Company Incorporation

LLCs and joint stock companies are most popular choices of legal entities. Please see ANNEX 1 for a brief comparative analysis of these two types of legal entities.

Joint Stock Companies. A JSC is a legal entity with charter capital divided into a certain number of shares. 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 of a stated par value. A JSC has a Board of Directors comprising at least three individuals who are either shareholders or independent directors. The Supervisory Board is mandatory for JSCs with more than 50 shareholders. General Meeting of Shareholders (GMS) is the supreme body in JSC.

General Partnership ("GP"). A general partnership is a legal entity comprised of at least two individuals and/or legal entities. An individual may participate in the creation of a GP only it such individual is registered as an entrepreneur. Individuals and/or legal entities may only participate in one GP. General partners are jointly subject to the partnership's liabilities. To the extent that the partnership does not have sufficient assets to cover its obligations, the partners are then personally liable for such obligations.

Limited Partnership. A 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 only participate as a general partner in one LP. Similarly, a partner of a GP may not participate as a general partner in a LP.

Limited Liability Company. A limited liability company ("LLC") is an entity established by one or more individuals and/or legal entities contributing their participatory interests to the charter capital. A LLC having only one participant may not be a sole participant of another LLC or any other company. The participants of a LLC are normally liable only to the extent of their contributions. A LLC is not normally responsible for the obligations of its participants to third parties.

Additional Liability Company. An 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 a LLC, except that the participants in an ALC may assume liability for the company in excess of their contributions, as regulated by the charter.

Cooperative (Kooperativ, a concept close to a Building Society). A Cooperative is a voluntary union of at least five individuals and/or legal entities, for the purpose of satisfying 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.

Non-Commercial Organizations. An Azerbaijani non-commercial or not-for-profit organization is an entity created to engage in various social and economic activities, not related to the generation of profit and distribution of such profit to its equity holders. Since an Azerbaijani non-commercial organization is treated as a legal entity, it may own property, enter into contracts, acquire ownership and intellectual property rights, incur obligations in its own name, maintain an independent balance sheet, maintain settlement and other bank accounts, and act as a claimant and defendant in courts and arbitration. Azerbaijani non-commercial organizations are presumed to engage in non-commercial activities.

Under the Civil Code, non-commercial organizations may be created in any of the following forms: public association, foundation and union of legal entities. Other forms permitted include federations, schools, universities and clubs.

Public Associations. A public association is a voluntary, not-for-profit organization created by its members to engage in activities in their mutual interest. Azerbaijani law authorizes both individual and corporate membership in public associations. A member in a public organization loses any ownership or other rights to property transferred to the public association, including their membership contributions. Members of the public association are not responsible for its obligations and, likewise, the public association is not responsible for the obligations of its members.

In the event of the liquidation of a public association, any property remaining after liquidation is allocated for the purposes specified in the charter. If this is not possible, such property is remitted to the state budget.

Foundations. A foundation is a not-for-profit organization created by individuals and/or legal entities to engage in public, charitable, educational and other kinds of social activities. Since an Azerbaijani foundation is not subject to a minimum requirement for the number of founders, it may be created by one individual or legal entity. Moreover, they are not based on membership, i.e. the founders do not become its members. A foundation’s founders are not responsible for its obligations. Likewise, a foundation is not responsible for the obligations of its founders.

Unions of Legal Entities. A union of legal entities is created by business or non-commercial entities to provide for the cooperation and coordination of their entrepreneurial or non-commercial activities, representation, and the protection of their common interests. A union is not responsible for the obligations of its corporate members. Corporate members, however, are responsible for the union.s obligations to the extent provided under the union’s charter.

Subsidiaries. A legal entity, whether or not established in Azerbaijan, may form a subsidiary in Azerbaijan in one of the three legal forms available for commercial purposes, i.e. a JSC, a LLC, or an ALC. A subsidiary is a separate and distinct legal entity; the parent enterprise may contribute property to its subsidiary but, typically, is 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 latter as a direct result of the implementation of instructions of the former, even if the former is not in bankruptcy.