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Wednesday, July 6, 2011




Mongolia Briefing is a magazine and daily news service about doing business in Mongolia. We cover topics relating to the Mongolian economy, the market in Mongolia, foreign direct investment and Mongolian law and tax. It is written in-house by the foreign investment professionals at Dezan Shira & Associates



Opening a Business in Mongolia Part II: Joint Stock Companies

By Elena Fehrbach

Oct. 26 – According to Mongolian legislation, the following types of legal entities can be incorporated in Mongolia:

  • Limited Liability Company (LLC)
  • Joint Stock Company (JSC)
  • Representative Office (RO)

JSCs may be created in the form of an “Open” JSC or a “Closed” JSC. An Open JSC is a legal entity where shareholders’ invested capital is divided into shares and registered at the Mongolian Stock Exchange. Shares are traded by the public without regard to preemptive rights of shareholders.

A Closed JSC has the same structure as an Open JSC, but the shares are registered at the Securities Clearing House and Central Depositary of Mongolia, and these shares are traded outside of the Mongolian Stock Exchange in the form of a closed subscription.

To register a JSC, documents shall be submitted to the State Registration Office. The documents for submission are as follows:

  1. Application and request letter
  2. Minutes of the meeting confirming foundation of new legal entity
  3. Notarized Charter
  4. Document confirming the registration address
  5. Letter from the bank confirming possession of the amount required as an owner’s equity and the starting balance
  6. Receipts for the paid registration fee
  7. Letter of Approval from the Financial Regulatory Commission
  8. Documents confirming identity of company founders

Initial capital may take the form of cash or some other property, or the property rights assessed in cash equivalent. The minimum foundation capital required for listing a JSC at the Mongolian Stock Exchange is 10 million Mongolian Tugrik. Only banks and insurance companies are required to have bigger foundation capital.

In case the future company operates in one of Mongolia’s strategic sectors (mining, finance/banking or media/communications), the approval from the Government or Parliament of Mongolia would be required under the Strategic Foreign Investment Law of Mongolia.

A Closed JSC is formed by closed subscription, and after completion of the subscription period the subscribers issue the company Charter and the Minutes of the founders’ meeting. The new entity is considered to be legally registered only after registration by the State Registration Office and the Securities Clearing House and Central Depositary of Mongolia.

The issue of shares for both forms of JSCs shall comply with the Securities Legislation of Mongolia and shall be registered with the Financial Regulatory Commission (for Open JSC) and the Securities Clearing House and Central Depositary of Mongolia (for Closed JSC). Ordinary and Preferred shares can be issued in both forms of JSCs.

A newly established JSC may make a decision about dividend payments based on internal dividend policy. The confirmation of dividend payments shall be made within 50 days following the end of the company’s fiscal year.

One of the common practices in organizing an Open JSC is re-organization of existing LLC. A minimum two-thirds of all votes of LLC shareholders is enough to start the re-organization process. However, the approval and registration with the Financial Regulatory Commission as part of the process upon availability of re-organization decision by the shareholders.

The procedure of termination of JSCs can be completed in cases where the decision has been brought by shareholders or under a court decision according to the legislation of Mongolia. Termination may be carried out through reorganization or liquidation. In case of liquidation, the liquidation committee is appointed by the general shareholder’s meeting.

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