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10 Major Amendments to the Law of Georgia on Entrepreneurs

The recent amendments to Law of Georgia on Entrepreneurs obliges Georgian entities to update their incorporation documents to be in compliance with the new regulations by January 1, 2024.

  1. What’s inside the incorporation documents
  • The Charter: This part explains the core principles and rules governing the organization. It covers matters including decision making, purpose of the organization, key governing bodies etc.
  • Other Required Information: Beyond the charter, the law requires additional details to be included in the Articles of Association.
  1. Company Naming

Unlike, old regulations, according to the new regulations, companies are not allowed to have identical names. Other than that, the names selected for the company should not be:

  • Anti-state / calling for / propagandizing violence;
  • Discriminatory or against public order;
  1. Types of Shares

The new regulations introduce the following types of shares:

  • Authorized Shares – as the total number of shares is something that an LLC is allowed to issue or create. The company decides how many shares they want to have in total, and this number is written down in their Articles of Association.
  • Issued Shares – When a company creates or “issues” a share, that might not be owned by a specific partner yet.
  • Placed Shares – when the company transfers or “places” a share into the hands of a partner, then shares are becoming as the shares that have been officially assigned to specific partners.
  1. Business Letter and Website

The law legislation requires a company to keep a record of their business letters and website content to help third parties easily find accurate information about the company. Information that should inserted in the company letters: In both, physical and electronic business letters, (and on the website, if the company has one):

  1. Trademark
  2. Legal Address
  3. Identification Number
  4. Information about the Company Capital
  5. Special Notice: If the entrepreneurial company is going through processes like liquidation, insolvency, rehabilitation, or bankruptcy.
  6. If It’s a Branch of a Foreign Business: If the company is a branch of a foreign business, it should include information about the registering authority and the registration number.
  1. Management Agreement

In the context of entrepreneurial activities, the person who leads or manages a company, isn’t considered an employee in the traditional sense. This is because their role is specific and different from regular employees, and standard labor law don’t apply to them. However, there is something called an “Management Agreement” that can be established between this directorand the company. This contract is a legal agreement that outlines the responsibilities and obligations of both parties concerning the work to be done.

  1. Dividend Distribution

According to the new legislation, a company cannot distribute dividends if there’s a high likelihood that doing so would prevent the company from meeting its financial commitments for the next calendar year, considering its normal and planned activities.

  1. Purchase of its own Shares by LLC

Under the new legislation, LLC is allowed to buy its own shares. However, there are some restrictions:

  1. The LLC cannot buy shares that grant unlimited voting rights or the right to receive its assets if the company is liquidated.
  2. If the LLC does buy such shares, it must either sell them or cancel them before the end of the same calendar year in which they were purchased.

In simpler terms, an LLC can buy its own shares, but not the ones that come with special privileges. If it mistakenly buys suchspecial shares, it needs to get rid of them by the end of the year.

  1. Deregistration of a company

  A company deregistration can happen in the following circumstances:

  • Winding up of the Company: due to a decision made by the partners, a court decision based on a partner’s request or lawsuit
  • Liquidation
  • Cancellation of Registration: Once the company’s property is fully distributed during the liquidation process, the final step is to request the registering authority to cancel the company registration,that officially ends its
  1. Withdrawal or Expulsion of a Partner 
  • Withdrawal of a Partner – A partner in an LLC has the right to leave the company. The main reason for a partner to withdraw is when they believe that they are suffering significant unfair harm or damage to their interests within the company.
  • Expulsion of a Partner – Expelling a partner from an LLC can only happen if the LLC takes legal action against the partner and a court decides that there is a significant and valid reason for the expulsion.
  1. Commitment to Compliance

Companies shall navigate the new legislative landscape successfully until January 1 of 2024. Failing to promptly adapt to the updated legislation could lead to liquidation proceedings.

 

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