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This article, written by Camil Asadov, editor of the Accounting.Az website, is dedicated to the establishment of a limited liability company in Azerbaijan.
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Accounting.Az is the first and only Azerbaijani consulting company to become a member of the international PrimeGlobal Association of Advisory and Accounting Firms, which ranks among the top three global networks in the world ratings. Accounting.Az provides a full range of accounting, tax, and audit services and also offers legal services related to business activities. |
General information about a limited liability company
In Azerbaijan, commercial legal entities most often choose to establish a limited liability company as their form of business organization. One of the main reasons for this preference is that the liability of the company’s participants for losses related to the company’s activities is limited to the size of their shares in the charter capital.
By the way, when talking about an LLC, we often come across the terms “founder” and “participant.” What is the difference between them?
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Founders are the persons who establish a limited liability company. They may be local or foreign individuals and legal entities, and this term is used during the company’s formation process. Once the company is registered with the state and becomes a subject of civil law, the term “participants of the LLC” is used instead. |
This commercial entity, whose main goal is to make a profit, may engage in any type of entrepreneurial activity that is not prohibited by law and is specified in its charter, including activities that require a license or special permission.
If you plan to establish an LLC in Azerbaijan, you can use the legal services of Accounting.Az
Legal framework
As a legal entity, the establishment of a limited liability company is regulated by Article 45 of the Civil Code of the Republic of Azerbaijan. According to Article 87.2 of the Civil Code, an LLC in Azerbaijan may be created in two ways:
- by establishing a new company;
- by reorganizing an existing legal entity.
The second option includes such forms as merger, accession, division, separation, and transformation. In such cases, certain restrictions must be taken into account. For example, according to the decision of the Plenum of the Constitutional Court dated December 16, 2011, on the interpretation of Articles 107-2.1 and 107-5.1 of the Civil Code of the Republic of Azerbaijan, the number of participants may not exceed 50.
It should also be noted that there is some inconsistency regarding the number of participants. Article 91-4 of the Civil Code, added later, uses the phrase “companies with more than fifty participants,” which contradicts the above-mentioned decision of the Plenum of the Constitutional Court.
When preparing the charter of an LLC during the establishment process in Azerbaijan, it is necessary to take into account not only Article 47.2 of the Civil Code, but also Article 89. In general, Articles 87 to 95 of the Civil Code regulate issues related to the establishment, state registration, management, and liquidation of a limited liability company.
The final step in establishing an LLC in Azerbaijan is its state registration. Registration is carried out in accordance with the requirements of the Law on State Registration and the State Register of Legal Entities.
As mentioned above, such companies may be established by several persons. In this case, each founder has access to certain information about the others. The participants of the company are required to protect any documented information in accordance with the requirements of the Law on Information, Informatization, and Protection of Information.
Stages of establishing an LLC in Azerbaijan
To establish a limited liability company, its founders must adopt a decision on the establishment of the company. An LLC may also be established by a single founder; however, this sole participant may not be another business company consisting of only one person, as provided by Article 88.2 of the Civil Code.
| Stages of establishing an LLC | |
| By founders |
By a single founder |
| Holding a founding meeting | Adopting a decision on the establishment of the company |
| Preparing the founding agreement | |
| Determining the amount of the charter capital and the method of its formation | Determining the amount of the charter capital and the method of its formation |
| Preparing the charter | Preparing the charter |
| Adopting decisions related to management | Adopting decisions related to management |
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Preparing documents for state registration |
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Submitting an application for state registration and obtaining the registration documents |
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As can be seen from the table above, when a company is established by one person, no founding agreement is concluded. In this case, the sole founder adopts a written decision on the establishment of the company.
Founding agreement
To establish an LLC, the founders conclude a founding agreement that includes the following points:
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approval of the company’s charter;
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the procedure for joint actions related to establishing the company;
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the mechanism for transferring the founders’ property to the LLC;
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the terms of the founders’ participation in the company’s activities;
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the founders’ obligations, profit distribution, and other related matters.
Founding meeting
During the process of establishing an LLC in Azerbaijan, the procedure for paying the charter capital is an important issue. If the company’s charter does not provide for payment of the charter capital within a specific period, the founders must fully form the charter capital before the founding meeting is held. A founding meeting is not considered valid unless all founders or their authorized representatives are present. If a repeated founding meeting also lacks a quorum, the establishment of the limited liability company is considered unsuccessful. A decision to this effect is communicated to all founders within seven days.
The founding meeting resolves the following matters:
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approval of the value of non-monetary contributions to the charter capital;
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adoption of the decision to establish the limited liability company;
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approval of the LLC’s charter;
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formation of management bodies;
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other issues that do not contradict the Civil Code, other legislative acts, or the founding agreement.
Decisions on the first four matters are adopted unanimously by the founders, while decisions on the final matter are adopted by a simple majority vote.
Charter capital
In simple terms, the charter capital of a limited liability company represents the minimum amount of property contributed by the founders at the time of establishment to support the company’s activities and to protect the interests of its creditors. Under the procedures for establishing an LLC in Azerbaijan, the amount of the charter capital must be specified in the charter.
The charter may provide that the charter capital is paid within a certain period, not exceeding three months. If no such provision is included, the charter capital must be fully paid before the LLC is registered with the state.
If the company has more than one participant, the charter capital is divided into shares, and the amount and percentage of each share must be indicated in the charter.
Transactions related to the charter capital of a limited liability company are regulated by Article 90 of the Civil Code.
Charter of a limited liability company
The following information must be included in the charter:
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the company’s name, registered address, and management procedure;
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the procedure for liquidation of the LLC;
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the amount of the charter capital;
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the size of each participant’s share;
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the composition of contributions and the procedure for making them;
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the liability of participants for failure to meet contribution obligations;
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the structure and powers of the company’s management bodies;
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the procedure for decision-making by the management bodies;
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other terms in accordance with the Civil Code.
The charter approved by the founders is submitted together with other documents to the bodies of the State Tax Service under the Ministry of Economy of the Republic of Azerbaijan for state registration. During electronic state registration of a limited liability company, the charter is generated in electronic form based on the information provided. After reviewing it in real time, it is approved using a qualified electronic signature.
Preparing the founding documents, collecting the papers required for state registration, and completing the registration process are responsible tasks. By entrusting these matters to Accounting.Az, you can save both time and money – Contact us now!
