Tag Archives: Company Law

Introduction to Mongolia’s Law on Digital Signatures



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A newly revised Law on Electronic Signatures was adopted in December 2021 and will come into force on May 1st, 2022.

The Revised Law distinguishes between electronic signatures and digital signatures. The Law provides that an electronic signature shall be used for electronic information that has been converted from paper form to electronic form by means of an information system, or created, sent, received, stored or accessed in an electronic environment (except for those classified as state secrets).

Generally digital signature is characterized by a unique feature that is in digital form like fingerprint that is embedded in a document. The Law provides that digital signature is a form of an electronic signature, and is an information that is encrypted and converted into digital signature by using private key and can be verified and validated by using a public key. With regards to legal entities, pursuant to the Law legal entities shall use digital seals, which must meet the requirements for digital signatures. The authorized representative of legal entity shall be the holder of the digital seal. The signer shall be required to have a certificate so that he/she can be linked to the document (information). Digital signature shall be as valid as the written signature on paper document.

Along with the certificate the signer shall be required to have a digital signature tool used to create the digital signature and retain private key. The Law specifically provides that for Mongolian citizens their ID cards shall be one of types of digital signature tools, that is information on citizen’s digital signature, certificate and private key shall be placed in the memory chip of ID card. The Law does not set a legal limit on the types of digital signature tools, but a list of eligible tools shall be issued by the Ministry of Electronic Development and Communications.

In accordance with the Law now not only Mongolian citizens and legal entities, but also foreign citizens and stateless persons shall be able to use digital signatures. Also, now a digital signature certificate issued by foreign authority may be used in the same way as Mongolian certificate provided that conditions set forth in the Law are met and in accordance with procedures set forth in the Law. Meaning that digital signatures authorized by foreign certification authorities may be used, whereas the current law does not allow it.

Furthermore, the Law sets forth more detailed requirements for digital signature certificates, certification authorities, their rights and obligations, rights and obligations of government authorities.

Mongolia’s New Law on Virtual Assets Providers



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In recent years number of companies and organizations have come out and sold various “coins” and tokens. Although virtual asset services have the advantage of using technological advances to increase access to finance at low cost, the process of trading coins and tokens is carried out in very short term and at high prices. As a result, special legal regulations became necessary due to high risk of possible increase of cybercrimes, and as consequence individuals and investors to become victims of cybercrimes, or even unknowingly get involved in money laundering and terrorist financing crimes said lawmakers. Thus, the first draft of Law on Virtual asset service providers was submitted by the Government on May 12, 2021 and the parliament adopted it on December 17, 2021. The law came into force on February 25, 2022.

Pursuant to law public offerings and trading of virtual assets now can be done only through companies registered as virtual asset service providers. Companies that want to provide virtual asset services and that meet requirements set in law and ancillary regulations on combating money laundry, terrorist financing and risk mitigation can be registered with Financial Regulatory Commission (FRC) as virtual asset service providers. Once registered virtual asset service providers shall be obliged to identify its customers, determine the legality of their assets, and inform customers in advance about risks of becoming victims of technical and fraudulent crimes in the process of possessing and trading of virtual assets.

Pursuant to law eight ancillary regulations must be adopted, which are currently being developed by FRC. FRC is currently conducting survey on some of the draft regulations. You can read the draft regulations (only Mongolian versions are provided) (the link http://www.frc.mn/a/3910) and send your proposal by March 27, 2022.

FRC shall not register any company as virtual asset service provider within four months from the date the law came into force. This period is given for FRC to develop and adopt aforementioned ancillary regulations. Companies that provided virtual asset services before the law was adopted shall satisfy all requirements set in law and ancillary regulations within three months after expiration of the four-month period and may be registered with FRC as virtual asset service provider.

The law expressly provides that registration of a company as virtual asset service provider is not considered as guarantee for the virtual asset. The government shall not be responsible for any damages resulting from activities related to virtual asset service, and public offerings and trading of virtual assets through a company not registered as virtual asset service provider is prohibited.

An individual or legal entity that violates the law shall be subject to liability specified in Criminal Code or Law on Infringements. Administrative penalty for violation of law for individuals is fine in the amount equal to from 1 million MNT up to 3 million MNT, for legal entities is fine in the amount equal to from 10 million MNT up to 200 million MNT.

So, it looks like in October virtual asset market will start to be more regulated and well-ordered.

Employer Initiated Termination



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Employer mistakes or misunderstanding of the law is a common cause of disputes related to employment termination. A recent review of employment issues found that it is common for employers in Mongolia to make process errors when terminating an employment contract.

In particular, this type of dispute is common due to procedural errors in decision-making on the grounds of redundancies, reducing number of staff, and incompetence in terms of occupations/position, skills, and health.
In light of recent changes to the Labor Law of Mongolia we will review key provisions of the old Labor Law and compare with the new provisions of the 2021 Labor Law.

Under the 1999 Labor Law, an employer terminated an employment contract on one of the following grounds.

  1. liquidation of the employer` s business entity or organization, branch or unit thereof, abolition of the job or position within it, or reducing the number of employees;
  2. it has been determined that the employee fails to meet the requirements of the job or position due to the lack of professional qualifications or skill, or health reasons;
  3. an employee has attained 60 years of age and is eligible to receive a pension;
  4. repeated breach by the employee of the labor disciplinary rules or commission or a serious breach for which the employment agreement specifically provides termination of the labor relations;
  5. it has been determined that an employee who is responsible for assets or money has lost the trust of the employer due to an act or omission;
  6. an employee is elected or appointed to another salaried work;
  7. arising on the grounds set forth in the contract.

Under the 2021 Labor Law, most of these termination grounds remain in place, However # (6) and (7) are excluded. The new regulation provides grounds for termination of employment if an employee is found to have forged documents proving his / her education, profession and qualifications at the time of hiring.

Additionally, (2) profession, qualification level, and health are separated and given as two separate grounds.  In terms of profession and qualification level, the precondition was set in law to warn the employee on the grounds that he / she is found to be incompetent in terms of profession and qualification and to provide them possible time to improve their profession and qualification level and performance of work. A medical condition must determine by a decision of the hospital’s labor inspection commission.

(4) Labor disciplinary: For repeated disciplinary violations.

In practice, the most common legal grounds used by an employer to terminate an employment contract are (1) and (2). Common mistakes made by employers are not giving notice within the legal timeframe, not being signed and certified by the employee when issuing termination notice, issue dismissal/termination order without waiting for the notice period to expire, failure to allow to perform the employee’s duties without issuing termination order, and hand over timeframe not being included in the termination order.

An employee’s failure to qualify for a work in terms of profession, skills, or health is often mistaken for dismissal at the discretion of the director or head of the company and organization without a formal decision from the industry or organization’s qualification commission or attestation and medical labor verification commission.

In order to correct above mistakes, if employer follows the following steps when terminating an employee’s employment agreement pursuant to 1999 Labor law:


a) The termination of an employment contract shall be notified 30 days in advance, a 45-day notice shall be given in the event of a mass dismissal, and a 60-day notice shall be given if the contract is terminated.
b) Upon receipt of the notice, the employee shall sign a copy thereof. One copy is kept by the employee and the other by the employer
c) Provide the employee with the opportunity to perform his or her duties during the notice period.
d) Employer should pay a severance pay in an amount equal to employee’s average salary for 1 month or more if employee who has been dismissed on the grounds that employee acted for military service, a business entity or branch has been liquidated, position demolished, reducing number of employees, disqualified for work in terms of profession or health. In connection with severance pay there is no upper limit, but 1 month severance pay meets legal requirement. In the event of a mass dismissal, the amount of the severance pay shall be determined in consultation with the employee’s representatives.
e) Termination/dismissal order shall be issued. This order shall specify the legal grounds for termination and the deadline for hand over the work.
f) The employer must make a complete record in the social and health insurance book and provide the termination order, social and health insurance book, and severance pay on the last day of dismissal/termination.

The 2021 Labor Law has not made any significant changes to the termination process and will follow the above- mentioned process by labor law 1999. As for the change, it is not necessary to allow an employee during the period of termination notice and it is possible to dismiss him / her after payment including notice period. Massive dismissal lasts 90 days. Massive dismissal is determined that the number of employees in an organization with a certain number of employees is fired.


If the employee has been terminated on the grounds of the employer has transferred ownership, the business entity or organization has been liquidated, position demolished, reducing number of employees, disqualified for work in terms of profession and health, following a severance pay amount shall be paid. Severance pay has to be paid in equal amount of basic salary as follows.


a) If worked for 6-2 years, 1 month or more basic salary
b) If worked for 2-5 years, 2 months or more of basic salary
c) If worked for 5-10 years, equivalent to 3 months or more of basic salary
d) If worked for 10 or more years, 4 or more months basic salary

In the event of a mass dismissal, the employer shall negotiate with the employee’s representatives, but the amount of the severance pay shall not be less than that specified above.


The termination order shall be issued in writing prior to the handover and shall be presented to the employee and a copy of the decision shall be handed over. If the employee refuses to accept the decision, it shall be deemed that the decision has been sent by mail to his / her place of residence.


Upon the employee’s request, the employer is obliged to provide a reference within 5 days.

Requirements of Official Financial Statements



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As we mentioned in our previous post, The Board of Directors is obliged to submit the report with respect to the financial statements to the annual shareholders meeting of a company for approval. In this post, we would like to call your attention to a company’s official financial statement, its scope and requirements.

Companies and other organizations operating in the territory of Mongolia are required to submit financial statements electronically to the local Ministry of Finance. These statements must be maintained in Mongolian language and reported in the national currency of Mongolia, the Tugrug.

The financial statements of company must include the following: (1) A record of the current balance, (2) the income statement, (3) statement of shareholders’ equity, (4) cash flow statement, (5) financial statement clarifications.

The financial statements must be approved by the company’s highest authority and financial officer and submitted by July 20, with completed annual financial statements due by February 10 of the following year. Mongolia has implemented a electronic filing system for submission of the statements. The accounting files and financial statements of the company are required to be maintained for at least 10 years.

The Ministry of Finance is responsible to monitor banking and financial markets and is entitled to request additional explanation and clarification from a company with regard to a submitted financial statement. In this case, the company is obliged to provide accurate and complete explanation and clarification as requested.

The highest authority of the company is responsible for managing and organizing the accounting. The company may engage contracted accountant’s service or professional accounting consulting service.

Some organizations, in particularly foreign invested companies are subject to mandatory auditing of financial statements. We will provide the more information related to these mandatory audits in an upcoming post.

Calling A Shareholder Meeting



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We have posted several blogs consecutively in connection with the governance of company in particularly, Authorities of Shareholders Meetings and Board of Directors’ meetings and Secretary of Board of Directors.,etc.

This time, we would like to raise the procedures of calling regular and special shareholders meetings under the recent legislation in Mongolia. It may take an interest of the foreign investors or businessmen who cooperate with the legal entity of Mongolia thought the company operations in Mongolia.

As we all aware that the shareholders meeting is the highest governing authority of a company. The shareholders meeting can be either regular or special.

The regular shareholders meeting shall be called by the Board of Directors and held within four (4) months following the end of each fiscal year of a company. If there is no Board of Directors in the limited liability company, the executive body will in charge of this obligation. The authority of the Board of directors shall terminate whether a regular shareholder meeting is not called and held within the period abovementioned. It means that any agreements or transactions entered into after the termination of the authority of the Board of Directors shall be invalid.

As for the special shareholders meetings, The Board of Directors shall call the special shareholders meeting in the following cases:

  • more than 50 percent of the Board of Directors not to work or not possible to work;
  • two (2) or more independent members of the Board of Directors, shareholder(s) of 10 or more percent of voting rights has issued a proposal or demand;
  • the losses incurred by the company exceeds 30 percent of the owner’s equity at the time of the last financial report;
  • the company debt has exceeded the owner’s equity two (2) years in a year, and is a negative figure;
  • the Board of Directors has issued a decision;
  • the audit committe has demanded to convene a special session of the shareholders meeting;
  • all other cases specified in the company charter.

The Board of Director makes a decision whether or not to call such special shareholder meeting within ten (10) business days following the date that they receive the demand by shareholder(s) who owned 10 or more percent of voting rights of the limited liability company. In the case, the Board of Directors decides to call the special meeting demanded by the shareholders; such meeting shall be called within forty-five (45) days following receipt of the demand.

If the decision of the Board of Directors to refuse to call a special shareholders meeting, the shareholder making such proposal or demand are entitled to appeal to a court against the Board of Directors’ resolution.

THE SECRETARY OF THE BOARD OF DIRECTORS



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The Secretary of the Board of Directors is deemed as the company’s eligible person.

Because he/she is involved in the official decision of the company in both direct or indirect ways. This is regulated in Article 84.1 of the Company code. The Secretary of the Board of Directors shall be appointed by the BoD upon the suggestion submitted by the Head of BoD.

Any person of the state and regional administrative bodies, military, police, court and prosecutor’s authority, or any person currently convicted to criminal penalty are prohibited to act as the Secretary of the Board of Directors.  (Article 84.3 of the Company Code)

The Article 75.8 of the Code also provides the Secretary of the Board of Directors to be enrolled in the corporate governance training and to have received the Certificate thereof. This requirement applies to the members and secretaries of the BoDs of joint stock and limited liability companies.

Articles 82.2, 97.5, 98.2 of the Company code specifically state the duties to be performed by the Secretary of the Board of Directors. This shall include:

  • to be responsible for the administration of the internal operation of the Board of Directors;
  • to take notes of and administer the shareholders’ meeting and the board of directors meeting, and to convey inform to the shareholders;
  • to be in charge for the preparation of the shareholders’ meeting and the board of directors meeting, to prepare the information related to the announcement of the meetings and discussion topics, and the drafting and delivery of the draft of the resolution to be approved and other documents in accordance with the relevant procedures;
  • to take meeting minutes of the shareholders’ meeting and the board of directors meeting, to verify the decisions and resolution in accordance with the relevant procedures, and to ensure the implementation thereof;
  • to coordinate the activities of the shareholders’ meeting, the board of directors, the executive director and other participants.

Liability of a Mongolian Company for Non-Compliance



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We have looked at the requirement for a Mongolian company to have an internal control body and discussed a little about the forms such body may take. Our readers may be interested to note that while having such body is mandatory for a Mongolian company under law, there isn’t actually any penalty for a company that does not establish an internal control process.

What this means is that while there is no penalty for not having the review body, the Company will be considered liable under Mongolian law for any compliance violation or audit irregularity caused by the actions of the company’s officers or staff, which result in legal penalties or civil damages. By making the company responsible to maintain the internal control and compliance committee, the law makes the company responsible for any failure of compliance. Such liability will be in effect even where the non-compliance was accidental or was caused by the unapproved actions of a single staff member. The theory is that these things would not happen if the company had established and followed an appropriate internal control process.

Mongolian companies should therefore take the legal requirement to establish a Internal Control and Audit Committee seriously. The internal control system will allow company management to better ensure proper operations of the company and identify and stop potentially non-compliant behavior before it results in a larger problem, potentially carrying legal penalty. Since the law makes the company liable for non-compliance in any case, it makes sense for the company to establish internal procedures to reduce this risk.

Compliance Options for Your Mongolian Company



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We talked yesterday about the Internal Control or Auditing Committee every Mongolian company should have. The Committee should operate by a set of rules, which the company approves and implements for itself. Government regulations stipulate that each, “Entity or organization must have its own internal control and auditing procedure in compliance with this regulation and consistence with its activities.”

To comply with this rule, the company must establish the Internal Control or Audit Committee, or for larger companies a complete department devoted to compliance may be used. Smaller companies have the option to appoint a single company officer to be responsible for compliance. This individual office, committee or department will have responsibly to conduct internal compliance reviews and audits.

Internal Control and Audit Requirements for Your Mongolian Company



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All types of legal entities, regardless of ownership or organization details, are required to comply with state inspection requirements. Each company is required to establish an Internal Control or Auditing Committee comprised of company officials responsible for monitoring internal company operations and compliance. Whether the company is locally owned or foreign invested, or operating in mining sector, industrial manufacturing or providing a service, the company must establish an internal audit committee.

The Internal Control and Audit Committee is responsible for internal compliance issues for the company, to ensure the company meets all of its obligations as set out elsewhere in Mongolian law. The Committee is broadly responsible for compliance as regards meeting environmental impact and conservation obligations; ensuring quality of products or services provided by the company; monitoring working conditions and workplace safety and health; ensuring the company meets all obligations regarding property registration, utilization, storage and finally, the committee is responsible to ensure accurate accounting of financial records.

If you are unsure if your Mongolian company’s internal compliance and control procedures meet requires of the law, contact your Mongolian legal counsel for a consultation.

Basics of Initial public offering (IPO) in Mongolia



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In recent years several Mongolian private companies have gone public, or conducted an initial public offering (IPO), very successfully. This shows that interest and knowledge about IPO is growing both among companies (businesses) and public (investors).

As you may know, an IPO is when a private company or corporation raises investment capital by offering its stock (shares) to the public for the first time. Initial public offerings are often issued by growing companies seeking capital to expand, but they can also be done by large privately-owned companies or corporations looking to become publicly traded. Prior to an IPO the company is considered private, with a relatively small number of shareholders made up primarily of early investors (such as the founders) and professional investors. The public, on the other hand, consists of everybody else – any individual or institutional investor who wasn’t involved in the early days of the company and who is interested in buying shares of the company. The Law on Securities Market requires that to conduct an IPO the issuer must offer its stock to at least 50 and more investors.

In an initial public offering, the issuer, or company raising capital, procures the assistance of an underwriting firm (underwriter), to help determine the offering price, amount (number) of shares and timeframe for the market offering. When a company initiates the IPO process, a very specific set of events occurs. The chosen underwriter facilitates all of those steps. Primarily, an external IPO team is formed, consisting of an underwriter, law firm, audit company, appraiser company, and other experts if required. The external IPO team compiles information and documentation regarding the company (issuer), including financial performance and financial statements, expected future operations, corporate governance and corporate documents, and prepares IPO prospectus, legal opinion, audit report, asset valuation report and other necessary documents respectively that are to be filed to Financial Regulatory Commission of Mongolia (FRC). After the company files its prospectus and other necessary documents with the FRC, it sets a date for the offering.

Going public can be a great way to raise money, increase your company’s profile. However, there are number pros and cons in going public. So, when considering conducting an IPO, one must do all proper researches, calculations and analysis. In doing so we advise to seek professional advice and services from FRC listed underwriters, law firms, audit companies and appraiser companies.

Our law firm is FRC listed. Here at LehmanLaw we have FRC certified lawyers, who will provide you with qualified legal assistance.