PIPE Transactions under Georgian Law
A PIPE (Private Investment in Public Equity) in Georgian practice means the private, non-public placement of a joint-stock company’s new shares, regulated by the Law of Georgia on Entrepreneurs. Through this route the company increases its capital by issuing additional shares and placing them with a specific investor on negotiated terms. As in other jurisdictions, shareholders by default hold a pre-emptive right, whose use — or lawful limitation — is a decisive element of the transaction plan. Where the offer becomes a mass offer, the public-offering regime established by the securities legislation may also come into play, so the placement circle must be planned precisely from the outset.
The legal framework of a private placement clusters around three articles: the decision on a capital increase and the pay-up requirements for the shares, the instrument of authorized capital, and the shareholders’ pre-emptive right. Each demands its own sequence, and neglecting any of them creates the risk of the decision being challenged or the transaction stalled.
The Capital Increase Decision and the Pay-Up of Shares
Unless the charter provides otherwise, a decision to increase capital by issuing additional shares is taken by the general meeting by at least 3/4 of the votes of the participants in the vote. The decision must indicate the number and type of shares to be placed, as well as the procedure and conditions of their placement — this list is mandatory at the drafting level, and blanket formulations amount to a defect in the decision.
The pay-up requirements are equally clear: at the moment of placement, the shares issued upon a capital increase must be paid up at no less than 25 percent of the nominal value — or, where there is no nominal value, no less than 25 percent of the value established by law. Where shares are issued at a higher price, the difference must be paid in full. For a non-cash contribution, the contribution must be completed within 5 years of the decision and must be appraised and published in the manner established by law; such appraisal is not required in the context of a public offering or a merger or division.
Authorized Capital: The Fast Placement Channel
Especially important for PIPE transactions is the authorized-capital instrument: by the charter or a decision of the general meeting, the company’s governing body may be empowered to decide itself on the issue of new shares up to the charter-established maximum. The maximum term of this authorization is set by the charter and may not exceed 5 years, and the maximum number of new shares issued may not exceed 50 percent of the authorized shares.
Where the power to issue new shares is granted not by the charter but by a decision of the general meeting, that decision must be published. The founding agreement or the general meeting’s decision may indicate the number, class and minimum price of the shares to be placed, as well as additional conditions. These requirements also apply to the issue of other securities convertible into shares, but not to the conversion itself.
The Shareholders’ Pre-emptive Right
Where the general meeting decides to issue new shares, the pre-emptive right to acquire them belongs first to the holder of shares of the same class, and then to the other shareholders, in proportion to their holding. The right may be cancelled by a decision of the general meeting adopted by a majority of the votes of the participants in the vote, or — for an increase within authorized capital — by a decision of the governing body adopted with the prior consent of the general meeting.
The law attaches two safeguards to cancellation: shareholders holding at least 2/3 of the total votes must be represented at the meeting, and the decision may be adopted only on the basis of the governing body’s written report, which justifies the grounds for cancellation and the value of the new issuance. The decision must be published. An exception exists: the pre-emptive right is not considered cancelled where the shares are issued to a commercial bank, a microbank or a brokerage company on the condition that they offer the shares received to the company’s shareholders for pre-emption.
Notice and deadlines: the company must notify holders of at least 1 percent of the voting shares by registered letter, and the remaining shareholders by registered letter or by publishing the information on its own website or on the registrar’s electronic portal. Shareholders must be given at least 14 days to exercise the right, counted from the delivery of the notice or the publication. The pre-emptive right does not apply to shares issued for the compensation of management or employees (unless not used as designated), to shares issued for a non-cash contribution, or to the renewed placement of the company’s repurchased own shares.
Frequently Asked Questions
What majority decides a capital increase?
The general meeting decides by at least 3/4 of the votes of the participants in the vote, unless the charter provides otherwise. The decision must state the number and type of shares and the procedure and conditions of placement.
How much must be paid up at placement?
At least 25 percent of the value at the moment of placement, and where shares are issued at a higher price the difference is paid in full. A non-cash contribution must be completed within 5 years of the capital increase decision.
Can placement happen without a general meeting?
Yes — within authorized capital, the governing body empowered by the charter or the general meeting may issue new shares itself. The authorization may not exceed 5 years, and the new shares may not exceed 50 percent of the authorized shares.
How is the pre-emptive right restricted in a PIPE?
Only by a general meeting decision or, within authorized capital, by a governing body decision with the general meeting’s prior consent. At least 2/3 of the total votes must be represented at the meeting, and the decision rests on the governing body’s written report.
How long do shareholders have for pre-emption?
At least 14 days from delivery of the notice or from publication. Holders of more than 1 percent of the shares are notified by registered letter.
How We Help on Legal.ge
On Legal.ge you can find corporate law lawyers who will help you through the entire PIPE cycle: from drafting the capital increase decision and using the authorized-capital instrument, to lawfully restricting the pre-emptive right and running the shareholder notification procedure. Choose a specialist and plan the transaction so that its decisions withstand challenge.