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.
The Minimum Requirement for Placed Capital
The strictest numerical condition concerns placed capital: at the moment of registration, the placed capital of a joint-stock company must amount to at least 100 000 lari. This is a universal barrier, and it must be planned at the very first stage of formation.
The method of calculation is likewise statutory: where the company has only shares with nominal value, placed capital equals their sum; where both nominal and non-nominal shares are placed, capital exceeds the sum of the nominal shares; where only non-nominal shares exist, capital must still amount to the statutory minimum. The excess received over nominal upon placement is reserve capital, and placed capital is reflected in the balance sheet.
The Charter and the Preconditions for Registration
The charter of an enterprise of any legal form must contain at least the legal form of the enterprise, the object of activity — which may be stated as general entrepreneurial activity or a specific object — any agreed restriction among partners on the right of ownership of shares, and information on the existence of a partners’ agreement. Standard charters are approved by the Minister of Justice according to the legal forms of enterprise, and their subsequent amendment or repeal does not automatically change the charter of an already registered company, except where the amendment is grounded in a corresponding change of the law that obliges the company to bring its charter into conformity with the imperative requirements of the law.
For registration, the registering body receives the founding agreement and the consent of each person authorized to manage and represent the company to the performance of that function, unless their will is expressed in the founding agreement. Legislation may establish further preconditions — so a check against the specific sector must be made in advance.
Frequently Asked Questions
Below are the most frequent questions about forming a joint-stock company.
How much must the placed capital be?
At least 100 000 lari at the moment of registration. This minimum is set directly by the law and applies even where shares without nominal value are used.
Can one person form a joint-stock company?
Yes. It may be founded by one person, and if ownership concentrates in one holder, the company becomes a one-person enterprise, a fact reflected publicly.
What is the difference between authorized, issued and placed shares?
Authorized shares are the maximum defined by the founding agreement, issued shares are those decided for placement, and placed shares are actually issued against consideration.
What must the charter contain?
At minimum the legal form, the object of activity, any agreed restriction on ownership of shares, and information on the existence of a partners’ agreement.
May a standard charter be used?
Yes — standard charters are approved by the Minister of Justice. A later amendment of the standard charter does not automatically change the charter of a registered company, unless the amendment is grounded in a change of the law.
How We Help on Legal.ge
The lawyers of Legal.ge support the entire process of forming a joint-stock company: we draft the founding agreement and charter, plan the classes of shares and the placed capital, and carry the registration through the registering body. Contact us at the structuring stage — correct capital planning removes the need for later revaluation.