Georgia’s corporate governance reform: Key changes under HB 1185

Expansion and Restructuring of the Georgia State-wide Business Court’s Jurisdiction

Defining “Internal Entity Claim”: HB 1185 introduces the term “internal entity claim” in O.C.G.A. § 14 1 1, which broadly covers claims, actions, and proceedings arising under Title 14 of the Georgia Code, “Corporations, Partnerships, and Associations.” These include derivative claims, fiduciary and other internal governance claims, valuation proceedings, and actions involving court-ordered inspection of entity records. The term also includes any shareholder or member action challenging the sufficiency of an entity’s disclosures or alleging a breach of a disclosure duty, whether or not the action is framed as derivative. HB 1185 also amends O.C.G.A. § 15-5A-3(a)(1)(A)(xi) to incorporate this new definition, making clear that all internal entity claims fall within the Business Court’s subject-matter jurisdiction.

Mandatory Jurisdiction Over Internal Entity Claims: HB 1185 requires the Georgia State-wide Business Court to hear and retain internal entity claims involving qualifying entities.¹ New paragraph O.C.G.A. § 15-5A-4(a)(4) also creates a separate removal path for such claims already pending in superior or state court, and claims removed under that provision are not subject to the existing consensual removal or unilateral petition-to-transfer procedures. Once a qualifying internal entity claim is filed in or removed to the Business Court, the court may not reject or transfer it. In practical terms, HB 1185 departs from the Business Court’s traditional two-party consent model for entities tied to public markets or regulated capital formation. For these qualifying entities, any party may require an internal entity claim to proceed in the Business Court over the opposing party’s objection, even absent authorizing language in the entity’s governing documents. For entities that do not independently qualify, mandatory jurisdiction exists only if the governing documents designate the Business Court as the exclusive forum for internal entity claims; otherwise, the existing two-party consent framework remains in place.

Expanded Jurisdiction Over Valuation and Other Entity Proceedings: HB 1185 expands the Georgia State-wide Business Court’s jurisdiction to several categories of entity litigation previously available only in superior court: 

• Proceedings to compel the purchase of shares under O.C.G.A. § 14 2 916;
• Petitions for relief involving statutory close corporations under O.C.G.A. § 14 2 940;
• Dissenting shareholder appraisal actions under O.C.G.A. § 14 2 1330;
• LLC valuation proceedings under O.C.G.A. § 14 11 1011;
• Inspection proceedings for shareholders, limited partners, and LLC members under O.C.G.A. §§ 14 2 1604, 14 9 305, and 14 11 313, respectively. 

In each case, the superior court of the county where the entity’s registered office is located retains concurrent jurisdiction.

Forum Selection in Governing Documents: HB 1185 amends O.C.G.A. § 14 2 202(b) to permit Georgia corporations to require, through their articles of incorporation, that any or all internal entity claims be brought exclusively in the Georgia State-wide Business Court. HB 1185 also extends that authority to bylaws under new subsection O.C.G.A. § 14 2 206(c), enabling boards to adopt such forum-selection provisions without shareholder approval.

Extended and Revised Timelines: HB 1185 amends O.C.G.A. § 15-5A-4 to extend the deadline for consensual removal of a pending case to the Georgia State-wide Business Court from 60 days to one year after filing in superior or state court. It also extends the deadline to file a unilateral petition to transfer from 60 to 90 days after service of process, while shortening the deadline to object from 30 to 15 days.

Changes to Derivative Action Standing and Procedure

Derivative Shareholder Ownership Threshold for Listed Corporations and Limited Partnerships: HB 1185 amends O.C.G.A. § 14 2 741 and O.C.G.A. § 14 9 1002 to allow corporations and limited partnerships listed on a national securities exchange to require a minimum ownership stake to bring derivative claims. The threshold may be set in the corporation’s articles or bylaws or in the limited partnership’s governing agreement but may not exceed 1 percent of the outstanding shares or partnership interests.

Elimination of “Disclosure Only” Fee Awards: HB 1185 adds subsection (b) to O.C.G.A. § 14 2 746, which provides that additional or amended shareholder disclosures do not constitute a “substantial benefit to the corporation” for purposes of awarding a plaintiff’s reasonable expenses, regardless of materiality. As a result, “disclosure-only” settlements can no longer support fee awards in corporate derivative actions. HB 1185 makes a parallel change for limited partnerships by amending O.C.G.A. § 14 9 1004 to bar fee awards when the only relief obtained is additional or amended disclosures to partners.

Restrictions on Shareholder, Partner, and Member Inspection Rights

New “Proper Purpose” Limitation on Inspection Rights: HB 1185 imposes a “proper purpose” requirement on inspection rights for shareholders, limited partners, and LLC members. For shareholders, new O.C.G.A. § 14-2-1602(g)(1) provides that a proper purpose does not include requests related to active or anticipated derivative proceedings brought on the corporation’s behalf or to active or anticipated adversarial litigation between the shareholder and the corporation. If the court denies inspection and finds the shareholder’s request was not made in good faith or for a proper purpose, it may require the shareholder to pay the corporation’s costs and reasonable attorneys’ fees. HB 1185 applies the same requirement, with parallel exclusions, to limited partners under O.C.G.A. § 14-9-305 and LLC members under O.C.G.A. § 14-11-313.² If a court denies inspection and finds the partner’s or member’s request unjustified, unreasonable, or not made for a proper purpose, it may require the limited partner or LLC member to pay the entity’s costs and reasonable attorneys’ fees. 

Discretionary Fee Awards in Shareholder Inspection Proceedings: HB 1185 amends O.C.G.A. § 14 2 1604 to make cost awards in shareholder inspection proceedings discretionary rather than mandatory. Even then, a court may not award costs if the corporation shows it denied inspection in good faith based on a reasonable doubt about the shareholder’s inspection rights. If the court denies inspection, it may require the shareholder to pay the corporation’s costs and reasonable attorneys’ fees if the demand was not made in good faith or for a proper purpose.

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If you have any questions about this Legal Briefing, please feel free to contact any of the attorneys listed or the Eversheds Sutherland attorney with whom you regularly work. 

_{1 A qualifying entity is one whose governing documents require internal entity claims to be brought before the Georgia State-wide Business Court, or that is (i) a public company, (ii) a private company that conducts a Tier 2 offering under Regulation A or a sale of securities under Regulation D of the Securities Act of 1933, or (iii) an entity composed exclusively of accredited investors under Rule 501(a) of Regulation D.}

_{2 HB 1185 also amends O.C.G.A. § 14‑11‑313 to change an LLC member’s entitlement from “information regarding the state of the business and financial condition” to “financial statements of the limited liability company,” a potentially narrower formulation.}