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New corporate law of January 01, 2022 in Georgia, Tbilisi

New Corporate Law Enhances Corporate Governance in Georgia, Tbilisi

On January 1, 2022, a new corporate law came into effect in Georgia, Tbilisi, bringing significant changes to the legal framework governing companies in the country. The aim of this new law is to simplify and modernize corporate governance practices, while also promoting transparency and accountability.

Beneficial Ownership Register:
One of the key changes introduced by the new law is the requirement for all companies incorporated in

Georgia to maintain a beneficial ownership register. This register serves as a central repository of information about the individuals or entities that ultimately own or control the company. It includes details such as their names, addresses, and shareholding percentages. This measure is designed to increase transparency and prevent money laundering and other illicit activities.

Shareholders Agreement:
The new law also mandates companies to have a shareholders agreement in place. This agreement outlines the rights and obligations of the shareholders, as well as the procedures for resolving disputes and transferring shares. By having a well-defined shareholders agreement, companies aim to provide greater certainty and stability for their shareholders, promoting better corporate governance practices.

Director's Agreement:
In addition, the new law introduces changes to the rules governing the appointment and dismissal of directors. Companies are now required to have a director's agreement in place, which outlines the terms and conditions of the director's appointment. This includes specifying their duties, responsibilities, and remuneration. It is important to note that the director's agreement should be separate from any employment contract and cannot be used as a substitute for a labor contract.

Compliance Requirements for Existing Companies:
For companies incorporated before January 1, 2022, the new law mandates updates to their articles of association and other corporate documents to align with the new rules. This includes ensuring the maintenance of a beneficial ownership register, implementing a shareholders agreement, and establishing a director's agreement. Failure to comply with these requirements within the specified timeframe may result in penalties or other enforcement measures.

Key Changes Introduced by the New Corporate Law:

Here are the main changes introduced by the new corporate law in Georgia, Tbilisi, effective from January 1, 2022:

1. Here is a revised version of the numbered list of main changes introduced by the new corporate law in Georgia, Tbilisi, effective from January 1, 2022:
2. Mandatory maintenance of a beneficial ownership register: All companies incorporated in Georgia are required to maintain a register that contains information about the individuals or entities that ultimately own or control the company.
3. Requirement for shareholders agreement: Companies must have a shareholders agreement in place, outlining the rights and obligations of the shareholders, as well as procedures for resolving disputes and transferring shares.
4. Director's agreement: Companies are required to have a director's agreement that outlines the terms and conditions of the director's appointment, including their duties, responsibilities, and remuneration.
5. Director's agreement separate from labor contract: It is important to note that the director's agreement cannot be used as a substitute for a labor contract between the director and the company.
6. Updates for existing companies: Companies incorporated before January 1, 2022, must update their articles of association and other corporate documents to comply with the new rules.
7. Annual general meetings and financial statements: Companies are required to hold annual general meetings of shareholders and prepare annual financial statements.
8. Stricter rules on conflicts of interest: The new law introduces stricter rules on conflicts of interest involving directors and shareholders.
9. Supervisory board requirement: Companies must establish a supervisory board if their annual turnover exceeds a certain threshold. The supervisory board oversees the management of the company and provides guidance and advice to the board of directors.
10. Rules on corporate mergers and acquisitions: The new law introduces new rules on corporate mergers and acquisitions.
11. Enhanced protection for minority shareholders: The new law provides greater protection for minority shareholders.
12. Shareholders' right to challenge decisions: Shareholders have the right to challenge decisions made by the board of directors or supervisory board that they believe are contrary to the company's interests.
13. Stricter rules on directors' liability: The new law introduces stricter rules on the liability of directors for breaches of their duties. Directors can be held personally liable for damages caused to the company or its shareholders as a result of their actions or omissions.
14. Rules on distribution of profits and dividends: The new law introduces new rules on the distribution of profits and the payment of dividends. Companies must allocate a certain percentage of their profits to reserve funds.
15. Rules on transfer of shares and registration: The new law introduces new rules on the transfer of shares and the registration of share transfers.
16. Stricter rules on disclosure of information: The new law introduces stricter rules on the disclosure of information by companies. Companies are required to disclose certain information about their operations, financial performance, and governance practices.
17. Penalties for non-compliance: The penalties for non-compliance with the new law can be significant and may include fines, suspension of business activities, or even criminal sanctions in some cases.

The new corporate law in Georgia, Tbilisi, represents a significant step towards enhancing corporate governance practices in the country. By implementing measures such as the beneficial ownership register, shareholders agreement, and director's agreement, the law aims to promote transparency, accountability, and stability in the corporate sector. Companies are encouraged to ensure compliance with the new requirements to avoid potential penalties and legal consequences.

Please note that this article provides a general overview of the new corporate law in Georgia, Tbilisi, and should not be considered as legal advice. Individuals and businesses are advised to consult with legal professionals for specific guidance related to their circumstances.