The present law regulates the establishment and functioning of joint stock companies on the territory of the Azerbaijan Republic, and provides for legal coverage of their activity.

Chapter I. General provisions
Article 1. The term ´Joint Stock Companyª

1. Joint stock company is an enterprise established on a basis of a free-will agreement between natural and/or legal persons for the purpose of carrying out economic activity, which generate its registered fund by issue of shares.
2. Joint stock company can be established as a joint stock company of closed or open type.
The closed-type joint stock company is a company shares of which are distributed exclusively among its founders and can change their ownership only through consent of the founders majority.
The open-type joint stock company is a company shares of which can freely change their ownership.
3. The legal persons who are the companys founders (shareholders) keep their economic independence and a legal person status.

Article 2. Joint stock company legislation

Procedures (considerations) related to the establishment, management and activity of a joint stock company are regulated by the present Law, by the Law of the Azerbaijan Republic ´About enterpriseª and by other legislative acts of the Azerbaijan Republic.

Article 3. Shareholder of the company

Every natural or legal person who owns a share or has a temporary certificate of a share ownership is considered to be its shareholder.

Chapter II. Establishment of a company
Article 4. Establishment of a company

1. A joint stock company is established by not less than three natural and/or legal persons except cases when such joint stock company is established by control bodies authorised to manage the state property.
The number of founders of a joint stock company established by control bodies authorised to manage the state property is not limited. Each one of them separately (individually) can be the founder of a joint stock company.
2. A company functions on a basis of the articles of association approved at a general meeting (conference) of the founders. The articles of association must specify:

· the name, type, legal address, line in business of the company;
· the founder or composition of founders;
· the registered fund sum;
· category, kind, nominal value of shares proposed to issue, their quantity acquired by the founder or founders;
· measures foreseen at non-fulfilment of their obligation by shareholders;
· personnel and powers of the managing bodies, of the control and finance and auditing bodies;
· list of funds and procedures for their creation.

3. The establishment of a company includes a founding conference, conducted by the founder(s), arranging subscription of the shares and is finalised by registration as specified by the Civil Code of the Azerbaijan Republic.
When a state-owned enterprise participates in establishing a joint stock company a Ministry of Justices conclusion must be submitted.
Registration must be carried out within a month after presentation of the appropriate documents.

Article 5. Establishment of a joint stock company on a state-owned enterprise basis

A joint stock company can also be established through transformation of a state-owned enterprise. In this case conditions for such transformation of the state-owned enterprise into a joint stock company are fixed by Milli Medjlis of the Azerbaijan Republic.

Article 6. Subscription for companys shares

1. Shares of a closed type company are allotted in accordance with the agreement between the founders.
2. In a open type joint stock company subscription for shares is arranged by the founders. The company can dispose its shares independently or through banks and stock exchanges.
3. Subscription for shares or distribution of shares of a company are implemented on a basis of a founding agreement or a founding plan (program).
4. Subscription for shares must be announced in the press. Such announcement should indicate the name, address (founder), duration of activity of the company, size of the registered fund, nominal value, quantity of shares, rights given to shareholders, initial and expiry date of the subscription, address and date of the proposed conference.
Subscription duration must not exceed 6 months.
5. The persons participating in the subscription must prepay 10 per cent of a share nominal value. The said persons are given a written obligation to sell a certain quantity of shares by the founders.
Subscription is ended by expiration of the period indicated in the announcement. If by that time less than 60 per cent of shares are subscribed, then the company is considered as not established and within 30 days the prepaid sums or contributed property are returned to the subscribers.
By the date of the founding meeting the subscribers must pay 30 per cent of the shares nominal value, taking into account the sums contributed earlier. The founders give temporary certificates to such persons.
6. In the case of a closed type company the founders must pay 50 per cent of the shares nominal value by the date of the founding meeting.

Article 7. Founding meeting of the company

Founding meeting of the company is to be held within 2 months after the subscription is ended. If the founding meeting is not held within the said period the subscriber has a right to take his share away.
The founding meeting conducting procedure must be described in the relevant announcement.
The founding meeting has to solve the following questions:

· to make a decision about establishment of the company;
· to decrease the registered fund sum if the subscription volume is less than was planned;
· to elect a supervisory council, executive body and control (auditing) commission of the company for its first period of activity;
· to determine values of shares contributed in kind.

Not less than 50 per cent of the subscribers must be present at the founding meeting.
In case of lack of the quorum on the first founding meeting the founders summon the meeting again and it must be attended by not less than 50 per cent of the subscribers.
If the quorum is not achieved even this time, the company is considered as not established.
Decisions on the establishment of the company, election of the supervisory council, executive and control bodies, granting benefits to the founders are adopted by æ majority of the present participants, and on all other questions by a simple majority.

Chapter III. Shareholders powers and duties
Article 8. Shareholders responsibility for the share value payment

1. Within one year after the registration of the company in compliance with the laws of the Azerbaijan Republic the shareholder must fully pay the nominal value of shares subscribed by him.
2. Within a period fixed at the founding meeting and not exceeding one year the shareholder must redeem the shares subscribed by him through full payment of their value. If he fails to do so, the shareholder must pay additionally 10 per cent of the overdue sum unless otherwise specified in the articles of association.
After expiration of the announced share purchase period the company can put the shares on the free market.

Article 9. Receipt of dividends and shares from the company by a shareholder

1. The shareholder receives dividends from the companys annual profit in accordance with the value of shares owned by him or with the temporary certificate of shares ownership. The dividend size per each share is fixed at the general meeting of the shareholders.
2. At the liquidation of the company the shareholder receives a share from its assets in compliance with Article 26 of the present Law.

Article 10. Transfer of shares

1. The open type joint stock companys shareholder has a right to alienate (transfer) his share(s) in the order specified by the legislation of the Azerbaijan Republic.
2. A closed type joint stock companys shareholder can transfer his share(s) to other persons only with approval of the majority of the companys members in the notarially attested order.
If the shareholder was refused to transfer his share(s), he has a right to take away his share(s) value from the company.
3. The shareholder intending to transfer his share must inform the company of that.

Article 11. Joint ownership of a share

If several persons jointly own a share then the said persons make use of the rights given by this share in compliance with the civil legislation of the Azerbaijan Republic.
They bear joint responsibility for the payment of the share nominal value.

Article 12. Shareholders vote right

1. Each shareholder has votes corresponding to share number which he owns.
2. The shareholder who owns preference shares has no vote except in the cases specified by the articles of association.
3. The shareholder who owns an ordinary share will lose his vote if he violates his obligations to buy or pay the share value irrespective of the number of shares in his ownership.
4. The shareholder can exercise his vote either personally or by proxy through his representative.
5. The procedure by which the shareholder exercises his vote is determined by the articles of association.

Article 13. Shareholders right to receive information

1. Each shareholder has a right to attend the general meeting, to demand explanations from the members of the supervisory council and management, to make suggestions and remarks.
2. The management of the company shall in the order prescribed by the articles of association not later than one week before the general meeting is held and by the shareholders demand give him all necessary information about the matters included into the agenda.
3. The companys management is obliged in the order prescribed by the articles of association and not later than 30 days before the general meeting of shareholders is held to place at their disposal the information about the companys activity, the supervisory councils and managements reports and other data.
4. The management is obliged to give any shareholder an extract from the protocol of the meeting or its copy if he demands so.

Article 14. General meeting summoned by shareholders demand

1. If the shareholders who own not less than one tenth of the registered fund of the company will demand to summon a general meeting, the management is obliged to meet this demand.
2. If the management within 30 days after such demand of shareholder(s) mentioned in subclause 1 fails to meet it, the supervisory council summons a general meeting within 30 days.
3. If the supervisory council doesnt satisfy the said demand of shareholder(s) the latter(s) can apply to court.

Article 15. Auditing the companys activity by a shareholders demand

1. The shareholder(s) who own not less than one tenth of the companys registered funds can demand from the supervisory council to audit the enterprising activity of the company, indicating his (their) purposes and reasons for it.
2. In case the supervisory council fails to fulfil within 30 days this demand, described in subclause 1 of this article, the shareholders can apply to the general meeting.
3. If the general meeting fails to meet the shareholders demand the latter(s) can apply to court.

Article 16. Alterations to the general meeting agenda by shareholders demand

1. The shareholder(s) who own not less than one tenth of the registered fund can demand to include this or that matter into the agenda of the general meeting not later than 10 days before it is held.
2. The management shall put the matter suggested by shareholders on the agenda of the general meeting and inform the shareholders about it not later than a week before the meeting is held.
3. If the management fails to fulfil the obligation described in subclause 2 of this article, the supervisory council must put the matter demanded by shareholders on the agenda of the general meeting within three days.
4. If the supervisory council fails to meet the shareholders demand, they can apply to the general meeting.
5. If the general meeting fails to fulfil the shareholders demand, he (they) can apply to court.

Chapter IV. Funds and property of the company
Article 17. Registered fund of the company

1. The minimum size of the companys registered fund is fixed for open-type companies as 10 million manats, and for closed type companies 5 million manats.
2. The declared (announced) sum of the registered fund must be accrued within a year and the company is obliged to implement the state registration of its shares.
3. The size of the registered fund can be altered by a general meetings decision. The information of the general meeting on this matter must contain:

· the sum, way and reason for such alteration in the registered fund;
· the project for alterations in the articles of association due to changes made in the registered fund;
· the nominal value, quantity, total sum of new shares intended to issue;
· the date of subscription for the new shares intended to issue.

4. The company can increase the registered fund if all earlier issued shares are paid off not lower than their nominal value (with the exception of the cases when it was increased by property transfer). The registered fund is increased through issue of shares, exchange of debentures for shares and increase of the nominal value of shares.
5. The decision about the decrease or increase in the registered fund of the company is made as specified by the articles of association.
The decrease of the registered fund is implemented through decrease of the nominal value of shares or withdrawal from circulation and liquidation of them. In accordance with the articles of association and with a decision of the general meeting of shareholders the shares intended for liquidation in order to decrease the registered fund, but not liquidated within a year, are considered as invalid and the corresponding sums (shares) are to be returned.
6. The issue of shares to compensate for the companys losses is forbidden.
7. The joint stock company shall as specified by the Ministry of Finance of the Azerbaijan Republic annually publish in the press messages about its activity. Responsibility for the reliability of the published information is borne by the joint stock company and its responsible persons.

Article 18. Shares of the company

1. The share is indivisible. If several persons own one share they considered as one member of the company.
2. Shares can be registered and payable to bearer. Shares are issued only after the full payment of their value.
Natural persons can own only registered shares.
3. The company can also issue preference shares. The total sum of the preference shares cannot exceed 10 per cent of the registered fund of the company.
The preference shares owners have no vote unless otherwise specified by the articles of association of the company.
4. In order to resell, sell shares to its employees the company can repurchase them. The redeemed shares must be sold within a year.
Within the said period these shares are not to be taken into account for voting at the general meeting of the company and in the profit distribution.

Article 19. Reserve fund of the company

The company creates a reserve fund as specified by the articles of association of the company. The minimum size of the reserve fund must not be less than 15 per cent, and the maximum size must not exceed 25 per cent of the registered fund. The reserve fund is created by way of deductions from the balance profit of the company. The exact size of such deductions must be specified by the articles of association within 5-10 per cent of the profit.

Article 20. Property of the company

1. The company owns the property placed at its disposal by shareholders (founders), products of its economic activity, gained profit, as well as the property acquired on a legal basis.
2. The shareholders (founders) can contribute their shares into the registered fund of the company in the form of buildings, equipment, valuable articles, securities, rights to use land, water and other natural resources, financial resources, including hard currency.

Chapter V. Management of the company
Article 21. General meeting of the company

1. The general meeting of shareholders (founders) represents the supreme managing body of the company.
The exclusive competence of the general meeting embraces:

· to determine the main directions of the companys activity, to approve the prepared plans and reports;
· to make changes in the articles of association of the company;
· to elect and recall the personnel of the supervisory council, management and control financial-auditing commission;
· to approve the results of work during the year (including that of subsidiaries), reports of the control and financial auditing commission;
· to establish branches (subsidiaries) and representations, to approve their articles of association and their liquidation;
· to make decisions about calling the companys officials to property accountability;
· to approve the organisational structure and routine of the company;
· to fix salaries for the officials of the company, its subsidiaries, and to cease activity of the company.

The general meeting is considered competent if it is attended by not less than 60 per cent of the shareholders having the voting right.
The following matters can be solved by a majority of the shareholders present at the general meeting:

· alteration of the articles of association of the company;
· cessation of activity of the company;
· establishment and liquidation of subsidiaries.

All other matters can be settled by a simple majority of the shareholders present at the general meeting.
2. The owners of the registered shares receive special notices of the general meeting.
Such notice must be sent not later than 45 days before the general meeting is to be held. Each shareholder has a right to submit his proposals to the agenda not later than 20 days before the general meeting is held.
The general meeting cannot make decisions on matters not included in the agenda.
3. Voting at the general meeting is carried out on a ´one share (by nominal value) one voteª principle.
4. The shareholders can transfer their rights at the general meetings by proxy to the other shareholders (their representatives), as well as to third persons.
The representatives can be appointed permanently or for a certain period.
The shareholder can replace his representative in the supreme body provided that the companys management is informed about it.
5. The general meeting must be held once in a year unless otherwise specified by the articles of association.
6. An extraordinary general meeting in order to guaranty the interests of the shareholders is summoned by the management, supervisory council and financial-auditing commission.

Article 22. Supervisory council

1. The supervisory council is created to control the managements activity.
2. In the cases specified in the articles of association or by a decision of the general meeting certain functions (duties) of the general meeting can be transferred to the supervisory council.
3. The supervisory council consists of not less than 3 natural persons.
4. Members of the supervisory council can be appointed from the shareholders of the company and other persons.
A representative of the enterprise related to the company or officials of state bodies and of the management cannot be members of the supervisory council.
The member of the supervisory council cannot be a member of the management, a lawyer or authorised representative of the company.

Article 23. Companys management

1. Current activity of the company is carried out by a management, consisted of not less than three natural persons. The personnel of the management can be chosen among the shareholders of the company as well as other persons. The management is directed by a chairman elected or appointed in compliance with the articles of association.
The management settles all matters connected with the companys activity, except those belonging to exclusive competence of the general meeting and the supervisory council.
The management is accountable to the general meeting and to the supervisory council and carries out their decisions.
2. The management powers are determined by the articles of association of the company.
3. The general meeting of the shareholders can restricted the powers of the managements members.
4. The member of the management cannot be a member of the supervisory council.

Article 24. Financial-auditing commission of the company

1. The financial-auditing commission is established in order to control (check) and audit the economical and financial activity of the company. Members of the financial-auditing commission are elected by the general meeting.
2. The financial-auditing commission monitors the financial and economic activity of the company. The financial-auditing commission makes up its report based on the annual account and balance. Without such report (conclusion) of the financial auditing commission the general meeting of the shareholders cannot approve the annual account.
3. The financial-auditing commission carries out the auditing of the financial and economic activity of the company in the following cases:

· on completion of the economic year;
· on demand from the general meeting of the shareholders;
· on demand from the shareholders who own one tenth of vote;
· on demand from the supervisory council and management;
· in other cases specified by the articles of association.
Chapter VI. Liabilities of the company and cessation of activity
Article 25. Liabilities of the company

1. The company assumes liability for its obligations and debts by all its property.
2. The shareholders incur liability for the companys obligations and debts only in the size of their shares. If the shares are not fully paid the shareholders incur liability for the unpaid value by their property.
3. Until the company is state registered the founders can undertake certain obligations on its behalf and assume full liability for these obligations. If the company would not undertake the said obligations the founders incur full liability for their non-fulfilment by all their property.

Article 26. Cessation of activity

1. The company cease its activity in compliance with the provisions of the Law of the Azerbaijan Republic ´About enterpriseª.
2. In the course of liquidation of the company the liquidation commission makes payments with creditors according to the following succession and order:

· salary payment. If the companys property is not sufficient to fully redeem the salary debt, it is distributed among employees in proportion to their salaries;
· budget settlement;
· repayment of other creditor debts. If the remaining portion of the companys property is not sufficient to repay all creditor debts, it is distributed among the creditors in proportion to the sums payable to them;
· debentures redemption. If the remaining portion of the companys property is not sufficient to repay interest for all debentures, it is distributed in proportion to the debentures number;
· preference shares redemption. If the remaining portion of the companys property is not sufficient to repay all preference shares by their nominal value, it is distributed in proportion to the shareholders number;
· ordinary shares redemption. The remaining portion of the companys property is distributed among the ordinary shares in proportion to their number.

3. Claims made on expiry of the period of limitation are satisfied from the remaining sum of the property. Such claim payment period is fixed by the liquidation commission.
4. The companys property remaining after redemption of all creditors is used in accordance with a decision of the general meeting of the shareholders or founders.
If a decision to sell the remaining part of the companys property is made, its collective body takes priority of buying this property.

President of the Azerbaijan Republic
Geydar ALIYEV
Baku, 12 July 1994,
No 850
About Joint Stock Company