Azerbaijan approves new startup financing and employee share ownership rules

Azerbaijani President Ilham Aliyev has approved amendments to the Labour and Civil Codes, as well as laws on currency regulation, banks, investment funds and the securities market.

The amendments introduce employee share participation agreements for the first time, allowing companies to grant workers shares or equity stakes on preferential terms or free of charge.

Full ownership may depend on the employee remaining with the company for a certain period or meeting specified business targets. Shares granted under such agreements will not be treated as wages and cannot replace salary payments.

The law also allows company participants and shareholders to sign corporate agreements governing voting, share sales and arbitration procedures.

Venture capital mechanisms including tag-along, drag-along, rights of first refusal, anti-dilution protection, convertible debt and SAFE agreements have also been formally introduced into Azerbaijani legislation.

The amendments create a legal framework for venture funds and accredited investors to invest in foreign startups and innovative projects in return for future equity. Transfers will be subject to rules and limits set by the Central Bank.

N. Tebrizli