Law Regulating Transactions with Legal Entities

Parliament adopted the law on making amendments to the Civil Code, on the regulation of relations in transactions with a related entity.

"New, 49-1 article of the Civil Code (CC) will contribute to the improvement of corporate governance and protection of investors' interests and the effective implementation of business activity," said the chairman of the committee of legal policy and state building in Milli Majlis Ali Huseynli.

A new article of the Civil Code defines the rules to enter into transactions with a legal person. These are: the leaders and members of the Supervisory Board (Board of Directors) and the Board; heads of the structural units of companies, their close relatives; legal entities in which these entities directly or indirectly in the circle of these persons; 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.

If the transaction amount is 5% or more of assets of a legal entity, then the transaction is subject to approval by a simple majority vote at a general meeting of its members. At the same time, this transaction should obtain the opinion of an independent auditor. The most important point in this case is that an interested party in this transaction has no right to vote.

If the amount of the transaction with a related party entity is less than 5% of its assets, the transaction is approved by a body defined by its charter. And in this case the representative of a legal entity belonging to the party should not take part in the vote.

For causing damage to a legal entity as a result of a agreement signed in violation of the law, the perpetrators will be held accountable. Members of the company may in this case challenge the agreement in court.

Parties relating to the legal entity must submit written information about the nature of their interest in the impending deal.

It should be noted that the conclusion of deals by legal entities with their associated persons is a widespread phenomenon. For example, JSC Guba Canning - 1" is leased by LLC Gilan, which owns a controlling stake in it. The property of the company worth about 1 million manat has been provided for rent for 4,000 manat per year. LLC Baku Steel Company has been leasing 100% of the assets of JSC Bakelektroqaynaq since 2005. The rent is about 1% of the value of assets of the JSC. A similar situation is also observed at Balakan Tinning Plant named after Antsukhsky, Binagadi Temir Tikinti, Sumgayit Polymer, Dernegul Demir Beton, Baki Ayaqqabi-2, etc. ---08B