Commercial legal entities (also known as corporations, companies, legal persons, etc.) are legal entities whose primary goal is to generate income. When you want to establish a company, its state registration is a necessary first step for it to start functioning.
However, in our experience, we see that when registering the companies, the founders make some mistakes due to a lack of legal knowledge. In its turn, this puts businesses and their founders at serious legal risk. Thus, these problems make it necessary for founders to get advice from professionals. Here, we will provide you with some advice based on our experience to protect you from certain legal risks.
I. The process of state registration of companies
When you decide to establish a company, there are some points to pay attention to in the process of state registration of companies.
A. Organizational and legal form of companies
When we talk about the establishment and registration of the company, we need to pay attention to its organizational and legal form. The organizational legal form of a company depends on its form of management. It also depends on the participation of the founders in the management of the company. Moreover, the limit of responsibility of the founders in connection with the activities of the legal entity is also of importance.
In many cases, we have seen from experience that when determining the organizational legal form of a company, the founders do not pay enough attention to this process. It frequently happens because they do not have appropriate information about the organizational and legal forms of companies. So, this is the factor that makes legal problems inevitable in the later stages of a company’s operations.
Therefore, we recommend entrepreneurs do not start the process of establishing companies in the Republic of Azerbaijan without the help of experts. This is necessary for terms of ensuring the rights of the founders of companies, as well as the organization of the activities of companies.
B. Registration of branches of a legal entity
Branches of companies mean a separate division of the company and performing its functions. Branches have the right to fully or partially execute their powers. In our experience, we witness that, in some cases, the ones providing business services to foreigners prefer to register new company instead of establishing branches of companies For example, it might create some difficulties related to remittances from abroad or the management of the business entity.
Therefore, we recommend foreign entrepreneurs planning to start a business in the Republic of Azerbaijan be careful about this nuance and do not hesitate to seek expert advice.
II. Points to consider when preparing the “Constituent Documents” of companies
The “Charter” approved by the founders of commercial legal entities is its constituent document. The “Charter” of commercial legal entities defines the name of the legal entity, its location, the form of management of its activities, as well as the rules for liquidation of commercial legal entities.
We often see that in the process of registration of commercial legal entities, the founders do not pay enough attention to the process of preparation of constituent documents. Moreover, in many cases they even prefer to use template document forms. In such cases they think that they are saving money. However, the reality is that the constituent documents of companies regulate the relations between the founders, making important decisions related to the activities of companies, the distribution of profits, etc.
Therefore, insufficient attention to the process of preparation of constituent documents leads to certain legal risks associated with the management of companies.
So, we recommend that both citizens of the Republic of Azerbaijan and foreigners pay special attention to the preparation of constituent documents in the process of state registration of companies. In this way, the founders will be insured against legal risks by properly organizing the management of their companies.
The legislation of the Republic of Azerbaijan requires business entities to have the appropriate licenses and permits to engage in certain business activities. In other words, state registration of companies is not enough to operate in some areas of business. Companies are also required to obtain licenses and permits, in which case engaging in licensed businesses without obtaining appropriate licenses creates legal liability under the law.
So, we do not recommend ignoring this necessary step, even if the activity of obtaining a license is a legal procedure with its relative difficulty. It is substantial in insuring your business from legal risks and financial losses.
The ACON team would be pleased to be with you in all legal processes related to the registration of a company, as well as the preparation of founding documents of it in the Republic of Azerbaijan!
- ACON – LAW AND INVESTMENT, Establishment of representative offices and branches of foreign companies, https://acon.az/establishment-of-representative-offices-and-branches-of-foreign-companies/ (2022).