The Legal Framework of Business Disputes and Their Participants
Business disputes are conflicts arising from entrepreneurial activity, concerning both internal relationships of a society — between partners, shareholders and management organs — and its relations with creditors and third parties. Article 2 of the Georgian Law on Entrepreneurs defines the concept of the entrepreneur: an entrepreneur is a natural or legal person who has an enterprise, and an enterprise is an organised system for carrying out entrepreneurial activity. Entrepreneurial activity is lawful, non-repeated, independent and organised activity carried out with the aim of obtaining profit. Understanding this framework matters: the participant's status determines who may defend, against whom and by which remedies.
Entrepreneurial Status and the Boundaries of Liability
Entrepreneurial activity may be carried out as an individual entrepreneur or an enterprise society; general and limited partnerships, limited liability companies, joint stock companies and cooperatives are enterprise societies. An enterprise society is a legal person, while an individual entrepreneur is not: in business relations that person exercises rights and performs duties as a natural person and answers personally, with all of his or her property, for obligations arising from entrepreneurial activity before the creditor, unless the parties have agreed otherwise. Accordingly, the first step in shaping a dispute strategy is establishing the real boundaries of liability, which directly affects the scope of the claim and the prospects of enforcement.
Challenging Corporate Decisions and the Deadlines
The object of a business dispute is often a decision of the general meeting, the supervisory board or the managing organ. Under the law, such a decision is contestable if it violates the requirements of Georgian legislation or of the statute; however, it may not be declared void where the violation is immaterial. The right to challenge belongs to a partner who attended the meeting and voted against the decision, to a partner unjustifiably denied admission, where the meeting was convened in breach of the rules, or where the issue was not on the agenda; the managing organ, its members and supervisory board members may also challenge a decision that imposes an obligation on them or restricts their right. The claim must be brought within one month from the moment the person learned or should have learned of the decision, but no later than six months from its adoption, and for a gross violation no later than one year. Restoration of a missed deadline is not allowed, so a timely reaction is decisive.
Liability of the Dominant Shareholder
In a joint stock company minority interests enjoy particular protection. Where a dominant shareholder — a shareholder or a group of acting shareholders with the practical possibility of decisively influencing the outcome of the vote at the general meeting — has deliberately used its dominant position to the detriment of the society, it must compensate the damage caused, including damage suffered by a shareholder. A person who deliberately used power against the society and influenced a member of the management organ must likewise compensate the damage, and a member of the management organ who failed to perform the duty answers jointly with that person; approval of the act by the supervisory board or the managing organ does not release that member. A person who derived benefit from the damaging act and deliberately influenced the person concerned answers jointly as well.
The Shareholder Derivative Claim
The law grants a shareholder the right to bring, in his or her own name and for the benefit of the society, a claim owned by the society, including compensation of damage caused by officials who failed to perform their duties. The shareholder is deemed a proper plaintiff where ninety days have elapsed since the written request to the society and where the court is satisfied that satisfaction of the claim does not contradict the predominant interest of the society. The society may at any time, with the consent of the claimant shareholder, substitute itself for that shareholder, and where the shareholder is recognised as a proper plaintiff it must reimburse, within reasonable limits, the expenses connected with the claim.
Frequently Asked Questions
Who can be a party to a business dispute?
A party may be an individual entrepreneur or an enterprise society, including a partner, a shareholder or a member of the management organ, as well as a creditor. The status of the party determines the boundaries of liability and the available remedies.
Within which period may a corporate decision be challenged?
The claim is brought within one month from the moment the person learned or should have learned of the decision, but no later than six months from its adoption; in the case of a gross violation the period extends to one year. Restoration of a missed deadline is not allowed by law.
Who is a dominant shareholder?
A dominant shareholder is a shareholder or a group of acting shareholders with the practical possibility of decisively influencing the outcome of the vote at the general meeting. Such a person bears the obligation to compensate damage where the dominant position has been deliberately used to the detriment of the society.
What is a shareholder derivative claim?
It is a claim by which one or more shareholders enforce, in their own name and for the benefit of the society, a claim owned by the society. The precondition is the lapse of ninety days from a written request to the society, unless the society refuses within that period or the delay may cause irreparable harm.
How We Help on Legal.ge
The team of Legal.ge will assist you at every stage of a business dispute: we assess the grounds and deadlines, design a negotiation or litigation strategy, prepare claims for challenging corporate decisions, compensation of damage and shareholder derivative actions, and represent you before the negotiating table and the courts. Contact us in good time — a missed deadline is often an irremediable cause of failure.