New amendments to the Law of Georgia on Entrepreneurs

Date

From January 1, 2022, amendments were made to the Law of Georgia on Entrepreneurs. Under the new law, entrepreneurs have several obligations, according to which, within two years after the changes, they must ensure that their existing facilities in the enterprise comply with the new law; otherwise, this implies appropriate responsibilities. The changes in the entrepreneurial community have caused some confusion; accordingly, the purpose of this blog is to bring more clarity about the news.

  1.  The founding agreement

According to the law, the types of entrepreneurial society are an individual entrepreneur; Limited Liability Company (LLC); Limited Partnership (JSC)); Limited Liability Company (LLC); Joint Stock Company (JSC) and Cooperative. Entrepreneurial activities are carried out in those mentioned above entrepreneurial public form.

Therefore, for a person/persons to carry out entrepreneurial activities and establish an entrepreneurial society, a founding agreement must be submitted in writing to the registration body (public Registry), signed by all the founding partners. The founding agreement includes the charter and other mandatory documents.

 The law stipulates that the funding agreement with the statute should include:

  • Brand name of the entrepreneurial society in Georgian and English languages ( which should be different from the brand name of already registered another entrepreneur, also, it should not be identical to the name of another legal entity or a similar formulation if the latter does not consist) or an equivalent or so similar formulation of the brand name of a well-known person in Georgia, which may confuse). In this regard, it is crucial that the person/persons wishing to establish a company verify in advance the existence of entities with appropriate or similar names in the Registry of entrepreneurs;
  • Legal address (its physical location on the territory of Georgia or head office); 
  • Name, surname, personal number, residential address of each partner/founder, and if the partner is a legal entity, then their company name, identification code, and legal address;
  • A manager or person with representative authority means that it is possible to have both a director and a representative of the enterprise. The difference is that the director automatically has both managerial and representative powers, and the representative has no leadership authority; also, if there are several supervisors,
  • In addition, it should be defined whether they represent the entrepreneurial community or they act individually (separately); 
  • The person in charge of managing and representing the entity’s authorized user’s page, his/her phone number and e-mail address. Based on the signing of a Memorandum of Understanding, Private companies are becoming authorized users of the electronic programs of the Public Registry Agency. Each of them is given individual permission to enter the unified database of the agency. In addition to finding information stored in the database, authorized users also can submit documents for registration on behalf of clients and quickly obtain the required documentation. Private companies offer new services to potential customers, which brings them additional revenue. In the case of a one-person business community, the name of the founding partner/director, surname, personal number, telephone number, and e-mail shall be indicated.

In addition, the law provides additional responsibilities:

 The Founding Agreement of the Limited Liability Company (LLC), in addition, should include the number of shares issued by the limited liability company in exchange for remuneration, Regardless of whether this entrepreneurial community has received a remuneration (placed share), as well as the shareholding of the partners in the capital. They must be expressed as a percentage and their sum must be 100 percent.

It is essential to separate the invested share and the invested capital. Equity capital (basic capital) is the formation of the initial capital of a company at the time of incorporation, which is mandatory only for the joint-stock company, and the amount of the invested share is the amount issued by the LLC to the partners.

Example 1. When we are dealing with a one-person entrepreneurial society, e.g., Ltd. or JSC is founded by one person (one person can only establish only Ltd or JSC), 100 shares are issued by the LLC in exchange for a fee, which will be written separately, and in addition in the Founding Agreement it will be stated in the following way:

Name and Surname of First Partner, Personal number, Residental address The amount of shares he owns, 100Equity participation in placed capital, which is expressed as a percentage 100%

Example 2. When the LLC is to be established by two partners in this case, the founding agreement shall indicate that the amount of 100 shares has been issued and shall additionally indicate:

Name and Surname of First Partner, Personal number, Residental addressThe amount of shares he owns, 50Equity participation in placed capital, which is expressed as a percentage 50%
Name and Surname of Second Partner, Personal number, Residental addressThe amount of shares he owns, 50Equity participation in placed capital, which is expressed as a percentage 50%

The law also provides for the possibility for the Ltd to include in the founding agreement the maximum amount of placed capital, within which the Ltd can decide on the placement of shares in the future, this is named allowed capital; also Ltd can indicate the number of shares issued at the time of establishment and their nominal values.

Under the new regulation, the LLC was granted the rights. The Rights gave to the Joint-Stock company according to the old version of the law. Such an Opportunity further simplifies the attraction of capital in Ltd.

All of the above is mandatory for the establishment of a new entity, as well as for already registered entrepreneurial societies. The latters’ obligation is within 2 years to comply with existing statute with new legislative requirements and approve new charter with the protocol of the General Meeting of the Partners, which will be registered following the law.

The new law introduces the concept of a standard charter. Entrepreneurs used the standard public registry template mainly when they founded companies. However, the new “Standard Charter” does not contain any changeable elements, and To use it, entrepreneurs indicate that they are using a standard charter and not a version of their charter. The Minister approves the formal charter of Justice of Georgia, and its content varies according to the legal forms.

  • Business Letter

On the letters and official websites (if such things exist) of the Limited Partnership, Ltd and Joint Stock Company, the following data must be specified at least: The Company’s Trademark (For example. Ltd “Geosilkroad “; Legal address; Identification number.

We do not have an exact definition of a business letter in the law. Therefore, it is possible to give a broad definition of this term, which refers to any written or electronic document issued on behalf of the Company. In the case of a branch of a foreign enterprise, all business letters must be indicated Branch Registration Authority and Registration Number. This information can be posted on the website in the Company’s contact information.

  • Representative authority

Representative authority requires notarization or make signature in accordance the Law of Georgia on ,,Electronic Document and Electronic Trusted Services’’.

To perform an electronic signature, the existence of a qualified electronic signature is required. The qualified electronic signature is completed only based on the qualified electronic signature certificate issued by a qualified, reliable Service provider- Public Service Development Agency.

  • Employment contract

After that, the decision has been made on the appointment of a manager (which is sufficient to give the supervisor a representative authority) – simultaneously, an employment contract is concluded between the LLC / JSC / Cooperative and the Manager. The provisions of labor law do not apply to such an agreement.

The law does not specify the voluntary nature of the employment contract, which indicates that all LLCs and JSCs have such an employment contract to be concluded. However, the law does not sanction for not concluding such a contract.

The rights and responsibilities of the manager will be written in the employment contract, rule of reimbursement, and others. This contract is not an employment contract, and the norms of the Civil code apply to it.

If the employment contract does not provide information on the reimbursement of the manager, it is supposed that he is doing his job voluntarily way, he does not get the salary. The dismissal of a manager automatically leads to the abolition of the employment contract concluded with him by the entrepreneurial company, unless otherwise is provided by the agreement.

Author: Lawyer – Zurab Kaladze

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