The Thick of It


Azerbaijan has worked hard to create a business-friendly environment, especially for foreign companies looking to enter the country.

Establishing a legal presence in Azerbaijan is a procedure regulated predominantly by the Azerbaijani Civil Code and the law on State Registration and the State Register of Legal Entities. In order to simplify the registration process of commercial legal entities, as well as branches and representative offices of foreign legal entities, President HE Ilham Aliyev signed an order in October 2007, whereby registration of new commercial entities was simplified by introducing the “one-stop shop” principle. This principle allows commercial entities to be registered within two business days with a simplified submission procedure. The Ministry of Taxes of Azerbaijan is the authorized body that registers commercial legal entities in Azerbaijan. Civil legislation of Azerbaijan determines several types of commercial entities that can operate in Azerbaijan.


In Azerbaijani legislation, branches and representative offices of foreign legal entities do not possess qualification as legal entities in Azerbaijan. From a practical standpoint, branches and representative offices are similar in their legal nature, as well as operation. Civil legislation defines a representative office as a division of legal entity that represents and protects interests of that legal entity in another country. However, a branch is a division of a legal entity that represents and protects interests and carries out functions of that legal entity in another country. Consequently, according to civil legislation, one may conclude that representative offices cannot be engaged in commercial activities. It should be noted that, the Constitutional Court of the Republic of Azerbaijan in its resolution (dated September 8, 1999) on this issue ruled that if a foreign legal entity’s charter allows its representative offices in other countries to conduct commercial activities, then the representative office can perform commercial activities in Azerbaijan. Therefore, in practice, representative offices can perform the same activities as branches. This approach is also generally accepted by various state authorities, including the Ministry of Taxes. It is also worth noting that salaries of foreign employees of the branches and representative offices can be paid by head office to their overseas account. In addition, branches and representative offices cannot be re-organized through a merger, division, or acquisition, for example. However, branches or representatives can be effectively transformed into local Azerbaijan legal entities, subject to appropriate legal procedure and steps.


There are two types of JSC under Azerbaijani legislation: open and closed. Although the two share some common features, there are several distinctions that should be noted.


An OJCS is a company, the charter capital of which is comprised of certain number of shares. An OJSC can be established or owned by one or more physical or legal persons, and its shares can be openly sold to the public and can be acquired by third parties without restrictions. OJSC’s shareholders are not liable for company’s obligations; moreover, the shareholders’ liabilities in OJSC are limited by their shares, meaning their liabilities can only extend to the amount of their contribution in the charter capital. The amount of charter capital of OJSC should be no less than $3,800. OJSC is required to establish Board of Directors, in case it has more than 50 shareholders. General meeting of shareholders is the supreme supervisory body of OJSC, and it must convene not less than once a year. A general meeting of shareholders in JSC has the following exclusive powers:

• To amend charter and amount of charter capital of JSC;

• To appoint and discharge members of board of directors and other managerial bodies of JSC;

• To approve annual reports, balance sheets, and financial statements of JSC;

• To de-register or reorganize the JSC.

The charter of an OJSC must contain information on: the name of legal entity, address, main activities and de-registration rules of the legal entity, categories of securities, their quantity and price of each, and charter capital amount. An OJSC is required to appoint an independent auditor to audit its annual financial reports. Moreover, annual financial reports of OJSC’s must be published. In addition, the fact that Initial Public Offerings (IPOs) are getting more popular among the companies recently in Azerbaijan can be considered as one of the reasons of growing the actuality of the OJSC as a form of legal entities within the business community in Azerbaijan.


A CJSC shares features are similar to an OJSC; however, there are several distinctions. The following are the distinguishing aspects of a CJSC:

• The minimum amount of charter capital for a CJSC is $1,900;

• Ownership of shares in a CJSC is limited to founders/shareholders of that CJSC;

• Shares of a CJSC can be sold to third parties, if those shares were not bought by other shareholders of the CJSC or CJSC itself; and

• When the number of shareholders in a CJSC exceeds 50, the CJSC must be reorganized to an OJSC within one year.


An LLC is one of the most widely preferred types of companies for performing commercial activities in Azerbaijan. An LLC is a legal entity that can be formed by one or more persons. Participants’ liabilities in LLC are limited to their stakes, which mean that their liabilities can only extend to the amount of their contribution to the charter capital. Charter capital of LLC may be formed by monetary contribution and in-kind contribution; for example, non-monetary assets of LLC’s participants/founders. Also, the contribution to the charter capital LLC may be made in the form of securities, other assets or property rights, or other rights having a monetary value. Value of non-monetary contributions to LLC’s charter capital should be evaluated by qualified valuator and approved by shareholders on the LLC’s foundation meeting. Moreover, LLC’s shareholders are not responsible for its liabilities and for other participants’ obligations to third parties. An LLC is required to appoint an independent auditor in order to verify its annual financial reports, nevertheless, there are no requirements to publish those accounts. Another specific feature of LLC is that the sale of stakes in LLC to third parties can be limited by the charter of the LLC.


A LLC in Azerbaijan can be owned either by resident or non-residents of the Republic of Azerbaijan. A legal entity that is owned only by one participant cannot be the sole owner of LLC. Charter capital of LLC must be paid in full by participants/founders, though minimum amount of charter capital is not set by the legislation; for example, it can be a nominal sum. However, it should not be less than the amount of its obligations before creditors. The general meeting of participants is the supreme supervisory body of LLC, and it must convene at least once a year. Number of participants of LLC should not exceed 50. In case, if the number of participants exceeds 50, legal form of LLC would need to be changed to JSC during a one-year period. Otherwise, it can be liquidated by the court’s decision.


ALC is a legal entity that can be established by one or more legal entity(-ies) or individual(s). Their participation in the company is due to their contribution of their shares to the charter capital. ALCs share similar features with LLCs; however, the participants in ALC participants’ liabilities for the company can exceed their contributions, which is regulated by the charter.


A cooperative is a union that can be founded by at least five individuals and/or legal entities for the purpose of providing the material and other needs of the participants through joint actions of cooperative members. Cooperatives may be of different categories, such as production cooperatives, consumer cooperatives and others.


Members of a cooperative must make their respective contributions to the share fund in full, prior to the state registration of the cooperative. If according to the results of the fiscal year a cooperative reports financial losses, the members must cover such losses by way of additional contributions made no later than two months from the date of approval of the annual balance sheet. An individual that becomes a member of already existing cooperative is liable for cooperative’s obligations, if the cooperative’s charter does not stipulate otherwise. Individuals that intend to become members of the cooperative must be informed of such obligations of cooperative in advance. A cooperative’s profit is divided between the members of the cooperative proportional to their contributions. In addition, profit of a cooperative may be distributed to the cooperative foundations, to settle creditors’ debt, payment of dividends, and other matters regulated by the charter of the cooperative.


General meeting of members is the supreme supervisory body in cooperatives. Each member of the cooperative has one vote at the general meeting. The general meeting is competent, if at least half of the members participated in the meeting. The supervisory board can be established if the number of members exceeds 50. According to civil legislation a member of the supervisory board or board of directors of a cooperative may not be the member of another similar cooperative.


A LLC is established through foundation agreement or resolution of founder(s) on establishment of the company. The meeting of incorporators also adopts the charter of LLC. State duty for registration of legal entities is $10 (except banks, insurance companies, brokers and legal entities involved in agricultural activities). In order to register a LLC in Azerbaijan, founder(s) shall submit an application form as well as additional documents depending on whether the founders are natural persons or legal entities either foreign or local. LLCs are registered within two working days after submission of all required documents to the registration body.


A JSC is established through meeting of incorporators, which adopts a foundation agreement (if there is more than one founder) or resolution (one founder) on establishment of the company. The charter of the JSC is adopted in the meeting of incorporators as well. JSCs, like other commercial legal entities, are registered by the Azerbaijani Ministry of Taxes within two working days after submission of required registration documents. State duty for registration of a JSC is $10. Similar to the registration process for an LLC, in order to register JSCs in Azerbaijan a founder shall submit an application form as well as certain documents depending on whether the founders are individuals or legal entities either foreign or local. However, there is the list of documents, which must be submitted with application regardless of the status of the founders:

• Resolution of founders on establishment of JSC;

• Signed charter of the company;

• Document confirming payment of state duty;

• Passport or ID of the founder (Natural Persons)

• Charter and Certificate of Incorporation of the founder(s) (Legal Entities);

• Non-objection letter from landlord for use of address as legal address.


The process of registration of branches and representative offices is similar to that of legal entities. They are also registered through the one-stop shop of Azerbaijani Ministry of Taxes within two working days after submission of all required documents. State duty for opening a branch or representative office in Azerbaijan is $210. It is important to note that branches and representative offices function on the basis of regulations, which is similar to the charter for legal entities by Head Office. Moreover, all the documents pertaining to the branch or representative office that are issued outside of Azerbaijan must be certified and apostilled/legalized. It should be noted that apostilles of some countries, are not recognized in Azerbaijan (for example, Germany); therefore, all documents that cannot be apostilled must be legalized accordingly. Additionally, all documents issued abroad in a foreign language must be translated to the Azerbaijani language.


In order to liquidate a company (or to terminate state registration of it), a general meeting of shareholders of legal entities or head office of branches and representative offices must adopt a resolution, where they specify their intention to liquidate the company and appoint liquidation commission. Within 15 days after appointment of liquidator, he/she should submit an application form to Azerbaijani Ministry of Taxes with following documents:

• Resolution on liquidation of company;

• Certificate of good-standing;

• Document confirming publication of liquidation fact of the company in the appropriate newspaper.

In order to remove company’s information from state registry, the liquidator shall submit the following documents to the Ministry of Taxes within 10 days after the distribution of residual assets of the company:

• Balance sheet liquidation;

• Certificate of incorporation and charter (regulations) of the company with the stamp in the process of liquidation;

• Report containing the plan of distribution of residual assets and the document proving that named assets were distributed to participants.

Within seven days after submission of the above-mentioned documents the Ministry of Taxes removes company from state registry.


Fact of changes made to the registration documents of legal entities, branches, or representative offices must be registered with the Azerbaijani Ministry of Taxes. The relevant change must be registered to the Azerbaijani Ministry of Taxes within 40 days after the change took place. The change must be included in the application form, which must be submitted along with other documents that prove the fact of the change. It should be noted that the change that occurred in the documents of the legal entities, branches, or representative offices are valid only after their state registration. Therefore, legal entities, branches or representative offices’ cannot conduct any activities based on the changes that are not registered. Recent changes in legislation increased fines for not submitting the application regarding the fact of the changes to the respective authorities within 40 days. According to the Code of Administrative Offences the administrative penalty for breaching this rule varies from $2,375 to $2,850.


Foreign investment in Azerbaijan is predominantly regulated by the Law of the Republic of Azerbaijan on the Protection of Foreign Investment, the law on Investment Activity, the law on Privatization, and the Second Privatization Program, as well as the Constitution of the Republic of Azerbaijan.


Foreign investors may engage in any investment activity not prohibited by the law in Azerbaijan. According to the law on Protection of Foreign Investment Foreign Investments could be carried out in the following legal forms:

• Participation in entities established jointly with legal entities and citizens of the Republic of Azerbaijan

• Establishment of enterprises wholly owned by foreign investors;

• Purchase of enterprises, proprietary complexes, buildings, structures, shares in enterprises, other shares, bonds, securities, and other kinds of property, which, under the laws of Azerbaijan, may be owned by foreign investors;

• Obtainment of rights to use land and other natural resources, as well as other proprietary rights; and

• Conclusion of agreements with legal entities and citizens of Azerbaijan providing for other forms of foreign investments


Under Azerbaijani laws, foreign investments are provided with the following guarantees:

• Foreign investments are protected in the territory of the Republic of Azerbaijan.

• Nationalization of foreign investment is forbidden by the law except in cases when such investments damage interests of the people and state interests of Azerbaijan. Nationalization is only possible by the resolution of the parliament. Confiscation is also possible; however, only under circumstances of natural disaster, epidemics, and other extraordinary situations by a decision of the Cabinet of Ministers. In both nationalization and confiscation cases foreign investors must be compensated.

• Foreign investors are entitled to repatriate profits, revenues, and other amounts received in connection with investments, provided that all applicable Azerbaijani taxes have been paid.


Azerbaijan has concluded 44 bilateral treaties on the mutual protection of investment. Azerbaijan is also party to a number of multilateral treaties concerning foreign investment. Azerbaijan also signed the multilateral treaty on the mutual protection of investments with the OPEC Fund for International Development on November 19, 2002, which was ratified on December 9, 2003.

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