Bill Improves Protections for Directors and Officers of Nonprofits and Electric Cooperatives

Legislation SB 373 was introduced to the Georgia General Assembly in early February 2020. The bill was fashioned after legislation in 2018 that established gross negligence as the standard of care for director or officer actions and decisions in for-profit corporations. Likewise, SB 373 would establish gross negligence as the standard of care for actions and decisions of directors and officers of nonprofit corporations (O.C.G.A. § 14-3-801 et seq.) and electric membership corporations (O.C.G.A. § 14-3-290 et seq.). Specifically the bill provides that a director or officer must perform his or her duties in good faith and with reasonable care. In performing such duties, the director or officer may rely on officers, employees, or agents the director reasonably believed to be reliable and competent.[1] The director or officer may also rely upon information, data, opinion, or reports from third parties whose skills, expertise, or knowledge is reasonably believed to be reliable and within such third party’s professional competence or expertise. There is a presumption of good faith for the process by which the director or officer followed, and such presumption may be rebutted only with evidence of gross negligence.

The bill the passed in the Senate by vote on March 2, 2020, and passed in the House by vote on June 26, 2020. Governor Kemp signed the bill into law on June 29, 2020. The new law eliminates the disparity between the standards of care for service as a director or officer of a for-profit corporation and nonprofit corporations and electric membership corporations.

[1] See O.C.G.A. §§ 14-3-830 and 46-3-303 (directors); §§ 14-3-842 and 46-3-303.1 (officers).