What Seed Round Legal Services Cover
The seed round is the first significant stage at which an external investor enters a startup and new shares are issued. The legal basis of this stage is formed by Articles 136, 137 and 140 of the Law on Entrepreneurial Societies, which regulate the types of shares, the issue of new shares, the partners' preemptive right and supplementary contributions. Our service includes preparing the draft issue decision, running the preemptive purchase procedure and checking the consistency of the documents with the investor, so that the transaction follows precisely the procedure established by law.
Types of Shares and the Issue of New Shares
Article 136 of the Law distinguishes placed, issued and authorised shares. A share is considered placed if the society has issued it to another person in exchange for a definite consideration, regardless of whether the society has received that consideration. Shares in respect of which a placement decision has already been taken are issued shares — they are recorded in the registry and do not create rights and obligations until placement. An authorised share is one that may be issued and placed in the future; its amount, class, proportion in the capital and nominal value must be reflected in the founding agreement.
Within the authorised shares, the issue decision is taken by the partners or by an organ authorised by the charter or by a decision of the partners. The decision must contain the number of shares, their nominal value, where such a value is set, and the class of the shares; it may also include the placement period, the minimum price or other conditions. Unplaced shares may be cancelled, which may in turn entail a reduction of the number of issued shares — in that case the management organ makes the corresponding amendment to the founding agreement.
The Law also allows shares to be issued from the property of the society: in a case provided for by the charter, and in accordance with a decision of the partners, shares are issued to the partners proportionally, without a demand for contributions. At the same time, shares of one class may not be issued to partners holding shares of another class, unless the charter provided for this possibility before the issue or the holders of the class to be issued consented by a majority of votes.
The Preemptive Right and Its Restriction
Under Article 137 of the Law, unless the charter provides otherwise, the partners have the preemptive right to purchase newly issued shares. The society may not place the issued shares, or offer the placement of shares to an indefinite circle of persons, until it has offered the partners in writing to purchase the issued shares on the same conditions and has set a reasonable period for this purpose.
When an offer to exercise the preemptive right is made, the society must give the partner a reasonable period, but not less than fourteen days. The right operates proportionally to the share, unless all partners agree on another procedure; where shares offered in observance of proportionality cannot be distributed exactly, the partners determine the rule for the indivisible shares by a majority of votes. Within that period a partner may waive the right in favour of any third party. The preemptive right may be restricted or excluded by a decision of the partners adopted by at least a three quarters majority of the votes cast — only on the basis of a report of the management organ stating the reasonable grounds for the restriction or exclusion and substantiating the value of the share transfer.
Supplementary Contributions
Article 140 of the Law regulates mandatory and voluntary supplementary contributions. Before the placement of shares, the charter, or an amendment to the charter adopted unanimously by the partners holding the respective shares, may provide for an obligation of the partners to make supplementary contributions in cash. In that case the charter must determine the maximum amount of the supplementary contribution, and the partners make it proportionally to their shares. The consequences of non fulfilment of a mandatory supplementary contribution are determined by other norms of the Law.
A partner may, with the consent of the director, also make a voluntary supplementary contribution in a non cash form, even where the charter does not provide for such an obligation. This instrument is often used at the seed stage, when capital must be mobilised quickly while remaining consistent with the deal terms.
Frequently Asked Questions
How long does a partner have to exercise the preemptive right?
The society must give the partner a reasonable period, but not less than fourteen days. Within this period the partner decides whether to exercise the right or to waive it in favour of a third party.
Can shares be issued without a contribution?
Yes. In a case provided for by the charter, and in accordance with a decision of the partners, shares are issued to the partners proportionally without a demand for contributions, from the property of the society.
What majority is needed to restrict the preemptive right?
At least a three quarters majority of the votes cast, and only on the basis of a report of the management organ substantiating the grounds for the restriction and the value of the share transfer.
Is making a supplementary contribution mandatory?
Only where the charter or a decision of the partners creates such an obligation. In that case the charter must also determine the maximum amount of the supplementary contribution.
How We Help on Legal.ge
The Legal.ge team provides full legal support for the seed round: we prepare the draft decision on the issue of shares, run the preemptive purchase procedure within the statutory periods, and check consistency with the investor's documents. Contact us — we will assess your transaction and prepare documents that carry out the capital increase safely and in full compliance with the law.