Amendments to Georgia’s Law on Entrepreneurs impose new requirements for single-member companies and strengthen the pre-emption rights of shareholders.
Georgia’s legal reform commitments stem from its Association Agreement with the EU, which came into force on 1 July 2016. The amendments implement EU Directive 2009/102/EC regarding single-member, private, limited-liability companies.
The amendments mean that details of a sole shareholder of new and existing single-member companies, and companies that become single-member companies, will now need to be filed in a publicly accessible register.
All decisions by a sole member must also now be made in writing, as must any agreement between a single-member company and its sole member, other than those made in the ordinary course of business. Previously there was no requirement for the resolutions of a sole member to be evidenced in writing, except where the resolution was subject to registration with the authorities.
To comply with the Second Company Law Directive (77/91/EEC) regarding public limited liability companies, pre-emption rights of shareholders in joint stock companies have also been introduced.
Companies now need to notify shareholders of their pre-emption rights before any issue of new shares (although pre-emption rights will not apply to public offerings). Any resolution to abrogate shareholders’ pre-emption rights must now be made on the strength of a written report of the company’s director or supervisory board, outlining the reasons for cancelling pre-emptive rights over the new issued shares.
Benjamin Paine, partner at Paine Stevens in Tbilisi, Georgia, commented: “While the amendments described in this update represent a positive development in Georgian corporate law, both in transparency and minority shareholder protection, a number of the new provisions still lack precision as to how they will be implemented and penalties for non-compliance. It can therefore be anticipated that further minor amendments will be made to these provisions as the authorities implement them.”