Minority Shareholder Protection

Minority Shareholder Protection: Guaranteeing Rights in Partnership

Holding a minority stake (less than 50%) in a company often involves risks. Majority shareholders, who hold the reins of management, can make decisions that harm the interests of the minority — for example, withholding dividends, appointing themselves as directors with high salaries, or selling company assets at below-market prices. In Georgia, the new "Law on Entrepreneurs" has significantly strengthened minority rights, but their practical realization is still associated with complex legal procedures. Minority shareholder protection involves creating preventive mechanisms (e.g., Shareholder Agreements) as well as restoring violated rights through litigation.

Legal.ge offers qualified legal support for minority partners. Our lawyers will help you protect your investment and ensure fair treatment in the company's management process.

What Does Minority Protection Service Cover?

The service covers protection mechanisms at all stages of the relationship:

• Preventive Protection (SHA drafting): Preparing a Shareholders' Agreement outlining veto rights on Reserved Matters, Tag-along rights, and mandatory dividend distribution policies.
• Information Request: Legal assistance in requesting company financial documentation, contracts, and minutes within the scope of rights granted by law.
• Requesting Special Audit: Appointing a special audit through the court if there is suspicion of dishonest management.
• Derivative Lawsuit: Filing a lawsuit against a director on behalf of the company demanding compensation for damages.
• Realization of Exit Rights: Legal assurance of exiting the company with fair compensation (demanding share buyout) if the majority oppresses the minority.

Common Scenarios When You Need Protection

Violations of minority rights often occur in the following situations:

• "Hiding Profits": When a majority director artificially increases expenses (e.g., signs contracts with their own other companies) to reduce distributable profit.
• Share Dilution: When capital is increased in a way that the minority is not given the opportunity to participate, resulting in a reduction of their percentage share.
• Mergers and Reorganizations: When a company merges with another entity on terms unfavorable to the minority.
• Information Blockade: When a partner is denied information about the company's financial status.

Georgian Legal Framework

The Law of Georgia on Entrepreneurs grants the minority (typically owners of 5%) significant leverage: demanding an extraordinary meeting, requesting a special audit, and demanding mandatory dividends (if the company has profit). The law also protects partners from "oppression" and gives them the right to demand the company buy out their share at a fair price. The Civil Procedure Code regulates the specifics of hearing corporate disputes. It is important to know that statutes of limitation in corporate disputes can be short, so timely reaction is crucial.

Steps in the Process with a Specialist

Working with a lawyer includes:

1. Situational Analysis: Studying the Charter, minutes, and existing communication to identify violations.
2. Negotiation: Communicating with majority partners and attempting to resolve the problem out of court.
3. Evidence Collection: Sending official letters requesting information.
4. Lawsuit Preparation: Filing a claim in court (e.g., annulment of meeting minutes, damages, share buyout).
5. Representation: Defending interests in court proceedings.

Why Legal.ge?

Corporate disputes are complex and require specific knowledge. An ordinary lawyer may not be able to handle the complex financial schemes used by dishonest majority shareholders. Legal.ge connects you with corporate law specialists who have practical experience in protecting minority rights. Protect your rightful share and dividends with the help of Legal.ge.