Every limited liability company depends on a working relationship among its partners. When one partner’s conduct threatens that relationship, Georgian law gives the company a way out: exclusion. The Law of Georgia on Entrepreneurs sets out two separate routes to the same result, and choosing the wrong one can cost a company months in court.
Two Routes, Two Logics
Judicial expulsion on significant grounds applies when a partner’s conduct seriously prejudices the company or blocks it from achieving its purpose – breach of duty, abuse of trust, conduct amounting to a criminal offence against the company, or persistent obstruction. The grounds are independent: one alone can justify expulsion, provided the partner was first warned and failed to change course.
Forfeiture of shares is narrower and contribution-specific. It applies only when a partner fails to make an agreed capital contribution – and only after that partner has had the chance to withdraw instead, since a partner who never approved an additional-contribution obligation may leave rather than be forced to pay.
How Judicial Expulsion Works
- The remaining partners adopt a resolution authorising the company to sue – the partner facing exclusion cannot vote on it.
- The company must file suit within 30 days of the resolution; miss the window, and a fresh resolution is required before trying again.
- The court assesses whether significant grounds actually exist.
- Exclusion takes effect only once the judgment becomes legally binding – at which point the shareholder loses their shares and all attached corporate rights, but retains the right to fair value compensation.
How Forfeiture Works
The management body issues written notice that forfeiture proceedings have begun, giving the defaulting partner at least 30 additional days to pay. Only if that period lapses without payment may the company issue a final notice of forfeiture. No court judgment is required to trigger it – though Georgian legal commentary is divided on whether judicial oversight should be mandatory here too, and the case law has not settled the point.
Forfeited partners are not refunded contributions already made, the company’s claim for the unpaid balance survives forfeiture, and default interest accrues at double the National Bank of Georgia’s refinancing rate unless agreed otherwise.
What This Means for Founders and Investors
Both mechanisms are more procedural than they first appear, and procedure is where cases are won or lost: a missed 30-day filing deadline can undo an otherwise valid claim. Well-drafted shareholder agreements and corporate governance provisions – clear conduct standards, contribution schedules, warning mechanics — reduce the odds of ever needing either remedy.
FAQ
Can a shareholder be expelled without a warning?
No – expulsion on significant grounds requires that the partner was first warned and failed to comply.
What compensation does an expelled shareholder receive?
The fair value of their shares, determined once the expulsion judgment is final.
Can a partner be excluded just for refusing an additional contribution?
No – only if they did not exercise their right to withdraw and then failed to pay.
Conclusion
Shareholder exclusion is a serious, high-stakes mechanism and Georgian law gives it real procedural teeth on both sides. Companies and investors navigating a breakdown in the shareholder relationship, or looking to prevent one through better drafting, benefit from experienced counsel.
Nomos Georgia advises Georgian and international clients on corporate governance, shareholder disputes, and company formation – contact us to discuss your situation.
