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.
