LLC, OJSC, CJSC – Which one to choose?

One of the fundamental prerequisites for commencing a successful business activity is the proper establishment of a legal entity. At Ironvvood Consulting, as a company with extensive experience in the incorporation of legal entities, we fully recognize the importance of providing clear and reliable guidance throughout this process. A registration procedure conducted in strict compliance with the applicable legislation not only ensures credibility for the entrepreneur but also mitigates potential legal and financial risks in the future.

1. Selection of the Appropriate Legal Entity Type

The first and most critical step in establishing a business is the determination of the legal entity type most suitable for the intended field of activity. The legal system of the Republic of Azerbaijan provides for several forms of incorporation, each governed by law and endowed with specific characteristics:

• Limited Liability Company (LLC): Due to its flexible structure and the limited liability of its participants, this form is the most commonly preferred by entrepreneurs. In practice, there is no statutory minimum charter capital requirement for the incorporation of an LLC, making it suitable for businesses of various sizes.
• Joint-Stock Companies (JSC): Entrepreneurs may choose between an Open Joint-Stock Company (OJSC) and a Closed Joint-Stock Company (CJSC). The primary differences concern the transferability of shares and minimum capital requirements. The minimum charter capital for the incorporation of a CJSC is AZN 2,000, whereas for an OJSC it is AZN 4,000. A joint-stock company is generally more appropriate for large-scale enterprises, providing the opportunity to raise capital either publicly or privately.
• Branches and Representative Offices: Foreign legal entities may establish branches or representative offices in Azerbaijan. A branch may conduct business activities, whereas a representative office may only perform representational functions and is not permitted to engage in commercial operations. The choice between the two should be based on the nature of the company’s intended operations.

2. Procedure for Incorporation of a Legal Entity

The incorporation of legal entities in Azerbaijan is regulated by the Civil Code of the Republic of Azerbaijan, the Law on State Registration of Legal Entities and State Registry, and other relevant normative legal acts.

The competent authority responsible for the state registration of legal entities is the Main Department of National Revenues (hereinafter referred to as the “Authority”).

Pursuant to Article 20.1 of the Law on State Duty, the state duty for the registration of representative offices and branches of legal entities is AZN 300. According to Article 20.3 of the same Law, the state duty for the registration of a legal entity amounts to AZN 15. It should be noted that the list of documents to be submitted at the time of registration may vary depending on whether the founders are natural persons or legal entities.

Furthermore, in addition to the application for registration, the most recent amendments to the legislation require the disclosure of information on beneficial owners of the entity.

Upon submission of the application and the required documents to the Authority, the legal entity shall be registered within five (5) business days.

Following state registration, one of the essential subsequent steps is the opening of a bank account and the payment of the charter capital. The statutory deadline for payment of charter capital varies depending on the type of entity. In the case of an LLC, the charter capital must be fully paid within three (3) months of registration.

Failure to comply with the statutory requirements regarding the payment and reporting of charter capital gives rise to liability:

• Under Article 405-1.1 of the Code of Administrative Offences of the Republic of Azerbaijan, failure to pay the charter capital of an LLC in full within the period prescribed by the Civil Code results in a fine of AZN 2,000 for legal entities.
• Under Article 405-1.2 of the same Code, failure to notify the competent authority of the full payment of the charter capital within the statutory period results in a fine of AZN 1,000 for legal entities.

3. Conclusion

The registration of a legal entity, as well as the post-registration procedures, must be carried out in full compliance with legislative requirements. Any deviation from these obligations may give rise to significant legal and financial risks for the entity. Legal supervision and advisory support therefore play a vital role in mitigating such risks.

At Ironvvood Consulting, our professional team remains committed to assisting clients in ensuring that their business operations are conducted in accordance with the law, while minimizing potential risks associated with incorporation and ongoing compliance.