Legal Foundations for Establishing a Joint Venture
A joint venture in Georgia is established within the framework of the Law on Entrepreneurial Societies, which defines the mandatory content of the founding agreement and the particularities of each organisational form. The founding agreement comprises the charter and the data required by the law: the firm name, the legal address, the identification data of every partner, the data of the person authorised to manage and represent the society and, where a supervisory board exists, the procedure for appointing and dismissing its members. Where the founders do not develop their own charter, the standard charter is deemed to form part of the founding agreement. With a foreign partner, the founding document must contain identification data equivalent to those used for notarial acts in Georgia, while the legal address of the entrepreneur is its physical address on the territory of Georgia. Getting these fundamentals right at the outset determines how smoothly the venture will operate for years.
Choosing the Legal Form According to Partners' Liability
The choice of form is the first question in structuring a joint venture. A limited liability company is an entrepreneurial society whose capital is divided into shares and whose partners bear limited liability for the obligations of the society: the company answers to creditors with all of its property, while the company is not liable for the obligations of its partners. A limited partnership offers a different model: its partners carry on business jointly under a single firm name, and at least 1 partner — the limited partner — bears liability to creditors limited to a guaranteed amount, while the other partners — the general partners — answer directly and without limitation, as solidary debtors. The norms governing a society of solidary liability also apply to the limited partnership, unless the law provides otherwise. It is on precisely these differences that the optimal balance between the interests of foreign and local partners depends, and the structuring decision should follow from a clear allocation of commercial risk among the participants.
Share Structure and Classes
The founding agreement of a limited liability company additionally determines the number of issued and placed shares and the partners' proportional participation in the capital — expressed in percentages, their sum must amount to 100 percent. Where applicable, the agreement reflects the maximum amount of authorised capital, the number of issued shares, their nominal value, any special condition restricting the disposal of shares, and this information in relation to each class of shares. The charter may admit the existence of different classes of shares: shares giving rise to identical rights and obligations form one class, and all shares of one class must have the same nominal value. A decision changing a right attached to a particular class additionally requires the consent of holders of at least 3/4 of the total votes attached to the placed shares of that class, unless a provision of the charter adopted unanimously provides otherwise. The class mechanism allows the parties to grant different economic and governance rights to different partners — one of the principal instruments of joint venture structuring.
The Corporate Form and the Partners' Agreement
Where the venture is structured as a joint stock company, the founding agreement additionally covers the amount of capital placed at the moment of registration, the authorised capital, the nominal value and number of the placed shares, any restriction on the disposal of shares, the amount of paid-up capital, the type of the non-monetary contribution and the person obliged to make it, as well as the existing or foreseeable expenses connected with the formation and with licences, and the economic benefit received by the persons participating in those steps. A change of these data requires the majority needed for an amendment of the charter. The partners of a limited liability company may conclude a partners' agreement governed by the rules applicable to the analogous agreement of shareholders — an opportunity to regulate in a private contract the voting arrangements, dividends, exit terms and other matters on which the stability of the venture depends. Where a cooperative is chosen, the founding agreement must additionally contain the nominal value of the participation share.
Frequently Asked Questions on Joint Ventures
What must the founding agreement contain?
The charter and the data prescribed by law: the firm name, legal address, identification data of the partners, the data of the authorised representative and, where applicable, the particulars of the supervisory board. In the absence of a bespoke charter, the standard charter forms part of the agreement automatically.
How are the partners' shares determined?
In a limited liability company the proportional participation is expressed in percentages and must sum to 100 percent. The charter may admit different classes of shares generating different rights; all shares of one class must have the same nominal value.
What is particular about a limited partnership?
At least 1 partner — the limited partner — answers to creditors only up to a guaranteed amount, while the general partners answer without limitation, as solidary debtors. A precise allocation of the partners' roles is decisive when choosing this form.
What does changing class rights require?
The consent of holders of at least 3/4 of the votes attached to the placed shares of the affected class, unless a unanimously adopted charter provision provides otherwise.
How We Help on Legal.ge
The Legal.ge team will support you at every stage of joint venture structuring: we will select the optimal legal form, prepare the founding agreement and the charter, design the share classes and draft the partners' agreement that safeguards the rules of your cooperation. Send us a brief description and we will propose a concrete plan.