Under the Civil Code of the Republic of Azerbaijan, the main differences between joint-stock companies (“JSC”) and limited liability companies (“LLC”) relate to: capital, dealings in shares, general meetings, names, and disclosure requirements:
Capital. The main differences are:
- There is a minimum amount of AZN 2000 or AZN 4000 for a JSC (respectively for close joint-stock company and open joint-stock company), but no minimum for a LLC.
- A JSC may raise capital by offering its shares to the public; LLC is prohibited from doing so.
Dealings in shares. Only a joint-stock can obtain a listing for its shares on a Stock Exchange or other investment exchange. However, not all joint-stock companies are listed.
Name. JSC can use either the wording “close-joint-stock company” or “open joint-stock company” at the end of the name thereof. LLC can use the wording “limited liability company” at the end of the name thereof.
Disclosure requirement. There are special disclosure and publicity requirements for joint-stock companies. They are required to publish their annual financial report and balance sheet.
There are also other differences between those two types of company on the followings:
1. The placement of shares.
- The founders (shareholders) must pay the share capital in full prior to the state registration of a LLC. If the charter of the LLC stipulates payment of the share capital within a fixed period, this period may not exceed three months.
- It shall not be permitted to relieve any shareholder of a LLC from an obligation to make a contribution into the charter capital of the company, including by offsetting his claims to the company. For example, a lender of a LLC is not permitted to become a shareholder of the company by offsetting his loan with the participatory interests of the company (conversion of loan).
- LLC is not permitted to issue shares. Its share capital consists of participatory interests. It is also not permitted to issue preference shares.
- The charter capital of a JSC consists of the nominal value of shares acquired by shareholders of the company. Forms of investments to the charter capital of the JSC shall be determined by the Civil Code and an agreement made between the shareholders. Investments to the charter capital of the company may be in the form of monetary means, fully paid securities, other property, including property rights and other rights having cash value.
- The founders of a JSC shall pay the charter capital in full before the JSC is registered. Upon the establishment of a JSC, all of its shares shall be distributed among its founders (shareholders).
- It shall not be permitted to relieve any shareholder of a JSC from an obligation to make a contribution into the charter capital of the company, including by offsetting his claims to the company.
- A joints-stock company shall have the right to issue simple and preference shares. Portion of the preference shares in the total volume of the charter capital of the company shall not be greater than twenty five percent thereof.
2. Annual general meetings and extraordinary general meetings.
- Ordinary general meeting of shareholders shall be convened by the executive body of LLC not less than once a year.
- Extraordinary general meeting of a LLC can be convened by the initiative of the executive body as well as upon request of the board of directors, audit commission (auditor) or the shareholders holding at least 10% of all votes.
- Ordinary general meeting of shareholders shall be convened by the board of directors of JSC (in the absence of board of directors by the executive body of JSC) not less than once a year.
- Extraordinary general meeting of a joint-stock company can be convened by the initiative of the board of directors as well as by the executive body upon request of the audit commission (auditor) or the shareholders holding at least 10% of all votes. In the absence of board of directors, extraordinary general meeting can be convened by the initiative of the executive body.
- Notice about convening of both annual (ordinary) general meeting and extraordinary general meeting of an open joint-stock company must be published in a mass media and also sent directly to shareholders in a written form.
- If more than 50% of the shareholders are present at the general meeting of shareholders it is considered that there is a quorum and the general meeting is authorized to adopt resolutions.
- Resolutions about reorganization and liquidation of LLC are accepted by unanimous vote of shareholders at the general meeting.
- If at least 60% of the shareholders are present at the general meeting of shareholders it is considered that there is a quorum and the general meeting is authorized to adopt resolutions.
- The resolution on the questions not being included to agenda of the general meeting of shareholders of a JSC may not be issued.
- If unless otherwise stipulated in the Civil Code and in the charter of a JSC, the resolution of shareholders’ general meeting is accepted by simple majority vote of shareholders. Resolutions about reorganisation, liquidation of company, amendments to the charter are accepted by 2/3-majority vote of shareholders having voting right in the general meeting.
- The resolution issued by the general meeting of shareholders of a JSC will be announced to shareholders not later than 15 calendar days.
- Shareholder can make complaint to the court about the resolution of the general meeting of shareholders of a JSC.
This article was published by the corporate law experts of Baku Attorneys & Consultants, an Azerbaijani law firm, which is strongly specialized in and rendering various services on corporate law to foreign and local business in Azerbaijan. Please, feel free to reach us via www.batco.az in case you have further questions or need advice on establishment, incorporation, merger and acquisition, liquidation or other aspects on Azerbaijani corporate law, as well as, provision of legal services on business, migration, employment, contracts and other related matters.