Startup Formation: Which Law and Which Form
The formation and structuring of a startup is governed by the Georgian law on entrepreneurs. Its very first article describes the scope and the dispositive principle: it regulates the legal forms of the entrepreneur and the procedures of formation and registration. A general partnership, limited partnership, limited liability company or cooperative may define rules differing from the law in its charter or a partners’ agreement, save where a norm is imperative; in a joint-stock company deviation is possible only within the limits allowed by law.
This last difference matters for a startup: the room for flexible structuring begins with the choice of form, and the joint-stock form leaves the least freedom.
The Concept of the Entrepreneur and the Forms
An entrepreneur is a physical or legal person who has an enterprise — an organized system for carrying on entrepreneurial activity. Entrepreneurial activity is lawful, non-single, independent and organized activity carried out for profit. It proceeds in two ways: as an individual entrepreneur or as an enterprise company.
The difference is fundamental: an enterprise company is a legal person, an individual entrepreneur is not. The individual entrepreneur exercises rights in business relations as a physical person and answers to creditors for entrepreneurial obligations personally, with all its property. For a startup expecting investors, this personal risk almost always rules out the individual form in favour of a company.
Company Forms: Three Different Architectures
In a general partnership the partners act under a single firm name and answer for obligations directly and without limitation, as joint and several debtors; the form needs at least 2 partners. In a limited liability company the capital is divided into shares and the partners’ liability is limited; the company answers to creditors with all its property and is not liable for the partners’ obligations.
In a joint-stock company the capital is divided into shares; a shareholder is not liable for the company’s obligations, the company answers with all its property and is not liable for shareholders’ obligations. Georgian startups mostly begin as limited liability companies and move to the joint-stock form as investment rounds grow.
The one-person company institute covers both forms: an LLC or a JSC may be founded by one person, and where after registration all shares pass to one partner, the company becomes a one-person enterprise — a fact reflected in the register or made public in the manner established by law.
Registering an Individual Entrepreneur
Where the venture does begin in the individual form, registration is simple: the physical person submits to the registering body a written application and an identity document; the application contains the applicant’s name, legal address, personal number and signature. For a foreigner, the document used for identification in notarial acts is submitted.
The Charter: the First Structuring Document
The charter of any company contains at minimum the legal form, the object of activity — stated generally or specifically — any agreed restriction on ownership of shares, and information on a partners’ agreement. Standard charters are approved by the Minister of Justice.
Startup structuring begins exactly here: classes of shares, restrictions on alienation and the partners’ agreement take shape within these documents. Amending the charter later requires registration, so the initial version should be planned together with the investment roadmap.
The law is dispositive in its foundation: the charter of a solidarity, commandite or limited-liability company, a cooperative or a partners’ agreement may prescribe rules different from those established by the law, unless the content and purpose of a norm make it clearly imperative. The charter may also regulate issues the law does not regulate at all, or extend norms that do not exhaust the matter. For a joint-stock company the freedom is narrower: its charter or a shareholders’ agreement may deviate from the statutory rules only in the cases and within the limits allowed by the law. Note also the numeric boundary of the solidarity form: it must have at least 2 partners, while a limited-liability or joint-stock company may be founded by one person alone — and where all shares pass into one partner’s ownership, information about it and the partner’s identification data must be reflected in the registry or made publicly accessible.
Standard charters for each legal form of entrepreneurial company are approved by the Minister of Justice of Georgia. A change or abolition of a standard charter does not by itself require the company to amend its own charter — except where the reason for the change is a corresponding amendment of the law obliging the company to bring the charter into conformity with its imperative requirements.
Frequently Asked Questions
Below are the most frequent questions about startup formation.
Which form should a startup choose?
A limited liability company when investors are expected; the individual form puts personal property at risk.
Can one person found it?
Yes — both as an LLC and as a joint-stock company.
May the charter deviate from the law?
Yes, under the dispositive principle — save imperative norms; in a JSC only within statutory limits.
How many partners does a general partnership need?
At least 2, with unlimited joint and several liability.
What is the charter minimum?
Legal form, object of activity, agreed ownership restrictions and information on a partners’ agreement.
How We Help on Legal.ge
The lawyers of Legal.ge support the whole path of startup formation: we choose the form from the investment plan, draft the charter and partners’ agreement, and carry the registration through. Contact us — a correctly built initial structure spares the later rounds the cost of restructuring.