I. About This Article
Company share acquisition is one of the most common and important transactions in modern business. An investor may acquire shares in a new business, an existing partner may increase participation in a company, or one company may acquire control over another company.
However, such transactions often raise an important question: when does the acquisition of company shares fall under the merger control regime, and when is prior approval from the Georgian Competition and Consumer Agency required?
In many cases, company share acquisition is not only a corporate or contractual matter. If the transaction results in the acquisition of control over another undertaking and the participating companies meet the financial thresholds established by law, the transaction may also require assessment under competition law.
This article explains what concentration means, when the acquisition of shares may qualify as a concentration, when notification to the Agency is required, how competence is divided between the Competition Agency and sectoral regulators, and what sanctions may follow if a notifiable concentration is implemented without notification.
The article is based on Georgian competition legislation, the 2020 reform, Georgia’s obligations under the Association Agreement and TB Legal’s practical experience in competition and corporate law.
II. Why Merger Control Became Important After the 2020 Reform
As part of Georgia’s obligations under the Association Agreement, the Parliament of Georgia adopted significant amendments to competition legislation on 16 September 2020. As a result of this reform, Georgian competition law became substantially closer to European standards.
The reform clarified key legal concepts, strengthened enforcement mechanisms and created a more systematic legal framework. For businesses, one of the most practical developments concerned merger control.
Before the reform, the merger control system was less effective. Although the legislation contained certain rules related to concentrations, there was no sufficiently developed and sanctionable mechanism for cases where a notifiable concentration was implemented without notifying the Agency.
After 2020, the situation changed substantially. Merger control became a clearer, more predictable and practically enforceable regime. As a result, businesses must now assess competition law risks when acquiring company shares, merging companies or obtaining control over another company.
III. What Is a Concentration Under Competition Law?
In competition law, concentration means a transaction or structural change that alters the structure of the market.
The law distinguishes several main forms of concentration.
The first form is the merger of two or more undertakings. This is a case where two or more companies combine and, as a result, one undertaking is created.
The second form is the acquisition of control over another undertaking. This may be achieved through the acquisition of shares, securities or assets, by contract or by another legal means. In this case, the decisive factor is not only the legal form of the transaction, but whether it results in the acquisition of control over another company.
The third form is the creation of a joint venture. If two or more persons establish a joint venture that performs an independent economic function, such operation may also qualify as a concentration.
Accordingly, concentration in competition law is not limited to the merger of two companies. In practice, the acquisition of company shares often falls under the merger control regime if the buyer obtains control over the target company through the transaction.
IV. When May Company Share Acquisition Qualify as a Concentration?
Not every acquisition of shares is a concentration. For example, the acquisition of a small shareholding that does not give the buyer the ability to control company decisions will usually not fall under the merger control regime.
The key issue in assessing a concentration is acquisition of control. Control may be direct or indirect. It may arise from the amount of shares, voting rights, a shareholders’ agreement, influence over management bodies, veto rights or another mechanism that gives the buyer the ability to influence the company’s strategic decisions.
Therefore, when acquiring company shares, it is not enough to look only at the percentage of shares acquired. It is necessary to assess what rights are attached to the shares, whether the buyer can influence the management of the company, and whether the buyer can control the budget, business plan, appointment of the director or other important matters.
For this reason, competition law analysis in M&A transactions should be carried out before closing the deal. If the acquisition of shares results in acquisition of control and the relevant economic thresholds are met, prior notification to the Agency may be required.
For corporate law matters, TB Legal also provides dedicated corporate law services.
V. Why Are Concentrations Subject to State Control?
In a free market economy, mergers, share acquisitions, investor entry and creation of joint ventures are natural business processes. Such transactions often support business growth, attract investment, increase efficiency and contribute to market development.
However, from a competition law perspective, a problem may arise when such a transaction changes the market structure in a way that increases the risk of restricting competition.
A concentration may reduce the number of independent players on the market. The fewer independent competitors remain on the market, the easier it may become to coordinate behaviour, increase prices in parallel or reduce competitive pressure.
In addition, a concentration may result in significant market power being accumulated in the hands of one undertaking. In some cases, such market power may approach or directly create a dominant position.
This is why merger control is a mechanism of prior control. The state intervenes in the transaction before the market structure changes and before the risk of restricting competition materializes.
VI. When Is a Planned Concentration Problematic?
A planned concentration is problematic when it results in a substantial restriction of competition on the relevant market.
Under the law, substantial restriction of competition is generally presumed when a concentration creates a dominant position or strengthens an existing dominant position.
If a concentration does not create or strengthen a dominant position, it is presumed that no substantial restriction of competition exists. In such cases, the burden of proving the opposite usually lies with the Agency.
However, if the concentration creates or strengthens a dominant position, a presumption arises that competition is substantially restricted. In such cases, undertakings may need to demonstrate that the specific concentration does not actually restrict competition or that it may be allowed subject to appropriate conditions.
If the assessment shows that the concentration substantially restricts competition, the Agency issues a negative conclusion. In such a case, registration or implementation of the concentration is not permitted.
VII. When Is Notification to the Agency Required?
Not every concentration must be notified to the Agency. The prior control regime applies only where the transaction reaches the economic scale established by a subordinate legal act.
A concentration is subject to notification if the combined annual turnover of the undertakings participating in the concentration in the territory of Georgia exceeds GEL 20 million, and the annual turnover of each of at least two undertakings participating in the concentration exceeds GEL 5 million.
This means that acquisition of company shares does not always require prior involvement of the Competition Agency. Two issues are decisive: whether the transaction results in acquisition of control and whether the established turnover thresholds are met.
If both conditions are present, the concentration will generally be subject to notification to the Agency and prior assessment.
VIII. Structural and Behavioural Measures
Merger control does not always end with prohibition of the transaction. Modern competition law allows a concentration to be declared compatible subject to certain conditions.
For this purpose, structural and behavioural measures may be used.
Structural measures relate to the structure of ownership, assets or shares. For example, the Agency may require the divestment of a certain asset or shareholding in order to reduce the negative effect of the concentration on the market.
Behavioural measures are directed at the future conduct of the undertaking. For example, certain obligations may be imposed in relation to customers, suppliers, competitors or access to the market.
The purpose of these mechanisms is to reduce the possible negative impact of the concentration on competition while avoiding a full prohibition of the transaction where implementation is possible subject to appropriate conditions.
IX. Who Reviews the Notification – the Competition Agency or a Sectoral Regulator?
As a result of the 2020 reform, competition legislation also became applicable to regulated sectors. This is particularly important for energy, communications, banking and other regulated industries.
In practice, however, it is necessary to determine which authority should receive the notification – the Competition Agency or the relevant sectoral regulator.
If the undertakings participating in the concentration belong to the same regulated sector, control is generally exercised by the relevant regulatory authority.
If only one party to the concentration is an undertaking operating in a regulated sector, or if the participants belong to different regulated sectors, control is exercised by the Competition Agency.
Therefore, when planning a concentration, it is necessary to determine in advance not only whether a notification obligation exists, but also which authority is competent to review the transaction.
For competition law matters, TB Legal provides dedicated competition law services. For legal support in the regulated energy sector, TB Legal also provides energy law services.
X. What Sanctions May Follow If a Concentration Is Implemented Without Notification?
Implementation of a notifiable concentration without notifying the Agency is now a real sanctionable risk.
If an undertaking implements a concentration that was subject to notification to the Agency but failed to submit the notification, the Agency is authorized to impose a fine of up to 5% of the undertaking’s annual turnover from the previous financial year.
This is a particularly important risk for large companies, as the fine may be financially significant.
In addition, if the Agency determines that a concentration implemented without notification substantially restricted competition, it may apply to the court and request restoration of the original situation. In such a case, the issue may arise of divesting an undertaking or part of it, shares, assets or securities, carrying out reorganization or terminating a specific contract.
Additional liability may also arise if an undertaking fails to comply with structural or behavioural measures imposed by the Agency.
XI. Practical Conclusion for Businesses
Acquisition of company shares does not always mean that prior approval from the Competition Agency is required. However, if the transaction results in acquisition of control and meets the established turnover thresholds, it falls under the merger control regime and requires prior assessment.
The main risk for businesses is that an M&A transaction or acquisition of shares is often perceived only as a corporate or contractual deal. In reality, in some cases, such a transaction also requires prior competition law analysis.
Therefore, before acquiring shares, it is necessary to assess whether the transaction results in acquisition of control, whether the turnover thresholds are met, which authority should receive the notification and whether there is a risk of substantial restriction of competition.
A properly planned transaction reduces the risk of financial sanctions, delays in the transaction or legal complications affecting its implementation.
XII. How TB Legal Can Help
TB Legal assists businesses with legal assessment of company share acquisitions, M&A transactions and merger control matters.
Our services include analysis of the transaction structure, assessment of acquisition of control, review of turnover thresholds, identification of the competent authority, preparation of notification to the Agency or relevant regulator and prior assessment of transaction-related legal risks.
Our approach combines corporate law and competition law expertise. This is particularly important in transactions where share acquisition is not only a change in the internal structure of a company, but may also involve issues of control, market power or potential restriction of competition.
If you are planning to acquire company shares, bring in an investor, merge companies or obtain control over another company, competition law assessment of the transaction should be carried out before the deal is completed.
XIII. Conclusion
Company share acquisition may be an important instrument for business growth, attracting investment or strategic expansion. However, from a competition law perspective, such a transaction is not always merely a private agreement between the parties.
If the acquisition of shares results in acquisition of control over another undertaking and the participating companies meet the established turnover thresholds, the transaction may be subject to concentration notification.
Ignoring the notification obligation may result in significant financial sanctions, legal complications affecting the transaction and, in certain cases, a requirement to restore the original situation.
Therefore, before acquiring company shares, it is necessary to prepare not only corporate documents, but also to assess competition law risks in advance.
Contact TB Legal if you need legal assessment of a company share acquisition or M&A transaction. We will help you structure the transaction properly and manage competition law risks.
XIV. Sources Used
This article is based on the following sources:
- The Law of Georgia on Competition.
- Practice of the Georgian Competition and Consumer Agency in the field of merger control.
- TB Legal’s practical experience in competition and corporate law.
Disclaimer
This article has been prepared for general informational purposes only and does not constitute individual legal advice or a legal opinion. Issues related to company share acquisition, concentration notification, prior approval of the Agency and competition law risks may be assessed differently depending on the specific transaction structure, control mechanisms, turnover indicators, relevant market and activities of the participating undertakings.
Before making a decision regarding a specific transaction, it is recommended to obtain individual legal advice from a qualified lawyer.
