Law Aimed at Protecting Interests of Minority Shareholders in Companies Entered into Force

Azerbaijani President Ilham Aliyev signed on May 22, a week after the adoption of the law in the Parliament, amendments to the Civil Code aimed at regulating relations in transactions with a party related to a commercial entity.

The circle of persons covered by the concept includes the leaders and members of the Supervisory Board (Board of Directors) and the Board; heads of structural divisions of companies, their close relatives, legal entities in which these persons directly or indirectly are in the circle, the direct and indirect owners of at least 10% of the share capital of the company; a legal entity in which the company is presented with a minimum of 20% interest, etc.

At the conclusion of a transaction with a related company, these persons must inform its management of their material interest in it. When the amount of the transaction amounts to 5% or more of assets of a legal entity, it is subject to approval at the general meeting of the company. The decision is made by a simple majority. At the same time the most important thing in this process is the fact that the representative of a legal entity belonging to the party should not take part in the vote. In other words, the decision-making on these transactions goes to the minority shareholders.

For causing damage to a legal entity as a result of violation of the Agreement by the law relating to the legal person, those responsible will be held accountable. Members of the company may challenge the agreement in court.

Recall that the agreements between the parties, which are actually one and the same person, are the most common. The purpose us tax evasion and depriving minorities of the right to receive a dividend. This practice is observed even at well-known companies. Even Baltika, the Russian beer company leases production facilities in the Khirdalan brewery, which has over 90% share.

Monopolist of the metal market in Azerbaijan LLC Baku Steel Company owns 98% of Bakelektroqaynaq. Using 100% of the assets of the company worth over 20 million manats, BSC since 2001 has been producing construction rebar. Since 2005, LLC Baku Steel Company has signed an agreement with JSC Bakelektroqaynaq on lease actually with themselves, the size of which is defined in the amount of 267,000 manats - less than the required amount of depreciation in the year. Therefore, the JSC, where about 2% of the shares belong to 40 individuals, suffers losses, while the manufacturer of valve takes a huge profit. 08B