Investment Contracts — the Joint Activity Model
Structuring international investment projects in Georgia frequently relies on the joint activity (partnership) institute of the Civil Code. Under Article 930, by a joint activity contract, a number of persons undertake to act jointly to achieve common economic or other objectives by means defined in the contract, without creating a legal person. That last detail defines the model’s nature: the partners cooperate, but no new legal entity is born.
From an investment perspective this is a flexible form: a foreign investor and a Georgian partner build a common project — construction, production, a technology platform — while each retains its own legal form and the relationship is defined by the contract. Questions of international investment protection — investment treaties and arbitration — belong to a separate field of international law and require separate analysis.
Form and Mandatory Content
Article 931 provides that a joint activity contract may be concluded in writing or orally. For an investment project the oral form is legally conceivable but practically worthless; the written contract must contain: the names and addresses of the participants; data on the type and purpose of the joint activity; the rights and obligations of the participants; the structure and functions of the management bodies; the procedure and conditions for distributing income and loss; the procedure for withdrawal from the contract; the duration of the activity; and the procedure for terminating the contract and distributing the remaining property.
This list is a reliable checklist for an investor: every item — from management to exit — is a potential point of dispute, and defining it in the contract is precisely the step that pre-empts the dispute. The distribution of remaining property deserves special attention: at the end of an investment project, that clause determines who keeps what.
Management and Decision-Making
Article 934 governs the joint management of affairs: unless the contract provides otherwise, the participants jointly manage the affairs and represent the partnership in relations with third persons, and the consent of all participants is required for every transaction. The contract may provide that a majority of votes suffices — but the majority is determined by the total number of participants, not by the amount of contributions. This detail protects the smaller partner: its vote counts as much as the large investor’s.
Other management models are possible. The contract may entrust management to participants each of whom may act independently — in which case each may object to the conclusion of a transaction by another, and on objection the transaction is not concluded. Where management is entrusted to a single participant, in case of doubt that participant represents the partnership and the transactions it concludes are valid. A participant may be deprived of management authority by majority vote only where it grossly breaches its obligations, and every participant may at any time demand the necessary information from the management.
Solidary Liability and Confidentiality
Article 937 defines the regime towards third persons: the participants are liable solidarily for debts arising from the joint activity, while among themselves the amount of liability is determined according to the participants’ shares, unless the contract provides otherwise. For an investor this is critical: a partner’s debt may be claimed from it in full, and recourse to internal shares is a separate dispute.
In addition, the participants are obliged not to disclose confidential information obtained as a result of the joint activity. In the context of an investment project this norm naturally frames the data exchanged during its course: technologies, financial information, commercial terms.
The Obligations Frame and Currency Risk
The joint activity contract operates within the general frame of obligations: under Article 316, by force of an obligation the creditor is entitled to demand performance of an act from the debtor, and performance may also consist in an omission. In investment relations this means that each partner’s contribution — money, property, work or know-how — crystallises into a contractual claim whose performance can be demanded.
The international component makes the currency rule essential as well: under Article 389, where before the due date the rate of the monetary unit changes or the currency is replaced, the debtor pays at the rate corresponding to the origin of the obligation, and conversion on a currency change follows the rate of the day of change. We assist across the full cycle of investment contracting — from choosing the structure to drafting the text, documenting the management model and litigating disputes. One more element of the management frame deserves emphasis: a participant may refuse to take part in the management of affairs, and such a person may demand from the management board the information necessary to it at any time. For an investor this information right is not a secondary detail — the real picture of the project lives exactly in the data that management sees, and the right to demand it is secured by the Code directly. Contact us so that your investment rests on a legally considered foundation.
Frequently Asked Questions
Below are frequently asked questions about investment contracts.
What is a joint-activity contract?
Under Article 930, two or more persons undertake to act jointly for common economic or other purposes by the contract’s means, without creating a legal person.
How are decisions taken?
Unless the contract provides otherwise, every transaction requires the consent of all participants; a majority is possible but counted by the total number of participants, not contributions.
How do participants answer for debts?
Towards third parties — jointly and severally; among themselves — by shares, unless the contract provides otherwise.
How We Help on Legal.ge
An international contract distributes risks: currency, governance and liability must be fixed in writing. On Legal.ge a commercial-law specialist will check or prepare your agreement. Contact us.