The Set Up

Establishing a legal presence in the Republic of Azerbaijan is a procedure regulated predominantly by the Azerbaijani Civil Code and the Law “On State Registration and the State Register of Legal Entities.” In order to simplify the registration process of commercial legal entities, as well as branches and representative offices of foreign legal entities, President Ilham Aliyev signed an order in October 2007, whereby the registration of new commercial entities was simplified by introducing the one-stop-shop principle. This allows commercial entities to be registered within two days with a simplified submission procedure. The Ministry of Taxes of Azerbaijan is the authorized body that registers commercial legal entities in Azerbaijan.

REPRESENTATIVE OFFICES & BRANCHES

Under Azerbaijani legislation, the branches and representative offices of foreign legal entities are not considered as legal entities in Azerbaijan. From a practical standpoint, branches and representative offices are similar in their legal nature. Civil legislation defines a representative office as a division of a legal entity that represents and protects the interests of that legal entity in another country. However, a branch is a division of a legal entity that represents and protects interests and carries out functions of that legal entity in another country. Consequently, according to civil legislation, representative offices cannot engage in commercial activities.

JOINT STOCK COMPANY (JSC)

There are two types of JSCs under Azerbaijani legislation: open and closed. Although the two share some common features, there are several distinctions that should be noted.

OPEN JOINT STOCK COMPANY (OJSC)

An OJSC is a company, the charter capital of which is comprised of a certain number of shares. An OJSC can be established or owned by one or more natural or legal persons and its shares can be openly sold to the public and acquired by third parties without restrictions. An OJSC’s shareholders are not liable for a company’s obligations; moreover their shares limit a shareholder’s liability in an OJSC, which means that their liabilities can only extend to the amount of their contribution in the charter capital.

The amount of charter capital of an OJSC should be no less than AZN4,000. An OJSC is required to establish a board of directors if it has more than 50 shareholders. A general meeting of shareholders is the supreme supervisory body of an OJSC, and it must convene not less than once a year.

An OJSC is required to appoint an independent auditor in order to audit its annual financial reports. Moreover, the annual financial reports of OJSCs must be published. In addition, the fact that initial public offerings (IPOs) are getting more popular among companies recently in Azerbaijan can be considered as one of the reasons of the growing actuality of the OJSC as a form of legal entity within the business community in Azerbaijan.

CLOSED JOINT STOCK COMPANY (CJSC)

A CJSC shares similar common features of an OJSC; however, there are several distinctions between these two. The following are the distinguishing aspects of a CJSC:

– The minimum amount of charter capital for a CJSC is AZN2,000

– Ownership of shares in a CJSC is limited tothe founders/shareholders of that CJSC;

– Shares of a CJSC can be sold to third parties, if those shares were not bought by other shareholders of the named CJSC or the CJSC itself; and

– A CJSC with more than 50 shareholders must be reorganized as an OJSC within one year.

LIMITED LIABILITY COMPANY (LLC)

An LLC is one of the most widely preferred types of companies for performing commercial activities in Azerbaijan. An LLC is a legal entity that can be formed by one or more persons. Participants’ liabilities in an LLC are limited to their stakes, which mean that their liabilities can only extend to the amount of their contribution in the charter capital. Moreover, an LLC’s shareholders are not responsible for its liabilities or for other participants’ obligations to third parties. An LLC is required to appoint an independent auditor in order to verify its annual financial reports; nevertheless, there are no requirements to publish those accounts. Another specific feature of an LLC is that the sale of stakes in an LLC to third parties can be limited by the charter of the LLC.

ADDITIONAL LIABILITY COMPANY (ALC)

An ALC is a legal entity that can be established by one or more individuals. Their participation in the company is due to their contribution of their shares to the charter capital. ALCs share similar features with LLCs. However, the participants in ALC participants’ liabilities for the company can exceed their contributions, which is regulated by the charter.

COOPERATIVE

A cooperative is a union that can be founded by at least five individuals and/or legal entities for the purpose to provide the material and other needs of the participants through joint actions. Cooperatives may be of different categories, such as production cooperatives, consumer cooperatives, and others.

MEMBERSHIP IN A COOPERATIVE

Members of a cooperative must make their respective contributions to the share fund in full, prior to the state registration of the cooperative. If in the results of the fiscal year a cooperative reports financial losses, the members must cover such losses by way of additional contributions made not later than two months from the date of approval of the annual balance sheet. An individual that becomes a member of an already existing cooperative is liable for a cooperative’s obligations, if the charter of that cooperative does not stipulate otherwise. Individuals who intend to be members of the cooperative must be informed of such obligations of a cooperative in advance.

A cooperative’s profit is divided between the members of the cooperative proportional to their contributions. In addition, the profits of a cooperative may be used to distribute among the cooperative foundations, to settle creditors’ debt, to pay dividends, or to do other matters regulated by the charter of the cooperative.

REGISTRATION LLC

An LLC is established through a foundation agreement and is relevant to resolution of the founders on the establishment of the company. The meeting of incorporators also adopts the charter of the LLC. State duty for the registration of legal entities is AZN11 (except banks, insurance companies, brokers, and legal entities involved in agricultural activities). In order to register an LLC in Azerbaijan, the founder(s) should submit an application form as well as certain documents depending on whether the founders are natural persons or legal entities, either foreign or local. LLCs are registered within two working days after the submission of all required documents to the registration body.

JSC

A JSC is established through a meeting of incorporators, which adopts a foundation agreement (if more than one founder) or resolution (one founder) on the establishment of the company. The charter of the JSC is adopted in the meeting of incorporators as well. A JSC, as for other commercial legal entities, should be registered at the Ministry of Taxes within two working days after the submission of the required registration documents. State duty for the registration of a JSC is AZN11. Similar to the registration process for an LLC, in order to register JSCs in Azerbaijan, the founder shall submit the application form as well as certain documents depending on whether the founders are natural persons or legal entities, either foreign or local.

BRANCH OR REPRESENTATIVE OFFICE

The process of the registration of branches and representative offices is similar to that of other legal entities. They are also registered through the one-stop shop of the Ministry of Taxes within two working days after the submission of all required documents.

State duty for opening a branch or representative office in Azerbaijan is AZN220. It is important to note that branches and representative offices function on the basis of regulations that are similar to the charter for legal entities. Moreover, all the documents that are issued outside of Azerbaijan must be certified and apostiled/legalized. Apostiles of some countries, though, are not recognized in Azerbaijan (for example Germany); therefore, all documents that cannot be apostiled must be legalized accordingly. Additionally, all documents issued abroad in a foreign language must be translated into Azerbaijani.

DE-REGISTRATION OF COMPANIES IN AZERBAIJAN

In order to liquidate a company, a general meeting of shareholders, legal entities, or head office of branches and representative offices must adopt a resolution, whereby they specify their intention to liquidate the company and appoint a liquidation commission. Within 15 days after the appointment of a liquidator, he/she should submit an application with the required documents to the Ministry of Taxes.

CHANGES OF INFORMATION IN A COMPANY’S REGISTRATION DOCUMENTS

Fact of changes made to the registration documents of legal entities, branches, or representative offices must be must be registered with the Ministry of Taxes. The registration of the relevant change must be submitted to the Ministry of Taxes within 40 days after the change took place. The change must be included in the application form, which must be submitted along with other documents that prove the fact of the change. It should be noted that changes that occurred in the documents of legal entities, branches, or representative offices are valid only after their state registration. Therefore, legal entities, branches, or representative offices’ cannot put out any activities based on the changes that are not registered.

Lately, changes in legislation increased the fines for not submitting fact of changes to the respective authorities within 40 days. According to the Code of Administrative Offences, the fine for breaching this rule varies from AZN2,500 to AZN3,000.

FOREIGN INVESTMENT IN AZERBAIJAN

Foreign investment in Azerbaijan is predominantly regulated by the Law on the Protection of Foreign Investment, the Law on Investment Activity, and the Law on Privatization and the Second Privatization Program.

FOREIGN INVESTMENT

Foreign investors may engage in any investment activity not prohibited by the law in the Republic of Azerbaijan. According to the Law on the Protection of Foreign Investment, the following are legal forms that foreign investments can be in:

• Participation in entities established jointly with legal entities and citizens of the Republic of Azerbaijan;

• Establishment of enterprises wholly owned by foreign investors;

• Purchase of enterprises, proprietary complexes, buildings, structures, shares in enterprises, other shares, bonds, securities, and other kinds of property, which, under the laws of the Republic of Azerbaijan, may be owned by foreign investors;

• Obtainment of rights to use land and other natural resources, as well as other proprietary rights; and,

• The conclusion of agreements with legal entities and citizens of the Republic of Azerbaijan providing for other forms of foreign investments.

PROTECTION OF FOREIGN INVESTORS

Under Azerbaijani law, foreign investments are provided with the following guarantees:

• Foreign investments are protected in the territory of the Republic of Azerbaijan;

• In cases where changes to legislation worsen the investment climate, the legislation that was in force when the foreign investment was made may remain in force for 10 years, dismissing the new amendments;

• Nationalization of foreign investment is forbidden by the law except when such investments damage the interests of the people or state of Azerbaijan. Nationalization is only possible by a resolution of the National Assembly. Confiscation is also possible; however, only under circumstances of natural disaster, epidemics, and other extraordinary situations by a decision of the Cabinet of Ministers. In both nationalization and confiscation cases foreign investors must be compensated; or,

• Foreign investors are entitled to repatriate profits, revenues, and other amounts received in connection with investments, provided that all applicable Azerbaijani taxes have been paid.

BILATERAL INVESTMENT TREATIES

Azerbaijan has concluded 44 bilateral treaties on the mutual protection of investment. Azerbaijan is also party to a number of multilateral treaties concerning foreign investment. Azerbaijan also signed a multilateral treaty on the mutual protection of investments with the OPEC Fund for International Development on November 19, 2002, which was ratified on December 9, 2003.