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Doing Business in Azerbaijan

Forms of Business Organisation

Under the Civil Code, legal entities may be either commercial or non-commercial. The Civil Code provides for the following organisational forms of commercial legal entities:

• Joint Stock Companies (“JSC”);
• General Partnerships (“GP”);
• Limited Partnerships (“LP”);
• Limited Liability Companies (“LLC”);
• Additional Liability Companies (“ALC”); and
• Cooperatives.

Azerbaijani entities are generally incorporated or established pursuant to a foundation agreement and a charter. The foundation agreement is not, however, required for the creation of companies with one participant. The foundation agreement governs the rights and obligations of the founders and the relations between the founders and the entity. The charter generally governs the structure and management of the entity and the rights of participants and shareholders in connection therewith. Certain provisions of the foundation documents defined in the Civil Code are mandatory.

Azerbaijani corporate law fixes a minimum amount of charter capital for JSCs. In certain cases (such as banking and insurance companies), additional requirements are imposed by specific legislation.

Joint Stock Companies (“JSC”)

A JSC is a legal entity whose charter capital is divided into a certain number of shares, which are securities. As a rule, JSC shareholders are liable for the obligations of the JSC only to the extent of their shares’ value.

A JSC may be either open or closed. A closed JSC with more than 50 shareholders must be reorganised into an open JSC. Shares of a closed JSC are distributed only among the founders and transferred to third parties only upon the shareholders’ failure to exercise the right of first refusal and upon a closed JSC’s failure to purchase such shares. Shares of an open JSC are publicly sold and can be alienated by shareholders to third parties without restriction.

A sole individual or legal entity may be the founder or the shareholder of a JSC. The process of establishing a JSC is initiated at the founders’ meeting, which adopts the foundation agreement, if applicable, and charter of the JSC. It includes state registration of the JSC, state registration of the issuance of shares and the placement of shares. The par value of the shares of a newly established JSC must be paid by the founders prior to state registration of the JSC. Subsequent to establishment, the JSC’s shares can be placed either among the founders in closed JSCs or through a public offering in open JSCs. An open JSC may conduct a public offering itself or through a stock exchange.

The charter capital of a JSC is divided into a fixed number of shares of a stated par value. For a closed JSC, the minimum amount of the charter capital is approximately $2,325 and twice that for an open JSC.

The charter capital of a JSC must be fully paid on or before the date of its state registration. If the net worth of assets of a JSC is less than the amount of its charter capital at the end of each fiscal year, it must decrease its charter capital and register the decrease with the Ministry of Justice.

Contributions to the charter capital of a JSC may be made in cash or in-kind. The value of the contributions made in-kind must be confirmed by the founder’s meeting. Payment for publicly placed shares must be made in cash.

Shares in a JSC are investment securities and must be registered with the State Committee for Securities before issuance (except at the time of establishment of JSC). Shares may be either common or preferred shares. Preferred shares may not be issued in an amount exceeding 25% of the charter capital. Shares may be merged, divided or converted into other shares. The shares of JSCs may be denominated only in the national currency.

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