The Rights of Minority Shareholders in LLC under Georgian Law

07.07.2025

• Role and Significance of Minority Shareholders
• Key Legal Protections for Minority Shareholders
• Tools and Mechanisms to Protect Minority Rights
• Dispute Resolution Options
• Recommendations that can be given to Minority shareholders
• Contact our lawyer for more details

Role and Significance of Minority Shareholders

In a Limited Liability Company (LLC) governed by the Law of Entrepreneurs of Georgia, minority shareholders holding less than 50% of the company's shares play an important role in preserving democratic governance, transparency, and fairness in business operations. Although they lack controlling power, Georgian legislation grants minority shareholders several protective rights and mechanisms to prevent abuse by majority shareholders and safeguard their financial and managerial interests.

Key Legal Protections for Minority Shareholders

Access to Information

All shareholders, regardless of their ownership percentage, have the right to access core company information: Financial reports, Meeting minutes, Management decisions, Records related to shareholdings. The company charter may establish procedures or deadlines for document access (e.g., formal requests, electronic access), but it cannot unreasonably restrict this fundamental right.

Voting Rights

Even though minority shareholders may not determine company outcomes alone, Georgian law gives them voting rights on key matters, including: Changes to the charter, Appointment/removal of directors (if not solely under the control of the majority), Reorganization or liquidation, Profit distribution, Capital increase/reduction.

In many cases, these decisions require a qualified majority (3/4) or unanimous consent, meaning minority shareholders can have blocking rights.

Areas Requiring Minority Consent

There are specific corporate decisions that, under the Law of Entrepreneurs or the company’s charter, cannot be lawfully adopted without the consent of a significant minority:

• Amendment of the charter – Requires 3/4 of votes
• Change in share class rights – Requires 3/4 vote of affected class
• Reorganization, liquidation, or sale of major assets – Typically requires majority if by charter is not considered higher percentage
• Restriction of preemptive rights –Requires at least 3/4 of votes of the meeting

These provisions give minority shareholders leverage in key strategic decisions.

Tools and Mechanisms to Protect Minority Rights

Preemptive Rights

Minority shareholders usually have preemptive rights to acquire new shares issued by the company, preventing dilution of their ownership stake. Any restriction on this right must be explicitly allowed by the charter and approved by the shareholders.

Right to Challenge Corporate Acts

Minority shareholders can challenge: Acts or decisions violating the law or the company charter, Transactions involving conflicts of interest, Shareholder meeting resolutions passed in breach of procedural requirements. Legal remedies may include annulment of decisions, injunctions, or damages.

Derivative Action

While not fully codified under Georgian law, in practice, minority shareholders can bring legal action on behalf of the company against managers or majority shareholders who have harmed the company’s interests (e.g., via fraud, mismanagement, or self-dealing).

Right of Minority Shareholders to Convene an Extraordinary Meeting

In the context of protecting minority shareholders' rights within limited liability companies (LLC) or partnerships, Georgian corporate law grants specific procedural rights to partners holding a minimum threshold of shares.

Minority partners or a group of partners, who jointly hold at least 5% of the company’s capital or voting shares, are legally entitled to request the convening of an extraordinary meeting of partners. This right is especially significant in situations where there may be governance deadlocks or inactivity from the company’s executive bodies.

Ordinarily, the authority to convene an extraordinary meeting lies with the company’s management body or supervisory board (if one exists). However, in the absence of acting executives due to reasons such as death, resignation, or termination of power this right may be exercised directly by the qualifying partners themselves.

Additionally, such qualifying partners (initiating partners) may formally request the competent corporate body to convene the meeting. Importantly, this request may only be submitted no earlier than one month after the last partners' meeting was held, and must be made in accordance with the company’s charter.

This mechanism ensures that minority stakeholders are not left without recourse in critical corporate decision-making processes and reinforces their ability to actively participate in the governance of the company, especially in circumstances where majority control could otherwise obstruct necessary meetings or resolutions.

These rights serve as important checks and balances in Georgian corporate governance, empowering minority shareholders to hold management accountable and participate meaningfully in the oversight of the company.

Dispute Resolution Options

Minority shareholders who face oppression or are excluded from key decisions can pursue several legal and contractual remedies: Company charter may provide mechanisms such as mediation panels or internal committees. Remote voting and objections must follow timelines and be properly documented.

Court Litigation, Arbitration and Mediation

Shareholders can bring claims to national courts for breaches of fiduciary duties, violation of charter provisions, or shareholder oppression. Georgian courts provide remedies including injunctions, annulment of decisions, or compensation for damages.

If the shareholder agreement or charter includes a clause for arbitration or mediation, this must be respected. Arbitration may be quicker and more confidential, though it can be expensive. Mediation may be mandatory before litigation, though not binding unless an agreement is reached, but it is often less adversarial and more cost-effective. It also allows parties to preserve business relationships.

Recommendation for Minority Shareholders in terms of Dispute resolution

To start with Internal Mechanisms: These are often quicker and may resolve disputes without escalating tensions. To consider Mediation First, especially where preserving relationships is important and the issue may be resolved through compromise. To use Arbitration or Litigation for Serious Violations: If rights are seriously infringed (e.g., exclusion from decision-making, financial harm), then formal legal channels either arbitration (if agreed) or Litigation are more suitable.

Advantages of Arbitration Compared to State Litigation in terms of Minority shareholders

Confidentiality- Arbitration proceedings are private and not part of the public record. Litigation is usually public, and sensitive business information may become accessible to competitors or the media. Speed of Resolution- Arbitration generally has shorter timelines and fewer procedural delays. Litigation can take years due to congested court systems, multiple appeal levels, and formal procedures. Expert Decision-Makers: Arbitrators are often selected for their expertise in business law or corporate governance, which can be especially valuable in complex shareholder disputes: Judges in state courts may not have specialized knowledge in corporate matters. Enforceability of Awards Internationally: Arbitral awards are more easily enforced across borders under the New York Convention, signed by over 160 countries. Court judgments may face more barriers to international enforcement, depending on treaties and local laws. Finality of Decisions: Arbitral awards are usually final and binding, with very limited grounds for appeal, which can prevent long legal battles. Court decisions can be appealed multiple times, leading to prolonged disputes. Neutral Venue: In international or cross-border shareholder disputes, arbitration provides a neutral forum that avoids either party’s home courts, which may be perceived as biased.

Recommendations that can be given to Minority shareholders

To Actively Exercise Information Rights, Use Voting Leverage Strategically: Protect Against Dilution, Utilize Legal Remedies When Necessary. Call for Extraordinary Meetings: If governance becomes inactive or problematic, Coordinate with other minority shareholders to form voting blocs and influence outcomes, request detailed explanations and valuations for any capital increase.  Strengthen Agreements and Charters: Consider Alternative Dispute Resolution: Where appropriate, pursue arbitration or mediation to resolve conflicts more efficiently, provided such methods are outlined in the charter or agreement, periodically review and propose amendments to the charter to enhance governance and minority protection. Monitor Related Party Transactions and Insider Dealings: Closely examine deals involving major shareholders or directors for potential conflicts of interest. Demand full disclosure and, where applicable, vote against suspicious or unfair related-party transactions.

Authors: Melano Svanidze 

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