Correct formation and composition of the Board of Directors (or Supervisory Board) is the cornerstone of corporate governance for any medium and large business in Georgia. An effective board is not just a legal requirement for Joint Stock Companies, but a strategic asset capable of increasing company value, mitigating risks, and gaining investor confidence. The enactment of the new "Law on Entrepreneurs" of Georgia significantly changed approaches to board structure, especially regarding the role of independent directors and the creation of committees. Companies need a balance between executive and non-executive directors, as well as members with diverse skills, to ensure objective and competent oversight of management. Corporate governance experts represented on the Legal.ge platform will help you establish a board that is not merely a formal body, but a real driving force for business success.
What Does Board Formation & Composition Service Cover?
The board formation service is a complex process extending beyond mere candidate selection. It involves creating the board's architecture in accordance with legislation and best practices. The service covers:
- Structure Design: Determining whether your company (in the case of an LLC) needs a Supervisory Board or if a Board of Directors suffices, and what the optimal number of members should be.
- Selection of Independent Directors: Developing criteria for independent members who are not affiliated with the company and can make objective decisions (mandatory for accountable enterprises).
- Establishment of Committees: Creating Audit, Risk Management, Nomination, and Remuneration committees, drafting their Charters, and distributing functions.
- Separation of Powers: Drawing a clear line between the Supervisory Board and the Directorate (Management) to avoid duplication of functions and conflicts.
- Diversity Strategy: Staffing the board based on various qualifications, experiences, and gender, which enhances the quality of decision-making.
Real-World Scenarios When You Need This Service
Proper board formation is critical at turning points in a company's development:
- Transformation into a Joint Stock Company: If an LLC converts to a JSC, the law imperatively requires the creation of a Supervisory Board. Lawyers ensure this process runs flawlessly.
- Attracting Foreign Investment: Institutional investors (e.g., EBRD, ADB) often require the presence of an independent member on the board as a precondition for investment.
- Corporatization of Family Business: When a family business grows and requires professional management, it is necessary to separate the Family Council from the Business Board and invite external directors.
- Crisis Situations: During internal company conflicts, introducing independent board members helps parties in objective mediation and making correct strategic decisions.
Georgian Legal Framework and Regulations
Board formation issues are regulated by the Law of Georgia on Entrepreneurs. The law establishes that a Supervisory Board is mandatory in a Joint Stock Company (except for small JSCs where the charter regulates otherwise), while in an LLC, it is voluntary. The law also defines the concept and criteria for an "Independent Director," which is particularly important for accountable enterprises defined by the "Law on Securities Market." Additionally, the National Bank of Georgia's Corporate Governance Code sets strict requirements for board composition for commercial banks. A professional lawyer ensures your board's full compliance with these regulations.
Service Process
The board formation service on Legal.ge involves the following steps:
- Diagnostic of Current State: Analyzing the existing governance structure and charter.
- Defining Needs: Creating a Skill Matrix based on the company's strategic goals.
- Preparation of Legal Documentation: Drafting Board Charters, Committee Charters, and agreements to be signed with members.
- Candidate Assessment: Checking potential members for compliance with legal requirements (conflict of interest, independence).
- Implementation: Conducting the Partners'/Shareholders' Meeting and registering the board election in the Public Registry.
Why Choose Legal.ge?
A strong board is a guarantee of company stability. Legal.ge gives you access to experts with experience in forming boards for both local and international companies. We do not create "paper boards"; we create effective bodies that protect shareholder interests and ensure sustainable company development. Trust professionals to build your corporate governance architecture.
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