Purpose and Grounds for Creating a Supervisory Board
A supervisory (board of directors) body exists in a Georgian entrepreneur entity to exercise control over the activity of its governing organ or persons. Under the Georgian Law on Entrepreneurs, an entity may have a supervisory board in the cases provided by law or by its charter, while in the case defined by law — for state-owned enterprises operating critical infrastructure — the creation of the board is mandatory (Article 46, parts 1 and 7). The board controls the activity of the governing organ, yet the functions of the governing organ may not be transferred to it, except in a case provided by law (part 2).
For a limited liability company the rule is explicit: an LLC creates a supervisory board where the law or the charter provides for its existence (Article 125, part 1). The rules governing the supervisory board of a joint-stock company apply to such a board correspondingly, unless the charter provides otherwise (part 2). A board meeting is decisive if a majority of the members attend, and the board takes decisions by a majority of votes unless the charter requires a greater number (Article 46, part 3).
Composition, Term of Office and Delegation
The supervisory board of a joint-stock company must consist of at least 3 members, and the charter may set the maximum number of members (Article 212, part 1). A member may be either a natural person or a legal person (part 2). Members are elected by the general meeting by a majority of the votes of the participants in the voting, or through the delegation of a member to the board, unless otherwise determined by law or charter (part 3).
The right of delegation may be granted by the charter only to individual shareholders or to holders of particular shares, and the number of delegated members must not exceed one third of the board (part 4). Every member is elected for a term of not more than 3 years; after expiry the mandate is automatically extended until the holding of the general meeting and the election of new members on it, and a member may be re-elected for a new term (part 5). This combination of a numerical floor, a delegation cap and automatic continuity protects the board from paralysis during transition periods.
The Incompatibility of Positions
The law erects a clear barrier between supervision and management: a member of the supervisory board of a joint-stock company may not simultaneously be a member of the governing organ of the same company (Article 214, part 1). This excludes the situation where one person both oversees and performs management functions. In addition, the charter may determine a list of further positions the combination of which is prohibited for a board member (part 2) — allowing each company to tailor the restriction to its own governance risks.