Amendment to the Civil Code of the Republic of Armenia
On June 08, 2024, the Law “On Amendment to the Civil Code of the Republic of Armenia” entered into force and the Code of Corporate Governance (hereinafter the “Code”) was included into Civil Code (Article 76.1).
The general provisions of amendment are followings:
1. The Code is a legal act approved by the authorized body that develops the policy of the Republic of Armenia in the field of investment promotion, which contains principles and guidelines aimed at increasing the efficiency of the management of an economic company, protecting the rights of participants, increasing transparency and accountability.
2. Adherence to the Code is voluntary by economic companies, unless otherwise provided by law.
3. The authority to adopt a decision on joining the corporate governance code belongs to the general meeting of participants of economic companies, unless otherwise provided by law or charter.
This amendment is aimed to encourage long-term investments, enhancing the stability of the business sector, economic growth, and increasing public participation in economic decision-making.
The Code of Corporate Governance
The Code was developed in accordance with the principles of corporate governance established by the Organization for Economic Co-operation and Development (OECD), the Basel Committee on Banking Supervision's 'Guidelines for Improving Corporate Governance of Banking Organizations,' the OECD Guidelines on 'Corporate Governance in State-Owned Organizations,' and the EBRD-OECD 'Corporate Governance of Eurasian Banks: Collection of Proposals.'
The provision of Code is adopted in 49 countries, with varying degrees of enforcement: in some countries, it is applied imperatively, while in others it is adopted voluntarily or in a mixed manner.
On December 30, 2010, by Decision No. 1769-A of the Government of the Republic of Armenia the Code was approved in Armenia. However, there was not an authorizing norm for its application under RA legislation before this amendment.
The provisions of the Code of Corporate Governance
The Code consists of following four chapters:
- Rights of the shareholders and the authorities of the general meeting of the shareholders, which discusses the process of communication among the shareholders, the procedure of the distribution of general meeting notices and agendas, the voting procedures, the dividend payment policy, and state as a shareholder.
- The board of directors, which discusses the composition, functions and responsibilities of the board members, criteria for independent members, committees and their main types, ethical commitment of the board, nomination, and evaluation principles, etc.
- Disclosure and transparency of information, which covers provisions on annual reporting, insider trading, internal and external audit procedures, norms of ethics, increase of the charter capital of the company by the board.
- The beneficial owners, which sets out the ethical norms of mutual respect, cooperation policy, access to the information of the company, mutual communication between the company and its beneficial owners, etc.
Conclusion
With the amendment now, legal entities have sufficient discretion and freedom to apply the Code in Armenia, in accordance with their own problems and goals in terms of making a decision in respect to their corporate governance. The application of this Code is not mandatory in Armenia, it can be utilized on voluntarily basis. It is considered as “soft law” in Armenia.
The Code provides a comprehensive framework for managing companies with integrity and accountability. They outline principles for an effective board structure, fair executive compensation, and the protection of shareholder rights. Applying the Code will emphasize accurate financial reporting, good company management, and adherence to ethical standards. By promoting transparency and clear communication, these guidelines help build trust with shareholders and support the long-term success and stability of the company.