Investors purchase shares to earn a return on their investment. They expect regular dividends as profit. For many minority shareholders, dividends are the only income from specific business ventures. Minority shareholders hold little control over corporate decisions. Corporate directors and majority shareholders dominate the dividend process. They prepare annual accounts, call shareholder meetings, and decide on declaring dividends from company profits.
In closely held corporations, majority shareholders often serve as directors or appoint loyal ones. This power concentration sidelines minority shareholders who depend on dividends for profit.
In recent years, disputes over unpaid or incorrectly paid dividends in Georgian businesses have risen. As a result, Georgian courts have clarified company law rules on dividend declaration and payment. Court decisions have shown a consistent approach, which is summarized below.
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Shareholders’ Right to Dividends under Georgian Law
The Law of Georgia on Entrepreneurs grants shareholders the right to receive dividends. It authorizes the general meeting of shareholders to decide on distributing interim or annual profits. The law allows a company’s articles of association to define the payment procedure.
The Supreme Court of Georgia recently stated that declaring dividends is at the general meeting’s discretion. The meeting may decide the amount or choose not to declare dividends at all. No law forces them to approve dividend payments.
Discretion of the General Meeting of Shareholders
The Supreme Court has reviewed the scope of this discretion. It noted that Georgian law allows shareholder meetings broad freedom, similar to rules in the United States and the United Kingdom. The law sets no mandatory minimum dividend and generally prevents court interference.
However, the court has ruled that this power has limits. Judges may intervene if a shareholder proves that the meeting acted in bad faith, with deceit, or in personal interest. The court recognizes shareholders’ legitimate expectation of profit when the company earns income. If the general meeting chooses not to declare dividends, the decision must serve a valid corporate purpose.
Shareholder Recourse for Dividend Claims
A shareholder who disagrees with the meeting’s decision must first express opposition by voting. If still dissatisfied, they may sue, alleging dishonest motives or lack of corporate purpose. The court will only act if convinced that the decision ignored the company’s legitimate business goals.
Director’s Obligation
The general meeting bases dividend decisions on annual profits. Georgian law and court rulings place the duty of preparing those accounts on the director. If the director fails to fulfill this duty, the court may hold them personally liable.
Georgian case law continues to shape the relationship between businesses and shareholders. Recent disputes have guided corporate players on their rights and duties in dividend matters. Growing shareholder activism will likely strengthen legal clarity and consistent practice in dividend distribution and related corporate decisions.