Under the Civil Code of the Republic of Azerbaijan, there are certain differences between joint-stock companies (“JSC”) and limited liability companies (“LLC”). In this article you can find the following differences between those two types of company: 

The rights of shareholders 

LLC:

  • Each shareholder shall have the right to (i) participate in the General Meeting of a limited liability company, (ii) elect (appoint) authorities of the company, (iii) be elected (appointed) to them and (iv) vote, (v) participate personally or be represented through his/her representative, (vi) require amendments to the agenda of the general meeting and addition of the agenda with new topics for discussion. They are also entitled to be paid dividends, to receive surplus assets on a winding up, and to exit from the company without consent of other shareholders.
  • Shareholders also have a preemptive right to purchase the participatory interests, which are intended to sell by other shareholders, to the amount pro rata with the number of their participatory interests.

JSC:

  • Each shareholder shall have the right to (i) participate in the General Meeting of a joint-stock company, (ii) elect (appoint) authorities of the company, (iii) be elected (appointed) to them and (iv) vote, (v) participate personally or be represented through his/her representative, (vi) require amendments to the agenda of the general meeting and addition of the agenda with new topics for discussion, (vii) require calling of the general meeting, (viii) receive information about the activity of the company, once a year become familiar with its annual report and balance sheet, (ix) request auditing of the activity of the company by the auditing committee or the auditor, etc. They are also entitled to be paid dividends, and to receive surplus assets on a winding up.
  • Preemptive right to acquisition of shares is granted to shareholders to the amount pro rata the number of newly-issued shares.

  

The legal provisions applicable to increasing and reducing share capital

LLC:

  • Charter (share) capital of a limited liability company may be increased only after its full payment and by increasing:

(i) at the expense of the company’s property pro rata with the value of the shareholders’ participatory interests in the charter capital – such increase shall be realized by decision of the General Meeting of the company as specified in the charter of the company. Such a decision may be taken only on the basis of the company’s accounting report data for previous year.

(ii) by means of investing additional contributions – each shareholder shall have the right to invest additional shares not exceeding the total value of the additional shares and proportionally to the amount of such shareholder’s participatory interests.

(iii) at the expense of contributions made by new shareholder.

  • Reduction of the charter capital of a limited liability company shall be realized by means of reducing the nominal value of all shareholders’ participatory interests according to the decision of the General Meeting of shareholders. Reduction of the charter capital by means of reducing the nominal value of all shareholders’ participatory interests shall be realized with retention of the proportion of all shareholders’ participatory interests.
  • After the decision of the General Meeting on reduction of the charter capital, the company shall inform all of its creditors of such decision within the time limit specified in the charter or by the decision of the General Meeting. Within one month after the date of receiving the notice, the creditors of the company may demand from the company to fulfill its appropriate obligations before the due date, or to terminate such obligations and to be compensated for losses incurred by themselves.

JSC:

  • Pursuant to a resolution of the General Meeting of shareholders, a joint-stock company may increase the amount of its charter capital by:

(i) increasing the nominal value of its shares, or

(ii) issuing additional shares.

  • Pursuant to a resolution of the General Meeting of shareholders, a joint-stock company may reduce the amount of its charter capital by:

(i) means of reduction of the nominal value of its shares, or

(ii) redemption of a portion of the shares for the purpose of reducing the total number of shares.

  • Within fifteen calendar days after making decision at the General Meeting of the shareholders on reduction of charter capital of the joint-stock company, the company shall inform its creditors in writing of this decision. The creditors of the company, within thirty calendar days after receiving of such information, may demand from the company to fulfill its appropriate obligations before the due date, or to terminate such obligations and to be compensated for losses incurred by themselves.
  • Where at the end of the second or any subsequent fiscal year the value of a joint-stock company’s net assets is less than the amount of its charter capital, the company shall reduce its charter capital.

Distribution of a dividend

LLC:

  • The company should pay the dividend announced within a month.

JSC:

  • A company has a right to decide upon the payment of dividends (“declare the dividends”) according to quarterly, semiannual or annual financial performance of the company. The company should pay the dividend announced within 30 days.

Capital maintenance 

LLC:

  • The company has no right to take a decision to pay (declare) a dividend on the following:

– Shares:

(i) If the company has symptoms of bankruptcy at the moment of payment of a dividend or when such symptoms would emerge as a result of payment of a dividend (even if such symptoms arise after the decision has been taken);

(ii) If the value of company’s net assets are less (or will become less in the result of payment) than the amount of charter capital.

JSC:

  • The company has no right to take a decision to pay (declare) a dividend on the following cases:

– If the value of company’s net assets are less (or will become less in the result of payment) than the amount of charter capital;

– Ordinary shares – in the absence of a decision on the full payment of a dividend on preference shares;

– Preference shares of a particular category – until the decision on full payment of a dividend on share categories enjoying priority in payment.

Difference between the powers of the board members and executive body 

LLC:

  • Board of directors shall supervise on the activity of the company’s executive body during the period between the general meetings. If the charter does not make provisions for election of an audit committee, the authorities of such body may also be given to the board of directors.
  • Executive body of the company is authorised to acts on behalf of the company without a power of attorney, runs day-to-day management of the company and represents the company before the third parties, including courts.

JSC:

  • Board of directors carries out general management and supervision on the activity of the company within its competencies.
  • Executive body of the company is authorised to acts on behalf of the company without a power of attorney, runs day-to-day management of the company and represents the company before the third parties, including courts. Authority of executive body of the company are included all competencies which are not concerned to exceptional authorities of board of directors and shareholders envisaged in the Civil Code and the charter of the company.

You can read the first part of this article from here

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.

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