Judicial practice on joint ventures with local partners in Georgia under the Law on Promotion and Guarantees of Investment Activity — commentary

In a series of rulings handed down by Georgian courts over recent years, the courts have progressively clarified how the Law on Promotion and Guarantees of Investment Activity operates in disputes arising from joint venture arrangements between foreign investors and Georgian local partners. For foreign companies that have entered Georgia as part of a broader regional strategy — whether relocating operations from Russia, expanding from the EU, or establishing a CIS distribution hub — these decisions carry immediate structural implications. The courts have moved beyond the statute's general guarantee language to examine, with some granularity, how contractual allocation of rights between foreign and local co-venturers interacts with the investor-protection framework the Law provides.

The Law on Promotion and Guarantees of Investment Activity is Georgia's principal statutory instrument governing the treatment of foreign investment. It establishes a baseline of guarantees — protection from expropriation, national treatment, free repatriation of profits — that apply to foreign investors operating in Georgia regardless of the sector. For joint ventures structured with a Georgian local partner, the Law has always raised a practical question that the statute does not resolve on its face: when a dispute arises between the foreign investor and its local co-venturer, does the foreign investor's claim engage the Law's protection framework, or is the matter treated as a purely private commercial dispute between two contracting parties?

The cases that have come before Georgian courts in recent years present a consistent fact pattern. A foreign investor — typically a company registered outside Georgia, often with Russian, European, or Turkish ownership — enters a joint venture with a Georgian partner to access local licences, land rights, or distribution networks. The arrangement is formalised through a combination of a Georgian limited liability company charter, a shareholders' agreement, and sometimes a side agreement governing the use of contributed intellectual property or working capital. When the relationship fractures — over profit distributions, management rights, or a partner's unilateral dealings with third parties — the foreign investor faces the question of which forum to use, which law governs, and how the Law on Promotion and Guarantees of Investment Activity bears on its position.

Georgian courts have, in the matters that have come to the firm's attention through cross-border instruction work, generally declined to read the Law as a lex specialis that displaces standard corporate dispute procedure. The courts' consistent position is that the Law defines the investor's relationship with the Georgian state, not the investor's contractual relationship with a private local partner. A foreign co-venturer cannot invoke the Law's guarantee provisions as a direct cause of action against the Georgian partner for breach of the shareholders' agreement. That claim sounds in contract and falls under the general civil and corporate rules.

However, the courts have not treated the Law as irrelevant to private JV disputes. In several matters, courts have applied the Law's national-treatment guarantee in a defensive posture: where a Georgian party attempted to invoke a provision of local law or regulatory rule that would, in the court's assessment, place the foreign investor at a disadvantage not faced by a comparably situated domestic investor, the courts have been willing to disapply or limit that provision on the basis of the Law's non-discrimination commitment. This is a nuanced but practically significant finding. It means the Law functions as a floor of protection rather than an independent cause of action.

"The Law on Promotion and Guarantees of Investment Activity creates a protective floor, not a private cause of action — Georgian courts are applying it to constrain discriminatory procedural manoeuvres rather than to rewrite the substantive bargain between co-venturers." — Nino Beridze, Contributing Regional Analyst — Georgia · Business Relocation and Tax Structuring

The second consistent thread in recent judicial practice concerns deadlock resolution. Georgia's corporate legislation does not provide a statutory deadlock mechanism equivalent to those found in some common law systems. Courts have been presented with JV companies in genuine deadlock — a 50/50 split between the foreign investor and the local partner, with no casting vote, no deadlock resolution clause in the charter, and no functioning supervisory board. The courts have shown limited appetite for substituting their judgment for a contractual mechanism the parties did not include. In the matters reviewed, courts have pointed the parties back to negotiation or voluntary dissolution rather than imposing a solution. This approach is consistent with Georgian civil law principles but creates real exposure for foreign investors who did not anticipate deadlock at the drafting stage.

The emerging judicial practice described above has direct drafting and structuring implications for any foreign company considering or currently operating a joint venture with a local partner in Georgia.

The first implication is that the Law on Promotion and Guarantees of Investment Activity should not be treated as a substitute for careful contractual drafting. The Law protects the foreign investor against state action — arbitrary regulatory interference, expropriation, discriminatory treatment by public authorities. It does not protect the investor against a badly structured shareholders' agreement. Foreign companies entering [Corporate & Joint Ventures in Georgia](/jurisdictions/georgia/corporate-jv/) should build their protection into the charter and the shareholders' agreement itself: reserved matters requiring unanimous consent, specifically defined profit distribution triggers, a clear deadlock resolution mechanism (whether casting vote, buy-sell clause, or third-party mediation step), and a governing law and arbitration clause that does not default to Georgian courts as the exclusive forum.

The second implication concerns the Law's defensive utility. The national-treatment guarantee, as applied by Georgian courts, can be invoked to resist procedural manoeuvres by a local partner that exploit rules or practices that would not apply to a Georgian domestic investor in the same position. Foreign investors and their counsel should be alert to this argument — it is available, but it requires that the discriminatory element be identified clearly and invoked promptly. Waiting until late in proceedings reduces its force.

The third implication is the deadlock risk. Any foreign investor holding a 50/50 stake in a Georgian JV company without a contractual deadlock resolution mechanism is operating with an unquantified exposure. Georgian courts will not supply the missing mechanism. The appropriate moment to address this is at formation or on a renegotiation of the JV terms — not when the dispute has already crystallised. The [Market Entry & Company Formation practice](/jurisdictions/georgia/company-formation/) team can review existing charter documents for this specific gap.

For foreign investors with assets or operations that span Georgia and Russia simultaneously, the interaction between the two jurisdictions' investment protection regimes adds a further dimension. The [Cross-border Disputes practice](/jurisdictions/georgia/disputes/) handles matters where a Georgia-based JV dispute has a Russian-law element — for example, where the ultimate parent entity is Russian or where the JV operates distribution channels into Russia.

[CTA: If you are structuring or reviewing a joint venture arrangement in Georgia — make an enquiry: info@vetrovpartners.com | WhatsApp/Telegram: +7 (983) 510-38-76]

Q: What does the Law on Promotion and Guarantees of Investment Activity actually protect in a JV context — and what does it not cover?

A: The Law protects the foreign investor's relationship with the Georgian state. Its core guarantees — non-expropriation, national treatment, free repatriation of profits, and protection against discriminatory regulatory action — operate vertically, between the investor and Georgian public authorities. They do not operate horizontally between the foreign investor and a Georgian private co-venturer. In a JV dispute, the Law is relevant primarily as a defensive tool: if a local partner's litigation strategy seeks to exploit a regulatory or procedural rule that disadvantages the foreign investor relative to a domestic investor, the national-treatment guarantee can be invoked to resist that manoeuvre. For direct claims arising from breach of the shareholders' agreement or charter, the investor must rely on the contract itself and the applicable corporate law.

Q: What should foreign companies do now if their existing Georgia JV has no deadlock resolution clause?

A: The priority is to assess whether a deadlock resolution mechanism can be introduced by charter amendment — which in Georgia typically requires the consent of all shareholders. If the local partner's co-operation is available, this is straightforward. If not, and a deadlock or near-deadlock situation is already developing, the options narrow considerably: voluntary dissolution by mutual agreement, or litigation over specific acts of the local partner that independently constitute a breach of the existing charter or shareholders' agreement. Counsel experienced in Georgian corporate practice can map the available routes and identify whether any interim measures are advisable while the structural question is addressed.

• [Corporate & Joint Ventures in Georgia](/jurisdictions/georgia/corporate-jv/)
• [Market Entry & Company Formation in Georgia](/jurisdictions/georgia/company-formation/)
• [Cross-border Disputes — Georgia practice](/jurisdictions/georgia/disputes/)

Vetrov & Partners is a Russian boutique law firm established in 2009, recognised by Pravo-300 for eight consecutive years. The firm advises foreign companies and investors — including those operating across Russia and the CIS/South Caucasus — on corporate structuring, disputes, and cross-border matters.

For Georgia-specific instructions, the firm works in collaboration with trusted Georgian-qualified counsel. Regional analysis for the Georgia practice stream is provided by contributing analysts with direct experience of Georgian corporate and investment law.

Enquiries: info@vetrovpartners.com | WhatsApp / Telegram: +7 (983) 510-38-76 | t.me/vitvetcom

This publication is provided for informational purposes only and does not constitute legal advice under Russian or any other applicable law. The information herein should not be relied upon as a substitute for professional legal counsel tailored to your specific circumstances. Vetrov & Partners is a Russian-qualified law firm. For matters governed by foreign law or requiring local admission in another jurisdiction, we collaborate with trusted counsel in the relevant jurisdiction. For advice regarding your particular situation, please contact info@vetrovpartners.com.

— Nino Beridze Contributing Regional Analyst — Georgia · Business Relocation and Tax Structuring vetrovpartners.com/contributions/