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HOW TO ESTABLISH A BANK IN GEORGIA HOW TO ESTABLISH A BANK IN GEORGIA Table of Contents • INTRODUCTION • BANK REGISTRATION • Step 1: JSC Registration Requirements • Step 2: Obtaining a Commercial Bank License • TERMS AND CONDITIONS • Restrictions on Ownership • Types of Bank Capital • The Corporate Structure of Commercial Banks • Administrators’ Compatibility Criteria • ESTABLISHING A BRANCH OF A FOREIGN COMMERCIAL BANK • Step 1: Branch Office Establishment Registration Requirements • Step 2: Licensing Obtainment for Foreign Commercial Bank Branch Offices • Foreign Reliable Bank Licensing Requirements • FAQ • Application Form Content For JSC Registration • Documents Required for JSC Registration • Documents Required for Obtaining a Banking License • Documents Required for the Registration of a Branch Office • USEFUL CONTACT INFORMATION INTRODUCTION The Commercial Bank under Georgian Legislation • A Commercial Bank is a legal entity licensed by the National Bank of Georgia that attracts deposits and, through the relevant application process, conducts banking activities on its own behalf pursuant to applicable Georgian law. • A Commercial Bank can only be established in the organizational legal form of a joint-stock company. Commercial Bank Activities: The license granted by the National Bank of Georgia (NBG) allows commercial banks to engage in the following banking operations inside the country as well as overseas: • Receive interest-bearing and interest-free deposits (of fixed period, upon demand and other) and other returnable means of payment; • To issue consumer, mortgage, unsecured and other loans; to engage in factoring operations with and without the right of recourse; to trade finance, including the granting of guaranties, letters of credit, acceptance finance, and forfeiting. • To draw upon its own or clients’ funds; to buy and sell monetary instruments such as promissory notes, checks, certificates of deposit, as well as securities, futures, options and swaps upon debt instruments or interest rates, currencies or interest instruments, debt documents, foreign currencies, precious metals and precious stones. • To partake in cash and non-cash settlement operations and the provision of collection services. • To issuing money orders and manage money management circulation (including tax cards, checks and bills of exchange). • To provide securities brokerage services; • To provide trust operations on behalf of clients and fund management; • To safe-keep and register valuables including securities; • To provide credit-information services; • The engage in central depositary activities;1 • To carry out activities related to each of the above types of services. 1 The Commercial Bank under Georgian Legislation HOW TO ESTABLISH A BANK IN GEORGIA HOW TO ESTABLISH A BANK IN GEORGIA -1 BANK REGISTRATION Step 1: JSC registration requirements for establishing A JSC is a legal entity the charter capital of which is divided into shares of equal nominal value. The liability of a JSC is limited to its total assets. Shareholders are not liable for JSC obligations. In order to register a JSC, the founder(s) shall submit to the National Agency of Public Registry the following documents: • Charter (Articles of Association) of JSC (see Appendix #1); • An application form as approved by the Ministry of Justice of Georgia; and • Supplementary documents (see Appendix #2). The total state and tax registration fee for a JSC is 100 GEL provided that the registration shall be carried out in one business day. Fee payable for immediate registration of JSC amounts to 200 GEL. Step 2: Obtaining a Commercial Bank License The banking license is issued by the NBG. In order to obtain a license to carry out banking activities the JSC shall submit the following documents to the NBG: • An application form; and • Additional documents (see Appendix #3). The banking license is valid for an unlimited period of time. The banking activities licensing fee amounts to 500 GEL. HOW TO ESTABLISH A BANK IN GEORGIA HOW TO ESTABLISH A BANK IN GEORGIA -2 TERMS AND CONDITIONS Restrictions on Ownership Resident as well as non-resident individuals and legal entities, whose ownership is not restricted according to the applicable legislation, can become shareholders of a commercial bank. A person shall have no right to be a Significant Shareholder2 if he/she has been tried for the laundering of unlawful income, financing terrorism, economic crime and/or crimes against entrepreneurial or other economic activities. Types of Bank Capital Declared Charter Capital – is charter capital specified by the shareholders and envisaged by the charter which shall be paid up only in cash. Regulatory Capital – is the capital formed for the purposes of performing banking activities; indemnifying possible financial losses and; protecting these from other types of risk. This Regulatory Capital should be paid up only in cash. Equity Capital – is capital paid into a bank or other company by its shareholders and represents the difference between total assets and total liabilities; Paid up Capital – is the actually paid-in portion of the Declared Charter Capital; Corporate Structure of Commercial Banks • General Meeting of Shareholders – the supreme administrative body of the bank is the General Meeting of Shareholders, which acts in accordance with legislation and charter. It elects the Supervisory Board. 2 A “Significant Shareholder” refers to any person who directly or indirectly owns 10% or more of the declared or paid up charter capital. HOW TO ESTABLISH A BANK IN GEORGIA HOW TO ESTABLISH A BANK IN GEORGIA -3 • Supervisory Board – this consists of no less than three and no more than 21 members. The total number of elected members should be odd. Each member of the Supervisory Board shall be elected for a term of four years and may be re-elected for an unrestricted term. Director(s) can be member(s) of the Supervisory Board but they may not make up the majority of the board members. • Management Board (Board of Directors) - carries out managerial functions and holds the representative authority of the bank. The Management Board shall consist of at least three individuals appointed by the Supervisory Board for a term of four years and may be reappointed for an unrestricted term. • The Audit Committee - encourages the proper functioning of the bank’s internal and external audits. The Audit Committee, which includes the independent member of the Supervisory Board (if there are any) is created by and attached to the Supervisory Board. Administrators’ Compatibility Criteria A person to be appointed as an administrator of a commercial bank has to comply with the following compatibility criteria: • Members of the Board of Directors, branch heads or the heads of other similar subdivisions and their deputies should hold high degrees in one of the following university majors: economics, finances, banking, business administration, audit, accounting or law; • The chief accountant of the bank/branch and its deputy should hold high degrees in one of the following majors: economics, finances, banking, business administration, audit or accounting; • The members of the bank’s Board of Directors, the head of the branch or other similar subdivision or their deputy must have appropriate professional qualifications and experience for which they should have at least four years of work experience in the HOW TO ESTABLISH A BANK IN GEORGIA HOW TO ESTABLISH A BANK IN GEORGIA -4 banking-finance field, including two years experience of occupying a managerial position (head or deputy of a structural unit); • The chief accountant of the bank/branch and its deputy should have at least three years of work experience in the banking-financial field; • A person cannot be appointed as an administrator if he/she occupies/has occupied one of the following positions: - Member of a Supervisory Board or Revision Commission of the same commercial bank; and/or - Member or administrator of the Board of Directors of another commercial bank, non-banking depositary institution – credit union, and/or other company; • A member of the Board of Directors shall not be the spouse, child or close relative of any other member of the Board of Directors of the same bank; • The chief accountant of the bank and his/her deputy, the chief accountant of the branch, should not be the spouse, child or close relative of the director or the deputy of the same bank or the same branch. HOW TO ESTABLISH A BANK IN GEORGIA HOW TO ESTABLISH A BANK IN GEORGIA -5 ESTABLISHING A BRANCH OF A FOREIGN COMMERCIAL BANK Step 1: Registration requirements for establishing a branch office A branch office is a sub-unit of a business entity and is not a separate legal entity. Therefore, the founder is financially liable for the obligations of the branch. Any Commercial Bank may establish a branch office by means of submitting respective documentation to the National Agency of Public Registry (see Appendix #4). Please note, that registration requirement applies only to the branch of a foreign commercial bank, while no registration is required for the branch of a local bank. A branch of a Commercial Bank is a unit of a bank which directly conducts all or some banking activities. The establishment of branches or bank representative offices shall be authorized by the bank’s Supervisory Board and shall be subject to conditions and restrictions established by the regulation of the NBG. Step 2: Obtaining a banking license for the branch office of the Foreign Commercial Bank A license for a foreign bank branch office shall be issued only in cases when the bank itself is authorized to attract deposits or other funds in the country where its head office is located. HOW TO ESTABLISH A BANK IN GEORGIA HOW TO ESTABLISH A BANK IN GEORGIA -6 In this case, the license is issued, after the submission of an approval for establishing a branch in Georgia issued by the supervisory authority of the country where the bank is registered. This rule does not apply to the establishment of the branch office of the Foreign Reliable Bank3. In order to obtain licenses for the banking activities of the branch office of the Foreign Commercial Bank, the latter shall submit an application and respective supplementary documentation to the NBG (see Appendix #3). License requirements for a branch of a foreign reliable bank The license requirements for establishing a branch office of a Foreign Reliable Bank have been simplified. The NBG shall issue a banking license to a Foreign Reliable Bank for the establishment of a branch office upon submission of the following documents: • Application; • Approval on establishing a branch in Georgia, issued by the supervisory authority of the country where the bank is registered; • The document granting the bank the status of “Foreign Reliable Bank” on the basis of presented rank; • The act appointing administrators of the branch; • The document envisaging authorization of the person submitting the documents indicated above. 3 The Foreign Reliable Bank refers to a bank of developed country, which has certain rank granted by competent international rating organization. HOW TO ESTABLISH A BANK IN GEORGIA HOW TO ESTABLISH A BANK IN GEORGIA -7 FAQ Does the banking activity require any license/ permit? A commercial bank should obtain a Banking License in order to carry out banking activity. Banking licenses should be applied for in writing to the NBG. What are the minimum regulatory capital requirements? At the moment the minimum required amount of the Charter Capital for the creation of a bank is its Regulatory Capital, which should constitute at least 12 million GEL. What is the applicable timing for registering a commercial bank in Georgia? Given that a two-step procedure is required for establishing a Commercial Bank, the aggregate time- frame is as follows: • The state and tax registration of JSC, carried out by the National Agency of Public Registry, is performed within one business day or immediately upon the submission of all necessary documents subject to payment of additional fee for accelerated registration. • The registration of the JSC is followed by the obtaining of a Banking License which is granted within the period of 3 months from the date of submission of the Application. What are the Preconditions of a legal stay in Georgia? A Person possessing an ordinary visa and wishing to stay on the territory of Georgia longer than the period stated by the visa, should apply to the respective regional service of the Civil Registration Agency of the Ministry of Justice of Georgia to receive a temporary or permanent residence permit, before this should be done before the expiration of the terms of their legal stay. The duration of a temporary residence permit can be up to 6 years. For what time-period can a bank be incorporated? In accordance with Georgian legislation a bank can be incorporated for an unlimited time-period. This period depends entirely upon the choice of the founders. HOW TO ESTABLISH A BANK IN GEORGIA HOW TO ESTABLISH A BANK IN GEORGIA -8 Can a foreign national be a managing officer of a bank? Yes. Georgian legislation does not contain any restraints as to the nationality of persons that are entitled to participate in corporate governance of the bank. What is the minimum/maximum number of Directors/Founders Permitted in Georgia? Georgian legislation does not contain any limitations with regard to the minimum/maximum number of Directors/ Founders of a bank. What is Legalization? Legalization of a document by the respective authority of a State certifies that the document accords with the legislation of that particular State. It attests the validity of notary signature and the seal thereto. Legalization is carried out by the embassies and consular departments of Georgia in foreign states. What is Apostille? A certificate confirming the authenticity of a document issued in one of the signatory countries for legal purposes in all the other signatory states. Georgia is a member of The Hague Convention Abolishing the Requirement of Legalization for Foreign Public Documents (October 5, 1961). Therefore, legalization can be substituted by the Apostille in the countries that are also signatories to Hague Convention. HOW TO ESTABLISH A BANK IN GEORGIA HOW TO ESTABLISH A BANK IN GEORGIA -9 CONTENT OF CHARTER Appendix # 1 (ARTICLES OF ASSOCIATION) OF JSC The Charter (Articles of Association) must contain the following information: • Company (firm) name of a business entity; • Legal form of the business entity (JSC); • Legal address of the business entity; • Name, residing address, personal number and signature of founding partner(s), persons (including proxies) responsible for representing and leading the business entity. If the founder is a business entity, then the application should include its legal name and registration details, legal address, the name of a body that registered the business entity, the date of registration and identification code, information regarding its representatives; • The executive body of the JSC and the rule of decision making within the JSC; • The limitation (if any) of representative power vested in the JSC representative; • The duration of a business entity (if a company is founded for a determinate time period, its duration shall be indicated by years); The Charter (Articles of Association) must be signed by all of the founding partners of the JSC. If the founding partner is a legal person, its duly authorized representative shall be entitled to sign the Charter (Articles of Association). Charter (Articles of Association) must be notarized and if it is sent from abroad should be notarized and legalized in founder’s country / or certified by apostille, translated and notarized in Georgia. HOW TO ESTABLISH A BANK IN GEORGIA HOW TO ESTABLISH A BANK IN GEORGIA - 10 DOCUMENTS REQUIRED FOR Appendix # 2 REGISTRATION OF A JSC To register a JSC, the following documents shall be submitted (including the Charter (Articles of Association)) to the National Agency of Public Registry4: • The decision of the founders to create a JSC in Georgia; • Application form as approved by the Ministry of Justice of Georgia; • A document certifying the proof of registration by the founder in the foreign jurisdiction; if the founder is a legal entity, the same or a separate document should indicate the names of the authorized representatives, supervising authority and other corporate details of the founder (Certificate of Registration); • A decision on appointing the Head of the Company (Director) envisaging name, surname, place of residence and personal/passport number thereof; If a business entity has several persons responsible for its representation, the decision should indicate whether they represent the company jointly or separately; • Passport photocopies of the founders and director(s). The Application should be accompanied by signature samples (facsimiles) of the person(s) responsible for managing the company. The signature samples should either be certified by a Notary or done at the National Agency of Public Registry itself in the presence of a responsible official of the National Agency of Public Registry. If the founders (partners) are not present for the submission of the Application Form at the National Agency of Public Registry, they shall issue a power of attorney. In addition, if a person responsible for representation or the manager of the company (the director) is not in Georgia to certify his/her signature sample at a local Notary Office, it is necessary to send dully executed signature sample. 4 Please note that document issued abroad, also the samples of the signatures needed, should be notarized and legalized in founder’s country / or certified by apostille, translated and notarized in Georgia HOW TO ESTABLISH A BANK IN GEORGIA HOW TO ESTABLISH A BANK IN GEORGIA - 11 DOCUMENTS REQUIRED FOR Appendix # 3 OBTAINING A BANKING LICENSE The NBG requires the following documents to be submitted by the JSC for obtaining a banking license (including Application)5: • The originals or notarized copies of the JSC registration documents; • Information regarding the qualification of directors of the commercial bank and their experience of working in the banking field; • A bank statement confirming the amount of the Declared Charter Capital and its paid up part, as well as the information regarding the ownership of Declared Charter Capital and Regulatory Capital and the origins thereof; • A compatibility declaration concerning the direct as well as the beneficiary owner with regards to the criteria established by the respective Georgian legislation 6; • Additional information determined by the rules of the NBG, which should include at least information regarding the Charter Capital and other financial resources, the location of the head office and the branches of the bank as well as additional information, which is requested by the NBG on case by case basis. • Documents certifying the right of ownership or of use of the immovable property where the commercial bank or its branch shall be located; • A receipt of registration fee payment. 5 Please note that documents issued abroad, also the signature samples needed, should be notarized and legalized in the founder’s country / or certified by apostille, translated and notarized in Georgia. 6 The branch office of a foreign commercial bank shall submit infor- mation regarding the resources allocated for it by its head office. HOW TO ESTABLISH A BANK IN GEORGIA HOW TO ESTABLISH A BANK IN GEORGIA - 12 DOCUMENTS REQUIRED FOR THE Appendix # 4 REGISTRATION OF A BRANCH OFFICE The National Agency of Public Registry requires following documents to be submitted by foreign legal entities of a branch7 (including an application for registration): • The decision of the founder to open a branch in Georgia; • The Charter (Articles of Association) of the founding company; • A document certifying proof of registration of the founder company in the foreign jurisdiction; if the founder is a legal entity, the same for the separate documents should indicate the names of the authorized representatives and other corporate details of the founder; • Decision on appointing the Head of the Company (director) or the relevant Power of Attorney thereof; • Passport photocopies of the director to be appointed to a branch ; • The application for registration should be accompanied by signature samples (facsimile) of person(s) responsible for leading the branch (director(s). The signature sample should either be certified by notary or done at the National Agency of Public Registry itself in attendance with a responsible official of the National Agency of Public Registry; • Power of attorney from the director (head) to be appointed at the branch; In addition, the Application Form shall include the following information: • The firm name of the branch; • The legal address of the branch; • The legal name of the founder and its registration details, its legal address, the name of the body that registered the business entity, the date of registration and identification code; • The date of submitting the application for registration; 7 Please note that document issued abroad, also the samples of the signature needed, should be notarized and legalized in found- er’s country / or apostilled, translated and notarized in Georgia HOW TO ESTABLISH A BANK IN GEORGIA HOW TO ESTABLISH A BANK IN GEORGIA - 13 USEFUL CONTACT INFORMATION GEORGIAN NATIONAL INVESTMENT AGENCY Ministry of Economic Development of Georgia 12 Chanturia St. 0108 Tbilisi, Georgia Tel/Fax: +995 32 433 433 Tel: +995 32 106 394/106 391 E-mail: firstname.lastname@example.org website: www.investingeorgia.org National Bank of Georgia 3/5 Leonidze St., 0105 Tbilisi, Georgia Tel: (995 32) 442544 Fax: (995 32) 442577 E-mail: email@example.com web-page: www.nbg.ge CIVIL REGISTRY AGENCY, Ministry of Justice of Georgia Hot line: 40 10 10 web-page: www.cra.gov.ge THE MINISTRY OF JUSTICE OF GEORGIA web-page: www.justice.gov.ge Hot line: 0008 NATIONAL AGENCY OF PUBLIC REGISTRY (REGIONAL CENTER) www.reestri.gov.ge Hot line: 8 800 282 828 Address: 2 N. Chkheidze St., 0102, Tbilisi, Georgia HOW TO ESTABLISH A BANK IN GEORGIA HOW TO ESTABLISH A BANK IN GEORGIA - 14 TEXT HOW TO ESTABLISH A BANK IN GEORGIA HOW TO ESTABLISH A BANK IN GEORGIA - 15 TEXT Prepared in cooperation with BLC (Professional Legal Services), one of the leading law firms in Georgia. Contact person: Alexander Bolkvadze – Partner Address: 4 Gudiashvili Square, Tbilisi, 0105, Georgia; Tel: (995 32) 92 24 91; 93 25 03; 92 00 86; Fax: (995 32) 93 45 26; E-mail: firstname.lastname@example.org; Website: www.blc.ge Contact person: Alexander Bolkvadze - Partner