Key Take-Aways
- Georgia recently enacted HB 1185, effective July 1, 2026, which significantly reforms the state’s corporate governance and shareholder litigation laws
- Georgia’s revised framework offers modernized, business-friendly features similar to those recently adopted in Delaware, Nevada, and Texas to attract incorporations
- The reforms include expanded access to the state’s business court for shareholder claims and enable corporations to adopt derivative standing requirements and greater liability protections for corporate officers
- The reforms also offer corporations greater protections against fee awards related to disclosure-only claims and books and records inspections
Georgia Governor Brian Kemp recently signed HB 1185, enacting notable reforms that reshape the landscape for the state’s shareholder litigation laws. States like Delaware, Nevada, and Texas have also taken up changes in recent years to modernize their corporate governance and shareholder litigation laws amid the so-called “DExit” debate—where Delaware companies have considered reincorporating in other states like Nevada or Texas. In adopting HB 1185, which becomes effective July 1, 2026, Georgia has joined the fray through reforms that similarly provide greater clarity, predictability, and protections for companies and their directors and officers. Below addresses a few highlights of the reforms.
Expanded Business Court Access
HB 1185 expands the criteria and mechanisms for an “internal entity claim” to fall within the jurisdiction of Georgia’s State-wide Business Court. Under the newly signed law, internal entity claims include derivative actions, fiduciary duty claims, valuation proceedings, books and records inspection claims, and disclosure challenges. The newly enacted legislation also permits corporations to adopt articles of incorporation or bylaws requiring such claims to be brought solely and exclusively in the State-wide Business Court. In addition, HB 1185 extends the 60-day deadline to remove cases from the state court or superior court to the State-wide Business Court, as a party may now petition for removal within 90 days, and the timeline is further increased to up to one year if all parties agree to the removal. And while the Business Court retains discretion to reject some removals, it may not do so for internal entity claims.
Ownership Threshold for Derivative Standing
HB 1185 permits an additional requirement for any shareholder looking to bring a derivative action. Under the new law, public corporations and publicly listed limited partnerships can impose minimum ownership thresholds (up to 1%) to bring derivative claims.
Exculpation for Officers
HB 1185 adds officer exculpation to the existing statute already permitting exculpation of directors. The expanded law permits a company’s articles of incorporation to eliminate or limit officer liability for monetary damages—though subject to exceptions such as intentional misconduct, willful violations of law, misappropriation of business opportunities, liability for unlawful distributions, and transactions that provide improper personal benefits.
Disclosure-Only Fees
Fee awards for disclosure-only settlements (often called “mootness fees”) have been under intense scrutiny over the past decade. Under HB 1185, “additional or amended disclosures made to shareholders, regardless of materiality” do not constitute a “substantial benefit to the corporation” as required to award fees to plaintiffs for derivative proceedings on behalf of a corporation or limited partnership.
Books and Records Reforms
HB 1185 does away with mandatory awards of costs to a successful shareholder in a books and records demand by providing courts with discretion to decline such awards if the corporation refused inspection in good faith. The new law also enables courts to award fees to corporations (as well as limited partnerships and LLCs) if the inspection demands were not in good faith or for a proper purpose. And notably, HB 1185 also limits what qualified as a “proper purpose,” excluding pending derivative proceedings from the scope.
Practical Considerations
The enactment of HB 1185 provides several new items for Georgia corporations to assess with counsel. In addition to new standards and requirements related to books and records demands and general business court access, new or existing Georgia corporations and their counsel should assess whether to adopt or revise their corporate charters and bylaws to include provisions expressly permitted by HB 1185. Such potential items include the ability to adopt expanded officer protections, derivative standing requirements, and designating Georgia’s State-wide Business Court as the exclusive venue for internal entity claims.
