All You Need to Know about Corporate Securities under Armenian Law

Securities, including corporate securities under Armenian law are defined as documents certifying property rights following the prescribed form and mandatory validity conditions, the realization or transfer of which is possible only when they are presented, such as a bond, check, promissory note, or other securities. According to the issuer, we can distinguish corporate securities, which are shares or financial debt instruments issued by companies to raise funds for various purposes. According to the RA Law “On Securities Market”, the person who issues a security or proposes to issue a security on his own behalf is considered an issuer.

What are the types of corporate securities?

According to Article 153 of the Civil Code of the Republic of Armenia, bonds and stocks are types of investment securities.

What is a bond in terms of RA legislation?

A bond is a security that certifies the right of its owner to receive the nominal value of the bond or other property equivalent from the person who issued the bond within the period specified therein. The bond entitles its holder to receive interest or other property rights from the nominal value of the bond.

A bond is a security that creates a loan relationship between the holder of the security (lender) and the person issuing it (borrower).

Debtors issue bonds to raise funds from investors who are willing to lend them money for a certain period.

Thus, a bond is a certificate certifying a debt obligation, which includes the following obligations of the issuer:

  1. about returning the amount specified in the bond to the holder of the bond after the expiration of the specified period,
  2. about paying the bondholder the income fixed in the bond in the form of a certain interest or other property equivalent concerning the nominal value.

Which companies can issue bonds?

Bonds can be issued by every type of company, both limited liability companies and open and closed joint stock companies. The legislation of the Republic of Armenia on the issuance of securities stipulates a limitation only on shares, according to which the latter can be issued only by joint-stock companies.

How are corporate bonds issued?

Securities are purchased based on the offer made by the issuer. According to Article 3, Clause 8 of RA Law “On Securities Market”, any form of communication addressed to individuals, which contains an offer to sell a security or an invitation to make an offer to buy a security, is considered an offer.

The offer of securities and the issue thereof may be a public issue or a non-public issue. A public offer of securities is considered an offer of securities to more than 100 persons who are not qualified investors (Armenian legislation defines the concept of a qualified investor by the law “On Securities Market”, such as investment companies, the Republic of Armenia, municipalities of the Republic of Armenia, the Central Bank, foreign countries, local self-government bodies of foreign countries, central banks of foreign countries) or to an undetermined number of persons.

Taking into account the importance of establishing a sufficient level of investor protection measures and guaranteeing that investors receive the necessary information for making investment decisions, RA legislation regulates the public offering of securities more strictly. The public offering and placement of securities is carried out in accordance with the Law and Regulation 4/04 of the Central Bank of the Republic of Armenia.

Before moving on to the main regulations of the public offer, it should be noted that Article 4 of the Law provides for the cases when the provisions of the public offer are not applied and Article 6 provides for the cases when the publication of the prospectus is not mandatory.

The prospectus is registered by the Central Bank of the Republic of Armenia, published on the Internet, and available to investors, who, having read the prospectus, can decide to purchase the security.

When purchasing a bond, you should pay attention to the issuer’s operational reputation, financial condition, circulation period, coupon rate, coupon payment frequency, liquidity opportunities in the secondary market.

What factors are considered when making a public offering?

Before deciding on a public offering, the following should be considered:

  • a public offering will require an investment of time and certain funds;
  • the company will take on new obligations for registration, reporting and, most importantly, information disclosure, which will require management time and incur additional costs in the future,
  • The company (its managers) may be liable if the assumed obligations are not fulfilled on time.
  • Information about the company will become available to the general public (including competitors);
  • in the case of shares, the company may lose some management flexibility, especially when shareholders must approve certain actions of the company.

Can the bond be transferred to another person?

Yes, a bond is a transferable security. That is, ownership of it is easily transferable, which distinguishes a bond from a bank deposit. Bonds and shares are issued and distributed in non-documentary form, and the ownership right to them is verified by opening a securities account in the unified DEPAND system of the RA Cantonal Depository and registering the ownership right to these securities in the securities account. In the case of listed bonds, the bonds are traded in the secondary market through brokers of specialized stock market participants.

What are the distinguishing features of a bond?

A bond, unlike a stock, does not give its owner the right to participate in the management of the issuer.

Our legal team is ready to assist you in providing:

  • Advice on choosing the right legal form of business
  • Advice on corporate structure
  • Proposal of business restructuring models
  • Advice on share consolidation and separation processes
  • Consulting on corporate governance and governance in general (ESOPs, preparation of shareholder agreements, etc.)

Definition of stocks according to Armenian law

A stock is a security that is issued by a joint-stock company in cases of its creation, reorganization, as well as increase of the authorized capital for the purpose of collecting funds. In other words, a stock is the evidence of a stock invested in the authorized capital of a joint-stock company. Only joint-stock companies have the right to issue stocks. Discover additional insights about company types in one of our previous articles.

According to the Civil Code of the Republic of Armenia, a stock is considered a security that certifies the right of its owner (shareholder) to receive a stock of the profit of the joint-stock company in the form of a dividend, to participate in the management of the affairs of the joint-stock company, and to receive a part of the remaining property after its liquidation.

A stock is a security without a specific period of circulation, which, certifies the fact of participation in the ownership of a joint-stock company, and gives its owner several rights, advantages, and powers. Shares exist as long as the joint stock company that issued them exists, the period of validity of such securities is usually not limited.

The share has the following features:

  1. it can only be issued by joint stock companies. The issue can be made on the stock exchange (if a publicly listed company) or over the counter.
  2. is a property deed, that is, the owner of the share is a co-owner of the joint-stock company, with the rights arising from it, participates in the management of the company
  3. does not have an existence (maturity) period, i.e. the shareholder’s rights are preserved as long as the company exists (unlike, for example, a bond). However, this does not imply that the share will remain in the hands of the same owner for that long. The shareholder can dispose of the shares owned by him on the stock exchange, if they are listed shares or on the over-the-counter market,
  4. is indivisible, except for the cases provided by law. That is, its joint possession does not mean division of ownership, but they all appear as one owner. If one share is owned by several shareholders, a joint securities account is opened for them in which they register the shares.
  5. limited liability is characteristic, because the shareholder is not responsible for the obligations of the joint-stock company, and the company is not responsible for the shareholder’s obligations, and in case of bankruptcy of the company, the shareholder loses as much money as he invested when acquiring the share,
  6. as a rule, one share gives the right to one vote, however, the Company’s charter may establish a different right to vote for a separate class of shares.
  7. shares can be merged (consolidated, i.e. two or more shares of the Company are converted into one new share of the same type or class) and split (split). Shares are classified according to certain characteristics as follows:
  • according to the right to vote, with the right to vote and without the right to vote (privileged),
  • by type: ordinary and privileged
  • Shares of different classes may be issued and allocated by the Issuer according to classes. Each common (ordinary) share of a certain class of the company gives its owner the same rights as defined by the company’s articles of association.
  • according to the scope of rights: common (ordinary) and privileged.

Stock market_corporate securities


What types of shares are there?

Shares, depending on the volume of rights granted to their owners, are divided into common and privileged. According to the RA Law “On Joint Stock Companies”, the Company may issue one or more classes of common (ordinary) and preferred shares in non-documentary form. The total nominal value of privileged shares issued by the company shall not exceed 25 percent of the authorized capital of the company.

According to this law and the charter, the owner of a common (ordinary) share has the right to:

  • to participate in the meeting with the right to vote on all matters within its competence,
  • participate in the management of the Company;
  • receive dividends from the profits generated by the Company’s activities;
  • to acquire the shares distributed by the Company in priority order, unless otherwise stipulated by this law and charter;
  • to receive any information about the Company’s activities, in addition to confidential documents, including, in accordance with the procedure established by the statute, getting acquainted with accounting balances, reports, the Company’s production and economic activities;
  • to authorize a third person to represent his rights in meetings;
  • make recommendations in meetings;
  • to vote at the meetings in the amount of the votes of the shares owned by him;
  • apply to the court for the purpose of appeal against the decisions adopted by the assembly and contrary to the existing laws and other legal acts;
  • In case of liquidation of the company, to receive his due part of the company’s property.
  • have other rights provided by the statute.

The holder of common (ordinary) shares of the corresponding class cannot be granted additional voting rights not derived from the number of common (ordinary) shares of the given class owned by him.

Dividend payments on common (ordinary) shares are not guaranteed by the Company, unlike preferred shares.

What are privileged shares?

Shareholders owning privileged shares do not normally have the right to vote at the company’s shareholders’ meeting. The privilege of these shares lies in the fact that the company’s articles of association and terms of issue define the dividend payable for the shares, as well as the liquidation value, in cash or as interest on the nominal value.

Thus, according to Article 38 of the Law “On Joint Stock Companies”,

The company has the right to allocate fixed or variable dividend, accumulation, convertible and other preferential shares, if it is provided by the charter.

Holders of preferred stock do not have the right to vote at the meeting, unless otherwise provided for by this law and bylaws for certain classes of preferred stock. The articles of association may grant one or more voting rights to the holder of preferred shares

A certain class of preferred stock in a company gives the same rights to the shareholders who own it.

  1. The Articles of Incorporation shall specify the dividend payable and the liquidation value (to be paid upon liquidation of the Company) for each class of preferred stock to be issued and declared by the Company. The amount of dividend paid for a preferred share and the liquidation value are defined in cash or as an interest rate on the nominal value of that share. The amount of the dividend paid for the preferred shares and the liquidation value are considered to be determined even if the procedure for their determination is provided by the charter.

If the Charter does not provide for the amount of dividend paid for preferred shares, then their owners have equal rights to receive dividends with the owners of ordinary (ordinary) shares, and in the case of classes of ordinary (ordinary) shares, with the owners of the class of shares that reserve the right to receive dividends in the highest amount.

According to RA legislation, in individual cases, the owners of preferred shares can use the right of management, in particular, if the general meeting of shareholders discusses the issues of reorganization and liquidation of the company or making such changes and additions to the charter of the company, which limit or change the rights of the owners of the preferred shares of that class, including also setting or increasing the dividends and/or liquidation value paid for the preferred shares of other classes, as well as providing privileges in the order of payment of dividends and/or liquidation value to the owners of other classes of preferred shares. The owner of a preferred share also gets the right to vote in cases where a decision is made at the annual meeting of shareholders on non-payment or incomplete payment of specified dividends, or conversion of the given class of preferred shares into ordinary shares.

Non-payment of dividends due on preferred shares for three consecutive years may be grounds for judicial liquidation of the company.

Can employees be granted shares and how does this happen?

Yes, RA Law on Joint Stock Companies allows a company to issue shares/stock options to company employees. For more detailed insight on this topic, you can read one of our previous publications where our team has presented the features of employee shareholding.

What classes of shares exist according to RA legislation and what are the rights provided by them?

According to RA legislation, shares can be common or preferred. Each type of stock can have different classes. At the same time, these classes can be defined by the charter of the company, defining the corresponding rights for each class. For example, shares issued to employees may be Class B, in which case the company may grant employees and shareholders corresponding rights.

Convertible/hybrid securities. Mezzanine financing.

To us, the financing is a debt instrument that by its nature provides for the possibility of conversion to equity participation at a later date. In other words, non-public contractual investment funds to organizations registered in RA can provide us with financing in foreign currency, however, since capital investments and capital quotations are carried out in accordance with Article 6, Part 3 of the RA Law “On Currency Regulation and Currency Control” only in AMD, financing to us must be quoted in AMD at the time of capital conversion.

Our legal team is ready to assist you in providing:

  • Advice on choosing the right legal form of business
  • Advice on corporate structure
  • Proposal of business restructuring models
  • Advice on share consolidation and separation processes
  • Consulting on corporate governance and governance in general (ESOPs, preparation of shareholder agreements, etc.)

Contact our team to get custom-tailored and professional advice on your case!


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