Major Amendments to the Civil Code of the Republic of Azerbaijan Several amendments and additions have been made to the Civil Code of the Republic of Azerbaijan (the “Civil Code”) relating to companies by the “Law on the Amendments to the Civil Code of the Republic of Azerbaijan” (the “Law”) dated April 23, 2018. The Law contains the following main amendments:

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Major Amendments to the Civil Code of the Republic of
Azerbaijan
Several amendments and additions have been made to the Civil Code of the Republic
of Azerbaijan (the “Civil Code”) relating to companies by the “Law on the
Amendments to the Civil Code of the Republic of Azerbaijan” (the “Law”) dated
April 23, 2018. The Law contains the following main amendments:
1. A person acting on behalf of a legal entity, a member of the governing bodies
(board of directors (supervisory board), executive body) of a legal entity is obliged
to act prudently, and to be fair and impartial in decision-making while acting in the
best interests of the legal entity. S/he is obliged, at the request of the participant who
holds at least five percent of the shares in the charter capital of the legal entity, to
compensate damages caused to the legal entity as a result of violation of the said job
duties (Article 49.3 of the Civil Code.
2. A person acting on behalf of a legal entity, including a member of the
governing bodies (board of directors, executive body) of a legal entity, who does not
fulfill or improperly performs the duties established by the Civil Code, bears
responsibility for damages to the legal entity or participant (shareholder) in the
following circumstances (Article 49.4):
• payment of bonuses to the members of governing bodies of the legal entity
while the legal entity does not make any profits or payment of bonuses that are
disproportionate to the profits of the legal entity;
• the alienation or granting for use of the property of the legal entity with
significantly lower prices and conditions than the market conditions;
• conclusion of contracts with related persons to the legal entity that violates
the rules of law or adversely affect the interests of the legal entity;
• the purchase of goods (works, services) by a legal entity at higher price than
their actual value based on the contracts;
• misappropriation or waste of the property of a legal entity for the purpose of
providing tangible and intangible property assets or rights to such property for his
own benefit, the benefit of related persons to the legal entity or the benefit of other
persons;
• conclusion of unfair contracts towards the shareholders (participants).

2. 3. A person acting on behalf of a legal entity and a member of governing bodies
of the legal entity can be dismissed from the position for the damage incurred to the
legal entity. Administra (board of directors (supervisory board), executive body) of
the legal entity shall not relieve such person from the duty of compensation of
damages caused to the legal entity (Article 49.5).
4. In case the circumstances stipulated in Article 49.4 of the Civil Code occurred
or in case there are reasonable doubts about the occurrence of such circumstances,
the participant (participants) holding at least five percent of the shares in the charter
capital of a legal entity may require all documents (information) of the legal entity
(without indicating a special document). (Article 49.6).
5. Each participant of a limited liability company shall have the right to receive
a profit pro rata to his/her share in the charter capital. The net profit shall be paid
within one month after the decision of the general meeting of shareholders (Article
90-1.2).
6. Members of the board of directors (supervisory board) of the company may
now serve as members of the audit committee in parallel (Article 91-4.3).
7. Transfer by a participant in a limited liability company of such person’s share
(or a portion thereof) to third parties shall be permitted (article 93.2).
8. Participants in the limited liability company shall have a right of first refusal
to purchase a participant’s share (or portion thereof) proportionally to their own
shares. (Article 93.3).
9. An open joint stock company shall be obliged to publish the amounts of
payments to each member of its governing bodies (Article 99.2.8).
10. Shareholders in a joint stock company owning ordinary or other voting
shares shall have the preemptive rights to acquire additionally issued shares of the
company according to the rules of the charter. A person willing to acquire fifty
percent or more of the shares of the company, shall submit officially a relevant
proposal to all the shareholders of the company (Article 104.2).
11. The number of members of board of directors (supervisory board) of the joint
stock company and requirements to them is determined by the charter of the
company. The number of members of board of directors of the company (supervisory
board) and requirements to them can also be determined by the law (Article 107-
7.2).

3. 12. Members of the board of directors (supervisory board) of the joint stock
company may be members of the audit committee, as well (Article 107-12.3).