In Armenia (RA), businesses are often based on family or friendly ties, making M&A deals rare. Mergers involving state non-commercial organisations are more common in state-owned companies, mainly in healthcare and education.

Company capital is usually increased by issuing new shares and attracting shareholders. Share acquisition is the most common way to acquire a company in RA. M&A activity also faces challenges, partly due to regional tensions.

The M&A market recorded positive results at the end of 2023. Sectors such as renewable energy, IT, and financial services gained new momentum, driven by government reforms and growing interest from foreign investors.

Global factors like geopolitical tensions in the South Caucasus and the Russo-Ukraininan war will continue to affect M&A activity in the region, including RA, in 2025. Political shifts in neighbouring countries and changes in the international arena may further impact investor confidence, especially in sectors such as energy and infrastructure.

Unified economic zones push businesses to combine their efforts in today’s globalised world. In addition, Armenia’s small market size encourages business consolidation due to the necessity of proper technical re-equipment, because the market is small and incomes are limited.

Despite challenges, Armenia’s IT, construction, and energy sectors are growing and expected to attract local and foreign investors as businesses adopt new technologies to expand.

Armenia’s tech sector, supported by government incentives and diaspora investments, drives M&A deals, especially in software, AI, and digital transformation. Companies seek expansion to enter global markets. Renewable energy, particularly solar, wind, and hydro, will also attract growing investments in 2025.

Foreign companies show interest in Armenia’s green energy potential. M&A activity is also rising in healthcare, pharmaceuticals, agriculture, and real estate.

In RA, a company can be acquired in two main ways. Buying shares, equity stakes, or other participation rights is the most common route. The next one is the acquisition of the company’s assets. After acquiring shares or stakes, companies with similar activities may merge or consolidate. Legal succession transfers all rights and obligations to the new or existing company under the transfer act.

Mergers and consolidations may require prior approval from the Competition Protection Commission (“Commission”) if certain financial thresholds are exceeded. Concentration needs approval if the combined assets or revenue of the participating entities exceed AMD 4 billion at the time of filing or the previous financial year. Approval is also required if one participant’s assets or revenue exceeds AMD3 billion at the time of filing or the previous financial year. Regardless of thresholds, concentration must be declared if one participant holds a monopoly or dominant position in any product market. This helps assess competition risks and protect consumer interests.

Several regulatory bodies are involved in the process of regulating the sphere. Companies in RA must register with the State Register Agency (“The Agency”) under the Ministry of Justice. The Agency manages registrations, ownership changes, mergers, acquisitions, and share transfers. Corporate changes take effect only after approval and proper documentation. “HAP” LLC, licensed by the Ministry of Justice, acts as a unified public service office, simplifying company registration and corporate changes. The Central Depository of RA serves as a centralised registrar, maintaining data on securities owners, types, and quantities based on agreements with issuers.

The Cadastre Committee of the RA is responsible for the state registration of property rights, restrictions, and usage limitations, regardless of the form of ownership.

In some fields, other authorities may need to be involved. For example, only mergers (no other reorganisations) are allowed for financial organisations, with the CB of RA (CBA) overseeing the process. Banks must sign a merger agreement and get approval from the CBA when they merge. To obtain approval, the merging bank must provide transaction details, necessary documents, and information as outlined by the CBA’s regulations and deadlines.

Another crucial regulatory body is the Competition Protection Commission (CPC), which ensures economic freedom, free economic competition, the environment necessary for fair competition, the development of entrepreneurship, and consumer protection. The latter may focus on M&A if they need to assess their impact on market competition and prevent possible abuses. In such cases, companies must obtain CPC approval to ensure the transaction does not harm competitive conditions.

At the same time, in certain cases, M&A transactions may require approval from the Public Services Regulatory Commission (PSRC). For example, under the Law “On Energy”, the PSRC is authorised to regulate the sale, transfer, or pledge of shares (equity stakes) in a licensed entity, as well as the sale or transfer of assets necessary for licensed activities. If 25% or more of shares are sold, transferred, or pledged or if any share transfer allows control over the licensed company’s decisions, the license holder must first get approval from the PSRC. Similar rules apply to transactions with telecommunications operators under the Law “On Electronic Communications”.

RA maintains a favourable legal regime for foreign investments, ensuring they are not treated less favourably than investments made by Armenian citizens, enterprises, institutions, or organisations. Furthermore, additional incentives may be provided under Armenian legislation to promote foreign investments in key social and economic development sectors.

According to the Law “On Foreign Investments”, in the event of legislative changes affecting foreign investments, investors have the right to apply the legal framework in force at the time of their investment for up to five years.

A key safeguard is that foreign investments in Armenia cannot be nationalised. State authorities are also prohibited from expropriating foreign investments. Expropriation is permitted only in exceptional cases under law, specifically in a state of emergency, and must be ordered by a court with full compensation provided.

The customs privilege is significant because it allows enterprises to import goods listed by the Government of the RA without incurring customs duties, provided that these goods are intended to replenish the enterprise’s authorised capital with foreign investments. Foreign-invested companies can export their products and import necessary goods without a license, except in cases set by Armenian law or international treaties. This shows Armenia’s commitment to a business-friendly investment environment.

The above shows that RA has a more favourable regime for foreign investments. Article 4 of the Law “On Foreign Investments” defines how foreign investments can be made, with any restrictions set only by Armenian law. For example, Article 60 (Part 6) of the Constitution bans foreign citizens and stateless persons from owning land unless the law allows exceptions. Under the RA Land Code, foreign citizens and stateless persons can only use land, not own it, except those with special residency status. The Law “On Audiovisual Media” restricts foreign capital from owning 50% or more of shares in broadcasting and private multiplex companies unless allowed by an international agreement.

According to Article 13 of the Law “On the Protection of Economic Competition”, the following shall be deemed to be a concentration of economic entities:

• absorption between economic entities registered in RA;
• consolidation of economic entities registered in the RA;
• when a company acquires the assets of another company registered in RA, the transaction must be declared if the acquired assets alone or combined with other assets bought from the same company in the last three years – make up 20% or more of the seller’s total assets at the time of filing;
• if a company acquires 20% or more of another company’s share capital in RA or if the new share combined with previously owned shares makes up 20% or more of the transaction, it must be declared;
• acquisition of the right to use the object of intellectual property, including means of identification, because of which the economic entity may have an impact on the competitive situation in a goods market in the RA;
• any deal, action, reorganisation, or behaviour by companies that could directly or indirectly affect another company’s decisions, competitiveness, or the competitive situation in Armenia’s market must be declared; and
• establishment of a legal person in the RA by more than one economic entity, which will act as an independent economic entity.

Furthermore, under Article 13(8) of the same law, within the meaning of this Law, concentration shall take place:

• in the same goods market (horizontal concentration);
• in different goods markets having certain interrelation (vertical concentration); and
• in different goods markets (mixed concentration).

Thus, a merger or consolidation of economic entities will not be considered a concentration unless it falls into one of these three categories.

According to Article 15 of the Law, the concentration of economic entities shall, before being put into effect, be subject to declaration if any of the following criteria are met:

• concentration must be declared if the total asset value of the parties or the asset value of at least one party exceeds 3 billion drams at the time of submission or in the previous financial year, as set by the Commission;
• concentration must be declared if the total revenue of the parties exceeds 4 billion drams or if the revenue of at least one party exceeds 3 billion drams in the previous financial year; 
• if the parties did not operate in the previous financial year or operated for less than 12 months, a concentration must be declared if their total revenue or the revenue of at least one party in the last 12 months exceeds 4 billion drams; and
• at least one of the parties to the concentration has a dominant position in a goods market in the RA.

It is important to note that The Commission shall prohibit the concentration subject to declaration, where:

• according to the results of studies by the Commission, the concentration would result in prevention, restriction, blocking or otherwise worsening of the economic competition in the relevant goods market; or
• according to the results of studies of the Commission, the concentration would result in the establishment or strengthening of a dominant position; or
• according to the results of studies by the Commission, the concentration would harm the consumer interests; or
• concentration must be declared if a party fails to provide essential information needed by the Commission to assess its market impact, and this information cannot be obtained from other sources.

In this context, a significant example of concentration involved “Fedilco Group Limited” acquiring 100% of the shares of “MTS Armenia” CJSC. The Commission initially rejected the first application but later approved the concentration following a second review. Another notable case was the concentration between “Zangezur Copper-Molybdenum Combine” CJSC and “Makur Yerkat Factory” OJSC. On 30 April 2024, the Commission issued Decision No. 174-A, rejecting concentration. However, after “Makur Yerkat Factory” OJSC filed a complaint, the Commission later approved the concentration with certain conditions. In this case, “HAP” LLC represented “Makur Yerkat Factory” OJSC.

According to Article 126 of the LC of RA, restructuring or a change in the organisation’s ownership does not justify terminating employment contracts unless it involves staff cuts or a reduction in positions. This means that neither a new employer nor reorganisation alone can be a reason to end an employment contract. This approach protects labour rights, ensures legal certainty, and promotes stability in the job market.

In case of changes in essential working conditions (such as the workplace, the amount and/or method of determining remuneration, benefits, working hours and rest periods, categories and names of positions, job functions or the type of employment contract) and/or a change of employer, the employer must notify the employee within the time limits prescribed by the Labor Code (LC), except in the following cases:

• if the base salary and/or bonuses, allowances, and additional payments are increased, other conditions remain unchanged;
• if the daily and/or weekly working hours are reduced, provided that the reduced working hours are fully compensated and other conditions remain unchanged; and
• if the above conditions apply simultaneously, while other conditions remain unchanged. Regulations on collective agreements are also important. According to Article 59(4) of the LC, a company’s collective agreement remains valid even if the company changes its name, owner (participant), or head (or the employer’s representative who signed the agreement).

According to parts 6 and 7 of the same article, in case of an organisation’s reorganisation or privatisation, the collective agreement remains in force until its expiry date or the conclusion of a new collective agreement. If the reorganised organisations had multiple collective agreements, those agreements would become invalid after reorganisation. A new collective agreement must be signed within two months, ensuring terms that are at least as favourable as previous agreements.

No specific regulations or restrictions explicitly address national security concerns in the context of mergers and acquisitions. However, an exception applies to the foreign investment sector. Specifically, under the legislation of the RA, certain territories or sectors may be defined where, due to national security requirements, the activities of foreign investors and enterprises with foreign investments are either restricted or prohibited.

The Court of Cassation (CC), in its decision of 10 July 2020 (Case No EED/0057/04/17) on bankruptcy proceedings, established that the legislator has defined the mechanisms that allow legal entities to reorganise. Among these mechanisms is the merger of legal entities. In such cases, legal entities are considered reorganised from the moment of state registration, which confirms the termination of the merged legal entity’s activity. Furthermore, when a legal entity merges with another, its rights and obligations are transferred to the successor entity in accordance with the transfer act. The CC reaffirmed this position in its decision of 30 October 2024 (Case No ED/8248/02/20) on a civil matter.

The CC ruled that when one company merges with another, making the second company a new creditor, the debtor is not affected unless officially notified of the change. The new creditor can claim interest or penalties for contract breaches only if the debtor was properly informed about the succession.

In RA, the primary legal acts regulating mergers and acquisitions of companies are The Civil Code of the RA, The Law “On Joint Stock Companies” (JSC), The Law “On Limited Liability Companies”, The Law “On Securities Market” and other sector-specific legal acts. In recent years, there have been no significant changes to these laws.

In RA, increasing shares before making a takeover offer is not common. An offer proposes buying or selling securities through communication directed at individuals.

According to the Law “On JSC”, a company has the right to increase its Charter capital by increasing the nominal value of the shares or placing additional shares. According to the Law on Limited Liability Companies, the General Meeting can decide to increase the Charter Capital through additional contributions from participants if at least two-thirds of participants vote in favour unless the company’s charter requires more votes. For joint-stock companies, the main method is issuing additional shares; for limited liability companies, it is additional contributions from participants.

The next common method is individual agreements and preliminary negotiations between companies. This is particularly prevalent in mining, telecommunications, and banking sectors, where shareholders often sell their shares through contractual agreements.

Securities listed on the stock exchange can only be traded with the approval of the market operator, following the Law “On the Securities Market,” related regulations, and stock exchange rules.

Under Armenian law, anyone (or an affiliated person) planning to acquire or increase shares in an investment company to reach at least 20%, 50%, or 75% of voting rights must get prior approval from the CB’s Board (CBA). To get approval, the applicant must submit a request to the CBA. After approval, they must notify the CBA if:

• selling shares reduce their voting rights below 10%, 20%, 50%, or 75%. 
• the sale decreases their voting rights by 10% or more.

To get prior approval for acquiring a significant share in an investment company, the applicant must submit documents and information to the CB through the investment company, proving the legal source of the funds.

First, it should be noted that the stock market in the RA is relatively small, and companies’ shares are rarely traded on the stock exchange, which often complicates stakebuilding.

According to Armenian law, anyone who acquires more than 75% of an issuer’s equity securities through one or more transactions must make a mandatory offer to buy all remaining securities of that class, following the Law “On the Securities Market.” This mandatory offer requirement can be seen as a challenge for transferring securities.

In joint-stock companies, the company charter (approved by 3/4 of shareholders’ votes, unless a higher number is required) may limit the maximum number, total nominal value of shares, or voting rights one shareholder can have. However, each ordinary share cannot grant more than 10 votes. 

For limited liability companies (LLCs), the Charter Capital can be increased through additional contributions from existing participants, often making it harder for new entities to join the company. However, the General Meeting can approve the entry of a third party into the company if the company charter allows it.

At the same time, a shareholder of a closed joint-stock company has a pre-emptive right to purchase shares sold by other shareholders of the company. If, within the period stipulated by the Company’s Charter, none of the shareholders exercise their pre-emptive right, the company is entitled to purchase these shares at a price agreed with the owner.

Some restrictions also apply to investment companies. Specifically, investment companies are prohibited from carrying out any other activities not provided by the law “On the Securities Market” unless otherwise prescribed by the regulatory legal acts adopted in accordance with this law. The violation of this restriction shall be considered grounds for revoking the investment company’s license.

It should be noted that due to national security considerations, foreign investments may be subject to additional restrictions.

Under Armenian legislation, derivative transactions are not restricted. However, the derivatives market in RA is still underdeveloped.

The CB has the authority to regulate derivative financial instruments and their markets if their unregulated use could harm financial stability, investors’ interests, or the proper functioning of financial markets. 

Since March 2022, fluctuations in Armenia’s foreign exchange market, especially among businesses involved in foreign trade, have increased the need to use derivative financial instruments. After discussions with the financial sector, the CB introduced regulatory reforms to simplify the offering of derivatives. The foreign exchange risk management requirements for commercial banks were relaxed, as they previously hindered the development of the derivatives market. The CB also made several regulatory changes to expand the foreign exchange market, giving participants access to better pricing and more financial instruments.

Furthermore, under the Tax Code, transactions involving the sale, transfer, exchange, or other disposal of derivative financial instruments by banks, credit organisations, and other taxpayers, as well as all payments stipulated under such transactions, are exempt from VAT except for payments made in exchange for the actual supply of goods subject to VAT. According to the Law “On JSC,” a company can issue convertible bonds and other securities that allow bondholders to convert them into shares or acquire shares with priority. However, the company cannot issue these securities if it does not have enough authorised shares available for conversion.

Notably, IC Armenia’s expert team developed legislative amendments within the SME Public-Private Dialogue Platform. These amendments, discussed under the Deputy Prime Minister’s leadership and approved by the Armenian Government, added provisions to the Civil Code, the Law “On Limited Liability Companies,” and the Law “On JSC.” They introduced the concept of a convertible loan agreement and its key conditions based on international and local business practices.

Specifically, it has been established that under a loan agreement where the borrower is a joint stock or limited liability company, it may be stipulated that instead of repaying the loan amount (or part thereof) and paying interest (or part thereof), the borrower is obligated under the conditions, procedure, and terms set forth in the loan agreement to issue and allocate a certain number, type, and class of shares to the lender or grant them a shareholding interest (convertible loan agreement).

The CB establishes a unified registry for derivative financial transactions (Trade Repository). A normative legal act of the CB defines the procedure and deadlines for registering derivative financial transactions, as well as the rules and conditions for maintaining the registry, submitting, processing, storing, and providing information.

According to Decision No. 204-N of the CB Board, dated 15 September 2017, reporting entities that enter derivative financial transactions subject to netting or offsetting and want to benefit from corporate income tax reductions under Armenia’s Tax Code must submit a report to the Trade Repository. This report must include key details of the transactions.

The report should contain information such as the reporting entity’s name (legal or full name), taxpayer identification number (TIN), transaction identification number, type of transaction, transaction date, final settlement date, and settlement type, among other required details.

The Law “On state registration of legal persons, state record-registration of separate subdivisions, institutions of legal persons and individual entrepreneurs” state that the person registered in the territory of the RA shall, based on the results of due diligence envisaged by this Law, submit to the Agency a declaration concerning the actual beneficiaries thereof.

Publicly listed companies or those fully controlled by another listed company only need to provide limited information if their shares are traded on a regulated market with disclosure rules equal to Armenian legislation. Besides revealing beneficial owners, Armenian law also requires companies to disclose the purpose of the acquisition or their intention to control the company.

At the same time, to obtain prior consent to acquire a significant interest in an investment company, a person must also submit to the CB – through the intermediary of the investment company – sufficient and complete justifications disclosing the legality of the origin of the funds used to acquire a significant interest.

Within three days of obtaining the CB’s prior consent for a merger, the merging investment companies shall publish an announcement about it on their Internet sites and in a daily newspaper with a print run of at least 3,000 copies in the territory of the RA as prescribed by the CB.

The public offering of securities for trading in a regulated market relies on a prospectus. This prospectus must contain detailed information about the issuer, the securities being offered, and any guarantor of the obligations related to those securities. It should provide investors with sufficient information to evaluate the issuer’s financial status, income, expenses, business prospects, risks, and rights associated with the securities.

In the case of investment companies, to obtain approval for signing a merger agreement, the investment company (or companies), in accordance with the procedure, form, and deadlines set by the CB, must submit to the CB, among other things, information about the individuals who will acquire significant participation in the surviving company. Along with the merger application, the surviving company must apply for prior approval of significant participation. This includes information about the person acquiring significant participation, their affiliated persons, and any other required documents, as outlined by the law and CB regulations.

Unions of persons providing investment services within ten days from the moment of their state registration shall notify the CB about that, providing information on their location, management bodies, and executive officers, as well as about changes thereof in the future, within ten days following those changes.

Within three days of obtaining the CB’s prior consent for a merger, the merging investment companies shall publish an announcement about it on their Internet sites and in a daily newspaper with a print run of at least 3,000 copies in the territory of the RA as prescribed by the CB.

Investment companies operating in the territory of the RA, including branches and representative offices of foreign investment companies, the operator of the regulated market and central depositary shall be obliged to submit the following changes to the CB for registration within a period of ten days after the occurrence thereof:

• amendments and/or supplements to the charter;
• changes in the composition of executive officers (except for heads of structural subdivisions); and
• other changes prescribed by the law or regulatory legal acts of the CB.

From a competition perspective, if the concentration requires notification, the information must be submitted to the Competition Protection Commission prior to its implementation.

In practice, these timeframes are typically adhered to.

In the Armenian market, due diligence is usually conducted before cooperation begins and the contract is signed — before making the final purchase decision. This process is critical in M&A deals, as it involves a detailed review of the company’s corporate status, assets, contracts, securities, intellectual property, and legal risks before the transaction.

Types of due diligence that are most commonly used in the RA are outlined below.

• Tax due diligence is a rather important and effective process during company mergers or acquisitions. It allows specialists to obtain reliable information about the company’s potential and current tax risks, which will help make a final decision on acquiring the company.
• Financial due diligence, which involves checking financial statements, as well as studying debts and assets. This process often also verifies the quality of accounting, the relevance and authenticity of transactions, and reveals the facts of the company’s economic activity. The dynamics of growth (or decline) of key indicators are observed and analysed, and the quality of accounting and financial services, accounting systems, and report preparation is assessed.
• Legal due diligence, which involves analysis of current and potential litigation, verification of contracts and rights, as well as compliance checks with current legislation and regulatory requirements.

Comprehensive checks by credit agencies are quite common. Using an appropriate scale, the latter assesses credit, liquidity, interest rate, currency, operational, and other risks. They study the bank’s financial statements and require detailed information. They also visit the bank to evaluate its financial condition and banking risks as part of the Due Diligence process to assign a unified rating. Non-financial factors are also considered, such as the quality of corporate governance, share capital structure, the presence of institutional investors among shareholders, and other important aspects.

Under Armenian legislation, Standstill or Exclusivity agreements are not commonly used. However, the Law “On JSC” allows shareholders to sign agreements that may include obligations to not sell shares until certain conditions are met. These agreements can also require shareholders to take joint actions regarding the company’s management, operations, reorganisation, or liquidation.

It should be noted that such agreements have been applied to some large companies.

First, the companies involved in a merger or acquisition sign a merger/acquisition agreement. Next, each company’s general meeting must approve the reorganisation in the form of a merger or acquisition. During this meeting, the participants will review and approve the merger/acquisition agreement, the transfer act, the terms of the merger/acquisition, and the process for converting shares and securities into shares of the new company (in the case of a merger) or the acquiring company (in the case of an acquisition).

The merger/acquisition agreement is the main document regulating the joint activity between two or more companies until the state registration of the corporate action. According to the provisions of Article 50.6 of the RA Law “On Limited Liability Companies” and Article 24 of the RA Law “On JSC”, the merger (acquisition) agreement is concluded between the companies participating in the merger (acquisition), signed by the head of the company’s executive body and subject to approval by their general meetings.

The transfer act should contain provisions on the succession of property of the reorganised company (companies) and all obligations related to creditors and debtors, including disputed obligations.

The issues discussed during the joint general meeting differ depending on the ongoing process, considering their peculiarities conditioned by the termination of companies’ activities.

The joint general meeting of participants/shareholders of companies involved in the merger acts as the founding meeting of the new legal entity formed after the merger. It is held by the body and within the timeframes set in the merger agreement. During the meeting, decisions are made on key issues such as approving the charter, authorised capital, share placement results, and electing management bodies.

In the case of an acquisition, the general meeting of participants/shareholders of the acquiring company decides on necessary changes to the company’s charter, approves the acquisition agreement and transfer act, and, if needed, addresses other related issues.

The duration of mergers and acquisitions in RA depends on the type of transaction, the number of parties, workload, complexity, and other factors. The process usually includes negotiations, due diligence, drafting agreements (considering due diligence results), agreement coordination and finalisation, signing, regulatory approvals, rights registration, and other steps.

Small and medium-sized transactions are usually completed within three to six months, while large transactions that require regulatory approvals can take 6-12 months.

According to Article 56.1, part 1 of the “Law on JSC,” at the request of the shareholder holding directly and solely at least 95% of the company’s voting stocks and votes concurrently granted thereby an extraordinary meeting shall be convened, where a decision shall be rendered on repurchasing and assigning to the shareholder submitting a request the voting stocks of other shareholders of a Company (except for stocks belonging to the RA and the communities).

According to part 1 of Article 56.2 of the same law, an extraordinary meeting is convened at the request of a shareholder who owns not more than 5% of the company’s voting stocks and, simultaneously, the votes provided by them, which decides on the repurchase of the stock of the requesting shareholder, if the company has a shareholder as provided for in part 1 of Article 56.1 of this law.

As stated by the “Law on Securities Market,” if a person acquires more than 75% of an issuer’s equity securities through one or more transactions, they must make a tender offer to purchase all remaining securities of that class, following the requirements of this Chapter. This rule applies to share purchases on the stock exchange. However, the requirement does not apply in the following cases:

• a person has become the holder of more than 75 per cent of securities of the given class as a result of a reduction of the authorised capital of the given company;
• the person has become the holder of more than 75 per cent of securities of the given class as the result of a voluntary securities tender offer made thereof for all the securities of the given class as prescribed by this Chapter;
• the securities have been acquired by a person providing investment services for placement purposes; and
• the person sells the portion of securities exceeding 75% within ten working days after acquiring them to someone not considered a joint actor under Article 151 of this Law, as long as no general meeting of the issuer’s shareholders is held during that period.

Company shares can be purchased with different assets, including monetary funds, securities, property rights, and intellectual property. Notably, the legislator has provided for the possibility of compensation with corresponding securities; in particular, the compensation offered to the owners of the securities in the offer to surrender securities can be in monetary funds and/or securities of another issuer or securities of the given issuer admitted to trading on the regulated market, except for the mandatory offer to surrender securities made according to the law, in which case the specified compensation can only be in monetary funds. The recent amendment to the “Law on Non-Cash Transactions” is significant. According to this amendment, effective 1 July 2022, any payments or receipts for transactions exceeding AMD300,000 – related to the sale of goods, property, the use of goods and property, the performance of work, the provision of services, and the payment of passive income as defined by the Tax Code of the RA – must be conducted in a non-cash form if at least one party involved is an individual. This requirement applies regardless of the payment procedure unless this law or other relevant laws stipulate specific lower thresholds or other exceptions.

Specific conditions apply to offers to purchase equity securities of JSC registered in RA (excluding investment funds) that are traded on a regulated market in RA. This type of offer is a public proposal to buy all or part of the equity securities of the same class, where the buyer offers to acquire 10% or more of the securities of that class. Before publishing the offer, the buyer must obtain prior approval from the CB.

The period for the offer to surrender securities cannot exceed 60 days. The conditions of the offer to surrender securities must be the same for all owners of securities of that class. If statements are provided to the securities owners in connection with that offer, the same statements must be provided to all owners of securities of that class. A person who has accepted the offer to surrender a security has the right to withdraw their acceptance at any time after the publication date of the offer to surrender (or changes to it) until the end of the offer period.

When discussing the minimum acceptable conditions, it is important to highlight that the offer to surrender securities must be at least equal to the market price of those securities. Additionally, the CB must establish the calculation procedure and conditions.

At the same time, the period for the offer to surrender securities must be at least 15 days.       

JSC can increase their charter capital by raising the nominal value of shares or issuing additional shares. However, RA legislation prohibits increasing the company’s charter capital using borrowed funds if the value of previously issued shares has not been fully paid. According to common practice, the buyer must confirm that they have sufficient financial resources to complete the transaction. If the latter has external financing or has obtained credit funds, they must submit documents confirming them. Bank guarantees are especially common in large transactions. It is no coincidence that before such transactions, many companies opt to conduct financial due diligence, allowing them to assess the buyer’s financial condition to avoid possible risks.

According to RA legislation, a secured right is the creditor’s right to property or property rights or obligatory rights by virtue of law or contract to secure the fulfilment of an obligation. The fulfilment of obligations can be secured in the following ways:

• pledge;
• penalty;
• retention of the debtor’s property;
• surety;
• guarantee;
• advance payment;
• other methods provided by law or contract; and
• In practice, escrow accounts are also widely used․

In M&A transactions, additional governance rights can be granted by agreements concluded between shareholders, by the company’s charter, or directly defined by the current legislation. A shareholders’ agreement is more common, a contract that defines how shareholders will exercise their rights or refrain from doing so. According to the agreement, shareholders may agree to the following.

• Vote at the general meeting in a specific way.
• Co-ordinate their voting process with others.
• Vote based on instructions from other parties.
• Buy or sell shares at a set price or under certain conditions.
• Refrain from selling shares until certain conditions occur.
• Take joint actions related to the company’s management, operations, reorganisation, or liquidation.

According to the Law “On JSC”, a shareholder can participate in the meeting in person or through an authorised representative. The shareholder can change their representative at any time or participate personally. The representative acts based on the Civil Code, other laws, or official regulations and must have a written power of attorney that meets legal requirements.

Upon the request of a shareholder who directly and solely owns at least 95% of the company’s voting shares and simultaneously the votes provided by them (Mandatory Sale Request of Company Shares), an extraordinary meeting is convened, which decides on redeeming the voting shares belonging to the other shareholders of the company (except for shares belonging to the RA or communities) and providing them to the requesting shareholder. Amendments to the Law “On JSC” state that fractional shares give their owner the same rights as full shares of the same class or type, based on the size of the fraction they own. A fractional share is considered property, so it cannot be automatically bought back. Only a shareholder who directly owns at least 95% of the company’s shares can request a mandatory buyback.

Of particular interest is the consolidation of company shares. In particular, the company has the right, by decision of the meeting, to consolidate distributed shares, because of which two or more company shares are converted into one new share of the same type or class. Moreover, it is noteworthy that the company has the right, by decision of the meeting, to split distributed shares, because of which one distributed share of the company is converted into two or more shares of the same type or class. In this context, the Constitutional Court’s Decision No SDVo-903 of 13 July 2010, is noteworthy, within which the CC recorded that the institution of mandatory redemption of fractional shares is an economically justified process, and taking into account the international experience on the subject, the CC finds that the institution of mandatory redemption of fractional shares provided by law by the decision of the majority of shareholders is legitimate in itself.

However, the main issue is how the rights and legitimate interests of the minority are guaranteed and protected under the conditions of the existence of such an economic institution. Another important development is the decision made by the Court of Cassation on 3 July 2020 in administrative case No. VD/1309/05/16. The Court ruled that Artashes Hovhannisyan did not have the right to challenge the CB’s positive supervisory opinion given to Ameriabank regarding the buyback of his ordinary registered shares in Ameriabank CJSC. The court stated that the issue raised by the plaintiff had no legal basis and could not be examined by the administrative court or any other court.

The case was dismissed based on Article 96(1)(9) and Article 80(1)(1) of the Administrative Procedure Code of the RA. According to the special opinion of the President of the Court of Cassation, Yervand Khundkaryan, the positive supervisory opinion given by the CB to Ameriabank on 30.11.2012 is not considered an administrative act. However, based on this opinion, Artashes Hovhannisyan lost 5 Ameriabank shares due to the consolidation of shares and redemption of fractional shares. The Court should have advised Hovhannisyan to clarify his claim in a way that aligned with the correct legal claim type arising from the dispute. The incorrect claim he submitted could not ensure proper judicial protection in administrative proceedings. The Court was required not only to inform Artashes Hovhannisyan about the need to clarify his claim but also to indicate the correct type of claim that would allow him to protect his rights in administrative proceedings.

According to the special opinion of the President of the Civil and Administrative Chambers of the Court of Cassation Ruzanna Hakobyan, and judges Gor Hakobyan and Mamikon Drmeyan, the official clarification by the Central Bank is considered an administrative act. The Court acted lawfully by annulling the invalid administrative act and restoring the minority shareholder’s property rights.

On 28 November 2016, a complaint regarding this case was submitted to the European Court of Human Rights. The complaint has been communicated to the Government of RA and is currently being examined. Additionally, according to the Law on Securities Market, any person who acquires more than 75% of securities of a certain class through one or more transactions must offer to buy the remaining securities of that class from other shareholders in accordance with the law.

As discussed earlier, a shareholders’ agreement may include obligations such as the ones outlined below.

• Voting at the general meeting in the way specified in the agreement.
• Co-ordinating the voting process with other shareholders.
• Voting based on instructions from others.
• Buying or selling shares at a set price or under certain conditions mentioned in the agreement.
• Refraining from selling shares until certain conditions occur.
• Taking joint actions related to the management, reorganisation, or liquidation of the company.

In this regard, SAFE contracts are noteworthy. Under a SAFE contract, the investor agrees to invest a certain amount of money in the company. In return, the company promises to issue and allocate shares to the investor in the future if the conditions outlined in the contract are met. The number, type, and class of shares are either specified in the contract or determined according to the contract’s procedure.

The prospectus must include detailed information about the issuer and the offered securities. This information should be enough for investors to evaluate the issuer’s and any guarantor’s assets and liabilities, financial condition, income and expenses, business prospects, risks, and the rights attached to the securities. The prospectus must be prepared and published according to procedure set by the law and the CB’s regulations. It cannot be published without the CB’s registration.

After registration, the issuer or distributor must publish the prospectus as soon as possible but no later than three working days before the public offering of securities starts. The prospectus must be published electronically on the issuer’s or distributor’s website (including the payment collector’s website). The CB must also publish the registered prospectus on its official website within 12 months from the registration date.

Immediately after publishing the prospectus, but not later than the first working day following its publication, the distributor is obliged to publish an announcement about the public offer in the manner and content established by the CB’s normative legal acts, except in cases where according to the law, publication of a prospectus is not required.

Anyone who directly or indirectly acquires 5%, 10%, 20%, 50%, or 75% or more of the voting rights in a company’s charter capital (either personally or through affiliated persons) must immediately notify the issuer and the CB within four working days in the form and manner set by the CB. The same rule applies if a person’s voting rights decrease below any of these thresholds.

According to the RA legislation, making a public offer of securities without publishing a prospectus that meets the requirements of the Law “On Securities Market” is prohibited.

The accuracy and completeness of the information reflected in the financial statements included in the prospectus is certified by an independent auditor’s opinion. Investment companies must publish their audit opinion and annual financial statements within four months after the financial year ends. They must also publish quarterly financial statements by the 15th of the month following each quarter. Publication means sharing information on a website or in the press.

According to the general rule, there is no obligation to fully disclose any document regarding the transaction, except, as already discussed, information regarding the beneficial owner.

The director (chief executive officer) of the company must act in the company’s best interests, perform their duties honestly and reasonably, and avoid any actual or potential conflicts between their personal interests and the company’s interests (fiduciary duty).

According to the Law on JSC, in M&A transactions, the director can acquire or buy back the company’s shares if this authority is granted by: 

• the decision of the general meeting; or 
• the company’s charter.

RA doesn’t have specific laws or regulations on the formation and functions of special or Ad Hoc committees. However, company charters may allow for their creation. Despite this possibility, such committees are not commonly used in RA.

The “Business Judgment Rule” is not yet specifically defined in Armenian law. However, some legal regulations require Board members, the Company director (CEO), and other officials to act in good faith, reasonably, and in the company’s best interest, which reflects this principle.

According to court practice, if the director cannot prove that their actions were in the company’s interest, it is assumed that the company’s interests were violated.

Independent consultation is common in the RA, and numerous legal and financial organisations offer such services. This process is regulated by a series of laws, including the Laws “On Advocacy,” “On Auditing Activities,” and other laws.

The legislation includes mechanisms to prevent real or potential conflicts of interest between the company’s interests and those of the Board members, CEO (General Director), management bodies, management organisations, and managers.

According to the Law on JSC, these individuals must act in the company’s best interests, perform their duties honestly and reasonably, and avoid conflicts between their personal interests and the company’s interests (fiduciary duty). At the same time, according to the same law, an interested party in company transactions is considered to be a person affiliated with the company who:

• is a party to the transaction or participates in the transaction as an intermediary or representative; and
• is an affiliated person to the party, intermediary, or representative of the transaction.

According to the Law on JSC, the following persons are considered affiliated with the company: 

• board members; 
• executive body members;
• legal entities acting as the executive body or their directors, board members, or other managers specified by the charter or contract; 
• audit committee members (auditors); 
• other persons authorised to represent the company; and
• persons recognised as affiliated under the Law on Securities Market of RA.

Affiliated persons of the company must provide the information required by law to the company’s executive body or another body defined by the charter.

Any transaction involving an interest with an affiliated person must be included in the company’s annual report, with detailed information about:

• the parties to the transaction;
• the terms and conditions;
• nature and extent of the interest; and
• an independent evaluator’s opinion confirming that the transaction meets market value.

According to the Law on Limited Liability Companies, transactions cannot be concluded without the consent of the general meeting if:

• a board member, executive body member, or company participant has an interest in the transaction; or
• that participant holds 20% or more of the total voting rights in the company.

The company recognises the mentioned persons as interested in concluding a transaction in cases where they or their spouses, parents, children, brothers, or sisters (hereinafter referred to as affiliated persons):

• are a party to the transaction or act in their relations with the company from the interests of third parties;
• own 20% or more of the shares (stake, stock) of a legal entity that is a party to the transaction or acts from the interests of third parties in relations with the company;
• hold positions in the management bodies of a legal entity that is a party to the transaction or acts from the interests of third parties involved with the company; and
• in other cases, provided for by the company’s charter.

Hostile tender offers are rare in Armenia because the stock market is still developing, and most large corporate transactions happen through mutual negotiations. However, such offers are still possible. 

Armenian legislation does not differentiate between friendly and hostile offers, and there are no special rules for either type.

As mentioned earlier, the company director must act in the company’s best interests, in good faith, and reasonably, avoiding conflicts between personal and company interests. 

Armenian legislation provides some protection for directors. According to the Law “On Banks and Banking Activity,” if a bank’s executive director is dismissed early and their remaining term is more than one year, the bank must compensate their one-year salary. 

In some cases, company charters may include additional protective measures for directors.

To prevent hostile takeovers, JSC can use various defensive strategies. According to Armenian law, these measures can be outlined in the company charter, shareholder agreements, or board of directors’ decisions. One protective measure under Armenian law applies to closed JSC, where shareholders have the pre-emptive right to buy shares sold by other shareholders. This helps maintain company stability and prevent unexpected changes in ownership.

Additionally, in cases where concentrations (mergers or acquisitions) must be declared, the Competition Commission can reject the transaction if it is found to harm competition in the market. The Commission may also approve the concentration with conditions, such as limiting certain shareholder rights to protect fair competition.

According to the Law “On JSC,” the company director (chief executive officer):

• manages the company’s property, including financial resources, and enters into transactions on behalf of the company;
• represents the company in the RA and abroad;
• acts without a power of attorney;
• issues powers of attorney;
• concludes contracts, including employment contracts, in the established manner;
• opens the company’s settlement (including foreign currency) and other accounts in banks, and in cases provided by law, may also open accounts in the treasury;
• submits to the board for approval the company’s internal work regulations, regulations of separate divisions, the company’s administrative structure, and staffing;
• within the scope of their authority, issues orders and instructions, gives mandatory directives for implementation and monitors their execution;
• hires and dismisses Company employees in the established manner; and
• applies incentives and disciplinary measures to employees.

It is important to note that the Charter may also define other powers of the company’s director (general director).

In limited liability companies (LLCs) in RA, the executive body (such as the general director or president) is elected by the general meeting of participants. This person can be either a participant of the company or an outsider.

The executive body has the authority to do the following.

• Act on behalf of the company without needing a power of attorney, including representing the company and signing contracts.
• Issue powers of attorney to others to represent the company, including powers with the right of substitution.
• Appoint, transfer, or dismiss company employees, apply incentives, and impose disciplinary penalties.
• Perform other duties not assigned to the general meeting or board by law or the company’s charter.
• The company charter, internal documents, and the contract with the executive body regulate the executive body’s activities and decision-making process.

RA legislation does not give directors the authority to simply say “no” to M&A proposals and prevent such transactions.

In the RA, litigation related to M&A transactions is relatively rare. Recently, arbitration and alternative dispute resolution mechanisms have gained activity.

In the RA, civil litigation, including corporate disputes, is regulated by the Civil Procedure Code. Due to their nature, corporate disputes are classified under special claim proceedings.

The Code defines corporate disputes as disagreements related to:

• the creation of a legal entity;
• management of the legal entity; and
• participation (membership) in the authorised capital of the legal entity.

Like other cases, corporate disputes go through the stages outlined below.

• Case initiation.
• Preparation for trial.
• Court examination.
• Other necessary phases.

In the RA, “Broken-Deal” disputes in M&A transactions usually involve: 

• breaches of contract terms;
• discovery of financial deficiencies; and
• violation of shareholder rights. 

These disputes can happen at any stage of the M&A process due to contract breaches or regulatory restrictions. One notable case involved a UAE company and its American CEO, who failed to recover a USD326 million claim against RA at the International Centre for Settlement of Investment Disputes (ICSID). The dispute concerned a billion-dollar project to build transportation links to Iran.

In November 2024, the Annulment Committee rejected the application of Dubai-based investment company Rasia FZE and its CEO Joseph Borkowski to annul the decision.

Rasia and its CEO presented their claim to ICSID in 2018, based on contracts concluded under the US-RA Bilateral Investment Treaty (BIT) and the legislation of the RA. They applied for arbitration after Armenia announced that it planned to remove the company from the trade corridor construction project due to several alleged contractual violations.

It is noteworthy that the “HAP” also represented the RA’s interests within this case’s framework.

Shareholder activism is not yet common in the RA due to the small market size and the current stage of corporate governance development. Shareholder rights are mainly defined by the “Law on JSC” and company charters.

For example, a shareholder who owns voting shares and: 

• voted against a company reorganisation decision; or 
• did not participate in the voting, 

has the right to: 

• demand the market value assessment of their shares; and 
• request the company to repurchase all or part of their shares as prescribed by law.

If the shareholder disagrees with the repurchase price, they can apply to the court for a revaluation of the shares within three months from the payment date set by the company.

Activist shareholders typically pursue various goals. One goal may involve creating obstacles to the company’s activities, forcing other shareholders to alienate their shares on favourable or desirable terms, or becoming a shareholder of a competing organisation through another person and subsequently using the shares to push the competitor out of the market.

One can consider the filing of artificial lawsuits – that, for example, aim to prevent the registration of ownership rights to shares – as interference with completion.