Transfer of a Share in a Limited Liability Company
One route out of a business is the disposal of a share. Under the norms of the Entrepreneurship Code on the transfer of a share, a partner may transfer (dispose of or legally encumber) his or her share only with the consent of the limited liability company and the partners. A decision that restricts, prohibits or makes the transfer of a share dependent on consent is adopted only with the consent of all the partners to whom the restriction or prohibition relates. The agreement on the transfer of a share must be concluded in writing, and the company must be notified of it immediately upon conclusion. The transfer enters into force upon registration of the share in the name of the new partner by the registering organ, and the norms on a good faith acquirer apply in this case. For obligations connected with the disposed share that remain unperformed at the moment of disposal, the disposing partner and the acquiring partner answer jointly to the company, unless the charter provides otherwise. This makes the consent architecture the first element of any exit plan: without the required consents and registration the transaction simply does not produce its effect.
Merger and Division as Forms of Exit
A separate article of the Code regulates alternative exit instruments. One or more enterprises may, without commencing liquidation, be merged with another enterprise through the full transfer of their assets and liabilities, in return for which the partners of the merged enterprise receive shares in the acquiring enterprise; two or more enterprises may likewise combine through the formation of a new one. Division occurs by establishment or by acquisition, and in a spin-off the enterprise transfers part of its assets and obligations to a new or existing enterprise. In a combination the partners of the former enterprises may, in addition to shares, receive cash compensation where observance of the exchange ratio of shares is impossible — in a joint stock company such compensation must not exceed 10 percent of the nominal value of the shares to be issued to the partners. The enterprises participating in a combination may have different legal forms, and the registration of the merged enterprise is cancelled without liquidation. In a merger the combined or acquiring enterprise answers for all obligations of the merged enterprises; in a division the new or acquiring enterprise answers jointly for the obligations of the divided enterprise, though this liability is limited to the amount of the net assets attributed to it by the division.
Dissolution and the Liquidation Process
The route of a full exit is the dissolution of the enterprise. The grounds for dissolution are the decision of the partners, a violation of the requirement on the mandatory number of partners, the entry into force of a judgment on a criminal case concerning the liquidation of a legal person, a court decision on the application or claim of a partner, and other grounds provided for by the charter. In a limited liability company, a joint stock company and a cooperative the decision on dissolution is adopted by a majority of three quarters of the votes of the participants at the vote, and in other cases unanimously by all partners; the procedure for dissolving an enterprise in which the state owns more than 50 percent of the shares or the share is approved by the respective minister. The registration of dissolution commences the liquidation process: the company retains the status of a legal person with the addition "in liquidation" to its name, and its organs retain their powers except for the leading persons, whose managerial and representative powers terminate upon the registration of liquidators.
Completion of Liquidation and Deadlines
The Code sets a time frame for liquidation: the liquidation process of an enterprise must be completed no later than 4 months from the registration of its commencement, and where the term of a tax inspection is extended — no later than 1 month from the receipt by the registering organ of information on the completion of the inspection. The full distribution of the property of the enterprise brings the liquidation to an end; the liquidators apply to the registering organ with a demand for registration of the liquidation, on which basis the registration of the company is cancelled. Where the enterprise is declared bankrupt, the person authorized to represent the creditors submits the respective court ruling within 30 days of its issuance. A breach of the deadlines obstructs registration, which is why an exit plan must be built against the calendar from the very beginning.
Frequently Asked Questions
May a share be disposed of without the consent of the partners?
No. In a limited liability company the transfer of a share requires the consent of the company and the partners, and introducing a restriction requires the consent of all partners concerned.
By how many votes is dissolution decided?
In an LLC, a joint stock company and a cooperative — by a majority of three quarters of the votes of the participants; in other cases — unanimously by all partners.
Within what period must the liquidation process be completed?
No later than 4 months from the registration of its commencement, and where a tax inspection is extended — no later than 1 month from the receipt of the information on its completion.
What happens to obligations in a merger?
In a merger the combined or acquiring enterprise answers for all obligations of the merged enterprises; in a division liability is joint but limited to the net assets attributed by the division.
How We Help on Legal.ge
An exit strategy always rests on comparing several legal routes. Our team will assess the prospects of transferring your share, a merger, a division or a liquidation, prepare the documents and represent you before the registering organ. Contact Legal.ge and we will plan your exit in a timely and low-risk manner.