Limited Liability Company Reform

The Law "On Limited Liability Companies" (hereinafter referred to as the Law) was adopted in 2001 and over the years a number of technical problems have appeared, which in practice unnecessarily complicate the operation of LLCs, do not provide the necessary level of flexibility of relations and sometimes no longer express business the reality of practice. These problems and their proposed solutions are briefly presented below:

1. Problem. According to the law, persons wishing to establish an LLC sign a contract to that effect.

Reform: Make the conclusion of the contract on the establishment of LLC voluntary, taking into account that the agreements are already formalized in the protocol.

2. Problem. According to the law, the LLC charter must contain information about the company's participants. In practice, this leads to a situation where, for example, when a share is sold, the charter must be changed and registered in the general register every time. As a result, there is an unnecessary administrative burden and the need to convene a general meeting. 

Reform: Eliminate the requirement to include information about participants in the articles of incorporation by submitting that information in the founding resolution and further amend by making changes to the register of participants.

3. Problem. LLC participants often want to sign agreements with each other about the exercise of their rights and (or) the specifics of the exercise of rights to the share, which is not regulated by law. sign that they will always vote in accordance with the decision of the engineer-participant when making decisions on engineering matters.

Reform: Clearly define that LLC participants can enter into such an agreement, defining its subject matter, the procedure for concluding it, and its consequences.

4. Problem. In case of alienation of the share by the sole participant, it is sometimes necessary to make an additional decision of the sole participant to exercise the right of preference of the company.

Reform: Determine that no such determination is required.

5. Problem: The provisions of the Law on the pledging of shares (the share can be pledged when all shareholders have given their consent) unnecessarily hinder the pledging of shares and the possibility of confiscation without going to court. 

Reform: Define that. A. confiscation may be extended to the pledged share independently of other property, in accordance with the Civil Code of the Republic of Armenia, B. Other participants may in advance, at the time of pledge of the share, waive the right of preference, C. Establish registration procedures for the transfer of the ownership right to the pledged share in case of confiscation.

6. Problem: The law stipulates that if after the end of the second or every subsequent fiscal year, the net assets of the LLC are negative, the company is subject to liquidation, which is not consistent with the economic logic of many companies.

Reform: To eliminate the liquidation requirement, establish a publication requirement on the website http://www.azdarar.am and guarantees of debtors' rights.

7. Problem: The possibility of creating other LLC bodies is not clearly defined by the charter.

Reform: Establish such an opportunity by law.

8. Problem: The law does not provide for the possibility of assigning the powers of the general meeting to the council.

Reform: Establish such an opportunity by law.

9. Problem: It is not planned for the participants to unanimously make decisions on issues within the authority of the meeting without convening a meeting, which causes the need to perform additional actions for convening the meeting and unnecessary delays.

Reform: Establish such an opportunity by law.

10. Problem: The legal relations related to the appointment and termination of powers of the director are not clearly regulated by the law, the procedure and grounds for the termination of the director's powers by the general meeting, the labor-legal consequences of such termination, the effective procedures for the termination of the powers by the director at his will, are created as a result of the above , which does not want to continue its activities as the head of the executive body of a legal entity, is deprived of the effective possibilities to terminate this status by its expression of will.

Reform: Clearly defining that: A. the meeting has the right to terminate the powers of the executive body of the company at any time by terminating the employment contract without indicating the circumstances that are the basis for it. C. Pays the director a severance pay in the amount of not less than his 2-month average salary. D. The director has the right to apply to the meeting with the request to terminate his powers, and in case of failure to make such a decision within 1 month, to independently apply to the Agency of the Register of Legal Entities of the RA Ministry of Internal Affairs.