LegalGELegalGE
...

Shareholder Agreements

Is it mandatory to register a Shareholder Agreement in the Public Registry?

No, the Shareholder Agreement is a confidential document and is not required to be registered, although its existence can be referenced in the charter.

What happens if the agreement contradicts the charter?

According to the Law on Entrepreneurs, in relations between partners, the Partners' Agreement prevails, while in relations with third parties, the charter prevails.

Can the agreement be amended?

Yes, the agreement can be amended at any time with the written consent of all parties involved.

Does a minority shareholder need this agreement?

Absolutely. Without an SHA, minority shareholders rely solely on standard law, which may not offer enough protection against dilution or lack of dividends.

Reading Time

4 min

Published

...

A Shareholder Agreement (SHA), or Partners' Agreement in the case of an LLC, is one of the most critical legal instruments in corporate governance, complementing the company's charter and regulating relationships between partners. Unlike the charter, which is a public document accessible to any interested person via the Public Registry, a Shareholder Agreement is confidential. It allows business partners to detail the rules of the game, decision-making mechanisms, profit distribution principles, and conflict resolution paths without making this information public. The new "Law on Entrepreneurs" of Georgia places special emphasis on the partners' agreement, giving it priority in internal relations. A professionally drafted agreement guarantees business stability, protecting the interests of both majority and minority shareholders and avoiding destructive corporate disputes.

What Does Shareholder Agreement Service Cover?

Corporate lawyers on the Legal.ge platform offer comprehensive preparation of Shareholder Agreements tailored to your business specifics. The service includes:

  • Governance and Voting Rules: Allocation of rights to appoint directors, veto rights on strategic decisions, and special quorum requirements.
  • Share Transfer Restrictions: Right of First Refusal, protecting partners from unwanted third parties entering the company.
  • Tag-along and Drag-along Rights: Mechanisms protecting minorities when shares are sold (Tag-along) and allowing majorities to sell the entire company by forcing minorities to join (Drag-along).
  • Dividend Policy: Defining mandatory minimums for profit distribution and reinvestment conditions.
  • Deadlock Resolution: Mechanisms for resolving situations where partners cannot agree (e.g., "Russian Roulette" or "Texas Shootout" methods).
  • Funding Obligations: Partners' obligation to contribute additional capital if needed and sanctions for breaching this obligation.

Real-World Scenarios When You Need This Service

Executing a Shareholder Agreement is essential in many practical scenarios:

  • 50/50 Partnership: When two partners have equal shares, the risk of a "deadlock" is high. The agreement predefines who decides or how the business is sold during a conflict.
  • Financial Investor Entry: A passive investor wants guarantees that management will not make decisions harmful to them and that they will have access to information.
  • Startup Founding: Founders need to outline Vesting conditions so that if one leaves the company early, they do not retain their full share.
  • Minority Protection: It is critical for minority shareholders that the majority cannot unjustifiably increase capital to dilute their shares.

Georgian Legal Framework and Regulations

Shareholder Agreements are regulated by the Law of Georgia on Entrepreneurs and the Civil Code of Georgia. The new Law on Entrepreneurs explicitly recognizes the legal force of a partners' agreement and gives it priority over the charter (in internal relations), unless otherwise provided by law. The law also grants broad discretion for parties to determine voting rules, profit distribution, and share transfer restrictions. However, it is important that the agreement does not contradict imperative norms of the law (e.g., a shareholder's right to receive information). A professional lawyer ensures the document's full compatibility with Georgian legislation.

Service Process

The process of drafting a Shareholder Agreement on Legal.ge includes:

  1. Partner Interview: The lawyer meets with the parties to understand their expectations, fears, and business specifics.
  2. Structure Development: A list of key terms (Term Sheet) is created for agreement.
  3. Drafting: A detailed text of the agreement is prepared, covering all agreed mechanisms.
  4. Negotiation and Refinement: Parties review the draft and make changes until consensus is reached.
  5. Signing: Final execution of the document. If necessary, relevant changes are also made to the company charter.

Why Choose Legal.ge?

Legal.ge gives you access to experienced corporate lawyers with practical experience managing complex shareholding structures. We do not use a template approach; each agreement is created individually, considering your business needs. With our help, you will create a solid foundation for a long-term and secure partnership.

Updated: ...

Specialists for this service

Loading...