I. Who Is a Minority Shareholder?
Minority shareholder rights in an LLC become particularly important where a company has several shareholders and one of them cannot independently exercise decisive influence over resolutions of the Shareholders’ Meeting.
In practice, such a person is commonly referred to as a minority shareholder.
For example, one shareholder may hold 70% of the company and another 30%. The 30% shareholder may be unable to make many decisions without the support of the majority shareholder, but this does not mean that the minority shareholder should be excluded from the company’s affairs or left without legal protection.
The Law of Georgia on Entrepreneurs grants shareholders both proprietary and non-proprietary rights, many of which do not depend on whether a shareholder holds 5%, 20%, 30%, or 49% of the company.
At the same time, the law establishes specific minimum shareholding thresholds for the use of certain special mechanisms.
In Case No. ას-1319-2018, the Supreme Court of Georgia considered the position of a minority shareholder specifically in the context of legal protection for a shareholder who could not independently exercise decisive influence over the outcome of voting at the Shareholders’ Meeting.
1. A Small Shareholding Does Not Mean Limited Legal Protection
A shareholder’s voting power and legal rights are not the same thing.
A minority shareholder may not be able to control the Shareholders’ Meeting, but may still:
- obtain information about the company’s activities;
- review company documentation;
- participate in the Shareholders’ Meeting;
- request explanations;
- under certain conditions, request the convening of an extraordinary meeting;
- challenge an unlawful corporate resolution;
- claim a dividend that has already been distributed;
- and, where appropriate, apply to court to protect the company’s interests.
2. A Majority Shareholder Also Operates Within Legal Limits
Corporate governance is largely based on the majority principle.
Unless the articles of association or the law provides otherwise, many matters are decided by majority vote.
However, this does not mean that a majority shareholder may disregard the legally protected interests of a minority shareholder or use corporate power to the detriment of the company.
For this reason, minority shareholder rights in an LLC consist of several independent protection mechanisms.
II. Can a Minority Shareholder Obtain the Company’s Financial Information?
Yes.
This is one of the most important rights of a minority shareholder.
Under Article 146 of the Law on Entrepreneurs, the management body of an LLC is obliged, upon a shareholder’s request and within a reasonable period, to provide information about the company’s activities and allow the shareholder to review the company’s business documentation.
This right is not reserved for majority shareholders.
1. The Right to Information Is an Individual Right
A shareholder does not need the support of other shareholders in order to obtain information.
For example, a shareholder holding 10% or 20% may independently request information and access to relevant documents concerning the company’s activities.
In Case No. ას-205-2023, the Supreme Court stated that access to information about the company’s activities constitutes an important form of individual control exercised by a shareholder and that the shareholder should have the opportunity to review documents reflecting the company’s activities.
In that case, the claimant held only 23% and 27.5% shares in the relevant companies, but minority status did not restrict the right to request information.
2. The Right to Information Is Not Unlimited Administrative Control
A shareholder’s information right does not mean that the shareholder must automatically receive technical tools used for company management.
For example, in Case No. ას-205-2023, the Supreme Court distinguished access to company documentation from transfer of the username and password for the Revenue Service electronic portal.
The Court considered that a shareholder may have a right to access documentation generated through the portal, but this does not automatically mean a right to receive the login credentials themselves.
This distinction is important in practice: a minority shareholder has rights of information and control, but does not automatically acquire the director’s management powers.
III. Can the Company Refuse to Provide Information?
The law does permit refusal in certain circumstances, but refusal is an exception rather than the general rule.
Information may be withheld where this is necessary to protect the company from a genuine risk of harm to its material interests.
Any refusal must be justified in writing.
1. Conflict Between Shareholders Is Not Itself Grounds for Refusal
The mere fact that a dispute exists between the shareholders, or that the director no longer trusts the minority shareholder, is not by itself sufficient grounds for withholding information.
Otherwise, the right to information would lose its purpose precisely when a shareholder needs it most.
2. What Happens If Information Is Not Provided?
If the director or the company unjustifiably refuses to provide information or access to documentation, the matter may become subject to court proceedings.
In Case No. ას-205-2023, the Supreme Court confirmed the possibility of judicial protection where company management avoided fully providing documentation to the shareholder.
For this reason, a request for information is often an important first step in assessing a broader shareholder dispute.
IV. Does a Minority Shareholder Have the Right to Participate in the Shareholders’ Meeting?
Yes.
Minority shareholder rights in an LLC include participation in the Shareholders’ Meeting and exercise of the votes attached to the shareholder’s share.
The fact that those votes may not be sufficient to determine the outcome does not deprive them of legal significance.
1. A Shareholder Must Be Able to Participate Meaningfully in the Meeting
The place, time, and other conditions for holding the meeting should not create an unreasonable restriction on participation.
The shareholder should also know the agenda in advance.
This allows the minority shareholder to prepare for the discussion and express a position on decisions affecting the company or the shareholder’s own interests.
2. Recording a Dissenting Position Can Be Important
Where a minority shareholder disagrees with a resolution, it may be practically important for that opposition to be properly recorded.
The current law also allows a shareholder’s dissenting opinion or opposing position to be reflected in the minutes of the meeting where the shareholder requests this.
That circumstance may later become relevant in a corporate dispute, including where the shareholder considers challenging the Shareholders’ Meeting resolution.
V. Can a Minority Shareholder Add an Item to the Agenda?
Yes.
The law allows a shareholder to request explanations from the management body on each agenda item and to submit a request or opinion.
Where the shareholder submits the request before the meeting in accordance with the statutory procedure, the shareholder may also request that an item be added to the agenda.
1. This Right Does Not Always Depend on the Size of the Shareholding
This is part of a shareholder’s right to participate in corporate governance and is not reserved for the majority shareholder.
A minority shareholder may therefore formally raise an important issue and request that it be discussed at the meeting.
2. Adding an Item to the Agenda Does Not Mean It Will Be Approved
A minority shareholder may place an issue on the agenda, but the final decision remains subject to the applicable voting threshold.
The ability to influence the agenda and the ability to control the final decision should therefore be distinguished.
VI. Can a Minority Shareholder Request an Extraordinary Shareholders’ Meeting?
Under certain conditions – yes.
In this case, the size of the shareholder’s shareholding becomes relevant.
Under the Law on Entrepreneurs, a shareholder or group of shareholders holding the required minimum participation may request the authorised body to convene an extraordinary Shareholders’ Meeting.
1. A Minority Shareholder Can Formally Raise an Important Matter
This mechanism prevents the shareholder from being entirely dependent on the initiative of the majority shareholder or the director.
Where an issue requires formal consideration by the shareholders, the law may allow a minority shareholder to initiate the process if the applicable conditions are met.
2. Calling the Meeting and Controlling the Outcome Are Different Matters
The right to request an extraordinary meeting does not mean that the minority shareholder can determine the final resolution.
The result will still depend on the voting balance and the majority required by law or the articles of association for the particular matter.
VII. Can a Minority Shareholder Request a Special Audit?
The law also provides a special audit mechanism.
This may become important where a shareholder has specific concerns about particular business transactions or financial statements and ordinary access to information is insufficient to assess the issue fully.
1. A Special Audit Is an Additional Control Mechanism
Where the statutory conditions are met, a shareholder or group of shareholders holding the relevant participation may raise the issue of appointing a special auditor.
This mechanism may be particularly relevant where there are concerns about a specific transaction, financial information, or conduct of management.
2. Court Involvement May Also Be Possible
If the Shareholders’ Meeting refuses to appoint a special auditor, the matter may, in circumstances provided by law, be brought before the court.
However, judicial appointment of a special auditor is subject to specific prerequisites, and a shareholder’s general suspicion will not always be sufficient.
VIII. Can a Minority Shareholder Challenge a Resolution of the Shareholders’ Meeting?
Yes, where appropriate legal grounds exist.
A minority shareholder cannot challenge a resolution merely because the majority shareholder or group voted against the minority shareholder’s position.
One of the basic principles of corporate law is that many decisions are adopted by majority vote.
However, even a majority resolution must comply with the law and the articles of association.
1. A Resolution Adopted by the Majority Is Not Automatically Unlawful
In Case No. ას-1319-2018, a shareholder holding 20% challenged an important resolution adopted with the support of shareholders holding the remaining 80%.
The reasoning of the Supreme Court demonstrates that the mere fact that the minority shareholder did not support the decision was insufficient to invalidate it.
The law, the company’s articles of association, the decision-making procedure, and whether a legally protected interest of the shareholder was actually infringed all require assessment.
2. When Can a Resolution Become Disputable?
Article 39 of the current law establishes specific grounds on which resolutions of the Shareholders’ Meeting may be invalid.
The issue may relate, for example, to:
- the meeting being convened by an unauthorised person;
- violation of the rules on informing shareholders;
- the scope of competence of the Shareholders’ Meeting;
- inconsistency of the decision with the law;
- or another material corporate violation.
Accordingly, minority shareholder rights in an LLC also include the possibility of challenging an unlawful Shareholders’ Meeting resolution.
IX. Does a Minority Shareholder Have the Right to Receive Dividends?
Yes.
A smaller shareholding does not eliminate a shareholder’s proprietary rights.
Where the authorised corporate body has adopted a resolution on dividend distribution, the amount claimable by a particular shareholder will generally be determined in proportion to the shareholder’s share unless the law, articles of association, or another permissible corporate arrangement provides otherwise.
1. Company Profit Does Not Yet Mean a Specific Claim
It is important to distinguish the existence of company profit from an already accrued dividend claim.
In Case No. ას-1546-2023, the Supreme Court stated that the general right to receive dividends is linked to shareholder status, while a specific right to claim a dividend arises after the relevant decision on profit distribution has been adopted.
2. Majority Power over Dividends Is Not Unlimited Either
In the same Case No. ას-1546-2023, the Supreme Court explained that profit distribution falls within the company’s discretion, but judicial intervention may become relevant where powers are exercised in bad faith, a shareholder’s rights are deliberately disregarded, or discretion is abused.
Protection of a minority shareholder therefore does not mean that the shareholder can force the company to distribute the maximum possible dividend every year, but neither is the majority shareholder’s discretion unlimited.
Where a share is subsequently transferred, an already accrued claim may also require separate analysis under the rules governing dividends after the sale of a share.
X. Can a Minority Shareholder Take Action Against the Director?
Under certain conditions – yes.
This is one of the most important mechanisms where alleged wrongful conduct of the director has caused damage to the company itself.
The key distinction is between personal damage suffered by the shareholder and damage suffered by the company.
1. Damage to the Company Is Not Automatically Personal Damage to the Shareholder
If the director unlawfully disposes of company property or otherwise acts against the company’s interests, the principal claim may belong to the company itself.
In such circumstances, a shareholder may, subject to the relevant conditions, act for the benefit of the company.
The issue should therefore be distinguished from an ordinary personal claim against management and assessed together with the rules governing director liability to the company.
2. Derivative Claim
Article 147 of the Law on Entrepreneurs establishes a special mechanism for a shareholder of an LLC to pursue a claim for the benefit of the company.
In Case No. ას-73-73-2018, the Supreme Court treated a derivative claim as an important mechanism of corporate accountability of directors.
In that case, minority shareholders sought compensation for damage caused by the director to the company, for the benefit of the company.
The Court linked the significance of this mechanism directly to the possibility of protecting the company’s interests.
Where the statutory requirements are satisfied, the matter may therefore involve a shareholder claim against a director.
XI. Can Any Minority Shareholder Bring a Derivative Claim?
A shareholder’s ability to pursue a claim for the benefit of the company is subject to special prerequisites.
The mere fact that the shareholder disagrees with the director’s conduct is not sufficient.
1. A Derivative Claim Is Not a Tool for Personal Conflict
In such a case, the shareholder is not suing in order to obtain money personally.
The objective is to restore loss suffered by the company.
A reduction in company value caused by the director’s conduct does not automatically become a personal claim of the shareholder.
2. Why Is This Particularly Important for a Minority Shareholder?
Where the director is effectively controlled by the majority shareholder, it may be practically difficult for the company itself to pursue a claim against the director.
In such circumstances, a derivative claim provides the minority shareholder with an independent legal mechanism for protecting the company’s interests.
XII. What Can a Minority Shareholder Do If the Majority Shareholder Abuses Its Power?
The current law also regulates abuse of a dominant position by a shareholder.
The position of a dominant shareholder is essentially linked to the ability to exercise decisive influence over corporate decision-making.
1. Majority Control Is Not Unlimited
A majority shareholder may use its voting power to make business decisions.
However, where that dominant position is deliberately used to the detriment of the company, legal liability may arise.
The purpose of minority protection is not to deprive the majority shareholder of the ability to manage the company.
The objective is to distinguish lawful corporate control from its bad-faith exercise.
2. Personal Interests and Company Interests Must Be Distinguished
This is often one of the most difficult issues in corporate disputes.
A decision favourable to the majority shareholder is not automatically unlawful.
It must be assessed whether the company itself or a particular protected right is harmed and whether corporate power is being used for an improper purpose.
Where a shareholder uses corporate influence in a manner that may harm company assets, clients or business opportunities, the issue may require a broader assessment of damage to the company’s interests by a shareholder.
XIII. Can a Minority Shareholder Withdraw from an LLC?
In certain serious circumstances – yes.
The Law on Entrepreneurs establishes specific grounds for a shareholder’s withdrawal from an LLC.
1. Material Harm to the Shareholder’s Interests
Grounds for withdrawal may exist where actions of company management or other shareholders materially harm the shareholder’s interests.
The law also identifies certain specific circumstances.
These may include a prolonged failure to distribute dividends despite the company having the financial capacity to do so.
Another relevant circumstance may be the imposition of an obligation to make an additional contribution.
2. Withdrawal Does Not Mean Simply Wishing to Leave the Company
Withdrawal is subject to special legal conditions and procedure.
A minority shareholder cannot always require the company to buy out the share merely because the shareholder wishes to leave.
However, where serious circumstances exist, withdrawal may constitute another protection mechanism.
XIV. Can a Minority Shareholder Sell Its Share?
As a general rule, a shareholder has the right to dispose of its share.
However, the articles of association of a particular company may establish special terms or restrictions on transfer within the limits permitted by law.
Accordingly, one possible economic exit for a minority shareholder may be to leave the company through a share sale.
1. Sale of a Share and Withdrawal from the Company Are Different Mechanisms
When selling a share, the shareholder transfers the share to another person under a transaction.
Withdrawal from the company is a separate corporate mechanism established by the Law on Entrepreneurs.
These two instruments should not be treated as identical.
The entry of the purchaser may also materially change the existing ownership and governance structure, as discussed in our article on the entry of a new investor into an LLC.
2. Previously Accrued Proprietary Claims
When a share is sold, attention should also be given to claims that arose before the transfer.
For example, an already accrued dividend claim does not automatically transfer to the new shareholder solely because the share itself is transferred.
Drafting the share transfer agreement therefore requires particular care where a shareholder conflict already exists.
For a detailed discussion, see our article on dividends after the sale of a share.
XV. Can a Minority Shareholder Seek Expulsion of Another Shareholder?
Where material grounds exist, the issue of expulsion may arise.
This mechanism is not designed exclusively for majority shareholders.
Under the current law, final expulsion of a shareholder requires a court decision.
1. A Small Shareholding Does Not Automatically Exclude the Possibility of Seeking Expulsion
Where a shareholder materially harms the company’s interests and the other statutory prerequisites are satisfied, raising the issue may also be in the interests of a minority shareholder.
2. Ordinary Disagreement Is Not Enough
The fact that another shareholder often disagrees with the minority shareholder or votes against that shareholder is not grounds for expulsion.
Expulsion of a shareholder from an LLC is an exceptional corporate measure and requires specific material grounds.
XVI. How Can a Minority Shareholder Protect Its Shareholding Position?
One important risk for a minority shareholder is a corporate decision that may reduce the shareholder’s percentage participation or economic influence.
However, a change in ownership percentages is not automatically unlawful.
The company may genuinely require new capital or additional financing.
1. Principle of Equal Treatment of Shareholders
Corporate relationships require shareholders to be given fair and equal opportunities to exercise their proprietary rights.
The case law of the Supreme Court also gives significant importance to the principle of equal treatment of shareholders, including in relations concerning additional contributions and changes in capital.
2. Additional Contributions and the Minority Shareholder
Where an additional financing mechanism is in reality used in bad faith to weaken the position of a particular shareholder, the matter may develop into a broader corporate dispute.
In such circumstances, it is necessary to assess both the company’s genuine financial need and the decision-making procedure and equal treatment of shareholders.
Similar dilution risks may also arise when the company issues new shares as part of the entry of a new investor.
XVII. Can a Minority Shareholder Block Every Decision?
No.
This is a very important limitation.
Minority shareholder rights in an LLC do not amount to a veto over every business decision.
If a shareholder owns 20% and the articles of association provide for a simple majority, shareholders holding 80% may adopt a particular decision despite the minority shareholder’s opposition.
1. Minority Protection and Efficient Company Management Must Be Balanced
The reasoning in Case No. ას-1319-2018 also demonstrates that protection of a minority shareholder cannot become a mechanism requiring that shareholder’s consent for every important corporate decision.
Otherwise, one shareholder would obtain the ability to permanently block the company’s activities.
2. There Must Be an Infringement of a Protected Right
It is therefore not sufficient to say:
“I opposed the decision and they adopted it anyway.”
It must be established that the law, the company’s articles of association, or a specific legally protected right of the shareholder was violated.
XVIII. Why Is a Shareholders’ Agreement Important for a Minority Shareholder?
In addition to statutory rights, shareholders may further regulate their relationship through a Shareholders’ Agreement.
This is particularly important where one shareholder holds a materially smaller share and the parties want certain key matters to require broader consent.
1. Advance Protection Is Often More Effective
When the company is established or a new investor enters, shareholders may regulate in advance:
- particularly important decisions;
- additional financing;
- profit distribution;
- exchange of information;
- share transfers;
- deadlock situations;
- business exit mechanisms.
A properly structured corporate framework can materially reduce the risk of future disputes.
2. A Shareholders’ Agreement Does Not Replace All Statutory Protections
A Shareholders’ Agreement is a contractual instrument.
It cannot override mandatory corporate rules, and breach of the agreement does not always automatically render a Shareholders’ Meeting resolution invalid.
Effective minority protection may therefore require both properly drafted articles of association and a separate Shareholders’ Agreement.
This is why broader legal and corporate structuring of the company can be especially important where ownership and voting power are unevenly distributed.
XIX. When Does a Minority Shareholder Issue Become a Broader Dispute Between Shareholders?
An individual disagreement does not always require litigation.
However, several circumstances occurring together may indicate that the problem has developed into a systemic dispute between shareholders.
For example:
- the minority shareholder no longer receives the company’s financial information;
- important decisions are adopted without proper participation;
- dividends are not distributed;
- the director acts only in accordance with the interests of the majority shareholder;
- company transactions are entered into with persons connected to the majority shareholder;
- or the minority shareholder’s economic position is progressively deteriorating.
In such circumstances, bringing one isolated claim may not be sufficient to resolve the broader problem.
1. The Real Problem Must First Be Identified
The shareholder may primarily need access to information.
In another case, the legal validity of a resolution already adopted may require assessment.
In a third case, a claim belonging to the company may need to be pursued against the director.
Ultimately, it may be necessary to assess mechanisms for ending the shareholder relationship.
2. Different Rights Give Rise to Different Legal Claims
For this reason, minority shareholder rights in an LLC should not be understood as one universal “minority shareholder claim”.
Different infringements require different legal instruments.
Where several issues overlap, representation in a shareholder dispute may require a coordinated assessment of governance, information rights, dividends, management conduct and ownership issues.
XX. What Should a Minority Shareholder Do When a Problem Is Discovered?
A common mistake is to fall into one of two extremes.
On the one hand, the shareholder may believe that nothing can be done because the shareholding is small.
On the other hand, the shareholder may assume that every decision they dislike is automatically unlawful.
Both approaches are incorrect.
1. Economic Disagreement Must Be Distinguished from Infringement of a Right
The first step is to identify the actual problem.
Is it:
- restriction of access to information;
- non-payment of dividends;
- violation of meeting procedure;
- possible bad-faith conduct by the director;
- suspected abuse of a dominant position by the majority shareholder;
- or merely a different view on how the business should be managed?
2. Corporate History Matters
The company’s articles of association, Shareholders’ Agreement, meeting minutes, financial documentation, and communications between shareholders may all become relevant.
Two apparently similar cases involving 30% shareholders may therefore be legally entirely different.
XXI. Minority Shareholder Rights in Supreme Court Case Law
The case law of the Supreme Court of Georgia demonstrates that minority protection is based on several different mechanisms.
In Case No. ას-205-2023, the Court treated the right to receive information and review company documents as an important form of individual corporate control.
In Case No. ას-73-73-2018, a claim brought by minority shareholders against the director for the benefit of the company was treated as a derivative claim, and the Court recognised such a claim as an important mechanism of corporate accountability of directors.
At the same time, Case No. ას-1319-2018 demonstrates the other side of minority protection: minority status does not give a shareholder the ability to block every resolution adopted by the majority.
In Case No. ას-1546-2023, the Court’s approach further demonstrates that, when protecting a shareholder’s proprietary interests, the general right to receive dividends must be distinguished from an already accrued specific claim.
Taken together, these decisions demonstrate that minority shareholder rights in an LLC are substantial and diverse, but each depends on particular legal prerequisites.
XXII. When Might Legal Assistance Be Necessary?
Assessment of a minority shareholder’s legal position may be particularly important where:
- the company or director no longer provides information;
- access to financial or other important documents is restricted;
- important decisions are being adopted against the shareholder and there are concerns regarding procedural legality;
- the company has distributed a dividend but does not pay the shareholder;
- dividends have not been distributed for a prolonged period;
- there are concerns that the director is harming the company’s interests;
- the majority shareholder effectively controls both the director and the company’s activities;
- additional financing or another corporate decision may materially affect the shareholder’s shareholding position;
- or continuation of the shareholder relationship has become practically impossible.
The appropriate legal mechanism may differ in each case.
The correct question is therefore often not simply “what can a minority shareholder do?” but rather “which specific right has been infringed and which legal mechanism corresponds to that problem?”
XXIII. Conclusion
Minority shareholder rights in an LLC extend far beyond the ability to cast the votes attached to the shareholder’s share at the Shareholders’ Meeting.
A minority shareholder may request information and review company documentation, participate in the Shareholders’ Meeting, request explanations and additions to the agenda, and, where the statutory shareholding threshold is satisfied, request an extraordinary meeting or raise the issue of a special audit.
Where a resolution of the shareholders violates the law or the articles of association, judicial protection may be available.
Where the company already has a specific obligation to pay a dividend, the minority shareholder enjoys the corresponding proprietary claim just like any other shareholder.
Where the director causes damage to the company and the company itself does not act, the shareholder may, subject to the statutory conditions, pursue an appropriate claim for the benefit of the company.
Where the majority shareholder uses a dominant position to the detriment of the company, majority control does not automatically shield that shareholder from legal liability.
At the same time, minority protection does not amount to a veto over every corporate decision. This is why, in disputes between shareholders, it is particularly important to distinguish ordinary business disagreement from infringement of a specific legal right.
TB Legal’s corporate law practice includes legal assessment of shareholder rights and corporate governance structures, as well as management of disputes that have already arisen.
Preventing conflicts also requires appropriate corporate structuring, tailored articles of association, and a properly drafted Shareholders’ Agreement.
If you are a minority shareholder in a company and issues have arisen concerning access to information, dividends, participation in the Shareholders’ Meeting, or another corporate right, contact TB Legal for an individual assessment.
TB Legal assists shareholders and companies both in structuring corporate relationships in advance and in legally managing disputes that have already arisen.
