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1.1.1. Main Forms of Doing Business

Mongolia provides several business forms for investors, of which the main forms include:

  • Company (Limited Liability Company or Public Limited / Joint Stock Company)
  • Partnership (Unlimited or Limited)
  • Foreign Business (Subsidiary or Branch or Representative Office)

Company

Companies in Mongolia can be incorporated in the form of ‘business entity with foreign investment’ (‘BEFI’) or ‘business entity with no foreign investment’ (‘BENFI’). A BEFI is a company where at least 25% of the assets are owned by the foreign investors and each investor’s investment is minimum USD 100,000 in the company. Companies can be formed either as Limited Liability Companies (‘LLC’) or as Public Limited Companies / Joint Stock Companies (‘PLC/JSC’).

The key aspects of a Limited Liability Company include:

  • Shareholders’ liability is limited to their contribution in the company
  • No minimum capital requirement, unless there is foreign holding
  • Minimum 1 shareholder (individual or company) and maximum 50 shareholders are permitted
  • Not mandatory to have a Board of Directors
  • Not permitted to offer shares to the public
  • A LLC can be converted into a PLC / JSC

The key aspects of a Public Limited Company / Joint Stock Company include:

  • Minimum 2 shareholders (individual or company), of any nationality, are required
  • PLC / JSC can be formed as open or closed PLC / JSC
  • A PLC / JSC can be converted into an LLC
  • Open JSC
    • Registered with Mongolian Stock Exchange
    • Shares can be offered to the public
    • Minimum capital requirement is MNT 10 million (except banks and insurance companies)
    • Mandatory to report to the Financial Regulatory Commission on financial and corporate matters
    • Mandatory to have a Board of Directors with minimum 9 members, out of which atleast one third are independent members
  • Closed JSC
    • Registered with Securities Clearing House and Central Depository in Mongolia
    • Not permitted to offer shares to the public
    • Not mandatory to have a Board of Directors

Partnership (Unlimited, Limited)

Under unlimited partnership, the partners are jointly and severally liable for the obligations of the partnership firm and there is no restriction on the capital contribution and personal property by the partners.

A limited partnership is formed by one or more general partners and one or more limited partners. General partners are liable for all the debts and obligations of the firm, whereas the limited partners are liable to the extent of their capital contribution in the firm.

Foreign Business (Subsidiary, Branch, Representative Office)

Foreign companies can conduct their operations in Mongolia through the constitution of a subsidiary or a branch office or a representative office. A subsidiary can be formed as an LLC or PLC/JSC with foreign holding, subject to certain restrictions.

Branch is not regarded as a separate legal entity in Mongolia and its operations are pre-defined by the foreign parent entity. It is permitted to conduct business activities in the country. Branch as a business form is not presently used by the foreign entities in Mongolia due to uncertainty in tax and regulatory provisions. The Investment Law of Mongolia generally requires foreign companies to establish a representative office or a subsidiary in Mongolia.

Representative office is not regarded as separate legal entity in Mongolia. A representative office is not allowed to engage in commercial or business activity in the country. It is only permitted to conduct market research and to promote products and services of the parent company within Mongolia.

Disclosure Requirements for Indirect Transfer of Land and Mineral Rights

Mongolia introduced new tax rules relating to the indirect transfer of land rights, including use rights, and mineral rights, including mining licenses, effective 1 January 2018 (see Sec. 5.1).

In this regard, new reporting and disclosure requirements were adopted as follows:

  • A company holding a mineral exploration license or mining license must register its ultimate beneficial owners by 1 June 2018 with both the Tax Department and the Legal Entities Registration Office. Subsequent changes to beneficial owners must be notified (together with a calculation of the ensuing tax liability) within 10 days from their occurrence;
  • A company holding land possession or land use rights must register its ultimate beneficiaries with the Tax Department by 1 June 2018.