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Risks associated with non-payment of the charter capital of the company

Risks associated with non-payment of the charter capital of the company

Risks associated with non-payment of the charter capital of the company

05.06.2023

The charter capital of the company is composed of the value of contributions of its participants (shareholders). It determines the minimum amount of its assets that guarantee the interests of its creditors.

Unlike stock companies (with respect to the open and closed stock companies the minimum amounts are respectively 4000 AZN and 2000 AZN in Azerbaijan), currently, the required minimum amount of the charter capital for the limited liability companies (LLC) is not indicated in Azerbaijani law. Therefore, the founders of the LLC are able to indicate the minimum amount of the charter capital at their sole discretions (in practice, it can be even 10 AZN (less than 6 USD)).

Unless otherwise provided in the charter of the LLC with respect to the payment of the charter capital, the shareholders must fully pay it until its registration. If it is agreed in the charter to pay it after registration within certain period of time, this period cannot exceed three months.    

If the charter capital is not paid within the statutory period, some legal impediments may occur for the entrepreneurs. In the event that the charter capital is not paid by the founders, its status is indicated as “declared” (not “paid”) in the extract from the state registry of commercial entities. If the shareholders of the LLC decide to appoint a new director, then the registration authority will require the payment of the charter capital in the first place and such an appointment will not be registered until the payment of the charter capital.

Moreover, failure to pay a charter capital of the company may create a negative impression in relation to the creditworthiness of the company.

To avoid any impediment as touched upon herein, it is advisable to timely and fully pay the charter capital of the company and submit the evidencing document to the registration authority.

About the author: Imamverdi Novruzlu is a lawyer with over 2 years of experience in the area of law. He specializes in dispute resolution, corporate, contracts, intellectual property and especially customs law. Currently, he is a lawyer at Legalize Law Firm. For more information about the author please see the following link: https://legalize.az/en/team/imamverdi-novruzlu