The goal of the reform was to create a legislative framework tailored to the needs of modern business, to simplify procedures for attracting investment, to develop flexible regulations adapted to investors/partners, and at the same time to fulfill the obligations outlined in the Association Agreement signed between Georgia and the European Union.
Three years after this significant date, it might seem logical for the “new” law to now be considered “old.” However, the fact remains that despite simplified and flexible legislative possibilities, businesses are still struggling to comply with and adapt to the new legal requirements.
Specifically, upon the adoption of the new law, enterprises were granted a two-year period from the law’s enactment to align their enterprise/branch registration data with the new requirements.
Later, this two-year deadline was extended until April 1, 2025, to give businesses more time for compliance. Subsequently, the deadline was postponed once again, and the current date for making these changes is set as April 1, 2026.
According to the explanatory note to the legislative amendment, the purpose of extending this transitional period by one year is to facilitate enterprises’ compliance with the legal requirements for registration data and to avoid disruption to their operations.
All of the above logically indicates that enterprises are having difficulty ensuring compliance and require an extension of the deadline to support them in this process.
In light of this need, we believe that the regulations established by the new “Law on Entrepreneurs” remain highly relevant both for already established businesses and for those planning to register in the future. Therefore, in this article, we present an overview of Georgia’s entrepreneurial legislative framework, covering the most important aspects of the field. The article serves as a guide for those aiming to align with the new legal requirements.
Business Registration
According to the “Law on Entrepreneurs,” registration of an entrepreneur is mandatory. To establish an entrepreneurial entity, an instrument of incorporation is required, which should include the statute (charter) and must be signed by all founding partners.
The new law outlines a list of mandatory data that must be included in the instrument of incorporation. These include: the business name of the entrepreneurial entity, legal address, identification details of the founders, and identification details of the person(s) authorized for management and representation, among others.
As for the statute (charter), it must contain, at a minimum, the legal form of the entrepreneurial entity, the scope of activity, information on any partnership agreements (if applicable), and more.
Standard charters based on the legal forms of entrepreneurial entities are approved by the Minister of Justice of Georgia. Founders of an enterprise may choose whether to use a standard charter or to develop their own.
While the use of a standard charter is fully sufficient for company registration, we always recommend that founders develop an instrument of incorporation and charter tailored specifically to their needs. Why? Because a charter or instrument of incorporation may establish rules different from those prescribed by law (except for mandatory legal provisions). A charter may also regulate matters that are not addressed by law at all or expand upon legal norms that do not comprehensively regulate certain issues.
Therefore, the legislation offers investors/founders significant freedom to establish the internal rules for their company themselves and to avoid potential disagreements, ambiguities, and disputes in the future.
Developing a customized charter is the most solid guarantee for preventing potential risks and for protecting your interests as fully as possible.
Tip: Don’t use a standard charter! Create an individualized charter tailored to your interests!
Bringing Registration Data into Compliance by April 1, 2026
Already registered companies are required to ensure that their registration data complies with the requirements of the law by April 1, 2026. To meet this obligation, they must submit an instrument of incorporation and charter that comply with the new law to the registering authority.
Failure to fulfill this obligation will result in the suspension of the company’s registration. This status will be reflected in the public registry, and no extract from the registry will be issued. Additionally, the information will be forwarded to the Revenue Service, the Service Agency of the Ministry of Internal Affairs, and banks operating in Georgia. Furthermore, the company will face restrictions on asset management, participation in tax-related operations, management of bank accounts, opening new accounts, accessing existing funds, and obtaining loans.
In other words, by failing to meet your registration obligations, you risk halting your entire business operations and endangering its future.
Tip: Don’t wait until the deadline is near! Identifying the interests of the founders and potential risks—as well as developing an individualized founding agreement and charter—is a time-consuming process! Take steps to protect yourself from risks before the deadline approaches!
New Types and Classes of LLC Shares
The new law allows limited liability companies (LLCs) to have a more complex share structure—something that was not permitted before its enactment. Specifically, the law introduces the following types of shares:
- Subscribed Shares – shares issued by the LLC to another person in exchange for a specific consideration.
- Issued Shares – shares for which a decision on placement has been made by the body defined by the charter or by the partners.
- Authorized Shares – shares that, based on a decision of the partners, may be issued and placed in the future. The number, class, proportion in the LLC’s capital, and nominal value (if determined) of authorized shares must be reflected in the LLC’s founding agreement.
The charter may also provide for the existence of different classes of LLC shares. Shares that grant identical rights and obligations constitute a single class. All shares of a single class must have the same nominal value. Rights and obligations associated with different classes of shares, as well as their content, are defined in the charter.
Tip: Before drafting your LLC’s charter, define your business strategy, long-term goals, and potential for attracting investors. Don’t miss the opportunity granted by law to strategically determine the types and classes of shares to support your company’s future growth.
Reorganization and Redomiciliation
The Law on Entrepreneurs establishes the following forms of reorganization for enterprises: conversion, merger (through acquisition or consolidation), and division (through split or separation).
- Conversion – Based on a partners’ decision, an entrepreneurial entity may be transformed into another legal form of entrepreneurial entity (e.g., from a joint stock company into a limited liability company). After the transformation, the entrepreneurial entity continues to exist under the new legal form.
- Merger – One or more entrepreneurial entities may be merged into another entrepreneurial entity; likewise, two or more entities may consolidate and form a newly established entrepreneurial entity.
- Division – An entrepreneurial entity may be divided into two or more newly established entities (split), or one or more new entities may be separated from the original entity (separation).
In addition, the law allows for redomiciliation, which enables a business registered in a foreign country to transfer its registration to Georgia without interrupting the continuity of its operations.
Tip: Before proceeding with a reorganization or redomiciliation, carefully choose the legal form that best suits your business needs. Consult a lawyer to ensure the procedure complies with the applicable legal requirements.
Service Agreement of the Director
The law clearly distinguishes the agreement concluded between a company and its director from an employment contract and obligates the company to enter into a service agreement after the decision to appoint a director or supervisory board member is made. Labor law provisions do not apply to this type of agreement.
The service agreement must specify the amount, form, and frequency of the director’s remuneration, the service-related benefits they will receive during the term of the agreement, as well as the rights and obligations that will continue to apply after the agreement is terminated. If the service agreement does not contain remuneration terms, it is presumed that the director performs their duties free of charge.
Dismissal of a director or supervisory board member automatically terminates their service agreement with the company, unless otherwise specified in the agreement.
The law defines mandatory (imperative) requirements for service agreements but also allows the parties to determine additional terms at their discretion. This flexibility serves as a mechanism for protecting the interests of both the company and the director.
Tip: Before signing a service agreement, both the company and the director should consult a lawyer to ensure that the contract includes the strongest possible mechanisms to protect their respective interests.
Shareholder Deadlocks
One of the most common challenges in corporate practice is the so-called shareholder deadlock, a situation in which partners cannot reach an agreement, resulting in a standstill.
Imagine an LLC with two partners, each holding a 50% share. The charter requires a majority vote for decision-making, but the partners hold opposing views. This is a classic deadlock scenario.
The new law introduces three important mechanisms to break such deadlocks:
- Withdrawal of a partner
- Expulsion of a partner
- Winding-up of the company by court decision
Withdrawal of a Partner – A partner may withdraw from the LLC if:
- The actions of the management or other partners significantly harm their interests.
- The company’s business activities have substantially changed.
- The company has not distributed dividends for the last 3 years despite having the financial capacity to do so.
- A decision was made to amend rights related to a particular class of shares.
- Other partners have decided on an additional capital contribution obligation that also applies to the exiting partner.
The value of the exiting partner’s share must be compensated at market value.
Expulsion of a Partner – The court may, upon the request of the company based on a partner resolution, decide to expel a partner if:
- The partner’s actions significantly harm the company’s interests; or
- Their continued participation is detrimental to the company’s future operations.
Winding-up by Court Decision – If a significant reason exists, a partner may file a claim to wind-up the company. Such a reason may include:
- A partner deliberately or grossly negligently breaches essential obligations imposed by law or charter.
- A partner is no longer able to fulfill their duties, and the company can no longer achieve its objectives.
Tip: If you are in a deadlock situation, consult a lawyer to select the proper legal mechanism to protect your interests and follow the correct procedure. If your goal is to prevent a future deadlock or to develop alternative mechanisms beyond those provided by law, be sure to reflect such provisions in the company’s charter.
