BAKU, Azerbaijan, July 27. The legal framework
for venture capital funds is formed in Azerbaijan.
This is reflected in the law on amendments to the Labor Code,
Civil Code, the law "On currency regulation", "On banks", "On
investment funds", and "On the securities market", approved by the
President of the Republic of Azerbaijan Ilham Aliyev. The document
text has been published on the official website of the President of
Azerbaijan.
According to the amendment, the concepts of venture capital
fund, professional investor, accredited investor, free-reporting
venture capital fund, and licensed venture capital fund have been
added to the law "On investment funds". This creates different
legal models for venture funds to operate in an easy registration
regime or in a licensed regime.
Furthermore, provisions on convertible instruments, convertible
notes, and future participation agreements (SAFEs) have been added
to the Civil Code.
The law also includes norms on the institution of corporate
contracts and special rights of investors. The legal basis for
mechanisms such as tag-along rights, drag-along rights, first
refusal rights, priority in liquidation, provisions against the
impairment of shares or stocks, protected issues, conversion
rights, and different voting rights is determined.
Moreover, the law comprises provisions on employee stock
ownership plans (ESOPs). Under this mechanism, startups and
technology companies will not only provide employees and board
members with a salary, but will also be able to provide them with
the opportunity to acquire shares or stocks in the company in the
future. This is an important tool for attracting and retaining
highly qualified specialists, in particular. In other words, the
employee has a direct interest in the company's success, since the
value of the shares or stocks he or she can acquire may increase as
the company grows.
At the same time, the draft adds provisions to the laws "On
currency regulation" and "On banks" that regulate the specifics of
currency and banking transactions for digital travelers, innovation
projects, venture capital funds, accredited investors, and digital
services. These changes serve to reduce the existing administrative
difficulties for innovation and digital economy entities in the
field of foreign payments, investments, repatriation of income, and
access to banking services.
