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investor’s Handbook ALegal Guide to Business in Georgia • STArT Up • privATizATiON • LABOr LEGiSLATiON February 2011 1 Edition 1 This brochure is a publication by the Georgian National Investment Agency (GNIA) and was prepared by Georgian law firm Mgaloblishvili, Kipiani, Dzidziguri (MKD). The Brochure is intended to be a general guidance on start up, privatization and labor relations. It is thus not expected to be a substitute for detailed research or exercise of professional judgment on above mentioned topics. Companies and individuals operating in Georgia or planning to operate, are stronglyadvisedtoobtaincurrentanddetailedinformationfromexperiencedprofessionals.None oftheorganizationsmentionedabove,northeirmembers,employeesoragentsacceptliabilityfor the consequences of you and anyone else acting or refraining to act on the information contained in this brochure or for any decision based on it. The brochure is published with support of the German Development Cooperation Deutsche Gesellschaft für Internationale Zusammenarbeit GmbH (GIZ). Findings, conclusions and comments made in the publication do not necessarily reflect the opinion of GIZ. This publication may not be reproduced in whole or in part without the written permission of the copyright holder. © Deutsche Gesellschaft für Internationale Zusmmenarbeit GmbH (GIZ), 2011. 2 iNTrOdUCTiON For the past few years, Georgian government has carried out a number of significant economic reforms in various fields in order to create attractive business environment and to breathe a new life into Georgian economy. The main aim of the reforms was to boost foreign investments, cre- ate new jobs, stimulate entrepreneurial activities in a variety of fields and increase the welfare of citizens. As a result of economic deregulation policy which was focused on liberalization of the Economy, a number of state regulated spheres were sharply decreased and regulation procedures were sim- plified. Consequently, our achievements have been recognized by a number of international in- stitutions. This year the World Bank and the International Finance Corporation published a joint research Doing Business 2011, under which Georgia ranks 12th among 183 countries in terms of Ease of Doing Business. Moreover, Georgia surpasses 174 counties in terms of reformation of business regulations since 2005. Last but not least, Georgia ranks first in the Post-soviet space, excluding the Baltic countries, in terms of counter-corruption policy. It is worth noting that de- spite the current difficulties related to the global financial crisis, Georgia managed to overcome economic challenges due to economic liberalization reforms. In this direction, Georgian Govern- ment made several important steps: Tax -The administration of tax and customs systems has been simplified. The number and rates of taxes have been significantly reduced making it easier for local and foreign businesses to do business. Currently, there are only 6 taxes and no capital gains, inheritance, wealth, property transfer; social, branch remittance or any other taxes are in place in Georgia. The coming into effect of a new comprehensive Tax Code (including customs legislation) on January 1, 2011 con- stitutes a further milestone in the development of tax legislation. Licenses and permits - Georgia has dramatically reduced licensing and permitting requirements to ease constraints on business. The total number of licenses and permits was cut by 84% in re- forms that eliminated 756 licenses and permits and streamlined procedures. Currently, licenses and permits are only used in the production of highly risky goods and services, also usage of natural resources and specific activities. The procedures of issuing licenses and permits were significantly simplified to the “one-stop shop” and “silence is consent” principles. Customs reform - From January 1, 2011 the new Tax Code of Georgia took effect which also includes the provisions regulating customs. Tax Code established business friendly customs pro- cedures. Customs Tariffs Reform significantly eased and sharply reduced the costs connected to the foreign trade. Number of import tariffs were abolished on approximetaly 90% of products and only 3 tariff rates (0%, 5%, 12%) exist instead of previous 16. Georgia sets import taxes on only several kinds of agricultural goods and constructing materials. In addition, there are no quantita- tive restrictions (quotas) on imports and exports. 3 Labor relations - New Georgian Labour Code made significant reforms in the sphere of labour relations simplifying the relations between employers and employees. As a result of the reform, Georgia is among the world’s leaders in labor freedom with its new Labor Code. privatization of State property – Starting from 2004, provision of aggressive and transparent privatization policy was one of the important reforms of Georgian Government, that was ad- dressed to denationalization of the remained state property in order to attract foreign investments, increase and develop the private sector and effective use of country resources. Georgia is a business-friendly state that strives to make Georgia the best destination for business- es. The reforms and creation of the right legal base have played a significant role in Georgia’s economic growth. The Government of Georgia stays committed to its economic reform agenda and intends to implement further reforms to improve its investment climate and stimulate eco- nomic growth. This means more reforms and more initiatives in a range of fields aimed at further improvement of investment climate and progress in terms of the ease of doing business. In this brochure we offer information about the legal framework which is highly important in the process of starting up and running a business in Georgia. The brochure consists of three parts – Start up a Business, Privatization and the Labor legislation. Each part consists of chapters outlining in most comprehensible language the content of the leg- islative base regulating the corresponding field. Furthermore, relevant legislative acts and articles are provided at the end of each chapter. Unfortunately, the format of the brochure does not enable full incorporation of every relevant detail and information and can thus not serve as a substitute for professional legal advice. Nev- ertheless, we did our best to make the brochure comprehensive and catch main aspects and rules of Georgian legal framework which will hopefully be of use for the interested reader. 4 Table of contents pArT i STArT Up Chapter i. Legal Forms of Companies------------------------------------------------------- 6 Chapter ii. Setting up a company------------------------------------------------------------16 Chapter iii. reorganization, Liquidation and insolvency procedures---------------23 Chapter iv. Tax Legislation-------------------------------------------------------------------28 Chapter v. Customs procedures--------------------------------------------------------------36 Chapter vi. international Trade regimes of Georgia-----------------------------------50 Chapter vii. General review of Current Licenses and permitsApplicable in Georgia-----------------------------------------------59 Chapter viii. State promotion of investments--------------------------------------------79 pArT ii privATizATiON Chapter iX. privatization ---------------------------------------------------------------------87 pArT iii LABOr LEGiSLA iONT Chapter X. Labor Code of Georgia-------------------------------------------------------- 114 Useful links ------------------------------------------------------------------------------------- 129 5 pArT i. STArT Up Chapter i LEGALFOrMS OF COMpANiES Prior to starting a business in Georgia, one must first of all identify a specific legal structure through which one intends to establish and operate the business. The rules regarding the foun- dation, registration, reorganization and liquidation of a company are enumerated in the Law on Entrepreneurs. Pursuant to the law, one of the following legal forms can be chosen for organizing a business in Georgia: 1. Limited Liability Company; 2. Joint Stock Company; 3. General Partnership; 4. Limited Partnership; 5. Cooperative; 6. Individual Entrepreneur Of the above-mentioned legal forms, only the last one - Individual Entrepreneur does not have the status as a legal person. Thus, the individual entrepreneur acts as a physical (natural) person and has unlimited liability against his or her creditors. According to the Georgian legislation, any activity related to art, science, medicine, architecture, attorneys or notaries, advisories, agriculture or forestry is not considered an entrepreneurial activ- ity. As such, it is not required to incorporate a company in order to carry out the aforementioned activities, provided that such activity is undertaken by a physical person individually, without hired labor. A brief review of basic features of each legal form is given below in a successive order: Limited Liability Company Liability As the name implies, the limited liability company (LLC) provides limited liability to its owners in such a way that they are not liable for the LLC’s debt obligations. The liability of a partner in an LLC is limited to the investment made in the company, while his or her personal assets are not at risk. The LLC can be established by a single person or by several persons jointly. 6 Charter capital The presence of charter capital is required to set up a limited liability company. The Law on Entre- preneurs does not establish a minimum or maximum capital requirement for establishing a LLC. The amount of the charter capital, therefore, rests entirely with the partner(s) of the company. Rights and Obligations of Partners The partners of the limited liability company are entitled to create an agreement, which sets forth their rights and obligations and the distribution of shares. This agreement is reflected in the stat- ute of the company. Management The managerial structure of a company, its composition and the regulation of its activity rest solely on the decision of the partners. A partners’ meeting is the highest body of the limited liability company. The partners’ meeting has the exclusive right to make strategic decisions with respect to company’s activity. A director (or directors) appointed by the partners’ meeting carries out the overall management of the day-to-day activity of the Company. The rights and obligations of the director are specified by respective agreement and the Law on Entrepreneurs. Besides that, the partners’ meeting is entitled to create a supervisory board and determine its functions. Joint Stock Company Liability Similar to an LLC, a joint stock company is liable vis a vis its creditors only to the extent of the property owned. The shareholders are not personally liable for the corporate debt obligations. Charter capital The presence of charter capital is required to set up a joint stock company. The Law on Entrepre- neursdoesnotestablishaminimumormaximumcapitalrequirementforthejointstockcompany. Rights and Obligations of Shareholders The shareholder of a company is expected to make a contribution in the charter capital to get his shares. The law does not prescribe any other obligations. Currently, a monetary contribution is the most common way of paying the charter capital in a joint stock company. 7 The class of shares owned by the shareholder determines the rights of the shareholder in the company. Unless otherwise stipulated by the statute, the joint stock company may issue ordinary (common) and preferred shares. At a shareholders’ meeting, the owner of ordinary shares enjoys a voting right corresponding to the number of shares owned. The owner of preferred shares does not have such a right; he is only entitled to receive stock dividends at an approved rate. Management According to the Law on Entrepreneurs, the joint stock company has a three-tiered structure. The shareholders’ general meeting is the highest body of the company authorized to make decisions on the company’s strategic and key issues. The general meeting elects a supervisory board of the company. The supervisory board is mandatory for public companies, for joint stock companies licensed by the National Bank of Georgia, and for joint stock companies with more than 100 shareholders. The main tasks of the board are the appointment and dismissal of the directors and regulation of their activity. The director is responsible for the management and representation of the company and reports to the supervisory board. General partnership Liability A general partnership can be set up by two or more persons. Unlike the partners in the limited li- ability company, the founders of the general partnership have unlimited liability against creditors and are jointly liable for the debt obligations of the company to the extent of their entire personal property. Charter capital With regard to the personal liability of partners to the creditors of the company, the Law on En- trepreneurs does not require the creation of charter capital for setting up a general partnership. Rights and Obligations of Partners Each partner of the company is entitled to participate in the management of the company. Any partner who does not participate in the management of the company is entitled to become familiar with details of the company’s activity, as well as any financial or other type of documentation related to the operations of the company. Management The company is managed by the partners on basis of a mutual agreement. Each partner has one voting right in the course of decision-making. The partners may undertake management jointly or delegate it to one partner. The management structure of the company is specified by the partners in the statute of the company. 8 Limited partnership Liability A Limited Partnership can be established by two or more persons (either physical or legal per- sons). Under this legal structure, the liability of certain partners (the limited partners) for the ob- ligations of the company is limited to an agreed pledge amount paid by those partners. However, the liability of other partners (the general partners) is unlimited, i. e. they are personally liable to the creditors for their entire personal property. Charter capital The limited partners are obliged to pay an agreed pledge amount by which their liabilities for a company’s obligations are limited. The general partners do not make contributions to the charter capital, and therefore their liability is unlimited. The Law on Entrepreneurs does not specify a lower and upper threshold for the pledge amount. Rights and Obligations of Partners The partners of the company enjoy different rights. The limited partners may not participate in the management of the company. They can only review annual reports and require corresponding financial documentation to double-check the data given in the report. The limited partners do not have the right to approve or amend the statute of the company. Management Only general partners are entitled to manage the company. The limited partners can exercise their voting rights only in cases prescribed by the statute of the company. Cooperative Liability A Cooperative (CO) is a company incorporated with the objective of developing common busi- ness and increasing the profits of its members. The objective of the CO is to accomplish the in- terests of its members. The CO is not primarily aimed at earning profit. Both physical and legal persons can be members of the CO. The CO is liable to the creditors to the extent of its own property. Charter capital The Law on Entrepreneurs does not specify the minimum capital requirement for setting up a cooperative. The members of the CO decide on minimum initial shares. Rights and obligations of the members 9 All members are expected to contribute a predetermined initial share. Unless otherwise agreed, all members enjoy equal rights. They participate in the management of the company jointly by means of the partners’ general meeting. The statute of the cooperative may stipulate different rules. Management The cooperative has a three-tiered managerial structure. A general meeting is the highest body authorized to make decisions on strategic issues. The general meeting elects a supervisory board and a board of directors. The supervisory board monitors the activity of the board of directors. The board of directors should consist of at least two directors to manage the daily activity of the cooperative and report to the supervisory board and the general meeting. Branch office of a company; Branch office (permanent establishment) of a foreign company A company registered in Georgia is entitled to set up a branch office, which is not a legal person. The Law on Entrepreneurs does not require registration of the branch office. A foreign company can establish a branch office in Georgia. The registration of a branch of a foreign company in Georgia is mandatory. The procedures for registration are highlighted in the following chapter. Type of Company Liability Capital Management • Partners’Meeting Required. Minimum capital • Director (Directors) LLC No personal liability requirement is not specified • Supervisory Board (Optional) • Partners’Meeting JSC No personal liabilityRequired. Minimum capital • Director (Directors) requirement is not specified • Supervisory Board (In cases provided by law) • Partners’Meeting General partnership Personal liability Not required • Director (Directors) Personal liability for • Partners’Meeting General partners. Required. Minimum capital • Director (Directors) Limited Partnership Limited liability forrequirement is not specified (Only general partners have Limited partners right to manage company) • General Meeting of Cooperative No personal liabilityRequired. Minimum capital Members requirement is not specified • Director (Directors) • Supervisory Board Individual Personal liability Not required No management body Entrepreneur 10 CYAN MAGENTA YELLOW BLACK 10 Audit andAccounting requirements As far as the auditing requirements are concerned, per Law on Entrepreneurs, the audit is incumbent for the following entities: a) accountable company (as defined by the Law on Securities Market), the securities of which are admitted at the stock exchange; b) the company which is licensed by the National Bank of Georgia (such as banks, insurance companies, brokerage companies and etc); c) the company, the number of its shareholders exceeds 100. In this case the audit shall be conducted by the auditor being legally and economically independent from the company, its directors and shareholders. Despite the legal status, the company turnover of which exceeds 100 000 GEL in any continuous periodof12calendarmonthsmustfileanapplicationforVATregistrationtotheRevenueService and process the accounting in compliance common standards. Individual entrepreneurs, small and micro business are eligible for certain simplified accounting rules and tax exemptions. Legislative Base Law of Georgia on Entrepreneurs October 28, 1994 Article 1. Scope of application of the law 1. This law regulates the legal forms of entrepreneurial entities. 2. Entrepreneurial activity is a legitimate and continuous undertaking that is carried out for the purpose of gaining profit individually or in a corporate manner. 3. Creative art, science, medicine, architecture, legal defense or notary, audit, advisory (including tax advisory), agriculture or forestry related activity of physical persons is not considered to be an entrepreneurial activity; agriculture and forestry related companies may exist in the legal form anticipated in Article 2 of this law if they are registered in the Register of Entrepreneurs and Non-Entrepreneur (non-commercial) Legal Persons. Registration is mandatory if an enterprise permanently employs at least five persons who are not the members of the family of the owner. Article 2. Entrepreneurial entities and how they are established 1.Entrepreneurentitiesare:individualentrepreneur,generalpartnership,limitedpartnership, limited liability company, joint stock company and cooperative. 3. General partnership, limited partnership, limited liability company, Joint Stock Company and cooperative are enterprises (companies) with the status of a legal person. An individual entrepreneur identified in this law is not a legal person. In business relations an individual entrepreneur implements his rights and fulfills his obligations as a physical person. 11 Article 3. Responsibility, rights on receiving of information and monitoring 3. Partners of a general partnership and personally responsible partners of a limited partnership–generalpartners(Complementars)arejointlyliableforthedebtsofthecompanyi.e. each partner is responsible for the debts with all his entire property directly and independently. Different agreement between the partners is void for the third person. 4. Limited partners of a general partnership (Comandites), the partners of a limited liability company, a joint stock company and a cooperative are not liable for the debts of the company. The partners of a limited liability company, a joint stock company and a cooperative shall be liable towards the creditors with the unpaid contribution if the liability takes an effect before the full contribution agreed between the parties is made. 1 4 .The partners enter into an agreement (a statute) by which the matters related to the operationofthecompanyandrelationshipsofthepartnersareregulated.Thepartofthepartners’ agreement (the statute) which includes the data envisaged under Article 5 of this law and is registered in the register represents a registration application. The partners’ agreement, which is not subject to registration, is made in written form and can be concluded in any language (the Partners’ Agreement - the Statute) 5. In the course of the creation of a company, the partners shall agree on distribution of shares and accord on the amount of their contribution into the charter capital. The contribution can be tangible and intangible assets, labor or/and provision of services. Article 9. Management and Representation 1. Managerial right is assigned to: in a general partnership – all the partners; in a limited partnership – the general partners , in case the general partner is a legal person – a physical person appointed by him; in a limited liability company, joint stock company and a cooperative – the directors if otherwise stipulated in the Statute (the partners’ agreement). 2. The power to manage anticipates the act of decision making on behalf of the company within the terms of reference, and the representation right implies action taken on behalf of the company in relations with third parties. Article 91. Partners’ General Meeting 1. Unless otherwise specified by this law or the Statute of the company, the rule of calling and procedures of a partners’ general meeting, as well as its scope of authority shall be stipulated in accordance with the regulations identified in this Article. 5. Partners’ meeting shall make decisions on the following issues: a) Types of production, commencement and cancellation of industrial activity; b) Approval of changes in the data of an application for registration and the Statute; c) Opening and liquidation of branch offices; d) Investments with the value of each or all of them exceeding 50% of the company assets in a fiscal year; e)Takingliabilitieswiththevalueofeachorallofthemexceeding50%ofthecompanyassets; f) Guarantees for the liabilities that do not belong to a regular industrial activity and have a value which exceeds 50% of the value of the company assets; g) Issuance and cancellation of procurement; h) Approval of annual results; i) Selection of an audit; 12 g) Reorganization and liquidation of a company. 6. In a limited liability company the meeting makes decisions on the following issues apart from those spelled out in Paragraph 5 of this Article: a) Identification of principles of distribution of profit among the management, participation in general income and issuance of pension; b) Application of those additional rights which is assigned to the company from the day of its registration or is anticipated in the management of the company against the director or/and the partner, as well as representation of the company in the judicial proceedings that are carried out against the directors; c) Require to make a contribution; d) Return of extra contribution; e)Appointanddismissdirectors,signandterminateagreementswiththem,approvetheirreports; f) Make decisions on setting up a supervisory board; g) Decisions on increasing the company’s capital by making new/additional contributions. 7. Every decision of special importance outweighing regular activity of the company requires approval of a general meeting with participation of all the partners. 10. At the general meeting, each partner of a general partnership and each general partner of a limited partnership has one voting right. The limited partner of a limited partnership does not have a voting right. Voting right of the partners of a limited liability company is specified proportionally to their shares. Article 16. Branch Office of a Company 1. Company may establish a branch office, which is not a legal person. The branch office of a company registered in Georgia does not require registration. Article 20. Concept of a General Partnership 1. A general partnership is a company where several persons (partners) carry out an entrepreneurial activity jointly under a single name and are liable for the obligations of the company as joint debtors to their creditors directly with all of their property Article 34. Concept of a Limited Partnership 1. Limited Partnership is a company where several persons carry out an entrepreneurial activity under a single brand name and liability of one or several partners to the creditors is limited to agreed pledge amount – the limited partners, while the liability of other partners is unlimited – the general partners. 4. Only general partners have the right to adopt and amend the statute of a limited partnership and modify the registration data. Article 36. Monitoring Right of Limited Partners on 1. The limited partners are entitled to require a copy of the annual report and check its accuracy through reviewing financial documentation of the company. Article 37. Management of the company 1. The limited partners do not participate in the management of the company. They may not 13 challenge the actions of the general partners taken within ordinary entrepreneurial operations. The limited partners enjoy a voting right only in the cases foreseen by the statute of the company. Article 44. Concept of a Limited Liability Company 1. A Limited Liability Company is a company the liability of which to its creditors is limited to its entire property. A single person may also set up such company. 2. Agreement between the partners of the company on lessening the liability is void for the third parties. 3. Capital of a limited liability company is divided into shares. The share is a transferable right. Article 45. Capital of a Limited Liability Company Charter capital of a limited liability company may be determined in any amount. Article 46. Rights and Obligations of Partners Rights and obligations and the rule of initial distribution of shares are spelled out in the statute of a company (partnership agreement). Article 47. Management of the Company Structure, composition and the method of activity of management bodies are defined by the statute of a company. Article 51. Concept of a Joint Stock Company 1. A joint stock company is a company whose capital is divided into shares, the classification and the number of which are specified in the Statute. A share is a dematerialized nominative security which confirms the liability of a joint stock company to a partner (shareholder) and the rights of a shareholder in the joint stock company. The Statute of a joint stock company may identify the price, which is the threshold for the shares of this class during a primary sale (nominal price of shares). A liability of a joint stock company towards the creditors is limited to its entire property. A shareholder of the joint stock company is not liable for the obligations of the company. When setting-upajointstockcompanythechartercapitalofcompanymaybedeterminedinanyamount. Article 52. Types of shares. Other securities convertible into shares 1. Unless otherwise established by the statute, shares may be ordinary and preferred. One ordinary share provides a shareholder one voting right at a shareholders’ general meeting. On the contrary, a preferred share does not grant a voting right. The preferred share entitles the shareholder to receive a dividend at an approved rate. Size of a dividend and the rule of its granting are defined by the Statute. A different rule may be stipulated by the Statute that suggests different definition of the rights of ordinary and preferred shares. Shares of one class provide equal rights to their holders. Promise on unrestricted granting of dividends is invalid. Article 53. Rights and Obligations of Shareholders 1. Unless otherwise stipulated by the law, the sole duty of the shareholder is to make a contribution in order to get a relevant number of shares. Imposing a duty to a shareholder by virtue of the statute of a joint stock company, which is not stipulated by the law, is invalid. 14 3 . Shareholders owning 5% of the shares are entitled to require a special examination of industrial actions or the entire annual balance if they think violations take place. Article 60. Concept of a Cooperative 1. A Cooperative is a company based on the labor activity of its members or is created for the purpose of development of the business and boosting the revenues and the main goal is to meet the interests of the members. A Cooperative is not primarily oriented towards earning a profit. 3. A Cooperative is liable for its obligations to the creditors only with its own property. Article 61. Share 1. The minimum share of a cooperative member is determined by the founders. One member of the cooperative may have several shares. Article 63. General Meeting 1. Unless otherwise stipulated by the law, the members of a cooperative exercise their cooperative related rights at the general meeting. 3. Each member has one voting right. A different distribution of the voting rights may be defined by the statute. Article 65. Supervisory Board 1.Acooperativehasasupervisoryboardconsistingofatleast3andnomorethan15members elected by simple majority of votes of the members being present at the general meeting. 3. Supervisory board monitors the activity of the board of directors in every area of the managementandforthispurposeobtainsinformationonprogressofthecooperative’soperations. Article 66. Board of Directors; The Directors 1. A board of directors of a cooperative consists of at least 2 directors (members of the board of directors). The directors may not be the members of the cooperative. A statute may foresee other conditions as well. 15 Chapter ii SETTiNG UpACOMpANY Afterchoosingasuitablelegalformforthebusiness,thenextstepistheregistrationofthecompany. The terms and procedures for registering a company are regulated by the Law on Entrepreneurs, the Law on Public Registry and the Instruction Manual on Registration of Entrepreneurs and Non-Entrepreneur (non-commercial) Legal Persons. The registration of a company in Georgia is based on three essential principles: fast, inexpensive and simple procedures. Registration is absolutely mandatory for all of the types of companies listed in the first chapter. A company is considered established only after it is registered in the National Agency of Public Registry (www.napr.gov.ge). The data entered in the Registry is public. A company is not re- quired to complete a separate tax registration, as pursuant to the Georgian legislation, the initial registration includes both the State and the Tax registration and is carried out simultaneously. Prior to submission of an application for registration, the partners sign an agreement specifying the rights and responsibilities of the parties and other matters related to the company. Such an agreement is referred to as the Statute of the company. The distribution of shares between the partners, the method of formation of charter capital of the company and the form of contribution are also specified by the partners’ agreement. For the purpose of registration, the law does not require a document verifying the amount or ex- istence of the charter capital. registry Registration of companies in Georgia is carried out by the National Agency of Public Registry – a legal person of public law. registration procedures The registration process begins with filing an adequate application to the National Agency of Public Registry. The application shall be submitted to an office of the Public Registry appropriate to the legal address of the company applying for registration. The application for registration should be signed by all partners of the company and verified by a notary. 16 If the partners sign the application in the Public Registry in the presence of an authorized officer, notarization of the application is not required. The Application for the registration should include the following information: a) The name of the company; b) The legal form of the company; c) The legal address of the company; d) The full name, address and the personal identification number of the partner(s). If the partner is a legal person the application should include: The name of the company; The company’s legal form; The company’s legal address; The company’s date of registration and the identification number; Information on the representation (management) of the company; e) The management body (bodies) of the company and the decision-making methods; f) The number of shares of the partners of the limited liability company and the general partners of the limited partnership, if the company is a limited liability company or a limited partnership. g) A reference to the general and limited partners, if the company is a limited partnership; h) In the case of a limited liability company or limited partnership, any obligations limiting own- ership of the shares by the partners/general partners; i) The persons authorized to manage and represent the company – full name, address and the personal identification number; j) The full name, address and the personal identification number of a procurist, if any; k) If the company has several persons entitledtorepresentthecompany,a statementas to whether these persons shall act jointly or separately. l) The person, if any, authorized to apply, on behalf of the company, to the Public Registry in fu- ture with the request for amendments to the record of incorporation. This person may be either a legal or physical person. In case of physical person, the application should include the full name, address, and the personal identification number of that person. For a legal person, the name, legal address, legal form, date of registration, identification number, and representatives should be indicated. If the activity of the company is related to the production of or trade in food or animal feed, a respective note should be made in the process of registration. Establishment of a company in Georgia by foreign residents If the partner, director or representative of the company or the person authorized to make amend- ments to the registration data in the registry is not a Georgian citizen, he/she is required to submit to the Public Registry the data equivalent to the personal data prescribed for a citizen of Georgia. A certificate of residence in Georgia or a personal identification document issued by the foreign country is considered as an equivalent document. 17 If the Georgian company is established by a foreign company, the information on the corporate standing of the parent company entity should be verified or legalized according to the applicable rule. registration of a branch office of a foreign company in Georgia Georgian legislation allows a foreign company to set up a branch office (a permanent establish- ment) in Georgia. In this case, registration of the branch office is mandatory. Registration of a branch office of a foreign company is carried out by the Public Registry and the application for registration should be submitted to an office of the Public Registry appropriate to the legal address of the branch. For the purpose of registration of the branch office, the following documents should be submitted to the Public Registry: a) Application for the registration of the branch; b) Decision of the company on the appointment of a branch director or the power of attorney au- thorizing a person to manage the branch, verified in accordance with the Georgian legislation; c) Information on the foreign company and its management as enumerated by the Law on Entre- preneurs and verified in accordance with the Georgian legislation. This information is the same that required by Georgian legislation for the establishment of the company. (The data established by the law implies the information that is normally required for registration of a company) relocation (redomocile) of a foreign company to Georgia Georgian legislation allows the redomicile of a foreign company to Georgia without requir- ing it to cease its activity. When seeking to relocate a company, one should keep in mind that the company can operate in Georgia only under one of the legal forms allowed by Georgian legislation. For the purpose of redomicile, the interested person should submit the following documents to the National Agency: Application; Personal identification document; Document confirming the redomicile of the company (respective decision of the company partners); Document verifying the payment of the registration fee. If redomicile is carried out by a representative, a copy of the personal identification document of the representative and the respective power of attorney are required. The term and fee for redomicile registration is the same as for the registration of a company. Fee and Term of registration The fee payable for the registration of the company (including registration of the branch of the foreign company) is 100 GEL. The registration is completed in one business day. 18 Georgian legislation allows the registration of the company on the same day of filing the applica- tion. In this case, the fee is 200 GEL. Registration of a company producing food or animal feed is completed during one business day and the registration fee is 15 GEL. The document showing payment of the registration fee should be attached to the application for registration and submitted to the Public Registry. The payment of the registration fee is possible at any Georgian bank. Once the registration procedures are completed successfully, the company is assigned a unique identification number. Opening a bank account After completing the registration, a company may select any Georgian bank and open a bank ac- count. Opening a bank account takes one business day and a minimum cost of 10 GEL. For the purpose of opening the bank account, the following documents should be submitted to the bank: a) Application for opening a bank account in the form established by the bank (the form is avail- able at the bank and can be completed on site). b) State and Tax Registration Certificate of the company; c) Sample signature of the director of the company; d) Copies of identification documents of the persons authorized to represent the company. Legislative Base Law on Entrepreneurs October 28, 1994 Article 3. Responsibility, rights on receiving and monitoring of information 1 4 The partners enter into an agreement (a statute) by which the matters related to the opera- tion of the company and relationships of the partners are regulated. The part of the partners’ agreement (the statute) which includes the data envisaged under Article 5 of this law and is registered in the registry represents a registration application. The partners’ agreement, which is not subject to registration is made in written form and can be concluded in any language (the Partners’ Agreement - the Statute) 5. In the course of the creation of a company the partners shall agree on the distribution of shares in accordance to the amount of their contribution into the charter capital. The contribu- tion can be tangible and intangible assets, labor or/and provision of services. 19 Article 4. Registration of an entrepreneurial entity 2. A registration of an entrepreneurial entity is undertaken by a legal person of the public law – the National Agency of Public Registry being under the management of the Ministry of Justice of Georgia (hereinafter – the Registry). 3. An entrepreneurial entity is created upon the moment of its registration in the register of commercial and noncommercial legal persons. An existence of an entrepreneurial entity is veri- fied by a record of the registry of commercial and noncommercial legal persons. The registration of the entrepreneurial entity covers both state and tax registration. A decision of the registering body on registration becomes effective upon its official presentation to the party or as soon as it gets published. The decision is considered published once it is posted at the webpage of the registering body. 4. The registration of an entrepreneurial entity is undertaken according to the address chosen by the entity. A written notification (correspondence) sent to this address is considered as an of- ficially dispatched notification (correspondence) (legal address). Article 5. Terms of Registration of an entrepreneurial entity 1. In case of requesting a registration of a company, an application for registration signed by all partners of the company and verified according to the applicable rule shall be submitted to the Registry, while at the same time the application represents the part of the partners’ agreement and includes the following information: a) A name/brand name of the company; b) A legal form of the company; c) A legal address of the company; d) A full name, address and the personal number of the partner(s) and if the partner is a legal person the application shall include the brand name of the company, the legal form, legal ad- dress, date of registration, identification number and the information about its representatives; e) A management body of the company, decision making methods and the information about the number of shares of the partners and the general partners in case of a limited liability com- pany and a limited partnership; f) A reference to the general and limited partners, if the company is a limited partnership; g) In case of limited liability company or limited partnership, the obligations limiting an own- ership of the shares by the partners / general partners; h)Themanagersandrepresentativesofthecompany–fullname,addressandthepersonalnumber; i) Full name, address and the personal number of a procurist, if any; j) If the company has several persons entitled to represent the company, a reference whether these persons shall act jointly or separately. k) The person, if any, authorized to apply, on behalf of the company, to the Registry in future with the request on amendments to the record of incorporation. This person may be either legal or physical person. In case of physical person, the application shall include full name, address and the personal number of that person, while for the legal person, the name, legal address, legal form, date of registration, identification number and representatives shall be indicated. 3. Notary verification of the application for registration is not required if the authorized per- sons sign it in the Registry or it is verified by the authorized administrative body in accordance with the established rule. 20 4. In the case when a partner (partners) of the company, an authorized person (persons) on management or representation, a person authorized to registry changes in an application for registration (if any) are physical persons without Georgian citizenship or legal persons of a foreign country for the purpose of registration they shall submit the data analogous to those established for a Georgian citizen or a company registered in Georgia. The rule of identifica- tion of data equivalency is specified in the instruction. In case of a legal person of a foreign country the documents authenticating its registration as a legal person needs to be duly veri- fied or legalized. 6. For the purpose of registration of a company, the document verifying the existence of the charter capital is not required. 7. If the activity of the company is related to the production, processing, distribution, selling of food/animal feed or food business operators it is mandatory to include this information in the documents submitted for registration. Additional terms of registration of such a company are specified by the instruction and the price is stipulated in the Georgian Law on Public Registry. Article 5 . Company Redomicile 1. Transfer (redomocile) of the registration of a foreign company without discontinuation of its activity is permitted. 2. A Company redomociled to Georgia may be registered only under the form foreseen by the Georgian legislation.) Article 16. Branch Office of a Company 4. For the purpose of opening a branch office (a permanent establishment) of a foreign com- pany in Georgia the following documents shall be submitted to the Registry: a) Application for the registration of the branch; b) Decision of the company on appointment of the branch director or the power of attorney authorizing a person to manage the branch, verified in accordance with the Georgian legislation; c) Information on the company and its management verified in accordance with the Georgian legislation and defined by this Law. Law on public registry December 19, 2008 Article 31. Terms and fees established for the service provided by the agency 1. The following timeframe is established and the following fees are set for the service pro- vided by the Agency: h) Registration of an entrepreneurial entity, excluding an individual entrepreneur, and a non- entrepreneurial (non-commercial) legal person; Registration of amendments of the registered data and cancellation of them is possible in one business day at the cost of 100 GEL. j) Registration as a company producing food/animal feed or/and as a distributor which also implies registration as a company whose activity is related to processing, selling an producing food/animal feed; as well as registration of amendments of the registered data and cancellation thereof is possible in one business day at the cost of 15 GEL. 21 Article 32. Accelerated Service 1. The Agency offers an accelerated service for the following timeframe and at the following cost: c ) Registration of an entrepreneurial entity, excluding an individual entrepreneur, and a non- entrepreneurial (non-commercial) legal person; Registration of amendments of the registered data and cancellation thereof is possible on the same day of submission of an application at the cost of 200 GEL. instruction on “registration of Entrepreneurs and Non-entrepreneur (Non-commercial) Legal persons” Approved by the Order # 241 of the Minister of Justice of Georgia December 31, 2009 Article 9. Identification of personality of an interested person, his/her trustee or/and an ap- plicant 1. Identification of personality of an interested/representative physical person is carried out by means of a personal identification document. A passport of a citizen of Georgia or a personal identification card is considered to be a document identifying personality of a Georgian citizen. A residency permit for Georgia or a personal identification document issued by a respective country shall be considered to be a document identifying personality of foreign residents or the persons without citizenship. Article 12. The Rule of Assigning an Identification Number 1. Identification Number is the unique code that is assigned to a subject along with registra- tion. 22 Chapter iii rEOrGANizATiON, LiqUidATiONANd iNSOLvENCY prOCEdUrES reorganization of a company Georgian legislation enables a company to change form, as well as the merger of two or more companies into one legal entity. Procedures related to the reorganization of a company are provided in the Law on Entrepreneurs. Only partners are authorized to make the decision to reorganize a company. The decision to reor- ganize should be reflected in the statute of the company. Specifically, following reorganization, the redistribution of partners’ shares and determination of their obligations should be revised in the statute with regard to the change in form of the company. The company established through reorganization is a successor of the reorganized company. Georgian legislation enables the division of a company, as well. In the case of division, the com- pany may be split to create two or more new and independent entities. In this case, the partners are entitled to define their shares in the companies established as a result of the division on the basis of a new agreement. Companies established through division are jointly liable for the commitments of the transferring company. Georgian legislation allows a merger of two or more companies into a single legal entity. The decision to merge is made according to the same rule as in the case of division. A company es- tablished in this way is the successor of those companies whose merger resulted in establishment of the new company. The reorganization of a company requires the registration of adequate changes in the Public Reg- istry. The term and cost of registration are similar as those applicable for the initial registration of a company. Liquidation of a company The decision to liquidate a company is made by the partners of the company. Following the deci- sion to liquidate, the partners (or the supervisory board) appoint a liquidator of the company and submit an application for liquidation to the Public Registry. Once the application is registered by the Public Registry, the process of liquidation is commenced. According to the Georgian legisla- tion, the creditors must be informed of the liquidation. 23 Liquidation is carried out by the liquidator of the company. Specifically, the liquidator undertakes the sale of a company’s assets and puts the received amount in the deposit account of court or notary. This amount is used to satisfy the debts owed by the company to the creditors. After all claims of creditors are satisfied, the remaining part of the assets shall be distributed among the partners. Once the liquidation of a company is completed, and upon the receipt of a respective notice, the Public Registry cancels the registration of the company and the company ceases to exist. Submis- sion of the application for liquidation and the cancellation of registration are carried out within the same term and at the same cost as in the case of registration or reorganization of a company. principles and features of insolvency procedures In the process of operation, a company may face financial hardship when it is not in the posi- tion to honor its obligations to creditors and thus, the company becomes insolvent. Insolvency procedures are regulated by the Law on Insolvency Procedures. In the case of insolvency, the director(s) of the company is obliged to make an announcement about insolvency in due time. The legislation on insolvency procedures is focused on the balanced protection of the interests of debtor company and its creditors, and if possible, allows the insolvent company to solve its financial problems and avoid bankruptcy. Insolvency procedures can be initiated by an application submitted by the creditor or the debtor. Cases on insolvency are considered by the City Courts of Tbilisi and Kutaisi. The procedures can be initiated only if a company is insolvent or if it is expected that it will not be able to meet its financial obligations. The acceptance of an application by the court and commencement of insolvency procedures entails a suspension of all the enforcement (execution) measures initiated against the debtor. Additionally, the accrual of the interest or penalties to the outstanding debts shall be suspended. Upon commencement of insolvency procedures a custodian is appointed who monitors the man- agement of the company, protects the debtor’s property, studies its financial position and submits the information to the mediation council. The latter is composed in accordance with the agree- ment between the debtor and the creditors. The mediation council examines the position of the insolvent company, studies the ways to reconcile the financial difficulties faced by the company, and resolves on bankruptcy, rehabilitation or cancellation of insolvency procedures. The decision of the mediation council is approved by the court. Once a decision on bankruptcy is made, the trustee of the bankruptcy is appointed. The trustee manages the insolvent company, facilitates the sale of its assets through auction, and the payment of debts according to the sequence specified by the law. After the finalization of this process, the bankruptcy procedures are terminated and the company ceases to exist. 24 In the case that the mediation council and the creditors consider that it is viable to solve financial difficulties through rehabilitation of the company they adopt a rehabilitation plan and appoints a rehabilitation manager. This decision is approved by the court. The rehabilitation manager man- ages the rehabilitation process. If the rehabilitation process goes on successfully, the company satisfies all its debts and continues its normal operations. Legislative Base Law of Georgia on Entrepreneurs October 28, 1994 Article 14. Liquidation, reorganization (transformation, merger, division) 1. Partners of an entrepreneurial legal person are entitled to take a decision on initiating a liquidation of the company. The partners, as well as the members of supervisory board or the director (directors) in the cases foreseen by the statute, are authorized to designate the persons who carry out the liquidation of the company (the liquidators). 3. Decision of partners on commencement of liquidation process of company has to be regis- tered in the Register of Entrepreneurs and Non-Entrepreneur (Non-Commercial) Legal Persons. The liquidation process shall be considered commenced upon the moment of its registration on where the Registrar shall notify the Tax Authorities without delay. 5. The company (the liquidator) shall commence the sale of the property of the company at a market price or by means of auction from no later than 90 days from registration of liquidation process of the company and deposit the proceeds from such sale at the deposit account of the court or notary. If the partners resolve on in kind distribution of the property, they shall, from the moment of registration of liquidation process of the company until in kind distribution of the assets, main- tain the assets in the original condition at their own expenses by means of putting the assets in the custody of one of the partners. Disposition of funds allocated at the deposit account and the entrusted property prior to distribution of aforementioned funds and the property among the partners is allowed only with the aim of satisfaction of creditors’ claims. 8. Registering body cancels registration of company on the basis of application of person authorized for cancellation of registration of the company and the decision on completion of bankruptcy/liquidation process of the company submitted by the authorized person/body. 10 . A liquidation process of company has to be completed within no later than 4 months from the registration of commencement of liquidation process. 11. Partners are entitled to transform a company of a specific legal form into a company of different legal form. In such case partners’ rights shall be redistributed by the statute with regard to the limitations established for the particular legal form. Unless otherwise provided in the stat- ute, for transformation of joint stock company into Limited Liability Company and, vice versa, 75% of votes of attending partners with voting rights (the Partners) is required. In all other cases a decision shall be made unanimously. 25 12. Companies may be united (merger). For merger with a joint stock company, a limited liability company and a cooperative 75% of votes of attending partners with voting rights (the Partners) is required; In all other cases a decision is made unanimously unless otherwise pro- vided by the statute. The decision on merger shall indicate whether one company merges with another or two companies merge into the new company. Decision on merger shall specify the rights and responsibilities of the partners unless they follow the proportionality principle in re- spect with their shares in the charter capital. The company merged with another company or a newly established enterprise is a successor of the former company (companies). 13. An enterprise may be divided into two or more enterprises and the latter may continue business as independent companies with their individual legal form. Decision on division may provide participation of former partners in the company established as a result of division on the basis of different shares. Companies established as a result of division are jointly liable for the liability of the original company existing before division. Article 9. Management and representation 9. If company is insolvent or faces the risk of insolvency the persons identified in Paragraph 1 of this Article shall make a statement about this fact without faulty delay, however no later than 3 weeks from the moment of occurrence of insolvency in accordance with the rules of Law on In- solvency Procedures. Statement about insolvency shall not be considered to be made with faulty delay if aforementioned persons treat this statement in a good faith as foreseen in Paragraph 6 of this Article. Law of Georgia on insolvency procedures March 28, 2007 Article 1. Aim of the law This law aims at equal protection of the interests of a debtor and a creditor (creditors), reso- lution of the debtor’s financial difficulties, if possible, and satisfaction of creditors’ claims or satisfaction of creditors’ claims by means of distribution of funds received from realization of the debtor’s property in case the resolution of financial difficulties is not possible. Article 4. Court procedure 2. The cases envisaged by this law are considered by the city courts of Tbilisi and Kutaisi. Article 6. Procedural fees related to the insolvency procedures 2.Submissionofapplicationoninsolvencyischargedwithastatedutyintheamountof5,000GEL. 3. Debtor is exempted from payment of the state duty. Article 13. The ground for submission of insolvency application to the court Insolvency or expected insolvency of a debtor is the ground for submission of an insolvency application to the court. 26 Article 21. Decision on acceptance of an insolvency application for consideration 1. By virtue of decision on acceptance of an insolvency application, the court: a) Appoint a custodian; c) Suspends all the measures of enforcement initiated against the debtor and it is not allowed to commence the new measures of enforcement. Article 26. Custodian Custodian shall be an independent, impartial, honest person, a nominated member of a pro- fessional organization, an auditor or a member of Bar Association of Georgia, a lawyer with a general or civil specialization. Article 32. Mediation council 1. Mediation council is a collegial body, established on the basis of parity, which evaluates and resolves the issue of insolvency of a debtor. In case of rehabilitation of debtor the mediation council reviews a rehabilitation plan as well. 4. One member of mediation council is appointed by the debtor and the other member is elected by the creditors’ meeting by the simple majority of votes. If the creditors’ meeting fails to elect the member of mediation council the judge shall appoint the second member of mediation council as soon as the first meeting of the creditors is over. 5. The third member of mediation council shall be selected by agreement between the media- tors appointed by the debtor and creditors (or the judge). Article 37. Bankruptcy manager A bankruptcy manager carries out management and representation of company in the process of bankruptcy. The bankruptcy manager is assigned with all rights granted by the Law on En- trepreneurs to the persons authorized to manage and represent respective company. Managerial and representation rights of the director of company in
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