Corporate Deadlock – and Dissolution

Earlier we described how court appointment of an impartial provisional director was no longer available by statute in Georgia for deadlocked boards of “garden variety” profit corporations. (But it is available for both Georgia non-profit corporations, and for Georgia statutory close corporations.) Now it is time to discuss a statutory remedy that is simple and powerful, and available to shareholders of Georgia profit corporations; judicial dissolution.

At an impasse? Not getting along with your corporate business “partner” or fellow shareholder? Can’t find a way to talk about the disagreements, much less resolve them? Judicial dissolution of your corporation may be where you are headed.

By statute in Georgia ¹, shareholders can achieve judicial dissolution of a Georgia profit corporation if they can show any of the following alternatives (paraphrased):

1. The directors are deadlocked in management of corporate affairs, the shareholders can’t break it, irreparable corporate injury is threatened or being suffered or the corporation’s business and affairs can no longer be conducted to the advantage of the shareholders generally, because of the deadlock;
2. Illegal or fraudulent acts by directors or others controlling operations or management, with at least 20% of all outstanding shares petitioning;
3. Deadlocked shareholders have failed for two (2) consecutive annual meetings to elect successors to directors with expired terms; or
4. Corporate assets are being misapplied or wasted.

The unhappy shareholder who petitions, naturally bears the burden of proving one or more of these alternate grounds by a standard of “more likely than not”. Because of the consequences, both intended and not, dissolution are so far reaching, the mere filing of a petition based on these grounds may be enough to start discussions among quarreling shareholders. Because inevitably, and depending on the facts, one party always has more to lose than the other, and that means power.

Next we will look at statutory receivership in similar situations.