Selling or transferring a share in an LLC: what to do under Georgian law

What to do

1. Consent and the right of first refusal: a share may be sold, gifted or pledged without the consent of the LLC or the other partners (Law of Georgia on Entrepreneurs, Art. 141). Restrictions may arise only from law, the articles of association or the partners' agreement (Law on Entrepreneurs, Art. 30). The pre-emptive right applies only to NEW shares issued by the LLC (Law on Entrepreneurs, Art. 137). Check the articles of association and the partners' agreement: a restriction on alienation is recorded in the founding agreement (Law on Entrepreneurs, Art. 5). Introducing or changing such a restriction requires the consent of all affected partners (Law on Entrepreneurs, Art. 141).
2. Buyer's checks: the extract shows pledges and attachments on shares (Law of Georgia on Public Registry, Art. 10). For debts to the LLC in respect of a share (unpaid contribution), the seller and the buyer are jointly liable (Law on Entrepreneurs, Art. 141). The LLC's own debts remain with the LLC, so review its financial statements. Share in marriage: a spouse's transaction is not declared void merely because the other spouse did not know of it or did not consent (Civil Code of Georgia, Art. 1160); the other spouse is entitled to demand a share of the proceeds (Civil Code, Art. 1160).
3. Form: the contract must be in writing (Law on Entrepreneurs, Art. 141). A transaction for the registry must be certified (Law on Entrepreneurs, Art. 12), by a notary, the Public Service Hall or an electronic signature (Law on Entrepreneurs, Art. 4). The seller must promptly notify the LLC (Law on Entrepreneurs, Art. 141).
4. Transfer: the share passes to the new partner from the date of registration (Law on Entrepreneurs, Art. 141). Both the seller and the buyer may file with the registry (Law on Entrepreneurs, Art. 12). The rules on bona fide acquirers apply (Law on Entrepreneurs, Art. 141). Do not pay in full before registration: a preliminary registration of the right to the share is possible (Law on Entrepreneurs, Art. 12).
5. Seller's tax, if an individual: a natural person's capital gain is taxed at 20% (Tax Code of Georgia, Art. 81). It is exempt if the person owned the share for more than 2 years and did not use it in economic activity (Tax Code, Art. 82). Holding a share in order to receive dividends is not economic activity (Tax Code, Art. 82). A gift between heirs of the first and second order of inheritance is not taxed (Tax Code, Art. 82).
6. Registry refusal: a registry decision may be appealed within 30 calendar days (Law of Georgia on Public Registry, Art. 29).
7. Where to apply: NAPR (Public Service Hall or online); notary; Revenue Service; court.
8. Evidence: extract from the registry, articles of association, partners' agreement, a contract with certified signature, the LLC's financial statements.
9. Pitfalls: assuming that the law gives a partner a right to buy first or requires that partner's consent; paying before registration; confusing this with issuing new shares to an investor.

Be sure to check

• under law, the other partners' consent is not required and there is no pre-emptive right, unless the articles of association or the partners' agreement introduce one
• contract in writing with certified signature (notary, Public Service Hall or electronic signature)
• the share passes only upon registration of the new partner in the Registry of Entrepreneurs (NAPR); the seller or the buyer may file
• what the buyer should check: the extract (pledges, attachments, restrictions) and unpaid contribution
• seller's tax: 20% on the gain, with exemption after more than 2 years of ownership