Representation in Shareholder Disputes

I. Service Overview

TB Legal offers representation in shareholder disputes for the legal assessment, negotiation, litigation, and protection of shareholder rights in corporate conflicts arising between shareholders of a company.

A shareholder dispute often begins not with one specific legal violation, but with a breakdown of trust within the company. One shareholder may no longer have information about the company’s financial position, another may control the director and the company’s day-to-day activities, majority shareholders may independently adopt important decisions, profits may no longer be distributed, company assets may be transferred to related parties, or the relationship between shareholders may deteriorate to such an extent that effective management of the company becomes practically impossible.

In such circumstances, the main question is not always simply which shareholder is “right”. It is necessary to identify which specific right has been infringed, whether the potential claim belongs to the shareholder or to the company, which corporate resolutions have already been adopted, and which legal mechanism may effectively protect the relevant interest.

For this reason, representation in shareholder disputes requires a combined assessment of the company’s articles of association, ownership structure, shareholder resolutions, financial and contractual relationships, and the current Law of Georgia on Entrepreneurs.

1. What Types of Disputes Does the Service Cover?

TB Legal’s service may include, among others:

• disputes concerning Shareholders’ Meeting resolutions;
• conflicts between minority and majority shareholders;
• shareholder access to information and corporate documentation;
• disputes concerning dividends and profit distribution;
• proceedings concerning expulsion of a shareholder;
• additional financing and contribution disputes;
• alleged harm to the company’s interests by a shareholder;
• shareholder claims relating to the conduct of a director.

In each case, representation in shareholder disputes begins with identifying the actual legal problem and the result the client wishes to achieve.

2. Court Proceedings Are Not Always the First Step

A conflict between shareholders does not automatically mean that the dispute should immediately proceed to court.

In some cases, the issue may be resolved through negotiations, changes to the company’s governance rules, a share transfer, restructuring of the shareholder relationship, or another agreed solution.

In other cases, delay may materially worsen the position of the shareholder or the company.

Each case therefore requires a separate assessment of whether negotiation is appropriate and when immediate legal action is necessary.

II. How Does a Shareholder Dispute Begin?

A significant number of shareholder disputes are not visible at all when a company is established.

At the beginning of a business relationship, shareholders often have a common economic interest, a high degree of mutual trust, and make decisions informally. The company may operate for years without a detailed agreement between shareholders or solely on the basis of standard articles of association.

Problems often arise when the value of the business increases, the company acquires significant assets, or the interests of the shareholders begin to diverge.

1. Control Over Company Management

One common source of conflict is a situation in which one shareholder is able, in practice, to control the director, bank accounts, contracts, and the company’s daily operations.

Another shareholder may continue formally to hold a significant share but become practically excluded from the company’s affairs.

In such circumstances, representation in shareholder disputes cannot be limited to examining the percentage owned by the shareholder. It is necessary to determine what corporate and proprietary rights the shareholder has and which of those rights are actually in dispute.

2. Breakdown of Mutual Trust

Loss of trust between shareholders becomes particularly problematic in closely held companies where ownership and management are closely connected.

The case law of the Supreme Court of Georgia also recognises the practical importance of trust between shareholders.

For example, in Case No. ას-549-2021, the Court considered the possible expulsion of several shareholders, alleged competitive activity, potential harm to the company, and deterioration of the relationship between shareholders. At the same time, the Court emphasised that expulsion requires proper assessment of the specific conduct of each shareholder and the relevant legal prerequisites.

This demonstrates that a general reference to a “loss of trust” is not sufficient in a shareholder dispute.

III. Disputes Between Majority and Minority Shareholders

Representation in shareholder disputes is particularly common where ownership of the company is unevenly distributed.

A majority shareholder may exercise significant influence over company decisions, but that influence does not mean that the rights of the minority shareholder may be disregarded.

1. Decisions Adopted by the Majority

It is a natural principle of corporate law that many decisions are adopted by majority vote.

Accordingly, a minority shareholder cannot challenge a decision merely because they personally voted against it.

However, the powers of the Shareholders’ Meeting, the decision-making procedure, the articles of association, and the interests of shareholders require separate assessment in each case.

In Supreme Court Case No. ას-1319-2018, a 20% shareholder challenged an important corporate resolution adopted with the support of shareholders holding 80%.

The Court’s reasoning demonstrates that such a dispute cannot be resolved solely by reference to the mathematical balance of votes. The entire corporate context must be assessed.

2. Legal Protection of the Minority Shareholder

A minority shareholder may have several different legal remedies.

Each, however, is subject to different prerequisites.

For this reason, in representation in shareholder disputes, it is important not to confuse different claims, such as a claim for access to information, a challenge to a Shareholders’ Meeting resolution, and a derivative claim against a director for the benefit of the company.

Each requires a separate legal basis and different factual substantiation.

IV. Disputes Concerning a Shareholders’ Meeting Resolution

A conflict between shareholders often escalates after a particular Shareholders’ Meeting resolution is adopted.

The director may be changed, the articles of association amended, capital altered, significant assets affected, or another resolution adopted with which one shareholder disagrees.

1. Challenging the Resolution

Not every unfavourable resolution is automatically challengeable.

It is necessary to assess how the meeting was convened, whether shareholders were properly informed, the agenda, the authority to adopt the resolution, the required number of votes, relevant provisions of the articles of association, and the legal effect of the resolution itself.

For this reason, challenging a Shareholders’ Meeting resolution may itself require a separate specialised legal strategy.

2. One Resolution May Be Only Part of the Dispute

In some cases, invalidating the minutes or resolution of the Shareholders’ Meeting may not be sufficient to achieve the client’s ultimate objective.

The resolution may already have resulted in a change in the Public Registry, a proprietary transaction, action by the director, or another legal consequence.

Accordingly, representation in shareholder disputes requires analysis not only of the disputed resolution but of the entire legal position created on its basis.

V. Disputes Concerning Access to Information and Company Documentation

One of the first practical consequences of a shareholder conflict is often loss of access to information.

A shareholder may stop receiving financial reports, have no information about company contracts, be denied access to certain documents, or receive no response from the director.

The current Law on Entrepreneurs grants an LLC shareholder the right to receive information concerning the company’s activities and to review business documentation.

1. Why Is Information Important?

Access to information is not merely a formal shareholder right.

Without it, the shareholder may be unable to determine whether a dividend claim exists, whether a questionable transaction has been entered into with a related party, or whether the company has a claim against a director or third party.

For this reason, in some cases, representation in shareholder disputes begins with securing access to information and corporate documentation.

2. Scope of the Information Request

At the same time, the scope of the shareholder’s right to information requires appropriate legal assessment in the particular case.

Disputes in practice concern not only whether information should be provided at all, but also what level and form of access is legally justified.

The request should therefore be formulated correctly from the outset.

VI. Disputes Concerning Dividends and Profit Distribution

A company’s financial success does not automatically mean that a shareholder may at any time demand payment of a proportionate share of the company’s profit.

Profit distribution and the creation of a specific dividend claim are subject to special corporate rules.

1. The Company Is Profitable but No Dividend Is Distributed

A dispute may arise where one shareholder supports retaining profits within the company while another demands distribution.

In such circumstances, it is necessary to assess the company’s financial position, shareholder resolutions, and the legal relationship that has already arisen between the particular shareholder and the company.

In Supreme Court Case No. ას-1546-2023, the Court considered a claim for an unpaid dividend and the scope of the discretion of the Shareholders’ Meeting.

The Court distinguished between the existence of company profit and a specific dividend claim of a shareholder.

2. A Dividend Dispute May Be a Symptom of a Wider Conflict

In practice, a dividend dispute often forms part of a broader shareholder conflict.

For example, one shareholder may manage the company and receive economic benefits in different forms, while the other shareholder receives no dividend.

In such circumstances, assessing only the dividend issue in isolation may not be sufficient.

VII. Disputes Concerning Expulsion of a Shareholder

Expulsion of a shareholder from the company is one of the most serious forms of corporate intervention.

Under Article 143 of the current Law on Entrepreneurs, where material grounds exist, a court may expel a shareholder from an LLC on the basis of a claim brought by the company following the relevant shareholder resolution.

The law also establishes specific substantive and procedural conditions.

1. Disagreement Between Shareholders Is Not Enough

Personal tension or different views on how the business should be managed should not, by themselves, be equated with grounds for expulsion.

The specific conduct and its effect on the company’s interests must be assessed.

Case law also demonstrates that expulsion requires individual assessment of each shareholder’s conduct and compliance with the applicable corporate procedure.

2. Defending a Shareholder Against an Expulsion Claim

Representation in shareholder disputes may include not only representing the company or other shareholders seeking expulsion, but also defending the shareholder whose expulsion is sought.

Such a dispute may involve the alleged misconduct itself, the shareholder resolution, prior warning, the legal fate of the share, and other related issues.

VIII. Harm to the Company’s Interests by a Shareholder

A shareholder dispute is not always limited to voting or dividends.

A shareholder may be accused of cooperating with a competitor, using confidential business information, disrupting the company’s operations, transferring suppliers or customers to another business, or otherwise harming the company’s interests.

1. Company Interests and Shareholder Interests Are Not Always the Same

A shareholder owns their share, but the company is a separate legal entity.

Accordingly, a shareholder’s personal economic interest does not always justify conduct that harms the company itself.

2. Individual Assessment of the Facts

In such disputes, it is particularly important to distinguish between suspicion and established fact.

A shareholder’s participation in another business, relationships with other companies, or independent commercial activity do not automatically mean that the company’s interests have been violated.

Specific conduct, the relevant connections, and the possible consequences for the company must be assessed.

IX. The Director’s Conduct During a Shareholder Conflict

The director often becomes a central figure in a shareholder dispute.

This is particularly common where the director is also a shareholder or is connected with the controlling shareholder.

1. The Director and the Majority Shareholder

A director is required to act in the interests of the company and does not owe management duties solely to one particular shareholder.

Supreme Court case law emphasises that a director should not become a mechanical executor of the will of the majority shareholder where that conflicts with the company’s interests.

In Case No. ას-73-73-2018, minority shareholders sought compensation from the director for damage caused to the company, for the benefit of the company, and the Supreme Court treated the derivative claim as a mechanism of corporate accountability of directors.

2. Shareholder Claim Against a Director

Where a shareholder dispute reveals that the director’s conduct may have caused damage to the company itself, a separate corporate claim may need to be assessed.

A shareholder claim against a director may therefore become an independent element of the broader dispute.

Within an umbrella shareholder dispute service, the issue is first identified and, where appropriate, pursued through a specialised legal strategy.

X. 50/50 Shareholder Conflict and Corporate Deadlock

Equal ownership formally places shareholders in an equal position, but during a serious conflict it may become particularly problematic for the management of the company.

If important decisions require the participation or consent of both shareholders, their disagreement may directly affect the ability of the business to function.

1. Practical Consequences of Deadlock

A deadlock may delay or prevent the appointment of a director, execution of important contracts, financing, profit distribution, or other corporate decisions.

For this reason, representation in shareholder disputes in a 50/50 structure is not limited to challenging one particular decision.

It is also necessary to assess how the relationship can be changed or terminated so that the legal conflict does not result in complete paralysis of the company.

2. Importance of Agreement

If the shareholders remain willing to negotiate, restructuring the corporate relationship may also be considered.

A Shareholders’ Agreement may serve as an important preventive instrument, although during an already severe conflict simply proposing a new agreement will not always provide a realistic solution.

XI. Shareholder Exit and the Share

Sometimes the real objective in a shareholder dispute is not winning litigation but ending the relationship with the company.

A shareholder may no longer wish to remain in the business, while the parties are unable to agree on the value of the share, its sale, or other terms of separation.

1. Shareholder Exit Is a Separate Legal Issue

Exiting the business does not simply mean submitting a notice.

The legal consequences depend on the legal basis for exit, the articles of association, the value of the share, and other circumstances.

Accordingly, representation in shareholder disputes may also involve assessing the legal mechanisms for ending the shareholder relationship.

2. Agreed Exit

In some cases, sale of one shareholder’s interest or another agreed exit may be economically preferable to continuing litigation.

In such circumstances, it is important not only to agree on price but also to regulate fully the legal risks connected with the transfer of ownership.

XII. Additional Contributions and Company Financing

Increasing financial needs of the company may create a new source of conflict between shareholders.

One shareholder may be willing to provide additional funds while another is not.

The situation becomes even more complex where the parties disagree whether a particular payment constitutes an equity contribution, a shareholder loan, or another type of financing.

1. Corporate Consequences of a Financing Decision

An additional contribution may affect the economic interests of shareholders and, in certain circumstances, their ownership position.

Before adopting a decision, or once a dispute has already arisen, the company’s articles of association and relevant corporate resolutions should therefore be assessed.

2. Case Law

Supreme Court materials on corporate disputes also treat failure to make an additional contribution as a separate category of corporate dispute.

This again demonstrates that shareholder decisions regarding financing are not merely financial matters and may have significant corporate consequences.

XIII. How Do We Determine Whether the Claim Belongs to the Shareholder or the Company?

This is one of the most important questions in representation in shareholder disputes.

A company is a legal person separate from its shareholders.

Loss of company property or damage caused to the company therefore does not automatically mean that a shareholder may personally claim the same amount in their own name.

1. Personal Right of the Shareholder

A shareholder may have a personal claim, for example, in relation to an already accrued dividend, their share, or another direct infringement of their own rights.

2. Claim Belonging to the Company

In other cases, the company itself is the injured party.

For example, if a director unlawfully disposes of company property, the principal damage may be suffered by the company.

The legal mechanism available to the shareholder will therefore be entirely different.

Incorrect characterisation of the claim creates significant litigation risk.

XIV. Disputes Arising from a Shareholders’ Agreement

A company may have both articles of association and a separate Shareholders’ Agreement.

These two documents perform different legal functions.

Under a Shareholders’ Agreement, the parties may regulate voting, financing, share transfers, information exchange, exit mechanisms, and other issues.

1. Breach of Contract and Corporate Resolutions

Breach of a Shareholders’ Agreement and the validity of a Shareholders’ Meeting resolution are not automatically the same legal issue.

A shareholder may breach a contractual obligation owed to another shareholder while the resolution adopted by the company’s corporate body remains valid under corporate law.

2. Two Types of Claim

In such circumstances, representation in shareholder disputes requires contractual and corporate claims to be distinguished correctly.

Using one type of claim as a substitute for another may create substantial legal risk.

XV. Negotiation in a Shareholder Dispute

Litigation is only one possible outcome of a shareholder conflict.

Court proceedings within a company may affect the value of the business and its relationships with banks, employees, investors, and commercial partners.

1. When Can Negotiation Be Effective?

Negotiation may be particularly appropriate where the parties no longer wish to work together but can agree on the sale of a share or another form of ending the relationship.

In some cases, the governance structure may also be redefined and the business relationship continued.

2. When Should Legal Action Not Be Delayed?

Where there is a real risk of disposal of assets, a change of control, loss of information, or another irreversible consequence, relying solely on prolonged negotiation may prejudice the shareholder’s interests.

A negotiation strategy should therefore be assessed together with available court and other legal remedies.

XVI. Importance of Evidence in Shareholder Disputes

Corporate disputes often involve documentation accumulated over many years.

The company’s articles of association, minutes of Shareholders’ Meetings, electronic correspondence, contracts, bank and financial records, Public Registry information, and other documents may all require review.

1. Reconstructing the Corporate History

In a shareholder conflict, it is important to establish how the company’s ownership and governance structure developed over time.

A particular transaction may be assessed very differently when earlier shareholder resolutions or other corporate relationships are taken into account.

2. Suspicion Alone Is Not Enough

A client may have reasonable concerns that another shareholder or director is acting against the company’s interests.

However, litigation strategy must be based on evidence.

An important part of representation in shareholder disputes is therefore assessing the material already available and determining what additional information is required to substantiate the relevant claim.

XVII. Why Is Choosing the Correct Claim Important?

The availability of several legal mechanisms in a shareholder dispute is not always an advantage.

Selecting the wrong claim may result in loss of time and resources.

For example, invalidating a Shareholders’ Meeting resolution may not solve the client’s real problem if disputed property has already been transferred to a third party under an independent transaction.

In another case, a personal damages claim against the director may be incorrect where the loss was actually suffered by the company.

1. From the Problem to the Legal Claim

For this reason, TB Legal’s approach does not begin with a preselected claim but with the underlying factual problem.

The next questions are:

• which right is in dispute;
• who owns the claim;
• against whom the claim may be pursued;
• what legal result can realistically be achieved;
• and which legal route best reflects the client’s actual objective.

2. Several Parallel Issues

A complex corporate dispute may simultaneously involve a Shareholders’ Meeting resolution, director liability, access to information, contractual issues, and ownership of shares.

Managing these issues in the correct sequence is one of the key functions of representation in shareholder disputes.

XVIII. How Does TB Legal Provide the Service?

At TB Legal, representation in shareholder disputes is planned according to the circumstances of each case.

1. Initial Case Assessment

At the first stage, the following are identified:

• the shareholders and ownership structure;
• the company’s governance model;
• the client’s actual problem;
• corporate resolutions already adopted;
• available documentation;
• and the client’s desired final outcome.

This stage also separates the different possible legal directions of the dispute.

2. Analysis of Documentation and Corporate History

The next stage involves assessment of the articles of association, Shareholders’ Agreement, Shareholders’ Meeting minutes, Public Registry information, relevant contracts, and other documentation.

Where necessary, methods of obtaining additional information are also identified.

3. Development of Legal Strategy

After the case has been assessed, the possible legal claim and its suitability for the client’s interests are determined.

This may involve a pre-litigation demand, negotiations between shareholders, action by a corporate body, court proceedings, or coordination of several related legal steps.

4. Court Representation

Where litigation is required, TB Legal prepares the relevant procedural documents and represents the client before the court.

Specific claims, evidence, and procedural actions are determined individually for each case.

XIX. Why TB Legal?

Representation in shareholder disputes requires not only knowledge of civil procedure but also an understanding of the company’s corporate structure and underlying business relationships.

Behind what may initially appear to be a personal conflict between shareholders, several distinct legal relationships may exist: a shareholder’s right against the company, the company’s claim against a director, a Shareholders’ Meeting resolution, ownership of shares, a Shareholders’ Agreement, or a commercial transaction.

Correctly distinguishing these relationships is particularly important when determining litigation strategy.

TB Legal’s corporate law practice includes both preventive structuring of companies and legal management of existing shareholder and corporate disputes.

Preventive measures may also include proper corporate structuring and preparation of a tailored Shareholders’ Agreement.

If a conflict has already arisen between shareholders, access to information has been restricted, or there is a dispute concerning a Shareholders’ Meeting resolution, dividends, shareholder status, or management of the company, TB Legal can provide an individual legal assessment and representation in shareholder disputes.