the action to the Georgia State-wide Business Court and then filing such
agreement with the Georgia State-wide Business Court, provided that the petition for
removal is filed within <del>60 days</del> <ins>one year</ins> of such action being filed in superior court or
state court; <del>or
</del> (3) Any party to a civil action already filed in superior court or state court filing with
the Georgia State-wide Business Court a petition to transfer such action to the Georgia
State-wide Business Court; provided, however, that:
(A) Such a petition to transfer is filed within <del>60</del> <ins>90</ins> days after receipt by all
defendants, through service of process as provided in Code Section 9-11-4, of a copy
of the initial pleading setting forth the claim for relief upon which such action is
based. The judge of the Georgia State-wide Business Court, after considering the
petition to transfer and all timely responses from the other party or parties in the case,
shall thereafter determine whether the case is within the jurisdiction of the Georgia
State-wide Business Court, and with a presumption that the civil action remains in the
court of filing, the judge may enter an order compelling the transfer of the case to the
Georgia State-wide Business Court unless a party objects within <del>30</del> <ins>15</ins> days of the
filing of the petition to transfer; or
(B) Such a petition to transfer is filed within 60 days after receipt by all defendants,
through service of process as provided in Code Section 9-11-5 or as otherwise
provided by law, of a copy of an amended pleading, motion, order, or other document
from which the party petitioning to transfer may first ascertain that the case is
transferable. The judge of the Georgia State-wide Business Court, after considering
the petition to transfer and all timely responses from the other party or parties in the
case, shall thereafter determine whether the case is within the jurisdiction of the
Georgia State-wide Business Court, and with a presumption that the civil action
remains in the court of filing, the judge may enter an order compelling transfer of the
case to the Georgia State-wide Business Court unless a party objects within 30 days
of the filing of the petition to transfer; <ins>or
(4) The removal of a civil action involving an internal entity claim, as such term is set
forth in Code Section 14-1-1, filed in superior court or state court or sent to the Georgia
State-wide Business Court by such superior or state court, provided that the
requirements of subparagraph (B) of paragraph (1) are met. Paragraphs (2) and (3) of
this subsection shall not apply to claims, actions, or proceedings listed in this
paragraph.
</ins> (b) Notwithstanding subsection (a) of this Code section, the Georgia State-wide Business
Court may transfer to the appropriate superior court or state court any and all claims filed
in the Georgia State-wide Business Court and may reject acceptance of any and all
petitions to transfer or petitions for removal to the Georgia State-wide Business Court,
even if such claims are within the jurisdiction of the Georgia State-wide Business Court
<ins>unless such claims are internal entity claims, as such term is set forth in Code Section 14-
1-1, and the requirements of subparagraph (B) of paragraph (1) are met.
(c) Notwithstanding any other law, when the superior court or state court where a claim
is pending receives a certified copy of an order issued by the Georgia State-wide Business
Court transferring or removing such civil action to the Georgia State-wide Business Court
pursuant to paragraph (2), (3), or (4) of subsection (a) of this Code Section, such superior
</ins>
<ins>court or state court shall certify the transfer or removal from the superior court or state
court to the Georgia State-wide Business Court."
</ins> SECTION 21.
This Act shall become effective on July 1, 2026, and shall apply to all claims or proceedings
initiated on or after such date.
SECTION 22.
All laws and parts of laws in conflict with this Act are repealed.