Tag Archives: Corporate Commercial

Registering Your IP with Mongolia Customs



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Holders of Intellectual Property rights (IP) registered in Mongolia have the option to register these rights with Customs. This registration allows an IP holder an important tool to prevent import or export of counterfeit products into or out of Mongolia.

In order to be included in the customs database, an IP rights holder must submit a request to the General Customs Administration to include the holder’s IP rights in the Customs database. Such request shall contain the details of the goods related to the intellectual property rights, information of the holder, documents confirming the intellectual property rights, along with a list of goods to be registered and protected. There is no official fee for this registration.

The decision to register goods related to intellectual property rights in the Customs database is finalized by the head of the department in charge of control and risk of the Central Customs Administration. Information registered with the central database is shared with regional Customs offices around the country.

IP holders should take care to report to Customs and request updated registration with Customs when any important information regarding the IP rights is changed, including duration of protection, name of the rights holder, or others.

The Central Customs Administration may publish the list of goods registered in the Customs database and changes thereto in the official customs edition and some other information on the customs website with the permission of the rights holder.

Basics of Land Pledges



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Any individual or legal entity may pledge as collateral land they own or possess. If the land was transferred to an individual or a legal entity based on a valid legal agreement, the person receiving such rights has the ability to legally pledge those rights so long as the legal claim to the land rights remains valid. Registration of a pledge of land will require presentation of documentation including the cadastral, and a copy of the land ownership, possession, or utilization certificate along with the pledge agreement.

A bank or a person authorized to conduct credit activities may also receive a pledge to land based on rights granted by a loan agreement. Such rights may be registered by the bank or creditor as pledgee as with any pledge.

Land may be pledged separately from the buildings that are constructed on it, or even which are in the process of being constructed. A pledge agreement must stipulate the land and buildings may not be pledged separately, if this is the intention.

In case of disagreement between a pledgee collecting on pledged rights to land, and an owner of buildings on the land, parties should seek to reach a mutual agreement between themselves, or in extreme cases seek resolution at court.

M&A for Company in Dominant Market Position



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The legal entity in dominant position shall be obliged to file a request to the Authority of Fair Competition and Consumer Protection in case of reorganization by acquiring or merging with other legal entity or by purchasing more than 20 percent of the common shares or more than 15 percent of the preferred shares of a competing company selling or serving similar products, or by merging with a related party.

The Government of Mongolia approved the Resolution No. 118, “Procedure for reorganization of a dominant legal entity through merger or acquisition with other legal entities, and conclusion on the purchase of competitor’s shares” in 2012.

In accordance with this regulation, the Authority of Fair Competition and Consumer Protection shall review the applications and related materials submitted by legal entities and monitor whether competition, mergers and acquisitions result would be the restriction of competition in the market.

The Authority of Fair Competition and Consumer Protection shall review or approve the application within 30 days upon the receipt of the application. This period may be extended by up to 30 days and additional information may be requested to the applicant if necessary.

If the Authority for Fair Competition and Consumer Protection considers that there are conditions to restrict competition upon the reviewing the application, the refusal on reorganization of the dominant legal entity by acquiring or merging with other legal entities will be issued in accordance with above-mentioned procedure.

This refusal by the Authority for Fair Competition and Consumer Protection is a ground for not registering the legal entity reorganized through merger or acquisition, and for not registering the charter of the legal entities that sells or buys the shares.

If it is proved that the benefits to the national economy outweigh the disadvantages to competition in the market, the dominant legal entity will be allowed to register the reorganization by acquiring or merging with other legal entities.

Can Immovable Property be Pledged Twice?



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A owner of immovable property (usually real estate or buildings) is entitled to dually promise collateral to others as a pledge on satisfaction of debt. Previously, double collateral was not allowed, if it was prohibited by the agreement between parties. The Constitutional Court made a resolution #11 to repeal this regulation in 2015. Therefore, it is now possible to dual pledge the collateral several times.

When concluding a contract with a subsequent pledgee, the pledgor is obliged to inform the pledgee that the pledge item has already been pledged. If not informed, pledgor should liable for the damage that a subsequent pledgee suffers. A subsequent pledgee has the right to terminate the pledge agreement and may demand compensation for damages. As a best practice, it is recommended to describe the initial pledge within the pledge documentation for a subsequent pledge.

If the previous pledge agreement states terms and conditions of a subsequent pledge agreement, such terms and conditions must be included in a later pledge agreement. If these terms and conditions are not reflected in the next pledge agreement and the previous pledgee submits a claim to the court to invalidate the subsequent pledge agreement, the court will likely consider the later pledge agreement as invalid regardless of whether the secondary pledgee knew or did not know about the original pledge. If the original pledgee and the secondary pledgee are the same, this regulation will not apply.

A dual pledge must be registered at the Mongolian State Registration Office. All subsequent pledges of such property shall be recorded along with the original pledge.

In case collateral is somehow pledged by several persons, a pledgee’s demand will be satisfied via the collateral in the order registered with the State Registration Office. In other words, in satisfying the pledgee’s demand, the pledge item shall be secured in the order registered in the state registry.

If a previous pledgee did not enjoy a preemptive right to demand the secured obligation, first priority right over the collateral will be transferred to next pledgee. A Pledgee shall be obliged to notify other pledgees prior to demanding to satisfaction of a secured obligation from such property. The reason for notifying to other pledgee is, if any of pledgees demanded to satisfy secured obligation from the collateral, other pledgees may demand simultaneous satisfaction although previous and next security period is not due. If other pledgees approve, each secured demand shall be satisfied in order of its performance date.

Setting Agenda for the Regular Shareholder Meeting



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A shareholder who has voting rights and holding the company’s common shares with 5 or more percent has entitled to submit the following 4 issues to be included on the agenda of the regular shareholders meeting to the Board of Directors or the executive body within 60 days after the end of the previous financial year. This includes:

  1. Matters falling within the authority of the shareholders meeting
  2. Proposal for nomination of candidate to the member of the Board of Directors;
  3. Proposal on the person to be nominated as a member of the Tabulation Commission

(Please note that if company charter provides number ii) and iii) matters to be discussed by the shareholders meeting)

  1. Proposal on candidate for executive management

Certain requirements and criteria must be met when submitting proposals on matters within framework of authority of shareholders meeting. Thus, the proposal should be made in writing and should include grounds for the proposal, full name of shareholders introducing/proposing the proposal, type of shares he/she owns ( such as common or preferred shares) and number of shares (number of shares owned).

When nominating candidate to the member of the Board of Directors, the tabulation commission and executive body, the full name of candidate (if a candidate is shareholder of the company, number of shares), full name of the nominating shareholder, type and number of shares and grounds for nomination.

Please note that abovementioned criteria are important factor to make decision.

The process of resolving the proposal

If there is Board of Directors, the executive management will submit the proposal to the Board of Directors within 3 working days.  The Board of Directors (in its absence, the executive body) is obliged to check whether the proposal meets the above requirements and, if so, to include it in the agenda of shareholders meeting within 15 working days after receiving the proposal. If the proposal does not meet the requirements, decision on refusal should be delivered to the shareholders who submitted the proposal within 3 working days after the decision was made.

If shareholders who is introducing the proposal (proponent) does not agree with the decision to refuse, the proponent has a right to file to the court.

What is a Natural Monopoly in Mongolian Competition Law?



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In our previous post, we looked at the legal regulation of business entity in “Dominant Position” from a competition law perspective. In today’s post we will review background and legal regulation of business entity in a “Natural Monopoly.”

The legal entity in natural monopoly defined as legitimate monopoly entrepreneurs exists when a single entity alone accounts for the total supply of particular goods to the market at the lowest minimum social cost.

A business entity in natural monopoly shall be determined in accordance with the methodology set forth in the Procedures for Identifying Business Entity in Natural Monopoly and Dominant position. If an entrepreneur is identified as natural monopoly, the Authority of Fair Competition and Consumer Protection issues a decision confirming that the business entity is a legitimate monopoly.

The Authority for Fair Competition and Consumer Protection shall regulate the activities of of naturally monopolistic business entities as follows:

  • Regulating/monitoring changes in the amount and size of products supplied to the market in connection with its capacity;
  • upon considering the actual costs, controlling and granting a permission to change of the selling price of particular products;

A business entity in natural monopoly is obliged to submit its annual financial statement, market research, survey, proposal and other required documents to the Authority of Fair Competition and Consumer Protection the within first quarter of each year.

According to such report, research and proposal comparing with sources, such as news, information, reports, research and analysis conclusions issued by the Customs Authority, Tax Authorities, the Central Statistical Office and other government agencies, the business entity shall be decided to exclude from the “Registration of a legitimate monopoly entrepreneurs”.

It is strictly prohibited to conduct the dominant activities for the business entity in natural monopoly by using their monopolies illegally, restricting the number, quantity, and price of goods sold in the market in order to block other entrepreneurs from entering into the market, restricting the fair competition and blocking consumers’ rights and interest.

What is a Dominant Position in Mongolia Competition Law



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We have already posted a brief introduction about the Competition Law of Mongolia earlier. This time, we would like to address this blog on issues related to the legal regulation of business entities in dominant position.

The legal regulation of the business entities in dominant position is currently governed by the Competition Law, the Procedure for Determining Legal Monopolies and Dominant Entrepreneurs, and the Procedure for Reorganizing a Dominant Legal Entity by Acquiring and Merging with Other Legal Entities and Concluding the Purchase of a Competitor’s Shares.

A business entity in dominant position is an entrepreneur who solo or in association with other persons in a particular product market accounts for one-third or more of the production, sales, or purchases of the product in that market. In addition, the business entity accounts for less than one-third of the production, sales or purchases of the product in the market, but the ability to block other entrepreneurs from entering the market or to push them out of the market, could be considered as business entity in dominant position based on its range of products, market geographical boundaries and market concentration.

The dominance of any business entity shall be determined in accordance with the procedure set forth in the Regulation for the Determination of Natural Monopolies and Dominant Entrepreneurs. If a dominant entity is identified in accordance with such regulation, the Authority of Fair Competition and Consumer Protection issue a decision confirming the dominant entity and register it in the list with “Dominant Enterpreneur Registration”.

The dominant business entity shall be ogliged to submit its audited financial statements of the previous year, market research, proposals and other necessary documents to the Authority of Fair Competition and Consumer Protection within the first quarter of each year.

Based on sources, such as the information, reports, research and analysis conclusions issued by the Customs authority, Tax authorities, the Central Statistical Office and other government organizations, plus the report, research and proposal submitted by the legal entity, Authority of Fair Competition and Consumer Protection shall make a decision excluding the business entity from the list with“Dominant Entrepreneur Registration”.

It is strictly forbidden that the business entity in dominant position use their dominance illegally in the market by restricting the number, quantity and price of goods sold in the market in order to block other entrepreneurs from entering the market, restricting competition and sabotaging consumers.

Special Shareholder Meeting in Mongolia



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In our previous post, we looked at basics of a Regular Shareholder Meeting. Today, we will take a closer look at requirements for holding a Special Shareholder Meeting.   

A Special Shareholder Meeting may be convened only in the following situations:

  • If more than 50 percent of the Board of Directors unable to work or resigned;
  • If two (2) or more independent members of the Board of Directors, or shareholders with 10 or higher percent of voting rights has issued a proposal or demand;
  • If the loss incurred by the company exceeds 30 percent of the owner’s equity at the time of the last financial report;
  • If the company debt has exceeded the owner’s equity for two (2) years in a row, and is a negative figure;
  • the Board of Directors has issued a decision;
  • the audit committee demanded to convene a special session of the shareholders meeting;
  • all other cases specified in the company charter.

Under the Company Law, (61.1.2) it states to convene the a special shareholders meeting if two (2) or more independent members of the Board of Directors, or shareholders with 10 or higher percent of voting rights (further to call “ meeting initiator ”) has issued a proposal or demand, and it closely regulates the procedure of the proposal and its resolution. This is one of the significant differences and regulations between regular and a special shareholder’s meetings.

The Company Law directs that when the above describer 2 or more independent members if the Board of Directors and shareholders with 10 or higher percent of voting rights demand to convene the a special shareholders meeting they must issue the written proposal to the Board of Directors or Executive management reflecting i) meeting initiator’s full name ii) the number of voting shares iii) reason for convening the meeting iv) agenda v) draft resolution.

The Board of Directors (in its absence, the executive body) could decide whether or not to call such a special shareholder meeting within ten (10) business days following the date that they receive the demand. The Board of Directors may decide one of the following two alternatives:

1) Resolve to convene the a special shareholders meeting according to the meeting initiator’s demand. In this case, the meeting should be convened within 45 days of receipt of a valid proposal for a meeting. The company must  bear the cost associated with the shareholders’ meeting.

2) If the voting rights of the shareholders demanding the calling of the special meeting do not reach ten percent (10%) of the company`s aggregate voting rights; or none of the issues proposed for the agenda of the special shareholders meeting are within the authority of such meeting the Board of Directors or the executive management shall refuse to the proposal and the decision shall be immediately notified to the Board of Directors member or shareholder proposed the meeting.

If the meeting initiator disagrees with the refusal, they could appeal to the court.

If within 10 days the Board of Directors (in its absence, the executive body) fails to make a decision, the demanding shareholders or an independent member of the Board of Directors may call to convene the a special shareholders meeting independently. In such a case company may bear costs associated or refuse to bear the cost.

Conclusion and Key Differences of Regular Shareholders Meeting and A Special Shareholders Meeting

The key difference between the regular and a special shareholders meeting is the regular meeting shall be convened at least 40 days after the decision was made, and the a special shareholders meeting shall be convened within 45 days after the decision was made.

With regard to the legal consequences, if the regular meeting was not convened within the April (4 months), the Board of Directors authority ruminates in entirety, except the right to convene the shareholders meeting. In case, it failed to convene the a special shareholders meeting, the meeting initiator is entitled to convene the meeting, and if the meeting initiator disagrees with the refusal from the convening the meeting, the meeting initiator may appeal to the court.

In connection with mandatory agenda, the regular meeting must be discussed and approved the Board of Directors conclusion on the operational report and the financial statement of the company. However, the a special shareholders meeting does not have a mandatory agenda item, and it may discuss any issue related to the authority of the shareholders meeting.

Basics of Shareholder Meetings



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When operating a Mongolian company, it is important to understand the key between two types of Shareholder Meeting. The most common type of Shareholder Meeting is a “Regular Shareholder Meeting, and is required to be held each year to take care of standard operational business of the company.

The second type is a “Special Shareholder Meeting” which is not mandatory each year, but is called only upon special need to address unique or urgent situations.

Here, we will take a closer look at what you need to know about Regular Shareholder’s Meetings for Mongolian companies. In future blog posts, we will take a deeper dive into the specifics of Special Shareholder Meetings.

When should a regular shareholders meeting be convened

Provision 59.4 of the Company Law states “The regular shareholders meeting shall be called by the Board of Directors (in the absence of executive body) and held within four (4) months following the end of each fiscal year of a company.”

A fiscal year is a period the organizations estimate their financial statements and do tax settlements. Countries consider a fiscal year as a period of twelve months, but it does not necessarily overlap with the calendar year. Therefore, the financial year varies between countries. As per Mongolia, the fiscal year commences from January 1st of the year and ends by December 31 of the same year.  Therefore, within 4 months following the end of the fiscal year, it obliges the regular shareholder meeting to be convened within April of the year.

The Regular shareholders meeting convened within April of every year by the Board Of Director’s /Executive management, in the absence of Board of Directors/ resolution.

The meeting shall be held at least 40 days after the issuance of the Board of Directors or Executive management decision to convene the shareholders’ meeting. If the company charter defined the meeting to take place in 45 or 50 days, the same shall adhere. In case the company charter does not specify a certain period, it shall adhere 40 days, regulated by law.

In connection with legal requirements, the authorized person is the Board of Directors, and if the Board of Directors absent the executive management is obliged to convene the shareholders meeting, in terms of timeline, it’s obliged to conduct the shareholders meeting within April of every year.

What is the consequence of not convening the shareholders meeting

 In case the shareholder’s meeting was not convened within April, the Board of Directors authority expires in entirety, except the right to convene the shareholder’s meeting. From the date, the Board of Directors authority expires the Board of Directors is incapable of issuing any decision and if it issued any decision the contracts and deals it executed shall be invalidated.

Who shall resolve to convene a shareholders meeting

Board of Directors

Executive management (in the absence of Board of Directors)

Mandatory agenda for a shareholders meeting

The mandatory agenda for the shareholder meeting is to review and approve the Board of Directors conclusion on the operational report and the financial statement of the company. The company should responsible the costs associated with the shareholder’s meeting pursuant to the Company law.

RESALE PRICE CONTROL UNDER THE LAW



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Recently, one of our client had been seeking our advice on Mongolian competition law, particularly on the resale price maintenance issue. As the client’s expectation is that Mongolia may have a similar restriction against resale price control/management as same as other jurisdictions like in US, South Korea and Hong Kong. Meanwhile providing legal analysis to our client’s inquiry, we have decided to provide the post in concern with background of the law on competition of Mongolia.        

        In Mongolia, Law on Prohibiting Unfair Competition was initially enacted in 1993, then it was amended in 2000, after ten years this law was renewed as the Law on Competition which is recent effective legislation in Mongolia. The current effective competition law is consisted of five chapters and 27 Articles.

        The purpose of the Competition law shall be to regulate relations regarding creation of conditions for fair competition in the market for entities conducting business activities, identification and implementation of legal and organizational basis for prohibition, restriction and prevention of any activities dominating in market and impeding competition.

In Mongolia, there are various restrictions apply for the business entities depending on their scope of supplying the particular goods in the market pursuant to the Law on Competition.

        In concern with the resale price maintenance issue, the business entity in natural monopoly and dominant position is strictly prohibited to determine the price and territory of resale of the particular products.  

        In addition, it is also prohibited to demand from customers additional conditions for sale, to sell products at differentiated prices and to refuse to sale products without any legal ground. This shall not apply to price change of products which included transportation actual cost depended on regional location and bonuses given by manufacturers or suppliers to whole and retail sellers.

If the business entity in legitimate monopoly and dominant position conduct the above mentioned dominate activities prohibited by the Law on Competition, the state inspector shall compensate the damages caused by illegal activities and fine a four percent of the sales revenue of previous year.