The Legal Nature of a Shareholder Agreement
Under the norms of the Entrepreneurship Code on shareholder agreements, shareholders, or shareholders together with a third person, are entitled to conclude an agreement under which the participating parties will be obliged to exercise, in the manner established by it, the rights arising from shares or other rights and to perform the respective obligations — this agreement is precisely the shareholder agreement. Through it the parties coordinate their conduct on voting, the receipt of dividends, the disposal of shares and other matters. The law requires that the joint stock company be immediately notified of the conclusion of a shareholder agreement, so that the company has information about the existence of the agreement, although this does not make the company a party to it. In essence the shareholder agreement is a private instrument that orders corporate governance by the parties' own will, standing next to the charter and the decisions of corporate organs rather than replacing them.
Form, Disposal of Shares and Effect on the Acquirer
A shareholder agreement does not require a special form — the parties themselves decide in which shape to arrange their relationship. The rule on disposal is particularly important: where a party to the agreement disposes of the shares to which the agreement relates, the rights and obligations arising from the agreement do not pass to the acquirer, unless this was specially provided for in the shareholder agreement and in the contract of disposal of the shares. In practice this means that the future holder of the shares does not automatically assume the obligations laid down in the agreement, and if the parties want the effect to extend, both documents must say so directly. This detail often becomes the subject of a dispute, because the seller and the buyer perceive the continuation of the agreement's effect differently. A well-drafted clause on succession therefore saves the parties from expensive litigation and preserves the stability of the arrangements the agreement was designed to protect.
The Limited Effect of the Agreement and Participation of the Company
A shareholder agreement is binding only on its parties. A shareholder may not be refused the exercise of the rights arising from the share even where he or she violates the shareholder agreement, and a breach of the agreement cannot become a ground for annulling the decisions of the organs of the joint stock company. This means that the agreement cannot diminish the shareholder's corporate rights vis-a-vis the company — the consequences of a breach remain within the sphere of contractual liability between the parties. The possibility of the company's involvement is determined by a separate norm: a joint stock company is entitled to participate in a shareholder agreement if this does not contradict the legislation of Georgia or the charter. Under this model the company may become a party to the agreement, but only on the condition of conformity with the law and the charter. For investors and founders this construction offers flexibility while keeping the public corporate framework untouched by private arrangements.
The Independent Exercise of the Voting Right
The norms on the independent exercise of the voting right protect the shareholder's vote with particular care. A contract or a provision of the charter by which a shareholder is obliged to exercise the voting right upon the instruction of the governing organ or the supervisory council of the company is void; likewise void is an agreement which generally obliges the shareholder to use the voting right in accordance with the instructions of the organs of the company. The same article defines the case of a conflict of interests: a shareholder or his or her representative may not exercise the voting right where the general meeting considers the issue of raising a claim of the company against this shareholder or concluding a transaction with him or her, where the shareholder has a conflict of interests with respect to the issue under consideration or the issue is otherwise directly connected with him or her. These restrictions keep the content of the voting right clean and limit its manipulation through private arrangements. It is also worth noting that the same rules of the shareholder agreement extend to the agreements of partners of a limited liability company: under the relevant article, the norms on shareholder agreements apply to partner agreements. This makes the studied regime a common framework for both organizational forms of enterprise.
Frequently Asked Questions
Does a shareholder agreement pass to the acquirer of the shares?
No — the rights and obligations arising from the agreement do not pass to the acquirer, unless this is specially provided for in the shareholder agreement and in the contract of disposal of the shares.
Can an organ's decision be annulled because of a breach of the agreement?
No. A breach of a shareholder agreement cannot become a ground for annulling the decisions of the organs of the company, since the agreement binds only its parties.
May the company join a shareholder agreement?
Yes, if this does not contradict the legislation of Georgia or the charter, a joint stock company is entitled to participate in a shareholder agreement.
Does the agreement require a special form?
No. A shareholder agreement does not require a special form, but the joint stock company must be immediately notified of its conclusion.
How We Help on Legal.ge
A shareholder agreement is a private contract in which every clause determines the balance of power between the parties. Our team will help you draft and review the agreement, explain the restrictions connected with the voting right and defend you in a dispute. Contact Legal.ge and we will protect your interests at the corporate level.