Corporate Governance 2025 Comparisons

Businesses may operate in various organisational and legal forms in Armenia. The organisational and legal form is chosen taking factors such the scope of liability, the number of participants and the applicable tax regime into account.

The main forms of corporate and business organisation in Armenia include the following.

Limited Liability Company (LLC)

An LLC is the most common and flexible business structure. Under this structure, shareholders are only liable to the extent of their contributions to the charter capital. There is no minimum charter capital requirement and this form of organisation is suitable for small and medium-sized enterprises (SMEs).

Joint Stock Company (JSC)

JSCs can be open or closed.

Open JSC (OJSC)

In OJSCs, shares are freely transferable and can be publicly traded.

Closed JSC (CJSC)

In CJSCs, shares are distributed among a limited number of shareholders and are not freely traded. They are suitable for large businesses seeking investment.

Co-Operatives

Co-operatives can be formed by individuals with shared economic interests. They are typically used in agriculture, housing and small-scale production.

Individual Entrepreneur (IE)

An IE is a business which is owned and operated by one individual. In an IE the owner has full control but also unlimited personal liability for debts. There is simplified registration and tax treatment for IEs. This structure is ideal for new businesses because of its straightforward management and operational simplicity.

Contract of Joint Activity Without Forming a Legal Entity

IEs and/or commercial organisations and/or citizens engaged in agricultural production can pool their resources and act jointly without establishing a separate legal entity for the purpose of making a profit or achieving other lawful objectives.

Participants may contribute professional expertise, skills, business reputation and connections as well as capital.

During joint activities, each participant may act on behalf of all, unless otherwise specified in the contract, which may require joint action by all parties.

This form of organisation is particularly effective when an individual has skills or expertise but lacks financial assets.

Each of these business forms should be carefully evaluated to determine the most appropriate legal entity for establishment based on the specific needs and goals of the business.

The primary legislative sources of corporate governance requirements for companies in Armenia are as follows.

The Civil Code of Armenia (CC)

The CC defines the concept of a legal entity, its types, legal capacity, liability, redomiciling procedure, reorganisation procedure, liquidation procedure and other general principles.

The Law on Joint Stock Companies (LJSC)

The LJSC regulates the structure, governance and operational processes of JSCs. It outlines the rights of shareholders, the duties of the board of directors (BoD) and the requirements for financial transparency and disclosure. It also sets out provisions for annual meetings, dividend distribution and financial reporting obligations.

The Law on Limited Liability Companies (LLLC)

The LLLC governs the operations of LLCs. It focuses on shareholder rights, management structures and decision-making processes. It provides a framework for the internal governance of LLCs, ensuring clarity in the roles and responsibilities of owners and managers.

The Law on Bankruptcy

The Law on Bankruptcy governs insolvency proceedings and the restructuring of companies. It establishes the rights and obligations of creditors as well as the roles of corporate management during insolvency, ensuring a structured process for debt resolution and corporate recovery.

The Law on State Registration of Legal Entities

The Law on State Registration of Legal Entities establishes requirements for the registration of companies and their ongoing obligations under Armenian law, including compliance with governance standards.

Armenian Securities Market Legislation

Armenian securities market legislation includes regulations on public companies and the governance of stock exchanges, market participants and the protection of shareholders in publicly traded companies.

These legislative sources together shape the corporate governance framework in Armenia, ensuring that companies operate transparently, remain accountable to stakeholders and comply with domestic and international legal standards.

Companies with publicly traded shares in Armenia must adhere to specific corporate governance requirements to ensure transparency, accountability and protection of shareholder interests. These requirements are designed to align with international corporate governance practices and Armenian law.

Corporate Governance Requirements for Publicly Traded Companies in Armenia

Publicly traded companies in Armenia are primarily governed by the LJSC, the Law on the Securities Market and regulations set out by the Central Bank of Armenia (the “CBA”) and the Central Depositary of Armenia. These legislative provisions are intended to ensure effective governance, safeguard shareholder rights and maintain market integrity.

Mandatory v Voluntary Requirements

Mandatory requirements

The mandatory requirements are as follows.

• Compliance with the relevant laws and other legal acts.
• Regular disclosure of financial statements and material events to ensure transparency.
• Holding annual general meetings (AGMs) and ensuring minority shareholder rights.
• Establishment of key board committees.
• Conducting external audits and providing transparent financial reporting in line with regulatory standards.

Voluntary requirements

The voluntary requirements are as follows.

• Adherence to the Corporate Governance Code, which provides recommendations for best practices but is not legally required.
• Non-binding recommendations for the composition of the BoD (eg, the percentage of independent directors).

While mandatory requirements ensure legal compliance, shareholder protection and financial transparency, voluntary corporate governance practices, like following the Corporate Governance Code, enhance reputation, investor trust and risk management.

Armenia’s corporate governance landscape is undergoing significant transformation with a pronounced emphasis on sustainability and green initiatives. Key developments include the following.

National Sustainable Finance Roadmap

In October 2023, the CBA introduced the National Sustainable Finance Roadmap (the “Roadmap”), underscoring a strategic commitment to sustainability within the financial sector. The Roadmap is structured around four key pillars:

• mobilising sustainable finance: facilitating capital flow towards industries aligned with Armenia’s low carbon ambitions and introducing innovative financial instruments such as green, blue, social, sustainability and sustainability-linked loans and bonds;
• enhancing markets: establishing a Central Sustainable Finance Database and designing frameworks to monitor progress in sustainable finance initiatives;
• embedding sustainable finance: developing a robust supervisory framework within the CBA, guiding financial market participants in integrating environmental, social, and governance (ESG) factors into their core processes; and
• building awareness and capacity: raising awareness and enhancing knowledge on sustainability risks and opportunities among financial market participants and the wider public.

These pillars collectively aim to ensure that ESG considerations are central to financial decision-making, reflecting Armenia’s dedication to sustainable practices.

The Green Agenda Project

The Green Agenda Project was launched in December 2023 and represents Armenia’s commitment to aligning with the European Green Deal and the EU-Armenia Comprehensive and Extended Partnership Agreement (the “CEPA”). This initiative seeks to harmonise national policies with leading European standards, propelling Armenia towards a more sustainable and prosperous future. Key objectives of the Project include:

• developing a climate neutrality roadmap.
• delivering investment-ready projects that promote sustainability.
• raising public awareness about the green economy; and
• enhancing stakeholder capacities for the green transition.

The Project underscores Armenia’s dedication to adopting sustainable policies and practices and aims to enhance the quality of life for its citizens as well as strengthen trade and economic relations with EU member states.

ESG reporting issues in Armenia are primarily regulated by the Corporate Governance Code, which was updated in July 2024. The Corporate Governance Code emphasises the importance of corporate governance principles for sustainable private sector development, accountability and decision-making transparency. Companies adhering to the Corporate Governance Code have to prepare and publish an annual report.

This has to include a corporate governance report and an annual corporate governance declaration and has to be published on their website by June 30 of the following year. This reporting follows the “comply or explain” principle, which allows organisations to either comply with the Corporate Governance Code’s provisions or explain their reasons for non-compliance.

Despite the structured framework, companies face several challenges in ESG reporting. These are as follows.

• Lack of awareness: many stakeholders, including BoD members and executives, may not fully understand their roles and responsibilities within the corporate governance framework, leading to ineffective decision-making and accountability issues.
• Enforcement deficiencies: while legal frameworks exist, the enforcement and monitoring mechanisms are often inadequate. Regulatory bodies may lack the necessary resources and authority, resulting in organisations viewing compliance as a formality rather than a necessity.
• Standardisation and consistency: the absence of standardised ESG reporting frameworks leads to inconsistencies. Companies might adopt different frameworks, making it challenging to compare and assess ESG performance accurately.
• Stakeholder engagement: effectively engaging diverse stakeholders, such as investors, customers, employees and regulators, each with unique expectations, poses a significant challenge in ESG reporting.
• Regulatory compliance: keeping abreast of evolving regulations, especially for companies operating in multiple jurisdictions, adds complexity to ESG reporting efforts.

The governance and management of a company are primarily regulated by the CC, the LJSC or the LLLC.

The principal bodies involved in corporate governance typically include the following.

General Meeting of Shareholders (for JSCs) or Participants (for LLCs)

The general meeting of shareholders (for JSCs) or participants (for LLCs) is the supreme governing body of the company. It makes key decisions such as approving financial statements, distributing profits, appointing/removing directors and amending the company charter.

The BoD

The BoD carries out the general management of the company’s activities, except for those matters that are reserved for the competence of the meeting by the law and the company’s charter.

Executive Body (Director or Management Board)

The executive body (director or management board) is responsible for daily operations. It can consist of a sole director (CEO) or a collective management board. It implements the decisions of the general meeting and/or the BoD.

Specific corporate bodies in Armenia have defined decision-making powers and specific decisions are reserved exclusively for particular bodies.

Typical decisions made by each corporate body are as follows.

General Meeting of Shareholders (JSC)/Participants (LLC)

The general meeting of shareholders is the supreme governing body and is responsible for key strategic and ownership-related decisions. It makes exclusive decisions which cannot be delegated to other bodies. It can amend the charter (including changing the company name, registered capital, business activities). It is also responsible for reorganising or liquidating the company, approving annual financial statements and profit distribution and deciding on increases or decreases of charter capital.

Additionally, it is responsible for appointing or removing BoD members (if applicable) and appointing/dismissing the executive director if there is no BoD. It can also approve major transactions exceeding a certain threshold and take merger, acquisition and restructuring decisions.

The BoD

The BoD can:

• determine the main directions of the company’s activities;
• convene annual and extraordinary shareholders’ meetings;
• approve the agenda of meetings;
• approve the year, month, date for compiling the list of shareholders entitled to participate in the meetings and resolve all issues related to the preparation and convening of meetings and reserved for the BoD’s jurisdiction;
• approve the administrative and organisational structure of the company;
• approve the annual budget and the implementation of the annual budget;
• approve the company’s staff list;
• establish branches and representative offices, which will be institutions of the company; and
• other powers granted by law․

Executive Body (CEO/Management Board)

The executive body (CEO/management board) is responsible for the daily operational management and execution of the company’s strategy, signing contracts and managing business operations and managing employees and implementing policies. It is also responsible for:

• handling financial transactions within limits set by the BoD or general meeting;
• representing the company before third parties, courts and regulators; and
• other powers granted by law․

General Meeting of Shareholders/Participants

The general meeting of shareholders is the supreme governing body and makes major decisions. It will have quorum if it is attended by participants who hold more than half of the votes of the total number of members of the company.

It will take decisions by a vote of the total number of participants in the company by majority unless the law or the articles of association of the company provide for a greater number of votes to make the decision.

Amendments to the articles of association and authorised capital require at least a two-thirds majority unless stated otherwise. Reorganisation and liquidation decisions must be unanimous. Decisions of the general meeting of shareholders are adopted by open voting, unless otherwise stipulated by the company’s charter.

BoD

The BoD is responsible for overseeing the company’s corporate strategy and supervising executive management. The decision-making process of the board is typically governed by the company’s charter and internal board regulations. Meetings of the board may be held on a regular basis or convened as extraordinary sessions, depending on the needs of the company and procedural rules.

For the board to make valid decisions, a quorum is generally required. This usually means that more than 50% of the BoD members must be present. Decisions are adopted by a majority vote of the members present, unless the company’s charter prescribes a higher voting threshold. In cases where votes are equally divided, the chairperson of the board may hold a casting vote.

All board resolutions must be properly documented in the minutes of the meeting and signed by all attending board members. The board may delegate certain decision-making powers to specialised committees or to executive management, depending on the nature of the matter and the delegation provisions set out in the charter or board policies.

Executive Body (Director or Management Board)

The executive body (director or management board) is responsible for the company’s day-to-day operations and for implementing strategic decisions adopted by the shareholders or BoD. The scope of the executive body’s authority is defined in the company’s charter and in the employment contract of the CEO or general director. Within this framework, the CEO or general director may act independently on behalf of the company, provided they stay within the limits of their authority. Where a collegial management board is established, decisions may be made collectively in line with internal regulations.

The executive body is accountable to the BoD (if one exists) or directly to the shareholders. It has to report on the company’s performance and major actions taken. Executives authorised under the charter or by resolution may enter into binding agreements and represent the company in legal and business matters.

The structure and functioning of a BoD in Armenia is governed by the LJSC and the LLLC, among other regulations. The structure of a BoD varies depending on the type and size of the company.

A BoD is a supervisory body responsible for overseeing management and board members are elected by shareholders at the general meeting.

In JSCs, the establishment of a BoD is mandatory if the number of shareholders exceeds 50.

BoD members may or may not be company employees. However, executive management (eg, the CEO) cannot simultaneously be the board chair.

As in most corporate governance systems, a BoD consists of various members with distinct roles and responsibilities. The following is an overview of the key positions and their functions.

Chairperson of the Board

The chairperson of the board leads the board and ensures effective governance. They set the board meeting agenda and preside over meetings. They also act as a liaison between the board and executive management and represent the company in high-level matters. Additionally, they ensure the board follows corporate governance principles.

Board Members (Directors)

Board members (directors) participate in strategic decision-making and oversee the company’s financial and operational performance. They ensure compliance with laws and ethical standards and may be executive (involved in daily management) or non-executive (independent oversight).

Independent Directors

Independent directors are not affiliated with the company’s management or major shareholders and so can provide objective and unbiased opinions. They enhance transparency and protect minority shareholders’ rights. Additionally, they often serve on audit or risk committees.

Executive Directors

Executive directors are typically members of senior management (eg, CEO, CFO) and contribute insights on daily operations. They also implement the board’s strategies and policies.

Non-Executive Directors (NEDs)

Non-executive directors (NEDs) do not engage in day-to-day operations. They provide strategic guidance and external perspectives and help with risk management and accountability.

The composition and structure of a BoD in Armenia is primarily governed by the LJSC, which outlines specific requirements and recommendations to promote effective corporate governance.

Mandatory Board Establishment

The board must be established in a company with 50 or more shareholders. If a board is not established in a company with up to 50 shareholders, its powers are exercised by the general meeting.

Board Composition Requirements

Independence

In OJSCs, at least one-third of the board members must be independent. The LJSC specifies criteria to determine a director’s independence to ensure that these members do not have significant ties to the company that could impair their impartiality.

Separation of roles

To prevent conflicts of interest, the roles of the chief executive officer (CEO) and the chair of the board cannot be held by the same individual in OJSCs. This separation ensures a clear distinction between the management and oversight functions within the company.

The appointment and removal of directors and officers of a company are primarily governed by the LJSC and LLLC, along with the company’s charter.

Appointment of Directors and Officers

In LLCs, the general meeting of participants appoints the director(s). In JSCs, the BoD (if one exists) or the general shareholders’ meeting appoints the executive director or management board.

Types of Directors/Officers

The executive director or CEO is the primary managing officer of the company. The BoD (if applicable) is a corporate governance body that is usually found in JSCs.

Other Officers

These include the chief financial officer (CFO) or other executives, depending on the company’s structure.

Appointment Process

The general meeting (or the board, if applicable) votes on the appointment. A contract is signed with the director, outlining duties, remuneration and term of service.

Removal of Directors and Officers

The general meeting of participants/shareholders has the power to dismiss a director.

In some cases, the BoD may also remove the executive director (CEO), depending on the company’s charter.

There are certain legal restrictions on who can serve as a director in Armenia.

General Requirements

The director must be a legally competent natural person. Foreign nationals can be appointed unless restricted by specific laws.

Certain industries, such as banks or financial institutions, may have additional regulatory requirements for directors.

Special Rules for Government Officials

Some government officials cannot serve as directors of private companies. This is to prevent conflicts of interest.

The framework governing the independence of directors and the management of potential conflicts of interest in Armenia encompasses various mandatory legal requirements.

Board Composition and Independence

OJSCs are required to ensure that at least one-third of their board members are independent. The law specifies the criteria for determining a director’s independence to promote transparency and accountability.

Separation of Leadership Roles

In OJSCs, the roles of the board chair and the CEO cannot be held by the same person. This separation aims to prevent conflicts of interest and promote effective oversight.

Approval of Transactions with Potential Conflicts

Procedures have been revised to enhance transparency in transactions that may involve conflicts of interest. These revisions ensure that the essential terms of the transactions are clear, decision-makers remain independent and actual or potential conflicts are eliminated.

The main legal duties of directors and officers of a company are primarily governed by the CC, LJSC, LLLC and other related regulations. These duties include the following.

Fiduciary Duties

Directors and officers have a fiduciary responsibility to act in the best interests of the company and its shareholders. This includes:

• acting in good faith and honestly;
• avoiding conflicts of interest; and
• not using corporate opportunities for personal gain.

Duty of Care and Diligence

Directors and officers must exercise reasonable care, skill and diligence while performing their functions. This includes:

• making informed business decisions;
• ensuring compliance with legal and regulatory obligations; and
• overseeing financial management and risk assessment.

Duty to Act Within Powers

Directors and officers must act within the authority given by:

• the company’s charter (articles of association);
• the decisions of the general meeting of shareholders; and
• applicable laws and regulations.

Duty to Prevent Insolvency and Mismanagement

If a company is approaching financial difficulties, directors and officers must take reasonable steps to prevent insolvency and must not act in a way that makes the financial situation worse.

Duty to Maintain Corporate Records and Transparency

Directors and officers must ensure that:

• proper accounting and financial records are maintained;
• the company provides accurate financial reports to the relevant authorities; and
• shareholders have access to essential corporate information.

Liability for Breach of Duties

Failure to comply with these duties can lead to:

• personal liability for damages caused to the company;
• civil and administrative penalties; and
• criminal liability in cases of fraud, mismanagement or financial misconduct.

Directors primarily owe duties to the company itself. They must act in the best interests of the company, ensuring its success and protecting its assets. This typically means acting in the best interests of shareholders.

However, the law also recognises the need for directors to consider the interests of other stakeholders in certain situations. Specifically:

• creditors: when a company is approaching insolvency, directors may have a duty to consider the interests of creditors to prevent actions that could make the financial position of the company worse;
• employees: while not a primary duty, Armenian employment laws may impose obligations regarding fair treatment and compliance with labour regulations; and
• government and regulatory compliance: directors must ensure that the company complies with tax laws, environmental regulations and other legal requirements.

While the primary duty is to the company and its shareholders, directors must also be mindful of obligations that indirectly benefit other stakeholders, especially in cases involving insolvency or legal compliance.

If a director breaches their duties in Armenia, several parties may have the right to seek a remedy for the breach, depending on the circumstances.

The Company (via Shareholders or the Board)

The company itself, usually through its BoDs or shareholders, can bring a claim against a director for breaching their duties.

In some cases, shareholders may initiate a derivative action on behalf of the company if the board fails to act.

Creditors (in Insolvency Cases)

If the company is insolvent or nearing insolvency, creditors may have a claim if directors acted recklessly, fraudulently or engaged in wrongful trading.

The insolvency administrator (appointed by the court) may also take action to recover damages from directors.

Regulatory Authorities

Regulatory bodies in Armenia, such as the State Revenue Committee or the CBA (for financial institutions), can investigate and penalise directors for breaches related to tax, financial or securities laws.

Consequences of a Breach

If a director is found to have breached their duties, the consequences may include the following.

Civil liability

The director may be required to compensate the company for financial losses caused by their actions. Courts may invalidate transactions made in breach of duty (eg, conflicts of interest or unauthorised deals).

Criminal penalties

If the breach involves fraud, embezzlement or tax evasion, the director could face criminal charges, including fines and imprisonment.

Directors in Armenia are primarily accountable to the company and its shareholders but creditors and regulators can also enforce breaches in certain cases. Penalties range from financial liability to criminal prosecution, depending on the severity of the breach.

In addition to breaches of fiduciary duties and general corporate governance violations, directors and officers in Armenia may face claims or enforcement actions on the following grounds.

Breach of Statutory Duties

Directors are required to comply with Armenian corporate laws, such as the CC and LJSC.

Violations (eg, failure to maintain proper records, mismanagement of shareholder rights) can lead to administrative fines or legal claims.

Fraud and Misrepresentation

Directors can be held personally liable if they engage in fraudulent activities, such as misstating financial statements, hiding company liabilities or engaging in misleading transactions.

Shareholders or regulators (such as the State Revenue Committee) may bring actions in these cases.

Failure to Prevent Insolvency or Wrongful Trading

If the cause of the insolvency (bankruptcy) of the company is the activity (inaction) of the director, who has the right to give binding instructions to the company for execution or the ability to otherwise determine the activities of the company, then in the event of non-fulfilment of the property belonging to the company, additional (subsidiary) liability may be imposed on those shareholders or other persons for the company’s obligations.

The actions (inaction) of the director will be considered the cause of the insolvency (bankruptcy) of the company only if they used their rights or abilities as a director to force the company to perform or not perform certain actions, knowing in advance that this would cause the company to find itself in a state of insolvency (bankruptcy).

Tax and Regulatory Violations

Directors are responsible for ensuring the company complies with tax laws, customs regulations and other state obligations.

The State Revenue Committee and other regulators can impose penalties or even criminal charges for tax evasion, failure to report income or non-compliance with regulatory filings.

Environmental and Consumer Protection Violations

Directors in industries subject to environmental laws or consumer protection regulations can face liability for non-compliance, including fines or operational restrictions.

Can the Liability of a Director or Officer Be Limited in Armenia?

Director liability can be limited but there are important restrictions:

Indemnification by the company

Armenian corporate law allows companies to indemnify directors for legal costs and damages except in cases of fraud, gross negligence or intentional misconduct.

The company’s charter or internal regulations may include indemnification clauses.

Directors and officers (D&O) insurance

Companies can purchase D&O insurance to protect directors from personal liability, covering claims from shareholders, creditors or regulators.

However, D&O insurance does not cover criminal acts or deliberate misconduct.

Limitation in corporate by-laws or agreements

Some liability protections can be included in employment contracts or corporate by-laws, such as requiring shareholder approval before a director can be sued in a personal capacity.

However, these clauses cannot override statutory liability (eg, fraud, tax evasion or wrongful trading).

Legal Defences

Directors can defend themselves by proving they acted in good faith, with due diligence and in the best interests of the company.

The business judgment rule could serve as a defence if directors acted in good faith and with reasonable care.

The regulation of remuneration, fees and benefits payable to directors and officers of a company in Armenia are primarily governed by the LJSC, the LLLC, the LC and relevant company charter provisions.

Approvals Required

JSCs

BoD or general meeting of shareholders

The general meeting of shareholders generally approves the amount and terms of remuneration for members of the BoD (supervisory board).

If the company has an executive body (CEO, managing director), their remuneration is usually set by the BoD (if such a board exists) or by the general meeting of shareholders, depending on the charter.

Charter requirements

Company charters may contain specific rules or limitations on compensation structures, requiring formal approval from shareholders or the board.

LLCs

General meeting of participants (shareholders)

The general meeting of participants (shareholders) approves the remuneration of the executive body. In single-member LLCs, the sole participant makes these decisions directly.

Restrictions

While there is no general statutory cap on remuneration, it must be:

• consistent with the company’s charter; and
• properly approved via internal corporate governance mechanisms.

Conflicts of Interest

Directors must avoid approving their own remuneration without proper corporate approvals.

Transparency

Specific companies (especially listed ones) may have reporting obligations under securities laws or financial disclosure rules.

Tax Compliance

Compensation must comply with tax and social contribution laws, including proper classification (eg, salary v dividend v service fee).

Consequences of Non-Compliance

Invalidity of payments

Payments made without proper approvals may be deemed unauthorised or invalid and the recipient may be required to return the funds.

Liability of directors

Directors or officers who authorise or receive unlawful compensation may be held liable for damages to the company.

Administrative or criminal sanctions

In serious cases, especially where fraud or misappropriation is involved, criminal charges or administrative fines may apply.

Tax penalties

Improper classification or undocumented payments may result in tax audits, penalties and interest for non-payment of taxes or social payments.

The disclosure of remuneration, fees or benefits payable to directors and officers is primarily governed by the Corporate Governance Code.

Beyond the Corporate Governance Code, Armenian legislation does not compel companies to publicly disclose specific details regarding the remuneration of directors and officers. However, certain sectors such as banking, insurance and investment fund management may have additional disclosure requirements.

Banks for example have to publish financial statements and audit reports, which could encompass information about executive compensation. While general disclosure of director and officer remuneration is therefore not compulsory, companies in specific industries may be subject to more stringent reporting obligations.

The relationship between a company and its shareholders is governed by corporate law, primarily the CC and the LJSC or the LLLC. How the relationship is structured and the relevant rules and requirements are as follows.

Relationship Between the Company and Shareholders

Ownership and control

Shareholders are the owners of the company. Their ownership is represented by shares (in the case of joint stock companies) or stakes (in the case of LLCs). The extent of their control over the company is typically proportional to the number of shares they own.

Rights of shareholders

Shareholders have various rights, including, but not limited, to the right to:

• vote at general meetings, which influences decisions like electing directors or approving major corporate actions;
• receive dividends;
• access certain corporate information;
• participate in a liquidation process if the company is dissolved; and
• transfer their shares, although there may be restrictions (for example, in LLCs or in closely held companies).

Rules and Requirements Governing the Relationship

Corporate governance

The relationship is primarily governed by the company’s charter and the regulations outlined in the CC and the relevant laws. These documents lay out the rules for:

• shareholder meetings: the frequency and procedures for holding shareholder meetings, voting mechanisms and quorum requirements;
• dividends and profit distribution: how and when dividends can be paid to shareholders and the decision-making process for distributing profits;
• dispute resolution: procedures for resolving shareholder disputes, often involving the court system if disputes cannot be settled internally;
• company’s financial transparency: companies are required to maintain accurate financial records and provide certain disclosures to shareholders, typically through annual reports or shareholder meetings; and
• rights protection: Armenian law also protects minority shareholders by requiring certain protections in decision-making processes, ensuring that major decisions do not disproportionately disadvantage them.

Publicly Available Record of Shareholders

Public Registry

The State Register of Legal Entities (maintained by the Ministry of Justice) is the key registry where information about companies is stored and shareholder information is publicly available for LLCs.

The data on the participants of LLCs is public, but in the case of JSCs, there is no public data on the shareholders.

Shareholders have certain rights and powers but their direct involvement in the management of day-to-day operations is generally limited. The degree of shareholder involvement can vary depending on the type of company, the shareholder agreement and the company’s governing documents.

The involvement shareholders may have is as follows.

Shareholder Rights

Shareholders have the right to participate in general meetings (either in person or through proxies), where they can vote on significant decisions, such as the election of the BoD, approval of financial statements, amendments to the charter and decisions on dividends.

In specific cases, shareholders may have the right to request additional information or challenge decisions they believe are harmful to the company.

Management and BoD

Companies typically have a BoD that manages the company. The board is responsible for overseeing the company’s operations, strategy and major decisions.

Shareholders usually manage the company directly and have the power to elect members of the board and approve key decisions through shareholder meetings.

Majority shareholders (those owning a significant portion of the shares) can have substantial influence over the management.

Minority shareholders have fewer direct powers but are protected by laws that prevent abuse by majority shareholders. They may be able to exercise influence, particularly if there are provisions in the company’s articles of association or shareholder agreement allowing minority shareholder rights.

Directing Management

While shareholders do not typically have day-to-day control, they can influence key strategic decisions, such as mergers, acquisitions or significant investments by voting in shareholder meetings.

Shareholders may also propose resolutions that management is required to present at general meetings and they can influence actions through these mechanisms.

Voting on Specific Actions

In specific cases, shareholders can direct management to take or refrain from specific actions through their voting rights. For example, shareholders might approve or block the adoption of a business strategy or major contracts.

Some decisions, such as changes to the charter, liquidation or changes in the legal structure, require shareholder approval.

Shareholders have the power to influence management through voting and shareholder meetings but their ability to directly manage day-to-day operations is limited for the most part. Their power is largely exercised through strategic decisions and oversight of the BoD.

Shareholder meetings are mandatory for companies in Armenia. Both LLCs and JSCs have to convene AGMs to ensure proper governance and compliance with legal obligations.

LLCs

Frequency

LLCs must hold an AGM at least once a year. The meeting should be organised within the timeframe specified in the company’s charter but no earlier than two months and no later than six months after the end of the financial year.

Notice

Shareholders must receive 20 days’ notice before an extraordinary general meeting (EGM) is convened unless the company’s charter specifies otherwise. Notifications can be sent via mail to the shareholder’s address.

Agenda

The AGM generally addresses the approval of annual reports, balance sheets, profit and loss statements, profit distribution and decisions regarding annual dividends.

JSCs

Frequency

JSCs have to convene an AGM within six months after the end of the financial year as stipulated in their charter.

Notice

Shareholders must be notified at least 21 days prior to the meeting. Notifications can be delivered through registered letters, personal delivery or electronic methods such as email or application platforms that confirm receipt.

Agenda

Typical items include approval of annual reports, balance sheets, profit and loss statements, distribution of dividends, election of board members, appointment of auditors and decisions on significant transactions.

General Provisions

Convening meetings

The BoD usually convenes general meetings. However, if the board is not formed or fails to act, shareholders owning at least 10% of the voting shares can request a meeting be convened.

Participation rights

Shareholders have the right to attend meetings, participate in discussions, vote on agenda items and exercise other rights defined by law and the company’s charter.

Documentation

Shareholders are entitled to access and obtain copies of documents and information pertinent to the agenda items upon request.

These regulations ensure that shareholder meetings are conducted transparently and that shareholders can effectively exercise their rights.

Shareholders can bring claims against the company or its directors on various legal grounds. These are primarily governed by the CC and the LJSC. Some of the most common grounds for these claims are as follows.

Breach of Fiduciary Duty (Duty of Care and Loyalty)

Directors of the company owe a fiduciary duty to the company and its shareholders. Shareholders can claim that the directors breached these duties by:

• making decisions negligently by failing to act with due care and diligence; and
• making decisions that benefited them personally and were to the detriment of the company.

Violation of Corporate Governance Rules

Directors must adhere to the rules established by the company’s articles of association and corporate governance regulations. Shareholders can submit a claim if:

• directors fail to call meetings or issue resolutions as required by the company’s governing documents;
• decisions are made outside the scope of the company’s objectives or powers; and
• financial statements or other disclosures are falsified or not made available to shareholders as mandated.

Fraud or Misrepresentation

If the directors or the company mislead shareholders, engage in fraudulent activities or provide false or misleading information (eg, during the issuance of shares or reporting company financial health), shareholders can file a claim against them for damages.

Derivative Actions

Shareholders can bring a derivative action on behalf of the company if directors have engaged in misconduct and the company itself has not taken action to remedy the situation. This allows shareholders to sue for damages arising from the director’s breach of duty, fraud or other wrongdoings that harmed the company.

Non-Compliance with Laws and Regulations

If the company or its directors violate Armenian laws or fail to comply with regulations, shareholders may claim damages, especially if the violations harm their financial interests or the company’s value.

Shareholder Agreements and Contractual Claims

Shareholders may also bring claims if the company or directors breach specific agreements or contracts made between the shareholders or with the company, such as in cases of unfair buyout terms or non-performance of promises made in shareholder agreements.

Claims for Dividends

If the company fails to distribute dividends to shareholders in line with the law or the company’s charter, shareholders may claim the right to receive their share of profits.

Reorganisation or Liquidation Claims

Shareholders may bring claims if the company’s reorganisation or liquidation process is conducted unfairly, improperly or in violation of their rights.

Mismanagement or Improper Use of Company Assets

Claims may be brought if directors misuse company assets, engage in excessive spending or otherwise mismanage company resources to the detriment of the shareholders.

These claims may be brought before the courts in Armenia and shareholders generally have the right to seek damages, the removal of directors or the cancellation of unlawful decisions. It is important for shareholders to understand their rights and obligations under Armenian corporate law to effectively pursue these claims.

Legal frameworks in Armenia mandate specific disclosure obligations for shareholders and beneficial owners of publicly traded companies to promote transparency and combat financial malfeasance.

Shareholder Disclosure Obligations

Armenian legislation requires certain entities, such as investment companies, branches of foreign investment companies, regulated market operators, corporate investment funds and investment fund managers to disclose information about their beneficial owners to the CBA. This submission aligns with the standards set by the Law “On Combating Money Laundering and Terrorism Financing” and the requirements established by the CBA’s normative legal acts.

Beneficial Ownership Disclosure Obligations

The Law “On Combating Money Laundering and Terrorism Financing” defines a beneficial owner as a natural person who:

• directly or indirectly holds 20% or more of the voting shares or has 20% or more participation in the authorised capital of a legal entity;
• exercises real (factual) control over the legal entity through other means; and
• performs general or current management of the organisation when no individual meets these criteria.

All commercial organisations registered in Armenia, except for LLCs with only natural person participants have to submit declarations of their beneficial owners. Declarations must be submitted electronically to the State Register of Legal Entities within 40 days of the organisation’s registration. Any changes in beneficial ownership information must be declared immediately upon acknowledgment by the organisation and no later than 40 days after the change.

Failure to comply with these disclosure obligations can result in administrative penalties, including warnings or fines. Deliberate concealment or provision of false information may lead to criminal liability. Penalties include deprivation of certain rights or imprisonment.

These regulations underscore Armenia’s commitment to enhancing corporate transparency and aligning with international standards in combating money laundering and terrorism financing.

Companies have to adhere to specific financial reporting and disclosure obligations to ensure transparency and compliance with national regulations. These obligations encompass the preparation and submission of various financial statements, adherence to auditing requirements and timely tax filings.

Annual Financial Statements

All entities must prepare annual financial statements in line with the Armenian Law on Accounting and Financial Reporting.

The standard components of these statements include:

• balance sheet;
• income statement;
• statement of changes in equity;
• cash flow statement; and
• notes on financial statements.

These statements should reflect the financial position of the company as of December 31 of the reporting year. Companies have to submit their annual financial statements to the tax inspectorate.

Audit Requirements

Audits are mandatory for certain categories of entities, including OJSCs, banks and other financial institutions.

The criteria for mandatory audits include the following.

• Public interest organisations and large organisations:
1. an organisation that:
1. is a person making a public offer of securities or a reporting issuer in the territory of Armenia, with the exception of the International Monetary Fund, the European Central Bank, the European Investment Bank, other international organisations which Armenia is a member of, which are persons making a public offer of securities or reporting issuers, or
2. is a bank, credit institution, payment and settlement institution, investment company, regulated market operator, central depository, insurance company, reinsurance company, insurance brokerage company or investment fund manager.
• Medium-sized organisations։:
1. an organisation that is not a small organisation or a micro-organisation and that, as of the end of the reporting year (for which financial statements must be prepared), has not exceeded at least two of the following three indicators:
1. the total amount of the statement of financial position (balance sheet) – AMD10 billion;
2. revenue from operations – AMD20 billion; or
3. the average annual number of employees, calculated in line with the procedure established by the Statistical Committee – 250.

Reporting Deadlines

The fiscal year in Armenia aligns with the calendar year, meaning it ends on December 31 each year. Key reporting deadlines include the following.

Annual financial statements

Due by April 15 of the year following the reporting year.

Corporate income tax returns

Must be filed by April 15 each year, reflecting income earned during the preceding fiscal year.

Quarterly financial reports

These reports must be submitted within 30 days of the end of each quarter.

Penalties for Non-Compliance

Failure to comply with financial reporting and audit requirements can result in fines imposed by regulatory authorities.

Additional Disclosure Obligations

Companies must also disclose changes in management, amendments to articles of incorporation, changes in shareholders and information about ultimate beneficial owners (UBOs). Failure to submit a declaration on UBOs within the prescribed period can result in a warning or a fine. Adherence to these financial reporting and disclosure requirements is essential for maintaining compliance and fostering trust among stakeholders in Armenia’s business environment.

The disclosure of corporate governance arrangements is governed by the Code of Corporate Governance. The Corporate Governance Code aims to enhance the efficiency of company management, protect shareholder rights and promote transparency and accountability within organisations.

Voluntary Adherence and Reporting Requirements

Adherence to the Corporate Governance Code is voluntary for companies. Organisations that choose to comply are expected to prepare and publish an annual report, which includes a corporate governance report and an annual corporate governance declaration. These documents should be made available on the company’s website by June 30 of the year following the reporting period. This approach operates on a “comply or explain” principle, meaning companies either comply with the Corporate Governance Code’s provisions or provide explanations for any deviations.

Legal Framework and Recent Amendments

On 8 June 2024, an amendment to the CC incorporated the Corporate Governance Code into national legislation under Article 76.1. Key aspects of this amendment include:

• the definition of the Corporate Governance Code: the Corporate Governance Code is recognised as a legal act approved by the authorised body responsible for developing investment promotion policies. It contains principles and guidelines aimed at improving the efficiency of company management, safeguarding participant rights and enhancing transparency and accountability; and
• voluntary application: while the Corporate Governance Code is integrated into the legal framework, its application remains voluntary unless otherwise specified by law. Decisions to adopt the Corporate Governance Code are typically made by the general meeting of a company’s participants, unless stated differently in legislation or the company’s charter.

Implications for Companies

Companies that opt to adhere to the Corporate Governance Code are encouraged to:

• enhance transparency: disclose their corporate governance structures and practices to stakeholders, fostering trust and confidence; and
• aligning with best practices: implement governance principles that align with international standards, potentially attracting foreign investment and contributing to sustainable economic growth.

By voluntarily adopting the Corporate Governance Code and transparently reporting their governance arrangements, Armenian companies can demonstrate a commitment to ethical management and accountability, benefiting both the organisations and their stakeholders.

Companies in Armenia are registered with the Agency of the State Register of Legal Entities of the Ministry of Justice.

To register a company, the following documents must be submitted:

• application;
• the decision of the founders on the establishment of a legal entity or the minutes of the founding meeting (congress or other legally established body), which has been signed by all the founders or, in cases provided for by law, the chairman and secretary of the meeting;
• the charter of a legal entity approved by the founder(s) or the founding meeting (congress or other body established by law);
• information about the head of the executive body of the legal entity or their acting duties;

• the sole written decision of the founder if a legal entity is founded by one person;

• the name of the legal entity and the state registration number, if a legal entity is present among the founders of the entity. In addition to the other documents provided, it is also necessary to submit the decision of the authorised body for the management of the founding legal entity and information about the founding legal entity; and
• if the founder of a legal entity established by way of establishment is a foreign legal entity, then for state registration, in addition to the other documents provided, an extract from the commercial register of that country or another similar document confirming the legal status of the foreign legal entity and its constituent documents (or corresponding extracts), certified and translated into Armenian, will also need to be submitted. If the founder of a legal entity established through the establishment is a foreign individual, then for state registration, in addition to the other documents provided, a certified and translated into Armenian copy of the passport or other identity document of the person must be submitted.

These documents are available to the public and are posted in the electronic system of the State Register of Legal Entities of the Ministry of Justice.

If the documents are not submitted properly, the company will not be registered.

An audit committee attached to the board is formed in an OJSC and the audit committee is composed exclusively of board members. At least one of the members of the audit committee must be an independent member of the board.

A person who is involved in the management of the current activities of the company and its affiliated person(s) may not be a member of the audit committee.

The chairman of the audit committee will be elected by the board and will be an independent member of the board. The positions of chairman of the board and chairman of the audit committee may not be combined.

The audit committee:

• carries out control (verification) of the process of ensuring the reliability of the company’s financial statements and official statements on the financial results of the company’s activities;
• carries out analysis of the company’s quarterly and annual reports and submits proposals to the board for their approval;
• carries out an audit of the company’s internal control function, including risk management, systems for compliance with applicable laws, legal acts and other requirements;
• presents recommendations to the board on the selection criteria, remuneration and other significant conditions of the company’s external auditor;
• carries out monitoring and analysis of the independence, objectivity and effectiveness of the company’s external auditor;
• meets with the external auditor at least once a year;
• analyses the reports of the company’s external auditor and provides relevant information to the board;
• monitors the implementation of the recommendations of the company’s external auditor; and
• develops policies on the company’s internal control system and monitors their implementation.

The company’s charter or internal legal acts may provide the audit committee with other powers.

Directors have to act in the company’s best interests and exercise their rights and duties in good faith and with reasonable care, while avoiding actual or potential conflicts of interest. This fiduciary duty encompasses the responsibility for overseeing risk management and internal controls within the company. To promote effective corporate governance, the Armenian government introduced the Corporate Governance Code in 2010, which was updated in 2024. The Corporate Governance Code provides principles and guidelines aimed at enhancing management efficiency, protecting shareholder rights and increasing transparency and accountability.

Incorporating the Corporate Governance Code into company practices can bolster investor confidence, reduce risks and contribute to sustainable economic growth. By aligning with international best practices, Armenian companies can enhance their governance frameworks, thereby supporting long-term success and stability.

In summary, while Armenian law mandates directors to act diligently and in the company’s best interests, the Corporate Governance Code offers a structured approach to managing risk and internal controls, encouraging companies to adopt comprehensive governance practices.