Spin-Offs and Carve-Outs under Georgian Law
Separating a business segment in Georgia is carried out through the reorganization machinery of the Entrepreneurs Law: the division of an enterprise — by split or spin-off, by formation or acquisition — is precisely the statutory framework into which a spin-off (founding a new company by separation) and a carve-out (transfer to an existing company) fit. At the same time, foreign models of tax-neutral spin-off techniques are non-Georgian practice and cannot carry this page — the tax consequences are governed by a separate corpus, the Tax Code. The page is carried by the Georgian corporate mechanics of reorganization.
The Forms of Separation
Reorganization of an enterprise is allowed by transformation, by merger (accession or amalgamation) and by division (split or spin-off). Two configurations of division are distinguished: the company to be divided transfers its assets and liabilities in parts by force of law fully to two or more newly founded companies (split by formation) or to existing ones (split by acquisition); while a company from which a new company is separated may transfer a part of its assets and liabilities to one or more newly founded companies (spin-off by formation) or to existing ones (spin-off by acquisition). The first path is the classic spin-off, the second the carve-out: the segment moves into a new vehicle while the remaining business continues as the dividing company. No liquidation process begins: the registration of the reorganized company is cancelled and its assets and liabilities pass fully to the recipient. Partners may, besides shares, receive cash compensation where maintaining the share-exchange ratio is impossible — in a joint-stock company it must not exceed 10 percent of the nominal value of the shares to be issued.
The Division Plan
In a division by formation, the governing body of the divided company drafts the division plan; in a division by acquisition — the bodies of the divided and acquiring companies. The plan minimally contains the participants' identification data and legal form, the share-exchange ratio and the amount of cash compensation, the conditions of issuing shares, the date from which the right to participate in profit arises, the rights of holders of special rights, the benefits granted to managers, where necessary the composition of the new supervisory board and, most importantly, the exhaustive description and allocation of the assets and liabilities to be transferred. A draft of the acquiring company's charter amendments or of the new charter is attached to the plan. Comfort rules for defects are also in the law: an asset not assigned by the plan belongs to all acquirers proportionally to net assets, and an unassigned liability gives rise to joint liability — but not beyond the allocated net assets.
Special Cases and Creditor Protection
The law also provides simplified regimes: where the acquiring company holds at least 90 percent of the shares of the merged company but not all of them, certain requirements do not apply if the partners have a buyout right; where the acquirer or a third person acting on its instruction holds all the shares, the obligations connected with general-meeting participation do not apply. In these cases the acquirer notifies the partners at least 30 days before the division enters into force, and a partner holding at least 5 percent of the capital may demand the convening of a general meeting within 15 days of receiving the notice. Creditor protection is this: creditors of the participating companies whose claims arose before publication of the decision or plan may, within 3 months of registration, demand securing of their claims if they prove that the reorganization threatens their satisfaction; bondholders have the same right. In a division, the newly founded or acquiring company answers for the divided company's liabilities jointly — limited to the net assets transferred to it.
The Buyout of a Dissenting Partner
A partner who voted against the reorganization at the general meeting has 20 days from the meeting to apply in writing for the buyout of the share. The company pays a fair price: the decision on the price is communicated within 20 days of the period's expiry, and payment follows no later than 30 days. A partner disagreeing with the price may apply to court within 20 days of notice; by exercising this right the partner loses all rights to the share except the right to the fair price, and the court hearing does not suspend the reorganization. If an independent auditor appointed by the court finds the value equal to or less than the offered one, the partner bears the auditor's costs, otherwise the company does; where the court sets a higher value, the company must buy out all partners' shares at that value.
Frequently Asked Questions
Below we summarise the questions most often encountered in practice on this topic.
What is the difference between spin-off and split?
In a spin-off the dividing company continues to exist; in a split it ceases entirely, becoming two or more recipients.
May assets transfer to an existing company?
Yes — a spin-off by acquisition transfers assets to an existing company, while the formation variant creates a new one.
What happens to assets not assigned by the plan?
The asset belongs to the acquirers proportionally to net assets; an unassigned liability gives rise to joint liability within the net assets.
What rights do creditors have?
Within 3 months of registration they may demand securing of claims if the reorganization threatens their satisfaction.
How We Help on Legal.ge
Our team will help you choose the form of separation, prepare the division plan and charter drafts, plan communication with creditors and partners and run the buyout process. Contact us on Legal.ge — we will carry your spin-off or carve-out with full legal support.