Briefing: Legal environment of the limited liability company

Establishment of the Company: According to the Law on Company (2011) in Mongolia and the Law on State Registration (2009) of Mongolia, a Limited Liability Company (the “LLC”) is formed on the basis of a charter and a decision of its founders. Initial capital is provided by contributions from Shareholder(s) and contributions can be a cash, property and a property right.  The LLC shall be founded by one or more individuals or legal entities that must have an official registration from the State Registration Authority.

Company charter: The company charter is the basic founding document of the LLC. Following terms must be included into the company charter according to the Law on Company:

1.The company`s full and abbreviated name and an acronym indicating the company's form of
organization;

2.The number, class, nominal price of the company` s authorized and issued common shares and the amount of capital invested;

3.If the company charter establishes preferred shares, the number of authorized preferred shares and rights of holders of such shares

4.If the company has Board of Directors, the number of its members;

5.Powers of the Shareholders at a meeting of Shareholders, and of the Board of Directors or Supervisory Board, other than that specified in the law;

6.The type of business to be conducted by the company;

7.Other provisions to be reflected in the company charter.

Amendments to a company charter, or adoption of a new version of the charter, must be approved at a Shareholders’ meeting. The following documents shall be submitted for the registration of amendments to a company charter, or a new version of the charter:

• An application for registration of amendments to the company charter, or a new version of the charter, signed by an authorized person of the company;
• The decision adopted by the Shareholders’ meeting to amend the charter, or to adopt a new version of the charter, together with the text of the amendments or new version of the charter;
• A document confirming payment of the registration fee.

Within ten (10) business days following the adoption of a resolution to amend or adopt a new version a
company charter, such amendments or new version shall be registered in the State Registration Authority in accordance with the procedures specified by law. Within two (2) business days following the date of submission of the documents, the State Registration Authority shall issue the decision stating the basis for its acceptance or refusal to register such amendments or new version of the charter. Amendments to a company charter or a new version of the charter shall become effective upon registration with the State Registration Authority. If any key information of the entities registration is to be amended, the legal entity also should inform to the State Registration Authority within 15 business days after execution of relevant corporate documentation. Failure to do so may incur legal penalty.

Shareholders Meeting: The Shareholders Meeting is the highest management body of the LLC. Shareholder(s) can be individual(s) or legal entity(s). Required number of shareholder(s) for the LLC is from one (1) to fifty (50). If shareholder is a legal entity, it must appoint one or several authorized representative to participate in the Shareholders Meeting.

There are two types of the Shareholder’s meeting: Ordinary and Extraordinary. Shareholder’s ordinary meeting shall be hold at least once a year, within four months after the end of the financial year. A shareholders meeting shall have exclusive authority to consider and decide the following matters:

1.Amendments to the company charter or the adoption of a new version of the charter;

2.Reorganization of the company by consolidation, merger, division, or transformation;

3.An exchange of the company's debts for shares, issuing additional shares, determining its numbers;

4.Changing the form of the company;

5.Liquidation of the company and the appointment of a liquidation committee

6.A split or consolidation of the company's share;

7.Election of members of the Board of Directors and termination of their power prior to the expiration of their terms;

8.Whether the shareholder is to exercise the preemptive rights of shareholders to acquire the company's shares or other securities ;

9.Consideration and approval of reports prepared by the Board of Directors with respect to the company's annual operations and financial statements;

10.Approval of any major transactions specified in the Company Law;

11.Approval of any conflict-of-interest transactions specified in the Company Law;

12.Approval of any acquisition of its shares by the company pursuant to the law;

13.Approving the amount of salaries and bonuses to be given to members of the Board of Directors, unless otherwise provided in the company's charter;

14.Some report required by the Company law;

15.Other proposals submitted to the meeting by the decision of the Board of Directors;

16.Other matters required to be submitted to a shareholder meeting for approval as provided in the Company law or in the company's charter.

Chief Executive Officer (CEO) of the LLC: The day-to-day activities of the LLC shall be managed by a CEO who is appointed/removed by the Board of Director or the Shareholders Meeting. Executive Director’s authority can be determined in the Company charter and the agreement with the Shareholder(s). Within such powers, including conducting transactions, entering into agreements and representing the Company, the CEO is entitled to act on behalf of the Company without requiring a specific power of attorney.