AZERBAIJAN Law and Practice Contributed by: Ismail Askerov and Amil Jafarguliyev, MGB Law Offices
4.3 Disclosure and Reporting Obligations Azerbaijani law does not prescribe FDI-specific dis - closure obligations. However, depending on the legal form of the entity receiving the investment, certain dis - closure and reporting requirements may arise. For open joint stock companies, a transaction involv - ing more than 25% of the value of the company’s net assets qualifies as a special significant transaction. Such transactions must be approved by the general meeting of shareholders, and information regarding the transaction must be disclosed in accordance with the company’s charter (this requirement does not apply to branch offices of foreign banks). Additionally, members of the executive board or board of directors of a JSC must disclose relevant informa - tion before entering into any agreement concerning securities in their ownership. Azerbaijan’s capital markets remain at an emerging stage of development, and businesses continue to rely primarily on debt and bank financings as their main sources of funding. Long-term credit facilities provid - ed by local banks constitute the dominant financing channel for both large enterprises and SMEs, reflect - ing the relative depth of the banking sector compared with the still-developing debt and equity markets. Alongside bank lending, state financial resources, including budget allocations and state-supported pro - grammes, play an important role in funding strategic sectors and large infrastructure projects. Own funds and retained earnings also remain a significant source of corporate financing, particularly for mid-sized com - panies that may not have access to capital market instruments. Access to capital markets is gradually expanding. Companies may obtain financing through the issu - ance of corporate bonds or equity placements, typi - cally conducted via investment companies licensed to operate in the securities market. While still limited, capital-market financing is viewed as an increasingly 5. Capital Markets 5.1 Capital Markets Overview
of an LLC or a JSC. The LLC is the most commonly used structure due to its straightforward incorporation process and comparatively lighter regulatory burden. Its internal governance is largely determined by its charter, and the Civil Code imposes fewer mandatory rules on LLCs relative to JSCs. Unlike JSCs, there is no statutory minimum charter capital for LLCs, and LLCs are not subject to Central Bank reporting requirements. By contrast, the JSC form is subject to minimum char - ter capital rules under Azerbaijani law. After registra - tion, a JSC must issue and register its shares, and its corporate governance framework is significantly more rigid, allowing less flexibility for shareholders to customise governance arrangements. Branches and representative offices have limited inter - action with Azerbaijani corporate law. They may carry out certain commercial activities but cannot engage in specific licensed sectors such as insurance. 4.2 Relationship Between Companies and Minority Investors Minority shareholders in Azerbaijan benefit from a number of statutory rights under the Civil Code. These include the right to receive dividends, to obtain information about the company’s activities, to review annual reports and financial statements, and to par - ticipate in the election of executive bodies in both LLCs and JSCs. In LLCs and closed JSCs, minority shareholders also benefit from a right of first refusal over the sale of another shareholder’s participatory interest or shares, exercisable in proportion to their existing ownership. The Civil Code also contains specific protections for minority shareholders in LLCs and open JSCs (OJSCs). If a shareholder seeks to acquire more than 50% of a company’s shares, they must first offer to purchase the shares of the remaining shareholders. Minority shareholders may freely decide whether to sell or retain their shares. This mechanism prevents a majority shareholder from obtaining disproportionate control without giving minority shareholders an oppor - tunity to exit on equal terms.
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