JSC Formation: the Legal Framework
The formation of a joint-stock company is regulated by the Georgian law on entrepreneurs. This legal form is distinguished by a capital divided into shares; a shareholder is not liable for the company’s obligations, while the company answers to creditors with all its property and is not liable for the shareholders’ obligations. At formation, this architecture of liability applies equally to a single and to multiple founders: it is precisely this architecture that limits the founder’s personal risk to the amount of the placed capital and secures the creditors’ interest with the whole property of the company.
Under Article 19 of the law, a joint-stock company may even be founded by one person; if after registration all shares pass into the ownership of one partner, the company becomes a one-person enterprise, and information about this, together with the identifying data of the partner, is reflected in the manner established by the law and must be publicly accessible.
The Share and Its Form
A share is a registered security or a dematerialized security that determines a person’s participation in the company’s capital. A registered share is the registered security defined by the Civil Code, and where the company’s shares are public securities they must be dematerialized, save for exceptions provided by special legislation. The choice of share form at formation determines the transfer regime for subsequent transactions.
Authorized, Issued and Placed Shares
Capital planning proceeds on three layers. Authorized shares are defined by the maximum number of shares to be placed, provided in the founding agreement. Issued shares are those whose exact number is determined by a decision of the company’s authorized body and which must be placed and paid under the conditions set by the placement decision.
A placed share is one issued by the company to another person against payment of a certain sum or other consideration, and held by the shareholder in the manner established by the law. The founding document therefore first records the maximum ceiling, then the concrete issue, and finally the actual placement against consideration.