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Legislative updates

Senate Bill 148, effective July 1, 2023, amends provisions of the Georgia Nonprofit Corporation Code regarding, among other issues, duties of the Secretary of State, execution of documents, definitions, member and director meetings, voting, actions without a meeting, directors and officers, director committees, indemnification, inspection of books and records by directors, business opportunities, membership corporation’s assessment of fees, mergers, dissolution, and foreign corporation conversions.

House Bill 153, effective July 1, 2021, amends the "Fair Business Practices Act of 1975," so as to provide for requirements for solicitations of services for corporate filings required by the Secretary of State.

House Bill 306, effective April 29, 2021, provides that unless the articles of incorporation or bylaws provide otherwise, the board of directors of a for-profit corporation or a nonprofit corporation may determine that an annual or special shareholders’ or members’ meeting be held wholly or partially by means of remote communication.

House Bill 230, effective January 1, 2021, provides for the formation of new benefit corporations and for existing corporations to elect to become a benefit corporation. Among other things the bill provides that the board of directors of a benefit corporation shall consider the public benefit or benefits specified in its articles of incorporation when managing or directing the business and affairs of the benefit corporation, and that benefit corporation shall, no less than annually, provide to its shareholders and to any other person who may request a copy in writing, a written report addressing the benefit corporation's performance with respect to its pursuit of the public benefit or benefits specified in its articles of incorporation.

Case summaries

Service of Process on Foreign Corporation
Richards v. Opteum Mortgage, A22A0119, decided June 13, 2022. The Georgia Court of Appeals affirmed the dismissal of an action against a mortgage lender for failure to properly serve process. The mortgage lender was a foreign corporation that was not qualified to do business in Georgia. The plaintiff attempted to serve it by serving the Secretary of State and by mailing process to the last known address. However, as the court noted, both of those methods are authorized to serve a foreign corporation transacting business in the state that was qualified or required to qualify. However, the corporation law states that making loans or creating or acquiring mortgages does not constitute transacting business in the state. Therefore, the mortgage lender was not required to be qualified and the attempts to serve process on it were not authorized.

Service of Process
Rafac v. Jiangsu Linhai Power Machiner Group Corporation, A21A444, decided May 2, 2022. The Georgia Court of Appeals reversed the trial court’s ruling finding service of process on a Chinese entity that did not do business in the United States, was not incorporated or domesticated in Georgia, and did not have a registered agent in Georgia invalid, where service was made on an individual who was the registered agent of a corporation that imported and distributed the Chinese entity’s products. The trial court found service of process improper because the individual served was not the Chinese entity’s registered agent. However, according to the appellate court the trial court erred because there were factual disputes as to whether the individual served was authorized to accept service on the Chinese entity’s behalf even if he wasn’t its registered agent.


General Jurisdiction
Cooper Tire & Rubber Co. v. McCall, S20G1368, decided September 21, 2021. The Georgia Supreme Court declined to overturn its decision in Allstate Insurance Co. v. Klein, 422 S.E.2d 863 (Ga. 1992) in which the court held that Georgia courts may exercise general personal jurisdiction over any out-of-state corporation that is authorized to do or transact business in the state at the time a claim arises. The court acknowledged Klein's general jurisdiction holding is in tension with a recent line of United States Supreme Court cases addressing when state courts may exercise general personal jurisdiction over out-of-state corporations in a manner that accords with the due process requirements of the United States Constitution. However, Klein does not violate federal due process under Pennsylvania Fire Insurance Co. of Philadelphia v. Gold Issue Mining & Milling Co., 243 U.S. 93 (1917) – a decision that the Supreme Court has not overruled. Thus, the court stated that it was not required to overrule Klein as a matter of binding federal constitutional law. It also declined to overrule Klein as a matter of statutory interpretation. Therefore, the court affirmed the Court of Appeals' decision, which followed Klein, and held that the defendant, a non-resident corporation, was subject to general jurisdiction because it was registered to do business in Georgia.

UCC – Misleading Financing Statement
In re Bryant, 2021 Bankr. LEXIS 1528 (M.D. Ga 1628), decided June 7, 2021. The U.S. Bankruptcy Court for the Middle District of Georgia denied a bank’s motion for protection or relief from the automatic stay in connection with the debtor’s bankruptcy filing. The bank claimed relief based on its security interests evidenced by financing statements. However, the court found those financing statements invalid. The debtor’s name was listed on the financing statements using his full first and last names and his middle initial. However, his name as listed on his driver’s license included his full middle name. The court rejected the bank’s argument that Georgia’s UCC law, which requires “the name of the individual, which is indicated on the driver’s license”, does not require the full name. The court noted that the instructions on the UCC-1 form specifically indicate that the filer should use the full name and not abbreviate any part of the name. The court then pointed out that a UCC standard search using the debtor’s full name as stated on his driver’s license did not disclose the bank’s lien, thus rendering the financing statement seriously misleading.

UCC – Seriously Misleading Financing Statement
AgGeorgia Farm Credit, ACA v. Wynn (In re Wynn), 2021 Bankr. LEXIS 883, decided April 2, 2021. The U.S. Bankruptcy Court, Middle District of Georgia, held that the defendant’s UCC financing statement was seriously misleading and ineffective to perfect its security interest because the debtor’s name did not match the name on his driver’s license and because a search done with the filing office’s standard search logic would not have disclosed the defendant’s financing statement.

Inspection of LLC Records
Ridgewalk Holdings, LLC v. Atlanta Apartment Investment Corp., A201968, decided March 4, 2021. The Georgia Court of Appeals held that Sec. 14-11-313 of the LLC law, which permits a member seeking an inspection of an LLC’s books and records to apply to the superior court for an order directing the LLC to show why the inspection should not be permitted applies only where it is undisputed that the party seeking an inspection was still a member of the LLC.

Piercing the Corporate Veil
G & E Construction, LLC v. Rubicon Construction, Inc., A20A1381, decided October 7, 2020. The Georgia Court of Appeals ruled it could not pierce the corporate veil based on evidence that the founder and president of the corporation hired his corporation to renovate his house considering he used his own funds to pay the corporation, nor could it pierce based on a failure to comply with corporate formalities without evidence of wrongdoing, fraud, or bad faith.

Business License
Saks Mgmt. & Assocs. v. Sung General Contracting, Inc., A20A1085, decided August 21, 2020. The Georgia Court of Appeals ruled that a property owner that entered into a construction contract with a corporate general contractor was entitled to summary judgment on the contractor’s counterclaims because the contractor did not have a valid license at the time of entering into the contract.

Doing Business Without a License
LFR Investments LLC v. Van Sant, A20A0142, decided May 1, 2020. The Georgia Court of Appeals held that an LLC that did not have a license to build houses could not enforce a contract to build the defendant’s house. Although its sole member held a license he did not hold it as an agent of the LLC and thus his license could not be imputed to the LLC.

Other notices

January 21, 2022 — The Secretary of State has issued a warning about a phishing scam related to corporate registration. The warning states that Corporation’s Division has received complaints about emails from individuals posing as the Secretary of State’s office. The emails state that the recipient’s Annual Registration was successfully processed by the Secretary of State’s office. The email contains suspicious attachments that may contain viruses or other malware. For more information see the warning on the Georgia Secretary of State’s website here.
January 24, 2020 — The Secretary of State issued an alert to Georgia’s business community about what it calls misleading mailers regarding that ordering of a certificate of existence.
December, 2019 — Georgia’s Secretary of State’s Office has announced that as a part of its continuing anti-fraud and cyber security effort, it is implementing identity proofing services. This identity proofing, known as Experian identity verification, will be used to verify the identity of online filers in connection with certain online filings made through eCorp, the Corporation Division’s online services website. For those online filings requiring Experian identity verification, an online filer will be directed to an Experian webpage where they will enter identifying information and will then be presented with 5 questions designed to confirm the identity of that filer. If the filer answers these questions correctly, they will be able to complete their online filing.

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