Introduction
Georgian new law on “entrepreneurship,” adopted on 2 August of 2021, will enter into force from 01.01.2022. The presented article will not describe all the novelties of this law but will focus on the several strategically critical points regarding the fundamental proprietary rights of the shareholders in LLCs and JSCs. From my viewpoint, these points defect, and they should be urgently corrected to adequately regulate the basic property rights of the different owners of one or another existing corporation in Georgia or companies registered from 01.01.2020.
Uninformed partners of LLCs and JSCs
All sources of the best practice of corporate governance unanimously declare that informational transparency of the company and issuing complete information for the company’s partners are the core principles of corporate governance. A new law at several points does not meet the real essence of these principles.
All kinds of property (material/nonmaterial) right with many specifications consists of getting the complete information about the subject of this right. Like material property, a share is also the subject of the property, and a new law declares it.
According to the law of “entrepreneurship” of Georgia:
- The governing body of the LLC within a reasonable period upon request of the company’s partners is obliged to provide any information regarding the company’s activities and ensure to look through official documentation of the LLC for the partners. 2. To refuse to provide a piece of information is possible to protect the substantial interests of the LLC. The refusal should be made in a written form. Refusal to provide information is also permissible if the requested information is publicly available.” (First and second sub-clauses of 146th article).
Approximately the same condition is defined regarding the JSC’s. Particularly: “The governing body of JSC has the right to refuse to issue an information on behalf of the shareholder if: a) there is a possibility that an issued information may importantly harm the company; b) Issuing an information will cause disclosure of confidential information.” (“a” and “b” sub-clauses 3 of an article 202).
Besides, a new law regulates: “Shareholders holding 5 percent of the voting rights following this law or the company’s charter are authorized to request from the relevant governing body of the JSC the transactions concluded on behalf of the JSC. The relevant body is authorized, because of the interests of the company refuse to issue requested information.” (Sub-clause “a” of the first clause of an article 173).
All the described legal norms limit shareholders’ fundamental right to be informed appropriately about their own company. There is no defined what should be
- “The substantial interest” of the LLC.
- How can we measure a possibility to “harm the company interests,” and how can we imagine that the possession of the shares and being informed about own property may cause the “damage” for the company?
- What is meant under “confidential information,” while the owner has the right to be fully informed about their property.
If a company has the “commercial secret” and this information is not allowed to the owner of the company, it means the destruction of the meaning of the possession of the nonmaterial good “shares;” d) the governing body of the corporation is appointed by the shareholders’ meeting and in some cases by the supervisory board. This appointment aims to serve the company’s best interests. One of the best interests is to inform shareholders about the company’s activity adequately. Suppose any shareholder appoints any director, and this director is authorized to hide information for the shareholder. In that case, it will demotivate another potential investor to integrate into one or another company, and as a result, it blocks the healthy lifecycle of the corporations.
Considering all the above mentioned, I recommend making adequate legislative amendments affecting these legal norms on behalf of the shareholders, as they should be properly and fully informed about their investment at any time.
The civil code of Georgia declares that: “1. A possessor of a claim or a right that can be assigned or pledged may transfer it to the ownership of another person. Claims and rights are transferred to a new owner in the same state in which they existed with the former possessor. 2. The former possessor shall hand over to the new possessor all the documents in their possession that are related to the claims and rights, as well as all information necessary for exercising those claims and rights”. (First and second clauses of an article 198).
In case of the above mentioned new legal norms are entered into force, and the shareholder of the company decides to sell their shares, they will not be able to fully meet the demands of the quoted norm from the civil code of Georgia, and it may cause additional adverse challenges for the shareholder.
Loss or cancellation of the partners’ shares
According to the law of “entrepreneurship” of Georgia: “the partner should notify the LLC about their decision concerning the withdrawal from the company and its reasons in a writing form. When the company receives notification, the governing body of the company shall notify other partners of the withdrawal of that partner, after which the partners decide to consent to the withdrawal of the partner from the company, as well as transfer their share for the benefit of the company, proportionally divide their shares to other partners or cancel the shares.” (Third clause of the 144 article).
As I mentioned above, Georgian legislation describes that the share is proprietary private ownership of the partner, and it has individual financial value. Defined legal norm nowhere considers possible prerequisites, which may be reasonable to get such a result. Particularly, if the share is the private property with the estimated financial value and the partner wants to withdraw by selling their private share, they lose everything connected to it because the legal norm has a strict meaning without prerequisites and exceptions. There is no answer to the questions: A) Why should these shares be divided on behalf of the company and/or on another partner. Moreover, if the company and/or other partners vice versa may have a different financial obligation for the benefit of this partner? Without any requirements and qualifications, this legal norm seizes the partner’s fundamental right to get compensation or get such compensation if the company financially estimates the value of the share and, after this procedure to pay compensation for the financial value of the share. B) Why company cancels the shares? The most dramatic scenario whiteout the good legal prerequisites, which the quoted legal norm is not described.
The best solution is to give a possibility for the shareholder to get fair financial compensation based on the independent valuation report of the partner’s share.
Levan Kokaia
Master in Law. Attorney at Law. Legal consultant on corporate governance issues. Member of Georgian Bar Association. Author of more than 45 publications. Guest lecturer and trainer at GIPA.
Leave a comment
Really enjoyed this blog post.Much thanks again. Will read on…
Thanks for a marvelous posting! I genuinely enjoyed reading it, you may be a great author.I will ensure thatI bookmark your blog and will often come back someday.I want to encourage you to ultimately continue your great writing, have a nice day!
Thanks for every other magnificent article. Where else could anyone get that type of information in such an ideal means of writing? I have a presentation subsequent week, and I am at the look for such information.
apomorphine and tadalafil best generic tadalafil
I loved your blog article. Great.
wow, awesome article. Want more.
I really liked your article.Thanks Again.
Looking forward to reading more. Great blog post.
Looking forward to reading more. Great blog post. Want more.
I truly appreciate this blog.Thanks Again. Cool.
hydroxychloroquine side effects eye hydroxychloroquine hydroxyl chloroquine
Asking questions are in fact pleasant thing if you are not understanding something fully, but this article presents pleasant understanding even.
Fabulous, what a blog it is! This blog presents valuable information to us, keepit up.
There is definately a great deal to know about this subject.I love all of the points you’ve made.Here is my blog: Layered Necklace
It as actually a great and helpful piece of information. I am happy that you just shared this helpful tidbit with us. Please keep us informed like this. Thank you for sharing.
Thanks for your personal marvelous posting! I really enjoyed reading it, youmight be a great author. I will make certain tobookmark your blog and will come back from now on. I want to encourage you continue your great writing, havea nice day!
hi!,I like your writing so a lot! percentage we be in contact extra approximately your article on AOL? I need an expert in this house to unravel my problem. Maybe that’s you! Having a look forward to look you.
hello!,I really like your writing so a lot! sharewe communicate extra approximately your article on AOL?I need an expert on this space to resolve my problem.May be that’s you! Having a look ahead to see you.
Hi, I do think this is a great blog. I stumbledupon it 😉 I will come back once again since I saved as a favorite it. Money and freedom is the best way to change, may you be rich and continue to guide others.
Good way of telling, and fastidious paragraph to take information about my presentation focus, which i am going to convey in academy.
Very good info. Lucky me I recently found your blog by accident (stumbleupon). I have book-marked it for later!
natural pills for ed natural ed remedies – natural help for ed
I don’t unremarkably ϲomment but I gotta ѕay appreciate it for thе post on this grеat one :D.
slots games slots games free vegas slots online
It now functions prominently as the higher roller card gameof option across Asia, Europe, and the Americas.
It’s actually a nice and useful piece of information. I am satisfied that you just shared this helpful info with us. Please stay us informed like this. Thanks for sharing.
ivermectin interactions ivermectin dosage
Hello There. I found your blog using msn. This is a really well written article.I’ll be sure to bookmark it and return to read more of your useful info.Thanks for the post. I’ll definitely comeback.
Normally I don’t read post on blogs, however I would like to say that this write-up very compelled me to try and do so! Your writing taste has been surprised me. Thanks, quite nice post.
I discovered your weblog website on google and test a few of your early posts. Proceed to maintain up the very good operate. I simply additional up your RSS feed to my MSN News Reader. Seeking ahead to studying more from you in a while!…
Wow that was unusual. I just wrote an extremely long comment but after I clicked submit my comment didn’t appear. Grrrr… well I’m not writing all that over again. Anyways, just wanted to say wonderful blog!
hello there and thank you for your info – I have definitely picked up anything new from right here. I did however expertise some technical issues using this site, as I experienced to reload the website lots of times previous to I could get it to load correctly. I had been wondering if your web host is OK? Not that I am complaining, but sluggish loading instances times will very frequently affect your placement in google and could damage your high-quality score if advertising and marketing with Adwords. Well I’m adding this RSS to my e-mail and could look out for a lot more of your respective exciting content. Make sure you update this again very soon..
Valuable info. Lucky me I found your web site by accident, and I’m shocked why this accident didn’t happened earlier! I bookmarked it.
I have been reading out a few of your articles and i must say nice stuff. I will definitely bookmark your website.
Wow! This could be one particular of the most useful blogs We have ever arrive across on this subject. Basically Great. I am also a specialist in this topic so I can understand your effort.
Hi there! Would you mind if I share your blog with my myspace group? There’s a lot of people that I think would really enjoy your content. Please let me know. Many thanks
It’s really a nice and helpful piece of info. I am happy that you just shared this useful information with us. Please keep us informed like this. Thanks for sharing.
medication for ed canadian pharmacies shipping to usa canadian pharmacy
I do agree with all the ideas you have presented in your post. They are very convincing and will definitely work. Still, the posts are very short for beginners. Could you please extend them a bit from next time? Thanks for the post.
I’m now not sure where you’re getting your info, however great topic. I must spend a while studying much more or understanding more. Thank you for wonderful info I used to be on the lookout for this information for my mission.
psychological side effects of prednisone prednisone tablets
Woah! I’m really digging the template/theme of this site. It’s simple, yet effective. A lot of times it’s hard to get that “perfect balance” between usability and appearance. I must say you’ve done a amazing job with this. In addition, the blog loads very quick for me on Internet explorer. Exceptional Blog!
My family all the time say that I am wasting my time here at net, except I know I am getting knowledgeeveryday by reading thes nice articles or reviews.
When some one searches for his necessary thing, thus he/she wants to be available that in detail, so thatthing is maintained over here.Here is my blog post … omega 3 fatty acids
I truly appreciate this blog. Really Cool.
There is definately a great deal to find out about this issue. I love all of the points you ave made.
ivermectin for coronavirus mayo clinic ivermectin for cancer in humans
Hi mates, its impressive paragraph concerning tutoringand entirely explained, keep it up all the time.
Great post it is definitely. We have been searching for this info.
Very neat blog post.Much thanks again. Really Cool.
compounded tadalafil troche life span aurochem laboratories tadalafil
Thanks a lot for the blog.Really thank you! Cool.
Wow! This could be one particular of the most useful blogs We have ever arrive across on this subject. Actually Excellent. I am also an expert in this topic so I can understand your hard work.