The Law on Entrepreneurs provides a corporate framework but does not negotiate shareholder economics. An LLC agreement should address reserved matters, director appointments, further funding, transfers, deadlock and valuation on exit. Conflicts between articles and a separate shareholders’ agreement must be identified before signing.
Applicable legislation: Law of Georgia on Entrepreneurs, Civil Code of Georgia
Avoiding a corporate deadlock
A 50/50 share split provides no automatic solution to a deadlock. Distinguish reserved matters requiring unanimity from routine management and set a separate process when a reserved matter cannot be agreed.
Address manager appointment, new funding, transfer rights and protection of business information. Ensure the charter and private shareholders’ agreement do not create contradictory obligations.
Relevant statutory provisionApplying the rule in practice
For two 50% owners, saying that both participate in management does not resolve a deadlock over a GEL 90,000 credit facility. Specify reserved decisions, escalation and a workable exit or buyout mechanism.
Ownership and transfers
Specify how an interest may be sold, offered to existing owners or transferred upon succession. A pre-emption right is useful only where offer price, period and procedure are clear. Confirm compliance with mandatory statutory rules.
Voting and deadlock
Simple majority voting may be unsuitable for major capital decisions. Reserve specified matters such as substantial borrowing, major asset sales, new financing and related-party transactions. For equal-owner deadlock, set out a practical negotiation, mediation or exit process.
Management, information and exit
Agree reporting frequency and access to records. Review directors' authority, accountability and conflicts against the articles and law. At exit, valuation is often the key dispute: select a methodology, independent expert process and payment schedule beforehand.
Succession and exit events
Address death, third-party transfers, inability to perform agreed obligations and voluntary exit. Unclear buyout pricing may be as contentious as ownership allocation. Specify valuation methodology, expert selection, staged payment and business continuity.
Practical oversight of management
Owners may agree financial reporting, conflicts disclosures, pre-approval for high-value transactions and access to documents. Controls should be lawful without paralysing daily operations. Good governance includes pathways to authorize urgent actions, not only restrictions.
Model a dispute before it happens
Stress-test the shareholder agreement against deadlock, a capital call, director removal, competing activities and a proposed share sale. Each scenario needs a workable decision rule, notice mechanism and valuation or exit path. Separate matters for constitutional documents from private contractual promises. Generic cooperation language is no substitute for an executable procedure.