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.