Corporate Reform | Venture Capital | Private Copying Levy

CORPORATE, VENTURE CAPITAL AND INVESTMENT REFORMS 

Law No. 452-VIIQD of 14 July 2026, introducing extensive corporate, venture capital and investment reforms, entered into force on 27 July 2026. The Law brings four types of agreements under the Civil Code: (i) corporate agreements; (ii) convertible loan agreements; (iii) future equity agreements; and (iv) employee equity plan agreements.

Corporate agreements may be entered into between shareholders of limited liability companies or shareholders of joint-stock companies and, where necessary for performance, the company itself. They may regulate, inter alia, voting, share transfers, management appointments, non-voting meeting participation, special approval requirements, use of invested funds, founder vesting and employment-linked repurchase arrangements. The Law recognizes tag-along, drag-along and first-refusal rights, as well as liquidation preferences, anti-dilution protection, veto rights and differentiated voting rights.

Vis-à-vis its parties, a corporate agreement prevails over any inconsistent provisions of a company’s charter, subject to mandatory law and without prejudice to third-party rights. The parties must notify the company in writing within 15 days of entering into the agreement. They may also provide for arbitration and, irrespective of their residence, agree that foreign law will govern disputes between them.

Convertible loan agreements provide for principal and interest to be converted into shares or participation interests upon qualifying financing or at maturity. The agreement must include at least a valuation cap or discount rate; if no conversion event occurs by maturity, the investor may require repayment or conversion based on the agreed valuation.

Future equity agreements give investors the right to future shares or participation interests without creating debt, interest or a maturity date. Conversion occurs upon a qualifying financing or liquidity event and may be based on a valuation cap or discount rate, with the investor entitled to the more favorable mechanism where both apply. If a liquidity event occurs before conversion, the investor’s repayment claim ranks after unsecured creditors but before residual distributions to shareholders.

Employee equity plan agreements may grant employees or management-body members the right to acquire equity at a specified exercise price or free of charge. Related amendments to the Labor Code allow employee vesting to be time- or target-based, while a company may create an authorized but unissued equity pool for implementation of the plans. Depending on the grounds for termination of employment, the agreement may provide for accelerated vesting of all or part of unvested rights or repurchase of acquired equity at fair market value, or for forfeiture of all unvested rights or repurchase at nominal or lower value. Equity acquired by an employee under a plan does not constitute salary or substitute for salary.

The Law allows a company’s charter to authorize its board or supervisory board, without convening a general meeting, to allot new interests or issue shares up to a preset maximum, with their terms determined by the board; corresponding charter amendments must be state-registered.

The Law amends Law No. 1101-IIIQ, On Investment Funds, dated 22 October 2010, to regulate venture capital funds. Funds may operate under either an unlicensed registration-based regime or a licensed regime, raise capital only from professional investors and take the form of an LLC, closed JSC, limited partnership or closed-end investment fund. LLC funds may operate only under the unlicensed regime. 

Funds with assets under management not exceeding ₼50 million and no more than 50 investors may operate without a license, subject to Central Bank registration before commencing activity and ongoing reporting. Funds exceeding either threshold must operate under the licensed regime, while other eligible funds may voluntarily opt into that regime.

At least 70 percent of funds raised must be invested in qualifying innovation projects, while the remainder may be placed in other financial instruments for liquidity management. Borrowing limits vary by regime: (i) unlicensed funds may borrow only for short-term liquidity needs, with total debt capped at 30 percent of capital commitments and each borrowing limited to twelve months; and (ii) licensed funds may borrow up to ten percent of assets for no more than three months.

Venture capital fund managers must also invest their own funds in the fund in an amount equal to one to five percent of the fund’s capital or investors’ capital commitments. For purposes of the venture capital fund regime, accredited investors include: (i) individuals with annual income above ₼150,000 in each of the previous two years and a reasonable expectation of the same level in the current year; (ii) individuals with net financial assets above ₼500,000, excluding their principal residence; (iii) holders of Central Bank-specified certificates; (iv) entities with net assets above ₼5 million or whose shareholders all meet at least one of the previously listed criteria; (v) entities all of whose shareholders are accredited investors; and (vi) venture capital fund managers and, where a manager is an entity, its senior officers, as well as persons directly involved in investment decisions.

Alongside the new fund regime, the Law amends Law No. 910, On Currency Regulation, dated 21 October 1994. Venture capital funds and accredited investors may transfer funds for investments in innovative projects outside Azerbaijan through future equity agreements, convertible loans or analogous financial instruments, subject to procedures and limits determined by the Central Bank.

PRIVATE COPYING LEVY PRECEDENT

In its 9 July 2026 decision, the Supreme Court clarified that the obligation to pay remuneration for devices and storage media capable of reproducing audiovisual works and phonograms arises directly from the Copyright Law and is not dependent on the conclusion of an agreement with a collective management organization. The Court further held that importers cannot avoid this statutory payment obligation by refusing to enter into such agreements and confirmed that the statutory list of covered devices should be interpreted broadly in light of technological developments. The decision may, however, revive debate over the continued relevance of private-copying levies in the streaming era, where consumers increasingly access content through licensed digital services rather than making private copies on personal devices.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.