The Free Disposition of a Share in an Entrepreneurial Society
The purchase and sale of shares rests on the general foundation of the Law of Georgia on Entrepreneurs. Under Article 30, a partner has the right to freely dispose of their own share in an entrepreneurial society unless restrictions are established by the legislation of Georgia, the statute, or an agreement of the partners of the society. At the same time, a prohibition on the transfer of a share in the form of an issued instrument is not admissible: the law states plainly that the prohibition of the transfer of such a security is impermissible, protecting its negotiability.
The law also regulates co-ownership of a share: where a share belongs to several persons in co-ownership, they are regarded as co-partners; the rights connected with the share may be exercised by one co-partner or a third person determined by them, and such persons are regarded as solidary creditors. Where the co-partners or heirs cannot agree by a majority of votes on the management of the share, the court, on the application of the society, a co-partner or an heir, appoints a manager of the share, who is vested with all rights connected with it. In enterprises with the participation of the state or of the Autonomous Republic of Abkhazia or Ajaria, the decision on the acquisition or redemption of shares is taken by the Government of Georgia.
The Transfer of a Share in a Limited Liability Company
Under Article 141, a partner of a limited liability company may transfer their share — alienate it or encumber it legally — without the consent of the company and of the partners. Restrictions are possible, but only on a strict condition: a decision that limits, prohibits, or makes the transfer of a partner's share dependent on consent is adopted only with the consent of all the partners to whom the restriction or prohibition applies.
The formal requirements matter no less: an agreement on the transfer of a share must be concluded in writing; the partner is obliged to notify the company of it immediately upon conclusion; and the transfer of the share enters into force from the moment the registering authority registers the share in the name of the new partner — with the norms on a good-faith acquirer of the legislation applying accordingly. A notable detail concerns liability: at the moment of alienation of the share, the transferring partner and the acquiring partner are solidarily liable to the company for the unperformed obligations connected with the alienated share, unless otherwise provided by the statute — the outgoing partner is therefore not released from unpaid obligations connected with the share simply by closing the deal.
The Transfer of Shares Dependent on the Consent of the Company
For joint-stock companies the law strikes a different balance: under Article 159, the transfer of shares of certain classes may be made dependent on the consent of the joint-stock company, and the procedure for giving consent to the transfer of such a share is established by the statute before the transfer of the share. This means that when planning a transaction, the statute and the consent procedure must be examined first, and only then is the agreement signed.
The same article draws a boundary around this possibility: establishing the requirement of the company's consent to the transfer of a public security as defined by the Law of Georgia on the Securities Market is impermissible — the free transfer of shares circulating on the public market remains protected, and consent requirements cannot reach them.
The Share Register and the Proof of Ownership
In transactions with shares, the manner of proving ownership is decisive. Under Article 162, where the number of shareholders is 50 or fewer, the joint-stock company has the right to maintain the register of shares itself or through a licensed registrar of securities; where the number of shareholders exceeds 50, the company must maintain the register through a licensed registrar. The register is maintained taking into account the relevant rules adopted by the National Bank of Georgia.
Where the company maintains the register itself or through a registrar, the shareholder's right of ownership in a share is confirmed by an entry in the register of shares — and where the share has been transferred into nominal possession in accordance with an entry in the register, by the entry of the respective nominal holder. Upon the shareholder's request, an extract from the register must be issued. Where the possession of a registered share is not carried out in Georgia, the shareholder's right in the share is confirmed by an entry of the financial institution that holds the share for the benefit of the shareholder. The possession and circulation of dematerialized shares, and the manner of confirming ownership in them, are determined by the Law on the Possession of Dematerialized Securities.
Frequently Asked Questions
Does alienating a share in an LLC require the company's consent?
No — under Article 141 a partner may transfer the share without the consent of the company and the partners; a restriction may be introduced only with the consent of all partners it affects.
In what form must a share transfer agreement be concluded?
In writing; the partner must notify the company immediately upon conclusion, and the transfer takes effect upon registration of the new partner.
May the transfer of a share be prohibited?
No — a prohibition on the transfer of such a security is impermissible under Article 30; only the transfer of certain classes of shares may be made dependent on the company's consent, save for public securities.
Who maintains the register of shares?
A company with up to 50 shareholders may maintain the register itself or through a licensed registrar; with more than 50 shareholders a licensed registrar is mandatory. Ownership is confirmed by an entry in the register.
How We Help on Legal.ge
The soundness of share purchase agreements depends on several key elements: checking the restrictions in the statute, observing the written form, notifying the company of the transfer, the moment of registration, and the solidary liability for unperformed obligations connected with the alienated share. In the case of joint-stock companies, the consent procedure and the status of the entry in the register are added to this list.
The lawyers working on Legal.ge will help you prepare the share purchase agreement, analyse the restrictions in the statute, structure the transaction and accompany the registration process, so that the transfer of ownership is completed without dispute. Contact us for a consultation and plan your transaction under full legal control.