Significant Transactions

Brief information

Corporate governance is the process of managing an established organization in a manner that ensures the achievement of its goals. Such management is broad in scope and encompasses many actions such as strategic planning, data collection, decision-making, supervision, and signing contracts. In order to protect the rights of the company’s participants (founders) as well as the interests of the company itself, certain decisions must be made in a specific manner. The conclusion of significant transactions can be cited as an example of this.

Concept

Thus, according to civil legislation, a transaction exceeding 50% of the value of the net assets of a limited liability company (hereinafter - “LLC”) and 25% of the value of the net assets of an open joint-stock company is considered a significant transaction.

It should be noted that the company’s net assets and its charter capital are completely different concepts. Charter capital consists of the nominal value of the shares (stocks) acquired by the company’s participants (shareholders), while net assets is the remaining value after subtracting total liabilities (obligations) from total assets.

Procedure for concluding the transaction

To conclude a significant transaction, participants must first be notified, and subsequently, a general meeting which is the company’s supreme governing body must be convened. The decision to enter into a significant transaction is made at the general meeting of participants, and the meeting minutes must be duly recorded. Information about the adopted decision is disclosed in accordance with the procedures set forth in the company’s charter.

This means that if the LLC’s net assets amount to 1,000 manats, and the proposed transaction is worth 600 manats, the transaction can only be concluded based on a decision of the general meeting.

Authority of the general meeting

It should be noted that the general meeting of participants must be authorized to adopt a decision on the conclusion of a significant transaction. The general meeting of an LLC is authorized to make decisions only if participants holding more than 50% of the company’s shares are present.

If the quorum (the minimum number of participants required to make the meeting valid) is not met, a reconvened general meeting shall be deemed authorized if participants holding 50% of the shares are present. If there is still no quorum at the reconvened meeting, a repeatedly convened general meeting is deemed authorized if participants holding 25% of the company’s shares attend.

The general meeting of a Joint Stock Company is authorized if owners of at least 60% of voting stocks are present. If there is no quorum, the general meeting must be reconvened. The reconvened general meeting is authorized if owners of 40% of voting stocks are present. If there is still no quorum, a repeatedly convened general meeting is authorized if owners of 25% of voting stocks are present.

If the repeatedly convened meeting also fails to meet the quorum, the company may, upon notifying the Central Bank, be liquidated either by a decision of the general meeting regardless of quorum or by a court decision upon the Central Bank’s claim.

It should also be noted that when a general meeting is reconvened or repeatedly convened (in both LLC and JSC), the meeting agenda cannot be changed. In a company consisting of a single participant, all decisions falling within the powers of the general meeting are made unilaterally by that participant and must be documented in writing.

Invalidity of transactions concluded without observing the procedure

It should be emphasized that a significant transaction concluded without observing the above procedures and requirements may be declared invalid by the court, as it violates the rights of other participants.

The jurisdiction (district/city court or commercial court) for claims regarding the invalidity of such transactions is determined by taking into account whether the parties are business entities, the subject matter of the dispute, and the nature of the legal relationship.

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Note: The information contained in this article should not be construed as legal advice or a legal opinion.

Our firm provides comprehensive legal services related to corporate governance, including the drafting of foundation agreements, charters, and general meeting decisions, as well as state registration, reorganization, and bankruptcy procedures of legal entities. We also offer representation in court disputes concerning transactions concluded in violation of legislative requirements. Our team is pleased and ready to support you in this field.

For additional questions or information, please contact us:

Email: office@bonafide.az; Tel: +994125973047; Whatsapp: +994707103785.

Respectfully,

Bonafide Law Firm