The Law on Amendments to the Labor Code, the Civil Code, and the Laws of the Republic of Azerbaijan "On Currency Regulation", "On Investment Funds" and "On the Securities Market"
- Vugar Mammadov
- Aug 6
- 3 min read
The Law introduces a number of important changes to Azerbaijan's corporate and investment legislation. It brings several legal concepts widely used in international practice into Azerbaijani legislation for the first time while also refining a number of existing legal mechanisms.
This article provides a brief overview of the key amendments introduced by the Law and their practical implications.
One of the most significant changes is the introduction of corporate agreements as a separate legal institution under the Civil Code. Under the new provisions, participants (shareholders) of a company, as well as the company itself where provided by law, may conclude corporate agreements governing the exercise of corporate rights and the management of the company.
A corporate agreement may regulate, among other matters, voting procedures, company management, the transfer of participation interests (shares), nomination of candidates to management bodies, the use of invested funds, decision-making on reserved matters, dispute resolution, and other corporate rights and obligations. The Civil Code also introduces rules governing the methods of securing obligations arising from corporate agreements, the consequences of their breach, and the relationship between a corporate agreement and the company's charter.
Another important development is the statutory regulation of special rights relating to the transfer of participation interests (shares). The new provisions establish the legal framework for the exercise of the Right of First Refusal (ROFR), Tag-along and Drag-along rights. These mechanisms are intended to protect the interests of participants (shareholders) while providing greater legal certainty in transactions involving the transfer of participation interests (shares).
The Civil Code also introduces convertible financial instruments, giving statutory recognition to financing mechanisms that have long been used in international investment practice.
The new provisions regulate both Convertible Loan Agreements and Simple Agreements for Future Equity (SAFE). Under a Convertible Loan Agreement, financing provided by an investor may, upon the occurrence of agreed events, be converted into participation interests (shares) instead of being repaid in cash. A SAFE, on the other hand, allows an investor to acquire participation interests (shares) in the future without creating a debt relationship.
The Law further regulates the execution of these agreements, conversion events, investor protection mechanisms, as well as the application of valuation caps and discount rates. It also introduces a legal basis for Employee Stock Ownership Plan (ESOP) agreements. Companies may enter into agreements with employees and members of their management bodies granting them the right to acquire participation interests (shares) upon the fulfilment of predetermined conditions. The Civil Code also contains provisions regarding the maintenance of ESOP records and the establishment of a special share pool for the implementation of such agreements.
The amendments to the Law "On Investment Funds" establish a separate legal framework for venture capital funds. Venture capital funds are recognized as a distinct category of investment funds, and the Law sets out specific rules governing their establishment, operation, management and investment activities.
Under the new provisions, venture capital funds will invest primarily in micro, small and medium-sized enterprises engaged in the development, production and improvement of digital technologies and innovative products, as well as entrepreneurs holding a "Startup" Certificate and other persons meeting the criteria established by law. The Law also regulates the legal forms, operational regimes, borrowing limits, reporting obligations and governance of venture capital funds.
In addition, the Law introduces the concept of a professional investor into Azerbaijani legislation. Amendments to the Law "On Currency Regulation" also establish special rules governing foreign exchange transactions involving digital nomads, startups, venture capital funds and accredited investors.
The full text of the Law is available at:
Author: Fatima Aliyeva
