Georgia For-Profit Corporations
Back to GeorgiaUsing For-profit Corporations to Pursue Social Objectives
The for-profit form of organization can and frequently is used as a vehicle for conducting a business that also has a social mission or objective. Although for-profit corporations are usually formed for the purpose of making money and distributing it to shareholders, there is no reason why a for-profit corporation cannot include a social mission in the purposes clause of its articles of incorporation.
While such a provision would authorize the corporation to pursue social objectives, it would not require the corporation to do so - only the shareholders have this power. And unless all shareholders agree to pursue social aims, dissenters could sue the corporation’s directors and managers for failing to operate the corporation in the best economic interests of the shareholders.
A shareholders’ agreement is probably the best way to address this problem. Such an agreement, entered into by all shareholders and the corporation, would require the corporation to be managed and operated so as to pursue specified social objectives thereby overriding fiduciary duties and similar legal principles that govern “normal” behaviors of for-profit corporations.
But even the most skillfully drafted shareholders’ agreement is not a perfect solution because agreements can always be abrogated and amended and the owners of the shares can change via sale, gift, inheritance or otherwise. Moreover, a tightly drafted shareholders’ agreement which makes it difficult to respond to business changes over time would tend to render the for-profit corporation much less attractive to investors (potential new shareholders). Formation
The Georgia Business Corporation Code, O.C.G.A. § 14-2-101, et. seq. (the “GBCC”) governs the formation, operation and dissolution of for-profit corporations in the State of Georgia. The GBCC authorizes “[o]ne or more persons” to incorporate a corporation by filing articles of incorporation with the Georgia Secretary of State. The articles of incorporation must set forth: (i) the name of the corporation, which must include a word designating that such entity is a corporation (e.g., “corporation,” “incorporated,” etc., or an abbreviation thereof); (ii) the number of shares the corporation is authorized to issue; (iii) the address of the registered office of the corporation in the State of Georgia and the name of the corporation’s registered agent; (iv) the name and address of each incorporator; and (v) the mailing address of the initial principal office of the corporation. In addition, the GBCC sets forth additional provisions that may be included in the articles of incorporation at the option of the incorporation. These include names and addresses of the initial directors; the purpose for which the entity is organized; the power of the corporation, its directors and shareholders; the par value for authorized shares or classes of shares and parameters regarding personal liability of shareholders and directors; and other provisions not inconsistent with law.
The articles of incorporation must be executed and filed by the incorporator or incorporators in accordance with the GBCC, which includes an obligation to publish a notice of such filing in a proper county newspaper. The cost of filing article of incorporation with the Georgia Secretary of State includes a $100 filing fee due at the time of filing the articles of incorporation.
A generic form of articles of incorporation may be found on the Georgia Secretary of State’s website at http://sos.georgia.gov/Corporations/filing procedures_corp_2001.pdf
. In addition, a form of articles of incorporation may be found in “Georgia Corporate Forms” as Form 2.021. See Fischer, David Jon, et. Al., Georgia Corporate Forms, Volume 1 (2005 ed.). Management and Control
A for-profit corporation has a hierarchical control structure. It is managed by or under the direction of a board of directors and its officers, although its shareholders vote on important corporate issues, such as election of directors, mergers, sale of all assets and dissolution.
Similar to a nonprofit corporation, once the for-profit corporation has been established, the initial board of directors meets (in person or by consent), ratifies the acts in connection with initial formation of the corporation and adopts bylaws which set forth the rules and procedures governing the operation and management of the corporation consistent with the applicable statutes of Georgia and the articles of incorporation.
In general, the bylaws of a for-profit corporation contain provisions governing director and officer qualifications, powers and duties; voting; meetings of shareholders, directors and officers; filling of vacancies; committees; property holding and transfer; indemnification of directors and officers; bank accounts; fiscal year audits and financial reports; conflicts of interest; and amendment, merger and dissolution procedures.
A generic form of bylaws may be found in “Georgia Corporate Forms” as Form 2.061. See Fischer, David Jon, et. al., Georgia Corporate Forms, Volume 1 (2005 ed.).Liability of Shareholders, Directors and Officers
In fulfilling their managerial responsibilities, directors are charged with an unyielding fiduciary duty (legal or ethical relationship of confidence or trust) to protect the interests of the corporation and to act in the best interests of the corporation's shareholders. In recognition of the managerial prerogatives granted to directors of Georgia corporations under the GBCC, Georgia law generally presumes that, in making business decisions, the directors of a corporation are disinterested and act on an informed basis, in good faith, with due care and in the honest belief that the action taken is in the best interests of the corporation and its shareholders.
Under the business judgment rule, a court will not second-guess the business decisions of the board, nor impose liability on directors for decisions that in hindsight appear to have been wrong, if the decision was made in good faith for a rational business purpose. This presumption will be rebutted, however, if the directors are shown to have breached their fiduciary duty of loyalty or their fiduciary duty of care. In such an event, the directors will bear the burden of demonstrating that their decisions were entirely fair to the corporation and its shareholders.
The duty of care essentially requires that the corporate fiduciary be attentive and inform himself of all material facts regarding a decision before taking action. The duty of loyalty generally requires that the corporate fiduciary's actions be motivated solely by the best interests of the corporation and its shareholders. For directors to fulfill their fiduciary duties, they must also act in good faith.
Georgia law permits a corporation to make available to its directors and officers separate levels of protection against possible exposure to liability for breach of fiduciary duty. Georgia law permits a corporation to: (i) indemnify its directors and officers for attorneys' fees and other expenses incurred in defending such actions; (ii) advance litigation expenses incurred by directors and officers; and (iii) provide insurance to directors and officers against those expenses incurred by them in their capacity as directors and officers of the corporation, including those expenses which may not otherwise be subject to indemnification. In addition, Georgia law permits a corporation to include in its articles of incorporation a provision eliminating or limiting the personal liability of a director to the corporation and its shareholders for monetary damages for breach of a fiduciary duty as a director. Such provision shall not, however, eliminate or limit the liability of a director: (i) for any appropriation of any business opportunity of the corporation; (ii) for acts or omissions which involve intentional misconduct or a knowing violation or law; (iii) for unlawful distributions; or (iv) for any transaction from which the director derived an improper personal benefit. Raising Capital
For-profit corporations (and LLCs) offer the most flexibility in raising capital, ranging from various kinds of equity (common stock, preferred stock, options, warrants, etc.) to numerous types of debt instruments (convertible notes, subordinated notes, bonds, commercial paper, etc.).Recordkeeping and State Reports
All corporations incorporated in the State of Georgia are required to file an annual registration with the Secretary of State of the State of Georgia. The annual registration filing fee for for-profit corporations is $30.00. The annual registration is to be received no later than April 1st of each year. Taxation
Corporations that do not conduct business in Georgia are not subject to Georgia corporate income taxation. If the corporation is incorporated in Georgia but does not conduct business in Georgia, then the corporation will pay only the annual corporate net worth tax. The amount of the tax shall not exceed $5,000 per taxable year and is based on the net value of the corporation. For foreign corporations doing business in Georgia, the net worth is measured by multiplying the corporation's net worth by the percentage of business the corporation does in Georgia.
Corporate income tax and corporate net worth tax returns are due on the 15th day of the third month following the end of the taxpayer's fiscal year. For example, for corporate taxpayers using a calendar year, the returns are due on March 15.
Georgia corporations doing business in the State of Georgia are subject to Georgia corporate income tax. Unlike sole proprietorships and partnerships, income earned by Georgia for-profit corporations doing business in the state may be subject to double taxation. That is, the corporation pays federal and state taxes on the income it earns and the shareholders are taxed at their personal income tax rate on any profits that are distributed to them by the corporation as dividends. A corporation may, however, elect to be governed by Subchapter S of the Internal Revenue Code to avoid double taxation. Subchapter S corporations are not taxed at the corporation level. Rather, the income and losses of a Subchapter S corporation are passed through to the shareholders in relation to their ownership interests. To be eligible for this tax treatment, S corporations must meet certain requirements including, but not limited to, having only one class of stock and no more than 100 shareholders. Resources
- Secretary of State Corporations Division, www.sos.ga.gov/corporations
- Fischer, David Jon, et. al., Georgia Corporate Forms (2005 Edition)
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