I. Damage to a Company’s Interests by a Shareholder – When Does a Legal Problem Arise?
Damage to a company’s interests by a shareholder may take very different forms: transferring the company’s clients or suppliers to a related business, using company assets for personal interests, influencing the director, supporting decisions harmful to the company, or engaging in other conduct that places the shareholder’s personal interests ahead of those of the company.
Not every disagreement between shareholders constitutes harm to the company’s interests.
Shareholders may legitimately hold different views on business development, investment, dividends, appointment of the director, or other commercial matters. A shareholder taking a different position or protecting their own economic interests is not, by itself, unlawful.
A legal problem arises when, in exercising corporate rights, a shareholder fails to take into account the legitimate interests of the company and the other shareholders.
Article 34 of the Law of Georgia on Entrepreneurs expressly provides that, when exercising their rights, a shareholder must take into consideration the lawful interests and rights of the business entity and the other shareholders.
Therefore, the answer to the question – what can the other shareholder do? – depends primarily on what specific conduct has occurred, who has suffered the harm, and what legal outcome is sought.
1. Harm to the Company’s Interests and Harm to a Shareholder’s Personal Interests
These two issues must be distinguished.
A shareholder’s conduct may directly harm the company – for example, by causing the company to lose property, a client, a contract, or a business opportunity.
In another case, the conduct may directly infringe the personal rights of the other shareholder – for example, by withholding a dividend that has already been declared or restricting access to information.
The legal remedies available in these two situations will also differ.
For a minority shareholder, distinguishing these rights is particularly important because minority shareholder protection may involve several separate mechanisms, including information rights, voting rights, dividend rights and court remedies.
2. The Size of the Shareholder’s Share Is Not Always Decisive
Problematic conduct may come from either a majority shareholder or another shareholder.
However, where a shareholder exercises dominant influence, the current law provides additional specific rules on liability.
Accordingly, assessment of the case should focus not only on the percentage of the shareholding but also on whether the relevant shareholder has real influence over company decisions or the management body.
II. A Shareholder’s Rights Are Not Absolute
A shareholder owns their share and may exercise the corporate rights granted by law and the articles of association.
However, ownership of a share does not mean that those rights may be exercised without limitation to the detriment of the company.
Under Article 34 of the Law on Entrepreneurs, a shareholder is required to take into consideration the lawful interests and rights of others.
1. Voting Rights and the Company’s Interests
A shareholder may vote at a Shareholders’ Meeting in favour of the business decision they consider appropriate.
However, particularly where that shareholder has decisive influence over the outcome, corporate power cannot become an unrestricted means of using the company’s assets or business activities for personal benefit.
2. Personal Economic Benefit Is Not Always Unlawful
The opposite extreme should also be avoided.
A shareholder naturally seeks an economic return from their investment, and protecting a position favourable to them does not, by itself, constitute a violation.
A legal assessment requires more: it must be determined whether the shareholder’s personal interests conflicted with the company’s interests and whether the shareholder used their corporate position improperly.
III. What Type of Conduct May Damage the Company’s Interests?
Damage to a company’s interests by a shareholder is not limited to one particular form of conduct.
In practice, the problem often consists of several interrelated actions.
1. Transferring the Company’s Business to a Related Company
A particularly problematic situation may arise where a shareholder simultaneously creates or controls another company and attempts to transfer the existing company’s clients, suppliers, employees, or business opportunities to that entity.
However, the mere existence of a related or competing company does not automatically constitute a violation.
In Case No. ას-549-2021, the Supreme Court of Georgia, when examining alleged competing activities of shareholders, emphasised the need to establish specific harm and the individual conduct of each shareholder.
A formal connection with another company was not sufficient to impose identical liability on all shareholders.
2. Use of Company Assets for Personal Interests
The situation is materially different where a shareholder’s conduct actually results in loss of company property or its transfer to a related person.
Case No. ას-441-2022 concerned a conflict between two 50/50 shareholders in which the actions of one shareholder were connected with the loss of company assets and their use for the benefit of a related business.
Such circumstances go significantly beyond an ordinary disagreement between shareholders.
They may also become relevant when assessing whether there are material grounds for the expulsion of a shareholder from an LLC.
IV. What Can the Other Shareholder Do at the Initial Stage?
When one shareholder suspects that another shareholder is harming the company, the first problem is often lack of information.
The shareholder may suspect questionable transactions, related companies, or unusual company expenses without having sufficient documentation to confirm those concerns.
For this reason, the first practical step is often obtaining information.
1. Obtaining Information About the Company’s Activities
Under Article 146 of the Law on Entrepreneurs, a shareholder in an LLC is entitled to request information concerning the company’s activities and to review the company’s business documentation.
This is an individual right of the shareholder and does not depend on the consent of another shareholder.
In Case No. ას-205-2023, the Supreme Court treated the right to access information and documentation as an important form of individual control by a shareholder over the company’s management.
The right to information is also one of the key rights available to a minority shareholder in an LLC.
2. Why Is Information Particularly Important?
For example, if a shareholder suspects that company funds are being transferred to related parties, it is difficult to reach a legal conclusion based on suspicion alone.
It may be necessary to review agreements, financial data, resolutions of Shareholders’ Meetings, and other corporate documents.
Protecting the company’s interests may therefore begin with establishing the factual picture.
V. What If the Other Shareholder Is Also the Director?
This is particularly common and legally significant.
In small and medium-sized companies, a shareholder is often also a director.
In such circumstances, the same conduct may have to be assessed from two different legal perspectives:
- conduct as a shareholder;
- conduct as a director performing management duties.
1. Shareholder Liability and Director Liability Must Be Distinguished
If the person uses the powers of the director to dispose of company property, enter into related-party transactions, or otherwise harm the company, the central legal issue may concern fiduciary liability as a director.
The fact that the person is also a shareholder does not change the nature of the duties owed by management.
For more information on management powers and fiduciary obligations, see our article on the Company Director in Georgia.
Where those duties are breached and the company suffers loss, the rules concerning director liability to the company may become directly relevant.
2. A Shareholder May Protect the Company’s Interests
In Case No. ას-73-73-2018, minority shareholders sought compensation from the company’s director for damage caused to the company.
The Supreme Court explained that a derivative claim allows a shareholder to enforce a claim belonging to the company for the benefit of the company, including where the claim is against the director.
Article 147 of the current law likewise expressly provides for the possibility of a shareholder pursuing the relevant claim for the benefit of the LLC.
In practice, this mechanism may therefore require a separate assessment of a shareholder claim against the director.
VI. Damage to the Company and Damage to the Other Shareholder Must Be Distinguished
This is one of the most important distinctions in disputes between shareholders.
If the company’s assets are reduced by the conduct of one shareholder, this does not automatically mean that another shareholder can personally claim compensation for the same amount.
The company itself may be the primary injured party.
1. Damage Caused to the Company
For example, if a company asset worth GEL 500,000 is unlawfully transferred to a related person, the principal claim may belong to the company.
The economic value of the other shareholder’s share may also decrease, but that does not mean the shareholder personally acquires a GEL 500,000 claim.
2. Direct Personal Damage to a Shareholder
The situation is different where the conduct directly infringes a shareholder’s own personal rights.
The current law also recognises, in the context of abuse of a dominant position, the possibility of compensation for damage directly suffered by a shareholder, while distinguishing company damage from loss that a shareholder suffers merely because the company itself has been harmed.
Correctly identifying the claim is therefore particularly important before court proceedings are commenced.
VII. What Can a Shareholder Do If Another Shareholder Abuses a Dominant Position?
Article 148 of the Law on Entrepreneurs applies the rules of Article 176 to abuse of a dominant position by a shareholder in an LLC.
A dominant shareholder may be not only the formal holder of the largest percentage of shares, but also a shareholder or group of shareholders acting together who can, in practice, exercise decisive influence over the outcome of voting at the Shareholders’ Meeting.
1. A Majority Shareholding Is Not Itself a Violation
Holding 70% or 80% of a company is entirely lawful in itself.
It is also lawful for a majority shareholder to use their votes in the management of the company.
A problem arises where the dominant shareholder deliberately uses that position to the detriment of the company.
2. Possibility of Compensation for Damage
Under the current law, if a dominant shareholder intentionally uses their position to the detriment of the company, liability to compensate the company for the resulting damage may arise.
Damage directly caused to another shareholder may also require separate assessment.
However, a decrease in the value of a shareholder’s share merely because the company was harmed is not automatically treated as independent personal damage.
This distinction is important in determining for whose benefit the relevant claim should be pursued.
VIII. What If a Shareholder Pressures the Director?
Sometimes a harmful decision is formally adopted by the director, while in reality the director acts under the instructions of a powerful shareholder.
The current law also addresses this situation.
Where a person intentionally uses their power against the company and influences a member of the management body to carry out conduct harmful to the company, liability of that person may also arise under the relevant conditions.
1. The Director’s Formal Decision Does Not Always End the Analysis
The mere fact that a transaction was signed by the director does not necessarily mean that the conduct of a shareholder has no legal significance.
The actual decision-making process and possible influence should also be assessed.
2. Director Liability May Exist in Parallel
If a member of the management body also breaches their duties, liability may arise against several persons depending on the circumstances.
Correctly distinguishing the roles of shareholder and director is therefore essential in complex corporate disputes.
IX. Can the Other Shareholder Convene a Shareholders’ Meeting?
Sometimes the first attempt to resolve the issue can begin without litigation.
If the matter falls within the competence of the Shareholders’ Meeting, it may be formally raised at the meeting.
The law also allows a shareholder holding the required participation to request the convening of an extraordinary meeting.
1. What Can the Meeting Consider?
Depending on the circumstances, the meeting may address the director’s activities, a particular transaction, the company’s financial condition, replacement of management, or other matters.
However, the competence of the meeting and the required number of votes must be assessed according to the specific issue and the company’s articles of association.
2. A Meeting May Not Be Sufficient in a Conflict with the Majority Shareholder
Where the harmful conduct is controlled by the shareholder who also holds a majority of the votes at the Shareholders’ Meeting, ordinary voting may be practically incapable of resolving the problem.
The meeting is therefore only one possible mechanism and not a universal solution for every dispute between shareholders.
X. Can the Other Shareholder Challenge a Corporate Resolution?
Sometimes the alleged harm to the company arises from a specific resolution adopted by the Shareholders’ Meeting.
For example, the majority may approve a major transaction, change the director, or adopt another decision that the other shareholder considers unlawful.
In such cases, the validity of the decision itself must be assessed separately.
1. An Unfavourable Resolution Is Not Automatically Unlawful
A shareholder cannot have a resolution annulled merely because they voted against it.
There must be an appropriate legal basis, such as a violation of the law, the articles of association, or the decision-making procedure.
2. Challenging a Resolution and Claiming Damages Are Different Issues
Challenging a Shareholders’ Meeting resolution does not automatically answer the question whether the company has already suffered damage or who should compensate it.
It is also possible that challenging the resolution may not be the legal instrument that resolves the real problem in a particular case.
The corporate resolution and its subsequent proprietary consequences should therefore be assessed separately.
XI. Can a Shareholder Acting Against the Company’s Interests Be Expelled?
In certain circumstances — yes.
Article 143 of the current Law on Entrepreneurs allows the expulsion of a shareholder from an LLC where material grounds exist.
Material grounds may include conduct that causes significant harm to the company’s interests or makes the shareholder’s continued participation detrimental to the company’s future activities.
1. Expulsion Is an Exceptional Measure
Damage to a company’s interests by a shareholder does not automatically mean that expulsion is the appropriate response to every violation.
Expulsion of a shareholder constitutes a particularly serious interference with property rights and requires material grounds.
2. Specific Conduct Must Be Established
In Case No. ას-549-2021, the Supreme Court placed particular emphasis on the need, when seeking the expulsion of several shareholders, to assess individually the specific conduct of each shareholder and the damage caused to the company.
In other words, a general allegation that “these shareholders acted against the company” will not always be sufficient.
XII. Is Actual Financial Loss Necessary for Expulsion?
Not in every case.
Conduct directed against the company’s interests that substantially destroys the trust necessary for the continuation of the shareholder relationship may be relevant even where the ultimate financial loss has not yet fully materialised.
However, this does not mean that expulsion may be based solely on an abstract risk.
1. The Court Assesses the Seriousness of the Conduct
Supreme Court case law indicates that expulsion requires assessment of the nature of the conduct, its relationship with the company’s interests, and whether continuation of the shareholder relationship remains possible.
For example, Case No. ას-441-2022 involved not merely a personal dispute, but alleged actions by a shareholder that materially affected the company’s proprietary position.
2. Not Every Violation Has the Same Seriousness
A delayed action, a one-time disagreement over a business matter, and an intentional transfer of the company’s business to another enterprise cannot be assessed in the same way.
The question of expulsion therefore always depends on the specific factual circumstances.
XIII. What If the Shareholder Is Involved in a Competing Company?
This is one of the most common questions.
A shareholder’s participation in another business does not automatically mean that the shareholder is harming the existing company.
1. A Formal Connection Is Not Sufficient
In Case No. ას-549-2021, one of the important issues before the Court concerned the shareholders’ links with other companies and their alleged competitive conduct.
The Court emphasised the need to establish what specific conduct was undertaken by each shareholder and what harm was caused to the company.
2. Active Diversion Is a Different Matter
A situation where a shareholder actively facilitates the transfer of the company’s customers, suppliers, employees, or opportunities to a competing business may be assessed entirely differently.
In that situation, the purpose of the conduct, its consequences, and the shareholder’s actual role become important.
XIV. Can the Other Shareholder Claim Damages Directly?
Sometimes — yes, but it is necessary to establish who suffered the specific damage.
If the company suffered the damage, the principal claim will generally belong to the company.
If the shareholder suffered independent and direct damage, the issue may be assessed differently.
1. Company Damage Cannot Simply Be Replaced by a Personal Claim of the Shareholder
If a reduction in company assets also reduces the value of the shareholder’s share, this does not automatically create a personal claim for the shareholder equal to the company’s total loss.
The appropriate company claim must be pursued.
Where the relevant wrongdoer is a director, the legal route may involve a shareholder claim against the director for the benefit of the company.
2. Abuse of a Dominant Position
The combined application of Articles 148 and 176 of the current law may, in certain circumstances, allow compensation for a shareholder’s personal damage.
However, the law expressly distinguishes such direct damage from economic loss suffered by a shareholder merely because the company has been harmed and the value of the shareholder’s share has decreased.
In practice, this distinction will often determine the correct legal structure of the claim.
XV. Why Is Evidence Important?
A shareholder may have entirely reasonable concerns that another shareholder is harming the company.
However, feelings and assumptions are not sufficient in court proceedings.
Specific factual circumstances must be established.
1. Corporate and Financial History of the Company
Depending on the case, relevant evidence may include company agreements, financial data, minutes of Shareholders’ Meetings, relations with related parties, Public Registry information, and other materials.
There is no identical list of necessary evidence for every dispute.
2. Combination of Several Independent Facts
In a complex dispute between shareholders, one transaction may be only a small part of the problem.
A series of actions taken over different periods may together demonstrate that the company’s assets or business were systematically used for the benefit of another person.
For this reason, such disputes often require analysis of the company’s broader corporate history.
XVI. What If the Other Shareholder Is Also Withholding Information?
This is particularly significant, but its legal effect should not automatically be equated with causing damage to the company.
Failure to provide documentation may independently violate the shareholder’s right to information.
At the same time, restricting access to information may make it more difficult to detect other potential violations.
1. Access to Information May Become a Separate Dispute
As the Supreme Court explained in Case No. ას-205-2023, a shareholder is entitled, within the limits permitted by law, to access documentation reflecting the company’s activities.
If this right is restricted without proper grounds, the shareholder may also have the possibility of protecting it through court proceedings.
This is particularly relevant to minority shareholder rights in an LLC, where access to information may be essential for understanding how the company is actually being managed.
2. Obtained Information May Form the Basis for Further Assessment
Information obtained through this process may be necessary to determine whether there has actually been damage to the company, whether director liability arises, or whether another shareholder has engaged in other unlawful conduct.
XVII. What Can a Shareholder Do If Continued Cooperation Has Become Impossible?
The objective of every dispute between shareholders is not necessarily to defeat the other shareholder in court.
Sometimes the business relationship has deteriorated to such an extent that the main issue becomes how to end it properly.
1. Expulsion Is Only One Possible Route
Where material grounds exist, the issue of shareholder expulsion may arise.
However, depending on the particular conflict, other solutions may also be possible, such as an agreed sale of one shareholder’s share or another form of corporate restructuring.
2. The Injured Shareholder May Wish to Exit
Article 144 of the Law on Entrepreneurs also provides for the possibility of a shareholder withdrawing from an LLC in relevant serious circumstances.
In some disputes, the right question may therefore no longer be “how can I expel the other shareholder?” but rather “what is the legally and economically appropriate way to end the shareholder relationship?”
Where the dispute involves several overlapping issues, including ownership, control, information rights, dividends or exit, a broader shareholder dispute strategy may be required.
XVIII. Why Does a Shareholders’ Agreement Matter?
A contractual arrangement cannot eliminate entirely the risk that a shareholder may act against the company’s interests.
However, a properly structured corporate relationship can reduce important risks in advance.
A Shareholders’ Agreement may regulate matters such as decision-making, related businesses, information exchange, share transfers, and mechanisms for ending the shareholders’ relationship.
1. Prevention Is Easier Than Resolving an Existing Dispute
If shareholders begin considering who has which rights and powers only after the conflict has already arisen, the legal situation may already be significantly more complicated.
Proper legal and corporate structuring is therefore particularly important for companies with several shareholders.
2. An Agreement Cannot Replace the Law
A Shareholders’ Agreement is an additional contractual protection mechanism.
It cannot exclude mandatory statutory rules, and its breach does not always automatically render a corporate resolution invalid.
Where a dispute has already arisen, both the agreement and the overall corporate legal position must therefore be assessed.
XIX. Which Legal Route Can the Other Shareholder Choose?
Damage to a company’s interests by a shareholder does not create one universal claim.
The appropriate legal route depends on what happened.
If the issue is refusal to provide information, the right to information may be the primary right infringed.
If a Shareholders’ Meeting resolution is disputed, the legality of that resolution may need to be challenged.
If the director caused damage to the company, a claim against the director for the benefit of the company may be relevant.
If a dominant shareholder deliberately uses their influence to the detriment of the company, liability for abuse of a dominant position may require assessment.
If the shareholder’s continued presence itself creates material harm to the business, the issue of expulsion may arise where the statutory conditions are satisfied.
If continuation of the relationship is no longer realistic, withdrawal or an agreed exit may need to be considered.
For this reason, the most important step is not selecting a preferred claim in advance, but correctly characterising the legal problem.
XX. What Does Supreme Court Case Law Show?
The case law of the Supreme Court of Georgia demonstrates that possible harm to a company’s interests by a shareholder may require different legal mechanisms depending on the circumstances.
In Case No. ას-549-2021, in the context of alleged competitive activity and a claim for expulsion, the Court emphasised the need to establish specific damage and the individual conduct of each shareholder.
In Case No. ას-441-2022, a 50/50 shareholder dispute involved materially more serious circumstances, including the connection between a shareholder’s conduct, the company’s assets, and a related business.
In Case No. ას-73-73-2018, the Supreme Court confirmed that where a shareholder is also the director and management conduct causes damage to the company, other shareholders may, under the relevant conditions, pursue the company’s claim for the benefit of the company.
Taken together, these cases demonstrate that the answer to the question — “what can the other shareholder do?” — depends not only on the existence of harmful conduct but also on the capacity in which the relevant person acted, who suffered the damage, and what legal result is required.
XXI. When Might Legal Assistance Be Necessary?
Legal assessment may be particularly important where one shareholder uses company resources for the benefit of related parties, there are concerns about unlawful disposal of company assets, business or customers are being transferred to another company, a shareholder exercises significant influence over the director, access to company information is restricted, or the conduct of one shareholder has materially disrupted the normal operation of the business.
In such circumstances, several legal issues often arise simultaneously, and assessing only one action in isolation may not be sufficient.
It is particularly important to distinguish promptly between a claim belonging to the company and a personal claim of the shareholder, and to determine how the company’s interests themselves can be protected.
Where several of these problems overlap, representation in a shareholder dispute may require a coordinated strategy rather than separate treatment of each individual incident.
XXII. Conclusion
Damage to a company’s interests by a shareholder may constitute both a source of conflict between shareholders and a basis for independent corporate liability.
The current Law on Entrepreneurs requires a shareholder, when exercising corporate rights, to take into account the lawful interests of the company and the other shareholders.
Where there are concerns about conduct harmful to the company, the other shareholder may have various legal mechanisms available, including obtaining information, raising a corporate issue at a Shareholders’ Meeting, challenging an appropriate resolution, pursuing a claim belonging to the company, raising liability based on abuse of a dominant position, or, where material grounds exist, initiating proceedings for expulsion of the shareholder.
However, these mechanisms are not substitutes for one another.
The approach adopted by the Supreme Court of Georgia in Case No. ას-549-2021 demonstrates that a general accusation of harm to the company is insufficient – the specific conduct of the shareholder and its consequences must be assessed individually.
At the same time, the circumstances examined in Case No. ას-441-2022 demonstrate that a shareholder’s conduct may affect the company’s property and operations so seriously that the continuation of the shareholder relationship itself becomes an issue.
Where the problematic shareholder is also a director, the derivative claim approach confirmed in Case No. ას-73-73-2018 further demonstrates that, under appropriate conditions, another shareholder may act to protect the company’s own interests.
The central question in such a case is therefore not merely “is the shareholder harming the company?” It is necessary to establish what conduct occurred, whose rights were infringed, who suffered the damage, and which legal mechanism corresponds to the actual problem.
TB Legal’s corporate law practice includes legal assessment of shareholder rights, company interests, director liability, and corporate disputes arising between shareholders.
Reducing corporate risks in advance also requires appropriate structuring of the relationship between shareholders and the company’s governance mechanisms, together with carefully drafted corporate documents and a tailored Shareholders’ Agreement.
If you suspect that a shareholder’s conduct is already harming the company or that your shareholder relationship has developed into a broader corporate dispute, contact TB Legal for an individual assessment of the legal position and available protection mechanisms.
TB Legal assists shareholders and companies both in structuring corporate relationships in advance and in legally managing disputes that have already arisen.
