Establishing a legal presence in Azerbaijan

A company may start operations in Azerbaijan from the moment of state registration. The registration of commercial legal entities is handled by the Ministry of Taxes within 2 business days. Limited liability companies with local investment can be registered online. The Law “On State Registration of Legal Entities and State Register” sets out the requirements of the legal registration process.

A certain, limited number of documents must be submitted to the Ministry of Taxes for registration  purposes. Azerbaijan is a party to the Hague Convention Abolishing the Requirement of documents produced and executed in the convention’s member countries.

There are numerous forms in which a legal entity/ company can be incorporated in Azerbaijan. There are no specific rules for the incorporation of companies by foreigners, apart from the standard legal and translation requirements. Foreign investor may either establish a limited presence (representative office or branch) or opt for a full presence through various legal organizational forms.

There is no local content requirement and no specific requirements for the size of share or legal limitations for the foreign component in a company and investment.

With the exception of certain licensed activities, there are no additional general approvals or permissions apart from state registration for the start up.

Azerbaijani law generally recognizes the following types of commercial legal entities (commercial legal entities are defined as those operating for profit):

• General partnership (“GP”)
• Limited partnership (“LP”)
• Limited liability company (“LLC”)
• Additional liability company (“ALC”)
• Joint-stock company (open or closed JSC)
• Cooperatives

LLCs and joint-stock companies are the most popular choices for incorporation.

General Partnership

Formed by private entrepreneurs and/or commercial legal persons. An individual may participate in the creation of a GP only if this individual is registered as an entrepreneur. Individuals and/or legal entities may only participate in one GP. Partners are jointly and severally liable for GP’s liabilities with their property. The profits and losses of a GP are allocated among the participants in proportion to their shares in the charter capital. If, due to losses incurred, the GP’s net assets decrease below its charter capital, no earnings distribution may occur until the net  assets exceed the charter capital.

Limited Partnership

LP has one or more general partners and one or more limited partners. General partners are personally liable for the partnership’s obligations. Limited partners’ liability is limited to the amount of their contributions.
A person may participate as a general partner only in one LP. Similarly, a partner of a GP may not participate as a general partner in an LP.

Limited Liability Company

LLC is an entity established by one or more individuals and/or legal entities contributing their shares to the charter capital. An LLC that has only one participant may not be the sole participant of another LLC or any other company. The participants of an LLC are normally liable only to the extent of their contributions. An LLC is not normally responsible for the obligations of its participants to third parties.

Additional Liability Company

ALC is an entity established by one or more individuals and/or legal entities contributing their shares to the charter capital. The legal structure of an ALC is similar to an LLC, except that the participants in an ALC may assume liability for the company in excess of their contributions, as regulated by the charter.

Joint-Stock Company

JSC is a legal entity with charter capital divided into a certain number of shares (securities). JSC shareholders are liable for the obligations of the JSC only to the extent of their shares’ par value. A single individual or legal entity may be the founder or the shareholder of a JSC. The charter capital of a JSC is divided into a fixed number of shares with a stated par value. Pursuant to the Civil Code of the Republic of Azerbaijan, members of the Board of Directors must be individuals. An individual who is not a shareholder of the JSC may also be a member of Board of Directors. A Supervisory Board is mandatory for JSCs with more than 50 shareholders. The General Meeting of Shareholders (GMS) is the supreme body in a JSC. Azerbaijani law sets a minimum share capital required for the establishment of JSCs, which ranges from AZN 2,000 for a closed JSC to AZN 4,000 for an open JSC. Additional statutory  requirements exist for the establishment of banks, insurance companies and investment funds in the form of a JSC.

Cooperative

A cooperative is a voluntary union of at least five individuals and/or legal entities, for the purpose of satisfying the needs of its members through the consolidation of their financial or in-kind resources. Depending on the purpose of their activity, cooperatives may be of different kinds, such as consumer or housing cooperatives.

Subsidiaries

A legal entity, whether or not established in Azerbaijan, may form a subsidiary in Azerbaijan in any legal form available for commercial purposes, i.e. a GP, an LP, a JSC, an LLC, or an ALC. A subsidiary is a separate and distinct legal entity; the parent enterprise may contribute property to its subsidiary but is typically not liable for the obligations of the subsidiary. A parent company, however, may be held liable for the obligations of its subsidiary in bankruptcy if such bankruptcy was caused through the fault of the parent company in connection with the execution of its instructions. Additionally, a parent company and its subsidiary are jointly liable for obligations incurred by the subsidiary as a direct result of the implementation of the parent’s instructions, even if the former is not in bankruptcy.

Representative Offices And Branches

Neither representative offices nor branches are legal entities in and of themselves. These are separate divisions of a foreign legal entity they represent. Unlike a representative office, which only represents interests of a legal entity, a branch may perform the commercial activities that the head office does.