Georgia Case Law Update: Georgia Employees who participate in a Georgia company’s Employee Stock Ownership Plan ("ESOP") can now enjoy certain shareholder rights under Georgia law.
In a case of first impression, the Georgia Court of Appeals decided that Georgia employees who participate in their Georgia company’s ESOP can qualify for certain shareholder rights in their company even though they do not hold actual shares in the company. In this case, the former part-owner of Kelley Manufacturing Co.’s ("KMC") had retired and two employees within the KMC stepped up to become the new Chairman of the Board of Directors (“Chairman”) and Chief Executive Officer (“CEO”). Over the course of a few months, the former owner became dissatisfied at how the new Chairman and CEO were running the business. Using proxies from the other employees, he had the Chairman and CEO removed from office. While the employees were fired from their positions within the company, they still held onto their interests in the ESOP.
OCGA § 14-2-140 (27) defines "shareholder" as "the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation." OCGA § 14-2-1602 (g) also provides that, for "purposes of this Code section, ‘shareholder’ includes a beneficial owner whose shares are held in a voting trust or by a nominee on his behalf." In this case, the fired employees did not technically fall under these definitions, because 100 % of the shares of KMC are owned by the ESOP, which is the registered owner in corporate documents. There was no nominee or voting trust on file with KMC regarding these shares. The statement of account issued yearly to each ESOP participant, however, reflects that the account is measured in "shares" vested in that participant. Also, the ESOP participants were referred to as shareholders.
The Georgia Court of Appeals was persuaded by case law from other states around the country that have found that ESOP participants are the beneficial owners of shares in a company and entitled to exercise shareholders’ rights, including inspection of the corporate records.
BUSINESS LAW: Corporate Documents, Shareholder’s Rights; CIVIL PRACTICE: Standing; GOVERNMENT: Pre-emption; EMPLOYMENT: ERISA
Kelley Mfg. Co. v. Martin
A08A1891 (civil case)
February 20, 2009
Smith, Presiding Judge.
09 FCDR 631 (03/13/09)
