Armenia

In Armenia, corporate governance has evolved into a structured legal framework that blends specific corporate regulation with civil-law principles. Rather than acting as a purely theoretical framework, corporate governance directly shapes how companies are managed, how decisions are made, and how accountability is enforced. At its basis, corporate governance in Armenia is not treated as an independent field distinct from civil law. Rather, governance rules derive from general contractual and organizational principles governing legal entities, complemented by corporate statutes regulating internal management structures. This integrated framework ensures that corporate relations remain fully enforceable within the broader civil-law system. Legal framework The primary legal basis for corporate governance is established by Chapter 5 of the Civil Code of the Republic of Armenia, which outlines the characteristics of legal entities, their governing bodies, and the distribution of rights and obligations among participants. The Code incorporates core values that serve as safeguards against arbitrary or detrimental corporate behaviour, such as good faith, reasonableness, and the prohibition of abuse of rights. Specialized governance rules are further detailed in the Law of the Republic of Armenia on Joint-Stock Companies and the Law of the Republic of Armenia on Limited Liability Companies. These statutes regulate voting mechanisms, managerial authority, fiduciary duties, capital structure, and procedures for decision-making. Together, these laws form a cohesive governance framework that balances flexibility in corporate organization with enforceable legal discipline. Governance Bodies and Decision-Making Structure Corporate entities operate through a hierarchy of governing bodies designed to separate ownership control from operational management. The general meeting of shareholders (GMS) is the supreme decision-making authority, responsible for foundational matters such as charter amendments, appointment of executives, approval of annual results, and corporate restructuring. The meeting should be held annually, and if necessary, extraordinary meetings may be held more often. Procedural reforms have expanded flexibility by recognizing remote participation and electronic voting, provided that transparency and verification standards are met. These changes are intended to facilitate efficient governance while preserving the integrity of shareholder decision-making. The Board of Directors is the central governing body of a company that is responsible for overseeing management and protecting the interests of shareholders and other stakeholders. Its role combines strategic leadership, supervision, and accountability. A company with more than 50 shareholders should have a BoD unless it is a regulated comp-any, such as a financial institution, for which having a BoD is a must. The board of directors is also bound by fiduciary obligations, most notably the duty of care and the duty of loyalty. Directors are expected to fulfil these responsibilities by acting with diligence, making wise choices, avoiding conflicts of interest, and putting the company's interests ahead of their own. Fiduciary standards strengthen confidence in corporate governance frameworks and provide a moral and legal basis for board conduct. The Executive The executive body is the managerial organ of a company responsible for conducting its day-to-day operations and implementing the decisions of GMD and BoD. Its primary responsibility is operational management, which includes planning business operations, assigning resources, managing staff, and making sure internal business procedures run smoothly. In Armenia, this function is performed either by a single Chief Executive Officer (CEO) or a managment board. Protection of Participant Right Effective governance depends on enforceable participant rights. According to Armenian law, LLC members and shareholders have proportional voting rights, access to corporate information and legal remedies against unlawful decisions. Courts increasingly rely on general civil-law principles, including good faith and reasonableness, and, where appropriate, proportionality when evaluating corporate disputes, reflecting a judicial commitment to substantive fairness alongside formal compliance. A more predictable dispute-resolution environment and increased investor confidence have resulted from recent developments that have strengthened protections against decisions that unfairly disadvantage minority participants and clarified the processes for contesting invalid corporate acts. Fiduciary Duties and Liability Standards Fiduciary duties are imposed on controlling participants and corporate officers. Armenian legislation addresses conflicts of interest, misuse of corporate opportunities, and negligent management. Liability clauses have been strengthened to guarantee that governance lapses have significant repercussions, such as loss reimbursement and the reversal of damaging transactions. By embedding these standards within the civil-law system, Armenian law ensures that corporate authority is exercised responsibly and remains subject to judicial oversight. Digitalization of Corporate Procedures Modern governance increasingly relies on digital infrastructure. Electronic documentation, digital communication with participants, and remote governance procedures are recognized by Armenian law as long as authenticity and accountability measures are taken. These changes facilitate accessibility and efficiency in business operations while lessening administrative burdens. Digitalization also enhances transparency by creating verifiable audit trails and improving record management. Practical Challenges and Ongoing Development Despite legislative progress, effective corporate governance ultimately depends on consistent enforcement and corporate culture. Challenges remain in ensuring uniform compliance with managerial duties, improving governance literacy among participants, and strengthening internal controls. Nevertheless, Armenia’s recent reforms demonstrate a clear policy direction: governance rules are increasingly aligned with modern commercial expectations while remaining grounded in civil-law principles. Conclusion In Armenia Corporate governance represents a dynamic interaction between statutory regulation, civil-law doctrine, and evolving business practice. Legislative developments over the past several years have clarified managerial accountability, enhanced the protection of participants/shareholders/stockholders, modernized procedural rules, and strengthened transparency requirements. Governance bodies operate within a structured legal hierarchy that promotes balanced authority, enforceable obligations, and fair participation. As Armenian corporate law continues to develop, its governance framework supports legal certainty, investor confidence, and sustainable corporate growth, which are considered essential components of a modern economic system.

In the framework of this article, we will consider the relationship between family and corporate law, in particular, we will examine the following legal issue: is the share of a participant in an LLC a joint property of spouses? According to Article 26 of the Family Code of the Republic of Armenia, relations related to the common joint property of spouses are regulated by the Civil Code, as well as by the marriage contract concluded between the spouses. According to Part 1 of Article 201 of the Civil Code of the Republic of Armenia, property acquired by spouses during marriage is their joint property, unless otherwise provided by law or by a contract concluded between them. It is noteworthy that the legislation of the Republic of Armenia, unlike the legislation of the Russian Federation, does not disclose what the property acquired by spouses during marriage (common property of spouses) includes. Thus, the Family Code of the Russian Federation stipulates that a share in the authorized capital of a commercial company acquired during marriage, regardless of whose name it is registered in, is the joint property of the spouses. To understand whether, in the light of the legislative regulations of the Republic of Armenia, the share of one of the spouses in the company can be considered joint ownership or not, it is necessary to refer to the Law on Limited Liability Companies of the Republic of Armenia. A limited liability company is an economic company by uniting shares, that is, a company in whose activities the degree of participation of a person is determined by the percentage of that person’s share in the total authorized capital. The number of votes of a company participant at the general meeting is determined by the number of shares held in the authorized capital. This follows from the interpretation of Article 35 of the Law on Limited Liability Companies of the Republic of Armenia. According to Article 10 of the Law on Limited Liability Companies of the Republic of Armenia, the founding document of the company is the charter approved by its founders. Amendments made to the charter of the company are subject to state registration. Registration of amendments to the charter of the company's participants is not an end in itself; in any case, when a new participant is involved in the company, this must be included in the charter. Regardless of the relationship between the company's participants or future participants, the right of the person acquiring the share arises only from the moment of making amendments to the charter and registering it. Of key importance is that the company's charter is approved unanimously by the participants, which implies that changes to it, including changes in the composition of the participants, must be made by the general meeting. According to the RA Law on Limited Liability Companies, there are restrictions in the case of alienation of a participant's share. The fate of the alienated share depends on the will of the LLC participants. The latter can, by charter, establish and prohibit the alienation of the share to third parties. In this case, the share is acquired by the company. So, in the end can the share owned by one of the spouses in the company be considered joint property or not? The RA Court of Cassation noted in its precedent decision EKD/ԵԿԴ/4634/02/16: “A share is the basis for the origin of corporate relations between a company and a company participant, through which the scope of mutual rights and obligations of the company and the company participant between each other is determined. However, according to the assessment of the Court of Cassation, in addition to being an object of a corporate nature, a share is also the basis for the emergence of other property (including property rights). In particular, a share entitles the participant to receive a part of the profit from the company's activities, to receive a share from the remaining property of the company in the event of its liquidation, and to receive its value in the event of the alienation of a share. The above gives the Court of Cassation grounds to conclude that a share includes both purely civil and corporate elements. Therefore, in order to assess the extent to which a share can be considered property acquired during the joint life of the spouses, it is necessary to separate these two key elements of the share. Thus, from a corporate perspective, a share cannot be considered common joint property, considering that a spouse cannot be considered a participant in the company by force of law without the consent of the other participants in the company and without fulfilling obligations to the company. Moreover, in the case of a contrary interpretation, the interests of not only the other participants in the company, but also the company's counterparties, who do not have complete information about the composition of the company's participants, are violated. We believe that the Court of Cassation has effectively separated the company's property, that is, the share owned by the participant, and the benefits resulting from it, with this decision. From the above-mentioned comments of the court, the following conclusion can be drawn: the income or property resulting from the participant's share will be considered joint property, but the right to dispose of the share is the property right of the participant's spouse only. The share of a participant in an LLC acquired during marriage is common joint property, but this applies only to the property component of the share. From the point of view of civil law, considering the share to be the common joint property of the spouses does not affect the right to participate in the management of the company. Thus, summarizing the above analyses, it is necessary to emphasize that for the performance of actions of a generally corporate nature, such as attending the general meeting, participating in the discussion of agenda items and voting when making decisions, or deciding to leave the company, the consent of the spouse who is not a participant in the LLC is not essential, but when performing certain corporate functions, the clearly expressed consent of the spouse who is not a participant is important to the extent that there is management of the spouses' common joint property.

Corporate legal relations in the Republic of Armenia are primarily governed by the Law of the Republic of Armenia on Joint-Stock Companies, Chapter 5 (“Legal Entities”) of the Civil Code of the Republic of Armenia, and other applicable normative legal acts. One of the key instruments regulating relations among shareholders is the Shareholders’ Agreement (SHA). An SHA is a private contractual arrangement that establishes rights and obligations among its parties and supplements the company’s charter. Shareholders’ Agreements were formally introduced into Armenian corporate legislation on 19 April 2019 through amendments to the Law on Joint-Stock Companies. Under Armenian law, an SHA may be concluded between shareholders, between shareholders and the company, and may also include prospective shareholders who subscribe to the company’s shares. Unlike a company’s charter, an SHA is not subject to public disclosure and remains confidential. This allows the parties to regulate sensitive commercial matters and personal data without public exposure. At the same time, an SHA may regulate matters that are either insufficiently addressed or not regulated at all by the charter, provided that it does not contradict mandatory provisions or the charter itself. Another distinguishing feature of the SHA is its flexibility, as amendments do not require compliance with formal statutory procedures. Although shareholders’ agreements have been applied in practice in Armenia for approximately seven years, Armenian case law has not yet developed a substantial body of landmark judicial decisions addressing fundamental issues relating to such agreements. This raises the question of whether a shareholders’ agreement constitutes a civil-law contract, thereby falling within the definition of a contract under Article 436 of the Civil Code of the Republic of Armenia and subject to general contractual principles. Such classification would imply the applicability of mechanisms securing performance, civil-law liability for breach, and the creditor’s right to claim damages arising directly from non-performance. Alternatively, the question arises whether a shareholders’ agreement should be regarded as a corporate-law transaction, which would suggest that, in cases of non-performance, the breaching party may not be subject to adverse legal consequences. This article addresses several interrelated issues, including the structure of a shareholders’ agreement, its legal nature (civil-law versus corporate-law), mechanisms for securing performance of obligations assumed under the agreement, and the procedure for its amendment. Structure of a Shareholders’ Agreement A shareholders’ agreement typically defines the rights and obligations of shareholders and establishes rules concerning the sale of shares, the company’s operations, and decision-making processes. Its primary purpose is to enable shareholders to regulate and organize specific internal relationships among themselves. A shareholders’ agreement may include various contractual rights, including the right of first refusal, pre-emptive rights, piggyback rights as well as put/call option rights. Right of First Refusal (ROFR) The right of first refusal requires a shareholder intending to sell their shares to first offer them to existing shareholders or to the company. This mechanism enables shareholders to control the composition of the shareholder base and serves as a reasonable means of preventing the transfer of shares to competitors, provided that it does not impose excessive burdens or delays. The right of first refusal may take two forms: hard and soft. A Hard ROFR requires the selling shareholder to obtain a bona fide offer from a third party prior to offering the shares to existing shareholders. By contrast, a Soft ROFR allows the selling shareholder to first offer the shares to existing shareholders and, if the shares are not purchased, to sell them to a third party on the same or more favorable terms. Hard ROFR provisions may complicate the sale of shares, as potential third-party investors may withdraw from the transaction. Soft ROFR provisions are less restrictive and provide greater flexibility, as they apply prior to identifying a third-party buyer. Accordingly, where a right of first refusal is included in a shareholders’ agreement, the soft variant generally offers a more balanced approach. Pre-emptive Rights Pre-emptive rights allow shareholders to participate in future financing rounds and are commonly included in early-stage shareholders’ agreements. These rights enable existing shareholders to acquire newly issued shares and protect their ownership interests against dilution. While pre-emptive rights may serve the interests of shareholders, they may also hinder a company’s ability to attract external investment. The participation of non-professional investors in financing rounds may complicate the establishment of an ownership structure that is attractive to venture capital investors, potentially limiting the company’s growth prospects. Piggyback Rights Piggyback rights require a selling shareholder to allow other shareholders to sell their shares proportionally alongside the shares offered for sale. One drawback of piggyback rights is that they may delay potential transactions, as they require advance notice to other shareholders and the identification of a purchaser willing to acquire shares from multiple sellers. Piggyback rights are typically structured as tag-along or drag-along rights. Tag-along rights allow minority shareholders to participate in a sale initiated by a majority shareholder by selling their shares to third parties on the same terms. Drag-along rights allow majority shareholders to compel minority shareholders to sell their shares simultaneously to a third party, thereby ensuring the completion of the transaction. Call/Put option Rights In the context of shareholders’ agreements, call and put options function as contractual exit mechanisms rather than financial derivatives. A call option grants one party—typically a promoter or majority shareholder—the right to purchase the shares of another shareholder under predefined conditions. The primary objectives of a call option include consolidation of control, facilitation of minority exits after a specified period, and protection against undesirable shareholders. A put option grants one party—typically an investor or minority shareholder—the right to sell their shares to another shareholder. Its purpose is to provide an exit mechanism, protect minority shareholders, and mitigate investment risk. Enforcement of Obligations under a Shareholders’ Agreement Pursuant to Part 6 of Article 38.1 of the Law, a shareholders’ agreement may provide mechanisms to secure performance of obligations arising from the agreement, as well as civil-law liability measures for non-performance or improper performance. The explicit reference to civil-law liability confirms the civil-law nature of the shareholders’ agreement. Furthermore, Article 368(1) of the Civil Code establishes permissible methods for securing the performance of obligations, while Article 348 prohibits unilateral refusal to perform contractual obligations. Accordingly, the question arises whether a shareholder who has assumed an obligation to participate in the company under a shareholders’ agreement may unilaterally withdraw by failing to perform such obligation. Such an outcome would undermine the legitimate expectations of shareholders who have duly performed their obligations and would result in adverse legal consequences for them. Even in the absence of specific statutory enforcement mechanisms, shareholders may, at the negotiation stage, include contractual provisions that ensure proper performance. One such mechanism is the call option. For example, where two shareholders hold 60% and 40% of the shares respectively, the agreement may provide that if the 40% shareholder fails to make the agreed investment within a specified period, the 60% shareholder acquires the right to purchase those shares for a nominal price (e.g., USD 1). In such a case, the exercising party issues a call option notice requiring the sale of the shares. Amendment of a Shareholders’ Agreement The parties to a shareholders’ agreement may amend it by mutual consent. Amendments do not require the execution of a new agreement; rather, the parties execute a deed of variation, which must be signed by all shareholders. Upon execution, the agreed amendments become an integral part of the shareholders’ agreement. Conclusion Despite the specific nature of its parties, a shareholders’ agreement under Armenian law constitutes a civil-law contract. Consequently, general contractual principles apply, including freedom of contract, enforceability of obligations, and liability for breach. No person may be compelled to become a party to a shareholders’ agreement or to assume obligations without their free and informed consent. The precise position of the shareholders’ agreement within the Armenian legal system remains somewhat ambiguous. While it operates within the framework of corporate law, the Law of the Republic of Armenia on Joint-Stock Companies explicitly refers to the Civil Code (Article 38.1, Part 6), and corporate disputes arising from shareholders’ agreements are adjudicated within civil procedural proceedings.

  What are the grounds for termination of employment contract in Armenia?   According to the Labor Code of Armenia (hereinafter also referred as “The Code”): The employment contract is terminated: by the agreement of the parties. at the initiative of the employee. at the initiative of the employer.   How is an employment contract terminated by mutual agreement of the parties? When terminating an employment contract by mutual agreement, one party to the employment contract submits a written proposal to the other party to terminate the contract. If the other party agrees to the proposal, they must notify the proposing party of their consent within seven days. If the parties agree to terminate the contract, they conclude a written agreement specifying the date of termination of the contract and other terms (including compensation, etc.). If the party that received the proposal to terminate the contract does not notify its consent to terminate the contract within the seven-day period, the proposal to terminate the employment contract shall be deemed rejected.   Can the employer terminate an open-ended employment contract? The employer has the right to terminate an open-ended employment contract with the employee, as well as a fixed-term employment contract before the expiration of its term, in specific cases established by law.   Are there legitimate reasons for an employer to terminate an employment contract in Armenia? According to the Code: The employer has the right to terminate the employment contract in the following cases։ Liquidation (termination of activity) of the employer, When the number of employees is reduced. Non-compliance of the employee with the position held or the work performed. Reinstatement of the employee to the previous job. Regular non-fulfillment by the employee of the duties assigned to him by the employment contract or internal disciplinary without a valid reason. Loss of trust in the employee. Long-term incapacity of the employee (if the employee has been temporarily incapacitated for more than six months in a row or for more than 180 days during the last twelve months, excluding days of pregnancy and maternity leave). The employee being at the workplace under the influence of alcohol, drugs, or psychoactive substances. Non-appearance of the employee during the entire working day (shift) due to a disreputable reason. An employee's refusal or avoidance of mandatory medical examination. The foreigner's residence status is revoked or invalidated. an employee fails to perform his work duties for more than 10 working days (shifts) in a row or during the last three months for more than 20 working days (shifts) as a result of not being allowed to work in case of non-submission by the employee of the documents that are a necessary condition to attend work during the state of emergency declared due to infectious diseases in the Republic of Armenia or the prescribed quarantine.   What conditions must an employer meet before terminating an employment contract in Armenia? Employers are required to provide advance notice to employees before dismissal in situations outlined within the Labor Code. In the case of termination due to the liquidation (termination of activity) of the employer or when the number of employees is reduced, the employer must provide employees with two months of prior notice. In the cases of non-compliance of the employee with the position held or the work performed, reinstatement of the employee to the previous job or when the number of employees is reduced the employer may terminate the employment contract if, within the scope of available opportunities, they have offered the employee alternative work that matches their professional qualifications, skills, and health condition, and the employee has refused the offered work. If the employer does not have any relevant opportunities, the contract is terminated without offering the employee alternative work. In case of non-observance of the notice period, the employer is obliged to pay the employee damages for each overdue day of notice, which is calculated based on the employee's average daily wage.   Under what circumstances can an employer terminate an employee without prior notice? The employer is entitled to terminate the employment contract without giving notice to the employee in instances specified by the Code. These include the following cases: Reinstatement of the employee to the previous job. Regular non-fulfillment by the employee of the duties assigned to him by the employment contract or internal disciplinary without a valid reason. Loss of trust in the employee. The employee being at the workplace under the influence of alcohol, drugs, or psychoactive substances. Non-appearance of the employee during the entire working day (shift) due to a disreputable reason. An employee's refusal or avoidance of mandatory medical examination.   Are there any notification requirements? According to the Code, In the notice of the termination of the employment contract, the following are mentioned: the basis and reason for dismissal, in the case of offering another job to the employee, the name of the position, the amount of salary or the lack of possibility to offer another job. year, month, date of dismissal.   Are there any mandatory severance payment provisions upon the termination of employment? In accordance with the Code, employees have the right to receive severance payments upon termination in these cases: Liquidation (termination of activity) of the employer. When the number of employees is reduced. Non-compliance of the employee with the position held or the work performed. Reinstatement of the employee to the previous job. Long-term incapacity of the employee (if the employee has been temporarily incapacitated for more than six months in a row or for more than 180 days during the last twelve months, excluding days of pregnancy and maternity leave).   How would you define a labor dispute and how can they be resolved? A labor dispute is a disagreement between an employee or a former employee, who has previously had an employment relationship with a given employer, and the employer, which arises or has arisen during the fulfillment of rights and obligations set by labor legislation, other normative legal acts, internal legal acts, or the individual or collective labor contract. Labor disputes are subject to examination in court. Labor disputes may also be subject to mediation.   May labor disputes be referred to resolution by an arbitral tribunal? Labor disputes may be referred to an arbitral tribunal for resolution if an agreement has been concluded between the employee and the employer, or if a collective agreement provides for the possibility of referring the dispute to arbitration. An arbitration agreement does not limit the employee’s right to refer a dispute arising from the employment contract to a court, except where the arbitration agreement was concluded after the dispute arose and the parties unconditionally agreed to submit the dispute to resolution by an arbitral tribunal.   In what cases and within what time limit does an employee have the right to apply to the court?   If the employee disagrees with the modification of working conditions or the termination of employment relations, the employee has the right to apply to the court within two months from the date of receipt of the individual legal act on the modification of working conditions or dismissal, and, in cases prescribed by law, within two months from the date on which the employment contract is deemed terminated by operation of law.