Doing Business In Mongolia Comparative Guide - Shareholders

1. LEGAL FRAMEWORK

1.1 Does your jurisdiction have a civil law system, a common law system, or a hybrid system?

The Mongolian law system was established on the basis of the 1992 Constitution and is a civil law system primarily based on the continental or Romano-Germanic tradition, although it retains some typical aspects of the Soviet legal system. The Civil Code of Mongolia is ostensibly modelled on the major continental European codifications – in particular, the German Civil Code.

In Mongolia, the source of law is written law and the courts apply laws only in settling cases or disputes. The main sources of law are:

the Constitution;
international treaties;
parliamentary laws;
other types of legislative acts; and
interpretations (resolutions) of the Supreme Court.

The laws are codified and are enacted by the State Great Khural (Parliament). Legal provisions are typically contained in written statutes, and judges primarily apply and interpret these statutes when resolving legal disputes.

In Mongolia, precedent does not constitute an authenticated legal basis; previous cases are used only to interpret the law. The laws do not require courts to be bound by previous decisions. Judges may consider prior rulings when adjudicating on similar cases, but they are not obliged to respect legal precedent as such.

1.2 Which legislative and regulatory provisions primarily govern the establishment and operation of enterprises in your jurisdiction?

The establishment and operation of enterprises in Mongolia are primarily governed by the following legislative and regulatory provisions.

Civil Code: The Civil Code is the primary statute governing legal entities. It regulates:
- the general definition of a legal entity;
- its legal capacity;
- requirements for its name and resident address;
- the establishment of legal entities and their branches or representative offices;
- reorganisation and liquidation; and
- types of legal entities.
Law on State Registration of Legal Entities: The Law on State Registration of Legal Entities sets out the general framework for establishing and operating different types of legal entities in Mongolia. It includes provisions relating to:
- the formation, registration, governance and dissolution of:
- - companies;
  - partnerships; and
  - other forms of business entities; and
- documentation requirements for state registration.
Company Law: The Company Law specifically governs the establishment and operation of companies, including:
- joint stock companies; and
- limited liability companies.
It outlines the requirements for:
- company formation;
- shareholder rights and responsibilities;
- corporate governance;
- share issuance;
- financial reporting; and
- other aspects of company operations.
Investment Law: The Investment Law regulates foreign investment in Mongolia and provides guidelines for establishing foreign-invested enterprises. It covers areas such as:
- minimum investment requirement;
- investment approval procedures;
- investment protection;
- repatriation of profits; and
- dispute resolution mechanisms.
Labour Law: The Labour Law establishes the legal framework for employment relationships in Mongolia. It covers provisions relating to:
- employment contracts;
- working conditions;
- wages;
- benefits;
- termination of employment; and
- other labour-related matters.
Compliance with labour regulations is essential for businesses to operate in Mongolia.
Tax laws and regulations: Tax laws and regulations govern various aspects of taxation, including:
- corporate income tax;
- personal income tax;
- value-added tax, customs duties and other taxes.
These laws specify:
- tax obligations;
- reporting requirements; and
- procedures for tax registration, filing tax returns and payment of taxes.
Sector-specific regulations: Depending on the industry or sector in which an enterprise operates, additional regulations may be imposed by sector-specific authorities. For example, the mining sector is subject to specific regulations issued by the Mineral Resources and Petroleum Authority.

1.3 Which bodies are responsible for drafting and enforcing these provisions? What powers do they have?

According to Article 26.1 of the Constitution of Mongolia, the president, members of the State Great Khural, and the government exercise the right to enact legislation. Key bodies include the following:

President: The president is the head of state and the embodiment of the unity of the Mongolian people. The president has the following powers:

to draft laws and complementary resolutions and submit to the speaker of the State Great Khural;
to exercise the right to veto, either partially or wholly, against laws and other decisions adopted by the State Great Khural. Those laws or decisions will remain in force if two-thirds of the members of the State Great Khural present in the session do not accept the president's veto after discussion;
to instruct the government on issues within his power. If the president issues a relevant decree, it will become effective upon signature by the prime minister;
to appoint and recall heads of plenipotentiary missions to foreign countries in consultation with the State Great Khural;
to grant pardons;
to decide matters relating to the acquisition or loss of citizenship of Mongolia and to grant asylum;
to declare general or partial conscription; and
to declare a state of emergency or martial law in all or part of the national territory and order the deployment of armed forces.

Parliament (State Great Khural): The Parliament is responsible for passing laws and regulations in Mongolia and is the highest legislative body. Members of Parliament propose, discuss and vote on draft laws and regulations. Once Parliament has approved them, these laws are enacted and become part of the legal framework. The Parliament has the following powers:

to enact laws and make addendums or amendments thereto;
to determine the basis of the domestic and foreign policies of the state;
to appoint, replace or remove the prime minister, members of the government and the composition of other organs/bodies directly responsible and accountable to the State Great Khural as provided for by law;
to determine state finance, loan, tax and monetary policies, national economic and social development policies and principal directions; and to approve action programmes that have been developed in line with national security and development policies and the state budget, and report on their performance;
to supervise the implementation of laws and other decisions of the State Great Khural;
to determine the legal basis of the system, organisation and activities of local self-governing and administrative bodies/organs;
to issue acts of amnesty;
to ratify and denounce international treaties to which Mongolia is a party, and establish and sever diplomatic relations with foreign states upon the government's submission; and
to hold national referendums.

Government: The government of Mongolia, headed by the prime minister, plays a crucial role in the implementation and enforcement of laws and regulations. The government is responsible for executing and administering the laws passed by Parliament. It formulates and adopts various regulations and administrative acts to implement specific provisions and ensure compliance. The government has the following powers:

to organise and ensure nationwide implementation/enforcement of the Constitution and other laws;
to work out a comprehensive/integrated policy on science and technology, guidelines for economic and social development, and the state budget, credit and fiscal plans, and submit them to the State Great Khural; and to enforce decisions taken in relation thereto;
to elaborate and implement measures on sectoral, inter-sectoral and regional development matters;
to undertake measures relating to the protection of the environment, and the rational use and restoration of natural wealth;
to manage expediently the central state administrative bodies/organs/authorities and direct the activities of local administrative authorities;
to take measures to protect human rights and freedoms, strengthen public order and prevent crime;
to implement state foreign policy; and
to conclude and implement international treaties to which Mongolia is a party in consultation with, and organise subsequent ratification by, the State Great Khural; and to conclude and abrogate intergovernmental treaties.

Both members of Parliament and the government are entitled to propose draft laws.

2. TYPES OF BUSINESS STRUCTURES

2.1 What are the main types of business structures in your jurisdiction and what are their key features?

Although Mongolian law provides for a wide range of legal forms of commercial entities, in practice, both private businesspeople and foreign investors mostly prefer foreign-invested limited liability companies (LLCs). Representative offices of foreign legal entities are also common.

	Limited liability company	Representative office	Joint stock company	Partnership
Definition	A company whose shareholders' capital is divided into shares; the right to dispose of such share capital is limited by law and the company charter.	A unit located in a place other than the principal place of business of the company that may undertake operations of its legal representative including to protect the legal interests of the company and conclude transactions on behalf of the company.	A legal entity which issues shares in order to raise capital for its activities.	A legal entity with assets which consist of members' contributions, and which is liable for its obligations with these assets and the personal property of its members, as provided by law.
Types of form	Foreign invested. Local.	None	Open. Closed.	Fully liable. Some members are fully liable. Limited liability.
Commercial activities	All rights as a legal entity. May conduct any commercial activities. Receives operational income to its account.	Has no rights as a legal entity. May not conduct any commercial activities.	Has all rights as a legal entity. May conduct any commercial activities and receive operational income to its account.
Eligibility for business licence	Allowed.	Not allowed.	Allowed.
Supreme body	Shareholders' meeting.	An individual authorised by the parent company under a power of attorney.	Shareholders' meeting.	Members with the right to vote.
Governing body	Board of directors.		Board of directors.	Members with the right to vote.
Authority of supreme and governing body	The shareholders' meeting has exclusive powers with respect to issues relating to business, finance, management and the structure of the company. If a board of directors exists, it may perform the overall management of a joint stock company.	A representative office operates according to its charter.	The shareholders' meeting decides on the highest-priority issues. The board of directors performs overall management of a joint stock company. Daily activities are managed by the executive body/director.	Each partner has equal rights and responsibilities. Partners are personally liable for the debts and obligations of the partnership.
Corporate income taxation	10%-25%	Not applicable.	10%-25%	10%-25%

An LLC is the most common form of a legal entity established by one or more individuals or legal entities, which are not liable for their obligations but bear the risk of losses related to the company's activity to the extent of their personal contributions (participatory interests). The liability of the company is limited to its assets.

Permanent establishment: Some foreign business entities operate in Mongolia on the basis of a contract to perform work or provide services without establishing a legal entity in Mongolia. However, depending on the type of work performed and the duration of the work, it may be necessary to register a permanent establishment with the tax authorities. As defined in the Law on Corporate Income Taxation, the characteristics of a permanent establishments might include the following:

a place of management;
branches and departments;
units responsible for training, seminars and exhibitions;
units responsible for warehousing, sales and services;
mines, oil or gas wells, and mines or places where minerals are explored;
a factory;
units undertaking activities with regard to construction sites, buildings, assembly and installation facilities, and other related construction and supervisory works for a period of 90 days or more in the course of 12 consecutive months; and/or
units providing technical, consulting, management, supervisory and other services to taxpayers residing in Mongolia, on their own or through hired employees, for a period of 183 days or more during the course of consecutive 12 months.

Units conducting the following activities in Mongolia on behalf of a taxpayer that does not reside in Mongolia will also be considered to constitute a permanent establishment:

the storage, sale and supply of goods and products; or
the conclusion of contracts in person or an arrangement for concluding contracts on behalf of a non-resident taxpayer without altering the main conditions of the contracts. The contract should exhibit one of the following features:
- It is established in the name of a non-resident taxpayer; or
- It transfers assets which are owned, used or possessed by the non-resident taxpayer to others, or transfers the right to use and possession of such assets to others.

The term 'permanent establishment' as used in double tax treaties that been ratified by the State Great Khural is considered equivalent to the term 'representative office'.

A non-resident taxpayer who is earning income generated from Mongolia will be deemed to have a permanent establishment in Mongolia from the date of commencement of the activity or conclusion of the contract, whichever is earlier

2.2 What capital requirements apply to these different types of business structures?

According to the Investment Law (2013), a 'foreign-invested company' is defined as "a business entity with an overall equity of US$100,000 or more (or MNT equivalent), where not less than 25% must be owned by (a) foreign investor(s)".

For other types of enterprises, such as representative offices or permanent establishments, there is no specific capital requirement; the payment of stamp duty of $318 is the sole requirement for registration of a representative office of a foreign company.

Under the draft Investment Law, the capital requirement of $100,000 for each foreign investor will be abolished. However, the draft law has not yet been approved.

2.3 What is the process for establishing these different types of business structures? What procedural and substantive requirements apply in this regard? What is the typical timeline for their establishment?

Procedures for establishing different types of business structures
Corporate form	Company (limited liability company (LLC); joint stock company (JSC))	Partnership	Representative office
Obtaining name	The founder(s) or an authorised representative acting under a power of attorney obtain the company name from the State Registration Office.		Not required.
Account	The founder can open a current account for a new company with any commercial bank in Mongolia.		Not required at the registration stage.
Legal basis	Founding meeting resolution/founding decision, shareholders' agreement.	Partnership agreement; resolution of the members' meeting	Decision of the founding company.
Investment requirement	$100,000 (per foreign shareholder).	None.	None.
Limitation of member	LLC: Fewer than 50 shareholders. JSC: At least two shareholders; the board of directors consists of at least nine members.	At least two members	None
Required founding documents	Decision of the founding meeting. Articles of association signed by the founders as an appendix to the resolution of the founding meeting. Company registration application. Identification documents of the founders or shareholders (copy). Proof of address (real estate certificate/copy/lease agreement). Bank remittance receipt/start-up investment threshold ($100,000 per foreign investor). Depending on the nature of the business activities, additional permits or licences as required. Two signed copies of the articles of association. Forms UB-03 (for registration of the company) and UB-07 (for a stamp control number). Form UB-12 form (for ultimate beneficial owner (UBO) information). Name confirmation sheet. Receipt of state stamp duty payment. Power of attorney if required.	Decision of the founding meeting on establishing the partnership; the partnership's activities; the address/place of residence of the partnership; total assets; and approval of the partnership agreement; election of the persons authorised to manage the partnership. The minutes of the founding meeting, attached as an annex. Two copies of the incorporation agreement. Proof of capital (bank account statements for cash, inventory list with value of properties). Proof of address (eg, real estate certificate/copy/lease agreement). In the case of a limited liability partnership, a copy of the professional activity permits of members. Forms UB-03 (for registration of the company) and UB-07 (for stamp control number). Form UB-12 (for UBO information). A name confirmation sheet. Receipt of state stamp duty payment.	If the founder is a foreign legal entity, a copy of the state registration certificate and charter. The signed resolution of the authorised founder on establishing the representative office, the appointment of management, address, the and the operating procedure. The bylaws of the representative office. A copy of the identification documents of the founders or shareholders (copy). Proof of address (real estate certificate/copy/lease agreement). Forms UB-04 (for registration of the company) and UB-07 (for stamp control number). Power of attorney if required.
State registration	The relevant documents should be submitted for registration in the State Register within 30 days of the date of name confirmation and within 15 business days of the decision to establish the company.	The relevant documents should be submitted for registration in the State Register within 30 days of the date of name confirmation and within 15 business days of conclusion of the partnership agreement.	The state registration certificate of the representative office is granted for a term of one to two years. Prior to the expiry date of the state registration certificate, the representative office must apply for an extension of the state registration certificate term.
Cost of registration fee	Name verification: MNT 10,000. Issuing a stamp and seal control number: MNT 10,000.		Issuing a stamp and seal control number: MNT 10,000.
Stamp duty	MNT 750,000 for the registration of a foreign invested company.	MNT 44,000.	MNT 1.1 million for the representative of a foreign company.
Obtaining the seal	The original copy of the company state registration certificate is required to order the company seal. This is the final step in company incorporation.
Duration of the process	LLC: 4-6 weeks. JSC: 4-8 weeks.	4-6 weeks.	4-6 weeks.
Registration period	Five business days for foreign-invested companies and representative office. Two business days for other entities.

2.4 What requirements and restrictions apply to foreign players that wish to establish a business directly in your jurisdiction?

Foreign players in Mongolia are subject to certain requirements and restrictions. Key points to consider include the following:

Foreign entities must register their business with the State Registration Office in form of an LLC or representative office. This involves submitting the necessary documents and information to the relevant authorities. In order to register the company, each foreign investor must invest $100,000 in the registered capital of the company.
Where a foreign state-owned legal entity acquires 33% or more of the total shares issued by a Mongolian legal entity which operates in the mining, banking, finance or media and telecommunications sectors, the foreign legal entity must obtain permission from the Mongolian government prior to the acquisition.
Depending on the relevant business and sector, foreign investors may be required to obtain permits from regulatory bodies. For example, pursuant to the Law on Permits,
- a foreign invested companies must obtain a permit to:
- - build a kindergarten or school; or
  - conduct accreditation of educational institutions in Mongolia; and
- a foreign insurer must obtain a permit to open a branch or representative office in Mongolia and conduct insurance activities.

2.5 What other opportunities are there to do business in your jurisdiction aside from establishing an enterprise (eg, agency, resale); and what requirements and restrictions apply in this regard?

Aside from establishing an enterprise, there are several other opportunities to do business in Mongolia, including through the following models:

Franchising: Foreign companies can expand their presence in Mongolia by offering franchise opportunities to local entrepreneurs.
Licensing and distribution: Foreign companies can license their intellectual property, such as trademarks or patents, to Mongolian entities for manufacturing, distribution or sales purposes.

Specific requirements include the following:

Franchise

Licensing and distribution

Compliance: Franchising activities are regulated by the Civil Code. Compliance with this law is essential, including in relation to issues such as the main terms and conditions, and requirements for the acceptable form and duration of the agreement.
Franchise agreement: A written franchise agreement must be in place between the franchisor and the franchisee, outlining the rights and obligations of both parties.
Registration: Franchise agreements and related documents may need to be registered with the Intellectual Property Organisation of Mongolia or other relevant authorities.

Licensing agreements should clearly define the terms, royalty payments, quality control measures and any exclusivity or territorial restrictions.
Licensing procedures: Depending on the sector, specific licences or permits may be needed, such as import/export licences or licences for specific product categories.
Registration: Licensing agreements and related documents may need to be registered with the Intellectual Property Organisation of Mongolia or other relevant authorities.

There are no specific requirements or restrictions for franchising and licensing, unless a permit is required due to the relevant business operations and sector.

3. DIRECTORS AND MANAGEMENT

3.1 How is management typically organized in the different types of business structures in your jurisdiction?

In Mongolia, the management structure of different types of businesses can vary, as follows.

Limited liability company (LLC): The establishment of a board of directors is optional for LLCs in Mongolia, except for companies that:

have issued securities through securities trading organisations; or
provide insurance, trust or investment management services.

Executive management is implemented either by a team or by a chief executive officer (CEO). The company's articles of association or the founders' or shareholders' agreement outline the roles, responsibilities and competences of the board of directors or executive director. The powers of the executive management are determined by an agreement of the board of directors or the shareholder/shareholders' meeting, as appropriate.

The shareholders of an LLC have the right to:

participate in general meetings;
exercise their voting rights; and
appoint and remove board members and executive management (in the absence of a board of directors).

Day-to-day management responsibilities are generally entrusted to the directors or managers.

Joint stock company (JSC): A JSC in Mongolia must have a board of directors with at least nine members. The board of directors is responsible for:

making strategic decisions;
overseeing executive officers; and
representing the shareholders' interests.

The executive management team or the CEO is responsible for the company's daily operations.

The shareholders of a JSC have the right to:

participate in general meetings; and
vote on the appointment and removal of members of the board of directors.

Executive management is undertaken by the board of directors.

Partnership: A partnership in Mongolia can be established in the following forms:

General partnership: In a general partnership, two or more partners share ownership and management responsibilities. The partners have equal management authority and share the profits, losses and liabilities of the business. The partners typically make joint decisions and contribute to the day-to-day management. Each member is entitled to manage and represent the partnership unless otherwise specified in the partnership agreement. Members who are authorised to manage the company will decide on issues by majority vote and bear joint responsibility arising therefrom. Other members are entitled to monitor their activities and release them from their duties in the case of failure to perform their duties properly.
Limited partnership: A limited partnership in Mongolia consists of general partners and limited partners. Limited partners have limited involvement in management and liability, which is generally limited to their investment. General partners are entitled to manage and represent the partnership.
Limited liability partnership (LLP): All partners have limited liabilities. The supreme body of the LLP is the members' meeting, at which the issue of whether to have executive management is decided. A defaulting member must fully compensate any damages caused to the partnership both with his or her capital contribution and with his or her personal property.

Representative office: A chief representative is appointed by the founding foreign company and serves as the head of the representative office. He or she is responsible for:

overseeing the representative office's operations;
coordinating with relevant authorities within his or her competence;
maintaining communication with the parent company; and
ensuring compliance with local laws and regulations.

The representative office of the foreign company may employ local staff members to support its operations. These staff members may:

assist with administrative tasks;
communicate with local partners;
conduct market research; and
undertake other functions as required.

Permanent establishment: A permanent establishment has broader business operations and may engage in profit-generating activities upon registration as a taxpayer with the respective tax authorities. In order for the permanent establishment to be registered as a taxpayer, someone to manage its operations must be appointed.

3.2 Is the establishment of specialist committees recommended or mandated for certain types of enterprises? If so, which areas should they cover?

The establishment of specialist committees, such as board committees, is not explicitly mandated for all types of enterprises. However, there are corporate governance recommendations and best practices that encourage the formation of committees in order to enhance the effectiveness of the board of directors. According to Articles 75.1 and 75.2 of the Company Law, the board of directors is the governing body of the company between shareholders' meetings. A public company must have a board of directors; while a limited liability company (except for securities issuers and insurance, trust and investment management service providers) may choose to not have a board of directors unless otherwise provided in its charter. Moreover, if it deems necessary, the board of directors may establish a standing and temporary committee to handle a particular matter.

The board of directors of a joint stock company must have audit, remuneration and nomination committees, at least two-thirds of which must comprise independent members of the board of directors, in accordance with Articles 81.1 and 81.2 of the Company Law.

3.3 Is the appointment of corporate directors permitted in your jurisdiction?

In Mongolia, the requirements and restrictions for the appointment of directors are primarily governed by the Company Law and the Corporate Governance Codex (if applicable). The specific requirements – such as the number of directors, their residence, independence and diversity – may vary depending on the type of company (eg, public or private) and the applicable regulations. General considerations include the following:

Number of directors: Generally, private companies have the flexibility to determine the appropriate number of directors based on their needs and governance structure; the only restriction is that the number of directors should be odd. Private companies commonly have a minimum of three directors. The boards of directors of public (listed) companies and state-owned companies must consist of at least nine members.
Residence: There are no specific residence requirements for directors in Mongolia. Directors can be either Mongolian residents or foreign nationals. However, companies must comply with any applicable immigration laws and regulations on the employment of foreign directors. A work permit and residence permit must be obtained by the employer.
Independence: The concept of independent directors is recognised in Mongolia, particularly for publicly listed companies. Independent directors are those who have no material relationships with the company, its affiliates or its major shareholders that could compromise their impartiality. The Company Law stipulates requirements for independent directors. Furthermore, the Corporate Governance Codex provides guidance on the independence of directors for listed companies.
Diversity: While there are no specific legal requirements regarding board diversity in Mongolia, the Corporate Governance Codex encourages companies – particularly publicly listed ones – to promote diversity, including gender diversity, in their boards. The Codex recommends that companies:
- have a policy on diversity; and
- consider factors such as gender, experience and skills when appointing directors.
Other requirements: Board members and secretary must be trained in corporate governance. The chairman of the board cannot be the CEO.

3.4 How are directors selected, appointed, and removed? Do any restrictions or recommendations apply to their tenure?

The selection, appointment and removal of directors are governed by:

the Company Law;
the articles of association of the respective company; and
the Corporate Governance Codex (if applicable).

Appointment and removal: Board members are appointed by the shareholders. According to Article 77.1 of the Company Law, the shareholders typically exercise their voting rights during the general meeting to elect the members of the board of directors. The board of directors or shareholders' meeting appoints the executive director. The articles of association of the company may outline specific procedures and criteria for the selection and appointment of directors. These may include:

qualifications;
term limits; and
other requirements.

Unless otherwise provided in the company charter, the authority of members of the board of directors expires on the date of the annual shareholders' meeting of the following year. Members of the board of directors may be re-elected at any such meeting.

Members of the board of directors of a joint stock company are elected by cumulative voting. Votes for regular and independent members of the board of directors are counted separately.

Unless otherwise specified in the articles of association, the board of directors (or, in its absence, the executive management) appoints the managers of its branches and representative offices. The executives act on the basis of a power of attorney from the company.

The board of directors comprises members and independent members. Independent member must meet the following requirements:

They must not own 5% or more of the common shares of the company, either alone or in conjunction with a related party;
They or a related party must not:
- hold an official position in the company or in other companies in a group of which that the company is part; or
- have held a job position in such a company the last three years;
They must not be a servant in a public service office other than a public support service office;
They must not be involved in the company's business in any way; and
They must satisfy any other requirements set by law or the company charter.

There are certain qualifications or eligibility criteria for individuals to serve as directors. For example, they must:

be of legal age (18);
not be disqualified for legal reasons; and
possess the necessary skills and experience.

Tenure: Directors' tenure can vary based on the articles of association and shareholders' decisions. There may be recommendations or best practices suggesting the periodic reappointment or rotation of directors to ensure fresh perspectives and accountability. Directors can be removed by shareholders by resolution of the general meeting. The specific procedures for removal may be outlined in the articles of association.

3.5 What are the directors' primary roles and responsibilities, and how are these exercised?

According to the Company Law, the board of directors has the following roles, except where they have been reserved to the shareholders' meeting:

to determine the principal business activities of the company;
to call and hold annual and extraordinary shareholders' meeting;
to resolve issues regarding:
- the agenda for the shareholders' meeting;
- the recorded date for determining which shareholders are entitled to participate in such meetings; and
- other matters with respect to the holding of such meetings;
to issue shares within the limits of the company's authorised but unissued shares;
to issue securities related to common shares and other securities as specified in the company charter;
to acquire or buy back the company's issued shares and other securities;
to select and change the company's executive management, and determine:
- their powers;
- agreement terms and conditions;
- their remuneration; and
- their liabilities;
to select an auditor and determine the respective agreement terms and conditions;
to issue an opinion on the annual report and financial statement of the company, and present it to the shareholders meeting for approval;
unless otherwise specified in the charter, to determine the amount of dividends and the procedure for their payment;
to establish branches and representative offices; and
to approve major transactions and those involving a conflict of interest.

The primary roles of the executive director (or CEO) are as follows:

to exercise his or her powers as specified:
- by law and regulation;
- in the articles of association; and
- in agreement concluded with the board of directors (or, in its absence, the shareholders' meeting); and
to respect the interests of the company in pursuing its activities.

According to the Accounting Law, the executive director is responsible for overseeing the company's financial affairs, including:

reviewing financial statements;
approving budgets; and
monitoring financial performance.

He or she may also be involved in major financial decisions, such as:

capital expenditures;
investments; and
financing.

The board of directors exercises its roles and responsibilities by:

participating in board meetings and committees;
engaging in discussions;
providing input; and
making informed decisions.

The specific processes and practices for exercising these responsibilities may vary depending on the size, structure and governance framework of the company.

3.6 Are the roles of individual directors restricted? Is this common in practice?

The roles and responsibilities of directors are typically governed by the Company Law and the Corporate Governance Codex, which provide a framework for corporate governance. The law does not generally restrict the roles of individual directors, but it outlines their obligations and the standards of conduct expected from them.

In practice, the level of restriction on individual directors may vary depending on factors such as:

the size and type of organisation;
the corporate governance structure in place; and
any specific provisions in the articles of association.

Larger companies often have more complex governance structures with various board committees and executive roles, which can result in more specialised responsibilities for individual directors.

3.7 What are the legal duties of individual directors? To whom are these duties owed?

These duties are typically outlined in the Company Law and other relevant legal provisions. The key legal duties of individual directors in Mongolia include the following:

execute their powers within the scope of their authority as specified:
- by law and regulation; and
- in the company's charter;
respect the interests of the company in pursuing its activities;
make decisions in compliance with the interest of a company;
avoid conflicts of interest when making decisions and notify any conflicts of interest where they arise;
not accept any gifts or remuneration when implementing their duties/functions; and
not disclose confidential company information to others or use such information for the purpose of their personal interests.

The duties of individual directors are owed primarily to the company itself, as well as the shareholders. Directors also have a duty to act in the best interests of the shareholders as a collective body.

3.8 To what civil and criminal liabilities are individual directors primarily potentially subject?

Individual directors can potentially be subject to both civil and criminal liabilities based on their actions or omissions in the course of their duties. The specific liabilities may vary depending on the nature and severity of the misconduct. The primary civil and criminal liabilities that individual directors can potentially face are as follows:

Civil liability (Articles 84.6, 85 and 93 of the Company Law):
- Directors owe fiduciary duties to the company and its shareholders. If they breach these duties by acting in bad faith, with negligence or for personal gain, they can be held liable for damages caused to the company or its shareholders.
- Directors can be held liable for losses or damages resulting from their negligent acts or failure to exercise due care, skill and diligence in performing their duties.
- Directors who engage in mismanagement, fraudulent activities, self-dealing or misuse of company assets can be held personally liable for any damage suffered by the company or its stakeholders as a result.
- Directors may face liability if they fail to comply with corporate governance requirements, including financial reporting obligations, disclosure requirements or other regulatory obligations.
Criminal liability:
- Fraud or embezzlement: Directors who engage in fraudulent activities, embezzlement of company funds or misappropriation of assets can be subject to criminal charges, which can result in fines and imprisonment.
- Money laundering or corruption: Directors involved in money laundering activities, bribery, corruption or other financial crimes can face criminal charges and penalties.
- Conducting other criminal acts: Directors can also be subject to criminal liability for violations of other laws, such as:
- - tax evasion;
  - environmental offences;
  - occupational health and safety violations; or
  - breaches of other applicable laws.

4. SHAREHOLDERS

4.1 What requirements and restrictions apply to shareholders/members in your jurisdiction, in terms of factors such as age, bankruptcy status etc?

In accordance with Article 3.3 of the Company Law, the rights of shareholders are defined by the Company Law and by the articles of association. The fundamental rights of a shareholder are:

to receive dividends;
to participate in shareholders' meetings;
to vote on issues discussed at such meetings; and
following liquidation of the company, to receive its share of the proceeds from the sale of assets of the company that remain after satisfaction of the claims of creditors.

Shareholders have several mechanisms through which they can exercise their rights and influence the decision-making processes of a company, including the following:

Shareholders have the right to attend and vote at general meetings of the company.
Shareholders have the right to vote on important matters affecting the company. Each share typically carries one vote, although this may vary based on the articles of association.
Shareholders have the right to access certain information about the company, including:
- financial statements;
- annual reports; and
- minutes of shareholders' meetings.
In order to protect minority shareholders, certain rights and safeguards are often provided by law. These may include:
- the right to dissent;
- appraisal rights; and
- the ability to bring legal actions against the company or its directors for oppressive or unfair conduct.
Shareholders can engage with the company's management and the board of directors through various means, such as:
- written communications;
- attendance at investor conferences; and
- participation in calls.
Shareholders are entitled to a pre-emptive right to purchase the company's shares and related securities that are additionally issued or offered by other shareholders (in the case of a limited liability company).
Shareholders are entitled to the right to demand the buyback of their shares in the case of voting against or non-participation in votes on issues such as:
- amendments to the company charter that would prejudice their interests;
- reorganisation of the company; and
- the approval of major transactions.

For instance, in case of amendments to the articles of association, draft revisions of the articles of association will be discussed at the shareholders' meeting and approved by majority vote of the voting shareholders attending the meeting as stipulated by Article 17.1 of the Company Law. According to Article 59 of the Company Law, if a company has only one shareholder, that shareholder will exercise the authority of the shareholders' meeting. A shareholders' meeting may be either annual or extraordinary. The annual shareholders' meeting is called by the board of directors (or, in its absence, the executive body) and must be held within four months of the end of each fiscal year of a company.

4.2 How do shareholders/members exercise these rights? Do they have a right to call shareholders' meetings and, if so, in what circumstances?

Shareholders holding 10% or more of the voting rights are entitled to call an extraordinary shareholders' meeting. Further, in the case of damages caused to the company by authorised officers, as well as a failure comply with legal obligations under the Company Law, shareholders that hold 1% or more of the company's shares may file a claim in court for compensation.

4.3 What influence can shareholders/members exert on the appointment and operations of the directors?

The shareholders can exert influence on the appointment and operations of directors in several ways. The specific extent of shareholder influence can vary depending on factors such as:

the company's ownership structure; and
governing documents.

Common ways in which shareholders can exert their influence include the following:

Voting rights: Shareholders have the right to vote during at general shareholders' meetings. They can exercise their voting power to elect directors and approve their appointment or removal. Shareholders can support or oppose specific director candidates based on their preferences and concerns.
Shareholder resolutions: Shareholders can propose resolutions to be discussed and voted upon during general meetings. These can pertain to:
- the appointment or removal of directors;
- the amendment of corporate bylaws; or
- other matters relating to the board's operations.
Shareholders can actively participate in these discussions and influence decision making.
Proxy voting: Shareholders can appoint proxies to attend general meetings and vote on their behalf. By providing instructions to their proxies, shareholders can influence director appointments and other important matters even if they cannot attend the meeting in person.
Shareholders' agreements: Shareholders can enter into agreements among themselves that outline specific provisions regarding the appointment and operations of directors. These agreements can establish mechanisms for shareholder influence, such as:
- nomination rights;
- approval thresholds; or
- consent requirements.
Communication and engagement: Shareholders can engage in direct communication with the board of directors to express their opinions, concerns or recommendations. Annual shareholders' meetings, at which shareholders can interact with directors and management, provide opportunities for engagement and influence.
Legal remedies: Shareholders have the option to seek legal remedies if they believe that the directors have engaged in misconduct, breached their fiduciary duties or acted unlawfully. Legal actions can lead to changes in the board's composition or operations, influencing the appointment and decision-making processes.

4.4 What are the legal duties/responsibilities and potential liabilities, if any, of shareholders/members?

The shareholders have certain rights and responsibilities, but their legal duties and potential liabilities are generally limited compared to the duties and liabilities of directors. Key issues regarding the legal duties/responsibilities and potential liabilities of shareholders include the following:

In most cases, shareholders' liabilities are limited to the extent of their investment in the company. This means that shareholders are generally not personally liable for the debts or obligations of the company beyond their capital contribution.
Shareholders can be subject to liability if they breach the terms and conditions specified in any agreements that they have entered into with other shareholders. Breach of the obligations outlined in such agreements may have contractual consequences.
Shareholders may face liability if they abuse their rights or engage in actions that harm the company or other shareholders. For example, intentionally obstructing the company's operations, engaging in fraudulent activities or using insider information for personal gain may have legal consequences.

4.5 To what civil and criminal liabilities might individual shareholders/members be subject?

Individual shareholders are generally not subject to significant civil or criminal liability based solely on their status as shareholders. The liability of shareholders is typically limited to their investment in the company and their personal assets are not at risk beyond the extent of their capital contribution. If the assets and asset rights contributed to a company by a shareholder cannot be distinguished from their personal assets and asset rights, the shareholder will be liable for the company's liabilities to the extent of all of its assets and asset rights concurrently. However, shareholders can potentially face civil or criminal liability in certain circumstances, including the following:

Breach of shareholders' agreements: If shareholders have entered into agreements among themselves and violate the terms and conditions of such agreements, they may face civil liability for breaching their contractual obligations.
Fraud or misrepresentation: Shareholders can be held liable if they engage in fraudulent activities or provide false or misleading information that causes harm to the company or other stakeholders.
Insider trading: Shareholders that engage in insider trading – which involves trading company securities based on non-public, material information – can face criminal charges and penalties under the relevant laws.
Money laundering or corruption: Shareholders involved in money laundering activities, bribery, corruption or other financial crimes may be subject to criminal charges and other legal consequences.
Illegal activities or non-compliance: If shareholders are directly involved in illegal activities conducted by the company or knowingly support non-compliance with applicable laws and regulations, they may face civil and criminal liability.

4.6 Are there rules governing the issuance of further securities in a company? Do rights of pre-emption exist and, if so, how do they operate? Can they be circumvented? If so, how and to what extent?

The issuance of securities by a company is regulated by the Law on the Securities Market, which provides the framework for the issuance, offering and trading of securities. The Law on the Securities Market does not explicitly address the concept of pre-emption rights (also known as rights of first refusal) for existing shareholders in a company. However, the Company Law stipulates that: "If securities convertible into shares are issued, holders of common shares shall have a pre-emptive right to acquire any convertible securities in proportion to the number of common shares held by such holders."

The shareholders of a public company have a pre-emptive right to purchase additional shares, and securities related to such shares, proposed to be issued by the company. Unless otherwise provided in the articles of association, the holders of common shares in a limited liability company have a pre-emptive right to purchase other securities relating to shares issued by a company in accordance with other procedures specified in the Company Law.

A holder of common shares must notify its decision to purchase additional shares that it is entitled to purchase pursuant to the exercise of its pre-emptive right within 30 business days of the adoption of the decision by the shareholders meeting to issue the additional shares. The pre-emptive purchase price for the shares must be at least 90% of the market price at the time the shares are issued.

Companies in Mongolia may include such provisions in their articles of association or shareholders' agreements. These documents can establish the rights and restrictions related to the issuance or transfer of shares, including any pre-emption rights that may be granted to existing shareholders. It is recommended that the specific provisions outlined in the articles of association and shareholders' agreements be reviewed to determine the scope of application of any pre-emption rights.

4.7 Are there any rules on the public disclosure of levels of shareholding and/or stake building?

Shareholders that acquire or dispose of more than one-third of the common shares of a joint stock company must typically disclose their holdings to the Financial Regulatory Commission (FRC) within 10 business days of the date of such acquisition. The statement will be received by the company and the FRC and published on its website.

The ultimate beneficial owner of a legal entity and information about the ultimate beneficial owner are open to the public.

5. OPERATIONS

5.1 What are the main routes for obtaining working capital in your jurisdiction? What are the advantages and disadvantages of each?

There are several routes for obtaining working capital, as follows:

Bank loans:
- Advantages: Bank loans are a traditional and widely used source of working capital. They provide a lump-sum amount that can be used to meet short-term operational needs. Banks may offer competitive interest rates and flexible repayment terms.
- Disadvantages: The loan approval process may involve extensive documentation, collateral requirements and a thorough evaluation of the borrower's creditworthiness. Meeting these requirements can be time consuming and there is a risk of rejection if the borrower does not meet the bank's criteria.
Trade credit:
- Advantages: Trade credit allows businesses to obtain goods or services from suppliers with delayed payment terms. This can provide immediate access to working capital without incurring interest charges or the need for collateral.
- Disadvantages: Trade credit terms are determined by the supplier and may vary based on the business relationship and creditworthiness. Late payments or strained relationships with suppliers could negatively impact future opportunities for trade credit.
Invoice financing:
- Advantages: Invoice financing involves selling outstanding invoices to a financial institution or factoring company to receive an immediate cash advance. It can provide quick access to working capital based on unpaid invoices.
- Disadvantages: The financing company charges a fee or discount on the value of the invoices, reducing the overall amount received. The business loses control over the collection process, as the financing company assumes responsibility for collecting payment from customers.
Equity financing
- Advantages: Equity financing involves raising capital by selling shares or ownership stakes in the company. It can provide a substantial amount of working capital without incurring debt or interest payments. Investors may also bring expertise and networks that can benefit the business.
- Disadvantages: Equity financing involves diluting ownership and control of the business. Investors become shareholders with rights and influence over company decisions. Additionally, finding suitable investors and negotiating terms can be challenging.
Government grants and subsidies:
- Advantages: The government may provide grants or subsidies to support specific industries or initiatives. These funds can offer working capital assistance without the need for repayment or interest.
- Disadvantages: Government grants and subsidies may have specific eligibility criteria, and the application process can be competitive and time consuming. The availability of such funding may also be limited to certain sectors or projects.

5.2 What are the main routes for the return of proceeds in your jurisdiction? What are the advantages and disadvantages of each?

Dividends: Profits can be repatriated by distributing dividends to shareholders. Dividends can be declared and paid out based on the company's financial performance and in compliance with the relevant laws and regulations.
Royalties and licensing fees: A business that involves IP rights, technology transfer or licensing agreements can receive royalties or licensing fees from Mongolian business partners. These payments can be repatriated based on the terms of the agreements and any applicable regulations.
Repayment of loans: Where loans or financing has been provided to a Mongolian company, the repayment of principal and interest can be a way to repatriate funds. This is subject to the terms and conditions of the loan agreements and any applicable regulations.
Capital repatriation: Where a business in Mongolia is wound up or liquidated, the capital invested in the company can be repatriated. This typically involves:
- following the legal procedures for the liquidation process; and
- complying with any relevant requirements.

	Advantages	Disadvantages
Dividends	Straightforward method of distributing profits to shareholders. Can be a regular and predictable way of repatriating funds. Allows for the distribution of profits in proportion to ownership shares.	Tax implications: dividends are typically taxable income for shareholders. During periods of low profitability or losses, the company may be unable to sustain dividend payments, leading to disappointment among shareholders.
Royalties and licensing fees	Can be a lucrative source of income for IP owners. Provides an ongoing revenue stream without direct involvement in operations. Can leverage the intellectual property or technology for profit generation in Mongolia.	May be subject to taxation in Mongolia and potentially the recipient's home country. Careful management of licensing agreements is needed to ensure compliance and avoid disputes.
Repayment of loans	Allows for the return of invested capital plus interest. Provides a secure method of repatriating funds, particularly if loans are secured. Repayment terms and schedules can be negotiated as part of the loan agreements.	Repayment of loans may be subject to foreign exchange regulations and capital controls. Requires proper documentation and compliance with loan agreements. Interest income may be subject to taxation in Mongolia and potentially the recipient's home country.
Capital repatriation	Enables the complete repatriation of invested capital. Suitable for winding up or liquidating a business in Mongolia. Provides closure and finalisation of the investment.	The liquidation process can be time consuming and complex. Liquidation expenses, such as legal and administrative costs, may reduce the amount repatriated. Requires adherence to legal procedures and compliance with applicable regulations.

5.3 What requirements and restrictions apply to foreign direct investment in your jurisdiction?

Foreign investors must conduct activities upon registration in accordance with:

the Company Law;
the Law on State Registration of Legal Entities; and
other relevant legislation.

Foreign investment can be made in the following ways:

by establishing a solely or jointly owned business entity. According to the law, a 'foreign invested company' is defined as "a business entity with an overall equity of USD 100,000 or more (or MNT equivalent), where not less than 25% must be owned by foreign investors";
through the purchase of a Mongolian company's shares, bonds and other types of securities;
by merging or wholly acquiring Mongolian and foreign companies;
by entering into a concession, production sharing, marketing and management or other contract;
through the establishment of franchise or financial leasing agreement; and
in other ways that are regarded as acceptable and are not prohibited by law.

Investors may invest in all sectors, industries and services except as otherwise prohibited by Mongolian law.

Some common requirements and restrictions apply to foreign direct investment (FDI) in Mongolia. Foreign state-owned entity invested FDI projects (mining, banking, media and telecommunications) often require permission from the government. The process for obtaining permission typically involves submitting an investment proposal outlining:

the nature of the investment;
its economic impact; and
other relevant details.

Permission is requested from the state central administrative body in charge of investment directly or through a representative office and authorised representative in Mongolia. The following documents must be enclosed with the application:

a notarised copy of the applicant's incorporation certification issued by the competent authority of the applicant's home country;
references from the registration authority concerning the applicant, its common interested persons and its executive management covering the last two years;
details of the preliminary transaction between a foreign state-owned entity and a Mongolian entity, including:
- the type and conditions of the transaction;
- the parties to the transaction;
- the shares to be sold in percentage and number;
- the contract price;
- the charter of the legal entity; and
- if there is an agreement on changing the management, information in relation thereto;
financial statements and clarifications to financial statements of the foreign state-owned legal entity and the Mongolian business entity; and
the investment plan and business project to be implemented by the applicant in Mongolia.

The requirements for investors are as follows:

Their activities and the nature of their investments must not threaten the national security of Mongolia;
They must adhere to the laws and established business norms of Mongolia;
The investment should not restrict competition in the relevant sector or create dominance in the sector; and
The investment should not have a serious and adverse impact on the budget revenue or activities of Mongolia.

5.4 What exchange control requirements apply in your jurisdiction?

Exchange control is regulated under the Law on Currency Control. The government, the Bank of Mongolia and the Financial Regulatory Commission control currency transactions of business entities and organisations in Mongolia in accordance with their respective powers.

In accordance with the Law on Currency Control, permanent residents who is a participant in currency settlements is:

an individual who permanently resides in Mongolia or who resides permanently in Mongolia but travels abroad for no more than 183 days a year;
a legal entity established in accordance with the laws of Mongolia and located in Mongolia, its branches and representative offices in foreign countries; and
a Mongolian diplomatic mission in a foreign country.

A temporary resident who is a participant in currency settlement is:

an individual who permanently resides outside of Mongolia and who are resident in Mongolia for not more than 183 days a year;
a business entity incorporated in accordance with the law of a foreign country and that is not located in Mongolia; and
a foreign diplomatic mission or international organisation, and its branches or representatives offices in Mongolia.

According to this law, the permanent and temporary residents must buy, sell, lend and transfer foreign currency exclusively through the Bank of Mongolia and its authorised commercial banks.

Permanent residents who receive foreign currency income in the form of cash or non-cash must sell or hold it in a commercial bank authorised by the Bank of Mongolia within 60 days of receipt. Temporary residents must provide written contracts for buying, borrowing, selling and lending foreign currency from commercial banks and loan guarantees.

Under the Law on Combating Money Laundering and the Financing of Terrorism and Relevant Procedures, commercial banks must submit a report on a cash, foreign settlement and/or virtual assets transactions which is equivalent to or above MNT 20 million to the Financial Information Unit within five working days of such transactions in accordance with the approved procedure and format.

Commercial banks must monitor the following:

sudden increases in transaction size compared to the customer's regular activity;
transactions that have no apparent economic or legal grounds;
transactions conducted in the name of politically influential persons; and
transactions made through countries defined by international organisations as having strategically deficient regimes on anti-money laundering and counter-terrorist financing.

5.5 What role do stakeholders such as employees, pensioners, creditors, customers and suppliers play in shaping business operations in your jurisdiction? What other influence can they exert on an enterprise?

Stakeholders – including employees, pensioners, creditors, customers and suppliers – play significant roles in shaping business operations in Mongolia. They can exert influence on an enterprise in various ways, as follows:

Employees: According to the relevant law, an 'employee' is a Mongolian citizen, a foreign citizen or a stateless person working on the basis of employment relations. Employees have rights and protections under the Labour Law including regulations related to working conditions, wages, benefits and so on. Through collective bargaining or participation in employee associations or unions, employees can:
- advocate for their interests;
- influence employment practices; and
- negotiate better working conditions.
Pensioners: Pensioners may have an indirect impact on businesses. The financial stability and wellbeing of pensioners can influence their spending patterns, which in turn can affect demand for businesses' products or services. Businesses should consider the purchasing power and preferences of pensioners when developing marketing strategies and product offerings.
Creditors: Creditors, such as banks and financial institutions, provide capital or credit to businesses. They play a crucial role in shaping business operations by influencing the availability and cost of financing.
Customers: According to the law, a 'customer' is an individual who orders, buys or uses goods, works or services for personal, family and household needs, not for production or business activities. Customers are key stakeholders who directly influence business operations through their purchasing decisions. Understanding customer needs, preferences and feedback is essential for businesses to develop products, services and marketing strategies that align with customer expectations. Customers can exert influence by choosing to support or boycott a business based on factors such as:
- quality;
- price;
- ethical considerations; or
- customer service.
The legitimate interests of customers are protected under the Law on Customer Rights and, with regard to contractual relations, the Civil Code.
Suppliers: Suppliers provide goods or services to businesses, and their reliability, quality and pricing directly impact the operations and competitiveness of enterprises. Building strong relationships with suppliers, ensuring timely deliveries and negotiating favourable terms can enhance business efficiency and customer satisfaction. Suppliers may also influence business operations through their own policies, such as changes in pricing, availability or product offerings.

Other influences on business operations may include:

government regulations;
industry associations;
local communities;
environmental organisations; and
competitors.

Each of these entities can have varying degrees of influence on an enterprise through their actions, policies and interactions.

5.6 What key concerns and considerations should be borne in mind with regard to general business operations in your jurisdiction?

When considering general business operations in Mongolia, several key concerns and considerations should be borne in mind which can influence the overall success and sustainability of a business in the Mongolian context:

Regulatory environment: Understanding and complying with the regulatory framework in Mongolia is crucial. Familiarise yourself with:
- laws and regulations relating to:
- - business formation;
  - permits;
  - taxation;
  - labour; and
  - environmental protection; and
- industry-specific regulations.
Seek legal advice or consult with relevant authorities to ensure compliance with applicable laws and regulations.
Access to finance: Consider the availability of financing options and access to capital in Mongolia. Assess the requirements and procedures for obtaining loans, venture capital or other sources of funding. Establish relationships with banks, financial institutions, and investors to secure adequate financial resources for your business operations.
Infrastructure: Evaluate the state of infrastructure in Mongolia, including:
- transportation networks;
- telecommunications; and
- utilities.
Infrastructure deficiencies can affect supply chains, logistics and operational efficiency. Determine how infrastructure limitations may impact your business and develop strategies to mitigate potential challenges.
Human resources: Human capital is a critical consideration for business operations. Assess:
- the availability of skilled labour;
- language proficiency; and
- workforce training programmes.
Develop strategies for attracting, retaining and developing talented employees. Compliance with labour laws, employee rights and workplace health and safety regulations is essential.
Sustainability and environmental factors: Recognise the importance of sustainable practices and environmental considerations in Mongolia. Compliance with environmental regulations, resource management, waste disposal and community engagement can contribute to the long-term viability and reputation of your business.
Risk management: Assess and manage potential risks to your business, such as:
- market volatility;
- political instability;
- natural disasters;
- legal disputes; or
- IP protection.
Develop risk management strategies, including:
- insurance coverage;
- contingency plans; and
- legal support.

6. ACCOUNTING

6.1 What primary accounting obligations apply in your jurisdiction?

In Mongolia, businesses have certain primary accounting obligations to comply with legal and regulatory requirements. The specific reporting obligations can vary depending on factors such as the type of business, industry, and size of the company. The accounting obligations that commonly apply in Mongolia include the following:

Financial reporting: Businesses in Mongolia are typically required to prepare and submit financial statements on an annual basis. These financial statements should comply with accounting standards and regulations in Mongolia, such as Mongolian Accounting Standards (MAS) or International Financial Reporting Standards (IFRS). Financial reporting obligations may also include the submission of tax-related information, including tax returns and supporting documents.
Tax reporting: Businesses in Mongolia must fulfil tax reporting obligations to the General Department of Taxation. This includes reporting various tax-related information, such as income, expenses, sales, purchases and other financial transactions.
Social insurance reporting: If the employer employs an employee, a social insurance report must be submitted and paid. For the purpose of social insurance, the insured and the employer pay social insurance premiums to the social insurance fund within the period prescribed by law. The employer must submit a report on the monthly social insurance premium payment to the social insurance authority by the fifth of the following month.
Statistical reporting: Certain businesses may have obligations to provide statistical information to the National Statistical Office of Mongolia. This includes reporting data on various aspects of business operations, such as:
- employment;
- production;
- sales; and
- other relevant statistical indicators.
The frequency and specific requirements for statistical reporting may depend on the nature of the business and industry.
Corporate governance reporting: Companies that are listed on the Mongolian Stock Exchange or that are subject to corporate governance regulations may have reporting obligations relating to corporate governance practices. This includes disclosing information on:
- board structures;
- committees;
- executive compensation;
- related-party transactions; and
- other governance-related matters.
Environmental reporting: Certain businesses operating in environmentally sensitive sectors may have reporting obligations relating to:
- environmental impact assessments;
- pollution control; and
- compliance with environmental regulations.
These reporting obligations aim to:
- ensure adherence to environmental standards; and
- mitigate potential environmental risks.
Permit-related reporting: Depending on the business operation, a number of reporting requirements may be required in relation to the permit. If the business operation requires a permit, the permit holder must report on its operations to the relevant authority in a timely manner.

6.2 What role do the directors play in this regard?

According to the Company Law, a company's executive body must manage the company's day-to-day activities within the scope of its authority as established by the company charter and the agreement entered into with the board of directors. Unless the company charter provides for a collegial executive body, the executive body will be an individual. Where the role of the executive body is filled by an individual, that individual will be the executive director. The directors of the company play a crucial role in:

fulfilling reporting obligations; and
ensuring compliance with legal and regulatory requirements.

Key roles and responsibilities of directors in relation to reporting obligations in Mongolia include the following:

overseeing the company's compliance with reporting obligations. Directors should be aware of the applicable laws, regulations and reporting requirements that pertain to the company's activities;
establishing and implementing reporting policies and procedures within the company. Directors should ensure that appropriate systems, processes and internal controls are in place to facilitate accurate and timely reporting;
overseeing the preparation, review and approval of financial statements, and ensuring that they provide a true and fair view of the company's financial position and performance;
making relevant disclosures to stakeholders such as shareholders, regulators and the public in accordance with legal requirements. Directors should ensure that the company's reporting provides accurate and meaningful information that allows stakeholders to make informed decisions;
monitoring the company's compliance with reporting obligations. Directors should also stay updated on changes in reporting requirements and take appropriate actions to ensure ongoing compliance; and
engaging with external professionals such as auditors, accountants, legal advisers or consultants to obtain expert advice and assistance in meeting reporting obligations.

6.3 What role do accountants and auditors play in this regard?

Accountants and auditors play essential roles in ensuring accurate financial reporting and compliance with reporting obligations. They provide professional expertise, independent assessments and assurance regarding the financial statements and other financial information of a company. The accountant and auditors must follow the laws of Mongolia in their professional activities, such as:

the Law on Accounting;
the Law on Auditing; and
other relevant regulations.

Accountants have the following roles:

Financial record keeping: Accountants are responsible for maintaining accurate financial records of the company's transactions, including:
- revenues;
- expenses;
- assets; and
- liabilities.
Financial reporting: Accountants prepare financial statements – such as the income statement, balance sheet and cash-flow statement – based on the company's financial records.
Compliance: Accountants play a critical role in ensuring compliance with reporting obligations. They are familiar with applicable laws, regulations and reporting requirements, and ensure that the financial statements and other financial information adhere to these requirements.
Internal controls: Accountants:
- establish and maintain internal controls within the company to safeguard assets;
- ensure the accuracy of financial records; and
- prevent fraudulent activities.
They design and implement control procedures to mitigate risks and ensure the integrity of financial reporting.

Auditors have the following roles:

Independent examination: Auditors conduct independent examinations of the company's financial statements, records and internal controls. They assess:
- the accuracy and completeness of the financial statements; and
- their compliance with accounting standards and regulatory requirements.
Based on their examination, auditors issue audit opinions on the financial statements. These opinions express their professional judgement on the fairness and compliance of the financial statements. Audit opinions can be unqualified (clean), qualified, adverse or a disclaimer, depending on the findings and limitations of the audit.
In conducting their examination, auditors adhere to auditing standards, such as International Standards on Auditing or national auditing standards. They follow a systematic and disciplined approach in gathering evidence, assessing risks and forming conclusions.
Recommendations: Auditors provide recommendations to improve internal controls, financial reporting processes and compliance with reporting obligations. They communicate their findings and recommendations through audit reports, which are shared with the company's management, the board of directors and sometimes external stakeholders.
Confidentiality: Auditors must not use any information obtained during the audit for personal purposes or disclose it to others except as required by law.

The auditors must notify the client if:

it is not possible to conduct an audit; or
other specialists need to be involved.

Accountants and auditors work together to ensure the accuracy and reliability of financial reporting, and its compliance with the legal requirements. While accountants are involved in the preparation of financial statements and maintaining financial records, auditors provide an independent assessment and verification of those statements. Their combined efforts enhance transparency, accountability and trust in the reporting process.

6.4 What key concerns and considerations should be borne in mind with regard to accounting in your jurisdiction?

When it comes to reporting in Mongolia, the following key concerns and considerations should be borne in mind:

Understand the applicable laws, accounting standards, tax regulations and other reporting obligations that pertain to your business. Stay updated on any changes or updates to these requirements.
Comply with the relevant accounting standards in Mongolia, such as MAS or IFRS. Ensure that your financial statements and reporting practices align with the prescribed accounting principles and disclosures.
Understand the tax reporting obligations in Mongolia, including tax filing deadlines, tax return forms and reporting requirements specific to your business. Comply with tax laws and regulations to accurately report:
- income;
- expenses; and
- other relevant tax information.
Timeliness and deadlines: Adhere to reporting deadlines to ensure timely submission of:
- financial statements;
- tax returns; and
- other required reports.
Late or non-compliance with reporting deadlines may result in:
- penalties;
- fines; or
- legal consequences.
Accuracy and transparency: Ensure that financial statements and other reports provide a true and fair view of the company's financial position and performance. Maintain proper documentation and supporting records to substantiate the reported information.
Internal controls: Implement robust internal controls to ensure the accuracy and integrity of financial reporting. Establish processes and procedures for recording, verifying and reviewing financial information. This helps to mitigate the risk of errors, fraud and non-compliance.
Audit and assurance: Consider engaging external auditors to provide an independent assessment of your financial statements. Audits can:
- provide assurance to stakeholders;
- validate the accuracy of reported information; and
- identify areas for improvement in reporting practices.
Language and translation: Ensure that financial statements and reports are prepared in the appropriate language required by Mongolian law. If necessary, provide translations of financial documents to meet the language requirements.
Data security and privacy: Safeguard financial and business data to protect against:
- unauthorised access;
- data breaches; and
- privacy violations.
Implement appropriate data security measures to ensure the confidentiality and integrity of reported information.

To read this article in full, please click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Mongolia: Doing Business In Mongolia Comparative Guide

1. LEGAL FRAMEWORK

2. TYPES OF BUSINESS STRUCTURES

3. DIRECTORS AND MANAGEMENT

4. SHAREHOLDERS

5. OPERATIONS

6. ACCOUNTING

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