The Freedom to Transfer a Share and Its Limits
The sale of a startup in Georgia is determined, first of all, by the rules on the transfer of a share in a limited liability company. Under Article 141 of the Law of Georgia on Entrepreneurs, a partner may transfer — alienate or encumber — his share without the consent of the company and the partners. This is the basic rule that gives the seller maximum flexibility: the alienation of a startup share does not directly require the consent of the other partners.
Freedom has its boundary. Under the second part of the same article, a decision that limits, prohibits or makes the transfer of a share dependent on the consent of the partners or the company is adopted only with the consent of all the partners to whom the restriction or prohibition applies. A restriction written into the charter is thus lawful, but its introduction or amendment stands only with the unanimous consent of the respective partners. For the seller this means: before the transaction the charter must be examined and the lawfulness of each restriction assessed.
The Form of the Transaction, Notice and Entry into Force
An agreement on the transfer of a share must be concluded in writing, and the partner is obliged to notify the company of it immediately upon conclusion. These two requirements are not formalities: breach of the written form casts doubt on the operation of the agreement, while failure to notify deprives the company of a basis for knowing of the transaction and breeds subsequent conflicts.
The most important rule for civil circulation is the moment of entry into force: the transfer of a share enters into force at the moment the registering body registers the share in the name of the new partner. The norms established by legislation on the bona fide purchaser are applied as well — the protection of the good-faith acquirer operates here too. For unfulfilled obligations connected with the alienated share at the moment of alienation, the alienating partner and the acquiring partner answer jointly and severally before the company, unless the charter provides otherwise — a norm that adds additional financial risk for the seller, which should be reflected in the price of the deal at an early stage.
The Company’s Acquisition of Its Own Share
Article 142 regulates one further exit instrument — the acquisition by the company of a share in its own capital. The acquisition in its own capital of a share whose contribution has been fully made is permissible. At the same time, the company’s full acquisition in its own capital of a share that confers an unlimited voting right, or the right to receive property upon completion of the company’s liquidation, is impermissible.
The acquired share falls into a special regime: for the purposes of counting votes, distributing property, demanding dissolution and exercising other rights arising from the holding of the share, it is not taken into account. Where the charter provides for the cancellation of the acquired share, the decision is taken by the partners and the cancellation is reflected in the charter. A share acquired in breach of the law or the charter must be sold or cancelled before the end of the calendar year in which it was acquired. Together these norms create a flexible but controlled mechanism by which the company offers the partner an exit.
Reorganisation and the Buy-Out of the Share
The third instrument — the buy-out connected with reorganisation — is defined by Article 75. A partner who voted against the reorganisation at the general meeting must be given a period of 20 days from the holding of the meeting to apply to the company in writing with a demand for the buy-out of his share. The company must pay a fair price in exchange for the shares: the managing body must adopt a decision on the buy-out price and notify the partner within 20 days of the expiry of the period, and pay the amount no later than 30 days from the adoption of the decision.
A partner who disagrees with the value of the share may, within 20 days of receiving notice, apply to the court with a demand to determine the fair price; by exercising this right he loses all rights in his share except the right to receive the fair price. The conclusion of an independent auditor appointed by the court decides who bears the auditor’s costs; where the value determined by the court exceeds the one offered, the company must buy out the shares of all partners at that same value and complete the buy-out within 30 days of the determination of the value. By agreement the buy-out period may be extended by not more than 3 months from the determination of the price.
Frequently Asked Questions
Does the alienation of a share require the partners’ consent?
Under Article 141, no — a share may be transferred without the consent of the company and the partners, unless a lawful restriction established by the charter exists.
When does the transfer of a share enter into force?
At the moment the registering body registers the share in the name of the new partner; the agreement is made in writing and the company is notified immediately.
May the company acquire its own share?
Yes, under Article 142 — a share with a fully paid contribution; the full acquisition of a share conferring an unlimited voting right is impermissible.
What are the deadlines for a buy-out on reorganisation?
A written demand — within 20 days of the meeting; the decision on the price — within 20 days of the expiry; payment — no later than 30 days from the decision.
How We Help on Legal.ge
On Legal.ge we assist at every stage of a startup sale: we will examine the charter and the restrictions on the transfer of the share, prepare the written agreement and the notice, assess the risk of joint obligations, and support you in a buy-out or in the company’s acquisition of the share. Contact our team when planning the transaction.