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.

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?

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:

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.

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.

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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.