​Revised State Registration Laws Enacted

On 4 May 2018, revised drafts of the state registration laws of Mongolia, namely the General Law on State Registration, the Law on State Registration of Citizens, the Law on the State Registration of Property Rights and the Law on State Registration of Legal Entities were submitted to the Parliament of Mongolia (“Revised State Registration Laws”). The aim of the Revised State Registration Laws is to improve the state registration system in stages, and to ensure that registration services are prompt, simplified and transparent. This is in line with the national “One Citizen, One Registration” programme approved under the Government’s Action Plan for 2016-2020. The Revised State Registration Laws, along with the accompanying amendments to other relevant laws, were subsequently enacted by Parliament on 21 June 2018 and shall become effective from 1 November 2018 (unless specifically provided otherwise in respect of certain provisions). The following is a summary of the main changes introduced, with a particular focus on the Revised Law on State Registration of Legal Entities:

1.Revised General Law on State Registration (“Revised General Law”)

As mentioned above, one of the main objectives of the Revised State Registration Laws was to improve state registration services provided to citizens. In line with this objective, the Revised General Law ensures that state registration services are clear and understandable for citizens by introducing a new section on definitions to clarify certain terms that were previously ambiguous. Also included is a revised list of the types of registrations in relation to citizens, legal entities and property rights. In particular, the Revised General Law expressly provides only for the state registration of representative offices of foreign legal entities (which is the current practice as there is no legal framework for the state registration of branches of foreign legal entities) whereas under the current law, it was not clear whether branches of foreign legal entities can be state registered. As for domestic legal entities, state registration of branches and representative offices remain available.

Further in line with the abovementioned objective, the Revised General Law also seeks to address the issues of excessive standards and requirements in relation to state registration services and provides clarification on the basis of state registration, as well as the rights and obligations of state registrars. The Revised General Law aims to shift the state registration system into an electronic form by increasing the use of electronic citizen identity cards, ensuring the protection of data and by expressly providing that information stored in the electronic state registration database shall be of equal validity to any paper records.

The Revised General Law aims to increase the availability and transparency of state registration information (except for information that is prohibited to be disclosed by law) in line with international practice, by classifying information as ‘available to the public’, ‘restricted’ or ‘confidential’. For example, information on the name, address, registration number, form, business activity, date of state registration, names and number of founders, names of shareholders, persons authorised to represent the legal entity without a power of attorney (such as the executive management), changes to the form or name of the legal entity or whether the legal entity was liquidated is classified as ‘available to the public.’

2.Revised Law on State Registration of Legal Entities (“Legal Entity Registration Law”)

  • Clarification on the types of legal entities registered with the state:

The types of legal entities that may be state registered has been clarified in line with the Civil Code of Mongolia (“Civil Code”). To elaborate, the Civil Code clearly defines the types of legal entities in terms of for-profit entities which include companies and partnerships whilst non-profit entities include associations, funds and cooperatives. However, there are no specific provisions within the current law in respect of the registration of associations and funds even though there are provisions on the registration of other types of legal entities which are not set out in the Civil Code. Accordingly, Article 7 of the Legal Entity Registration Law now provides specifically for the state registration of funds and for associations (non-governmental organizations).

  • Introduction of regulation on certain issues:

As the current Law on State Registration of Legal Entities does not regulate certain issues, it can lead to disputes between shareholders in practice. For example, the current law does not regulate the issuance of state registration certificates and stamps, nor the invalidation thereof. Moreover, whilst the current law regulates the confirmation of the names of legal entities, it does not regulate the name confirmation in relation to legal entities that have been liquidated or that have changed their names.

Article 8 of the Legal Entity Registration Law provides for the following grounds for the issuance of state registration certificates and stamp control numbers:

  • if the certificate or stamp has been damaged or worn out;
  • a request for changing the design of the stamp was submitted;
  • a request for the reissuance of the certificate was submitted in relation to a change in the records of the legal entity;
  • the certificate or stamp has been lost;
  • the certificate or stamp has been destroyed;
  • it is not possible to use the certificate or stamp due to the invalidation of the state registration.

Where the stamp has been lost or destroyed, it will be invalidated by an evaluation of the state inspector of control and a new stamp control number will be issued within 2 business days. Moreover, a new regulation relating to the supervision of stamp manufacturing activities is expected to be approved.

As for the name confirmation of legal entities, Article 13 of the Legal Entity Registration Law expressly provides that the application for the name confirmation may be submitted in person or electronically by the founder, executive management or other entity authorised under a power of attorney, regardless of territorial jurisdiction. We note that the GASR has already established and is currently operating the online legal entity name allocation system at: http://les.burtgel.gov.mn/. Once issued, the name confirmation under the current law is valid for 10 business days during which period the legal entity must be registered. Under the Legal Entity Registration Law, this period is extended to 30 calendar days, extendable for up to 60 days. In addition, where a legal entity has been liquidated or has changed its name, its name or previous name can be issued to another citizen or legal entity that has requested such name. Once an application to register a legal entity has been submitted, the decision on whether to register a legal entity with foreign investment is 5 working days (the applicable time period is 10 working days under the current law) and all other legal entities within 2 working days (time period is the same under the current law).

  • Addressing practical issues:

The Legal Entity Registration Law seeks to address certain practical issues that have arisen from the implementation of the current law. In particular, the current law provides for the state registration of changes to the records of the legal entity, such as amount of share capital or business activity, within 15 business days from the date of such change. However, there are instances such as changes which require consent or approval from state authorities whereby it is not possible to meet the 15 business day deadline and legal entities were faced with penalties. To address this issue, the Legal Entity Registration Law retains the 15 business day rule except for changes which require state authority approval in which case the 15 business day period will begin from the obtainment of the relevant state authority approval.

  • Prevention of excessive standards:

In order to ensure that regulations and procedures do not impose standards and requirements that are higher than those set by law, certain requirements that are currently being regulated by regulations or procedures will now be regulated by law. This is particularly the case with the documents necessary for registering a newly established legal entity, the change of the form of the legal entity and any changes to the records of the legal entity. The required documents have been made more specific for certainty. For example, in the case of the registration of a newly established legal entity or a legal entity that has changed forms, founding documents are clarified to comprise of the founding resolution, charter and if provided for by law, the founding agreement (shareholders’ agreement). It is unlikely that the shareholders’ agreement will be deemed as a founding document for the purposes of the Company Law of Mongolia as Article 13.4 thereof specifically states that it will not be deemed a founding document.

3.Revised Law on State Registration of Citizens

The Revised Law on State Registration of Citizens also aims to address practical issues being faced today in relation to state registration services. In order to do so, the documents required to be submitted, the relevant level of the authority and the registration periods have been clarified depending on the type of citizen registration. Particularly with respect to the registration of the movement of citizens, which has caused difficulties for citizens in the past, new regulations are introduced and state registration services are to become more accessible to citizens through the delegation of certain state registration services to the state registrars of the soum, district, and consular departments or diplomatic missions.

4.Revised Law on State Registration of Property Rights (“Property Rights Registration Law”)

  • Integrated registration of immovable property and land rights:

The enactment of the Property Rights Registration Law has the objective of “improving laws which lead to the loss of property ownership guarantees” as set out in the Government’s Action Plan for 2016-2020. One of the major changes introduced by the Property Rights Registration Law is the integrated registration of immovable property rights with land rights. To elaborate, immovable property rights have been registered in Mongolia since 1997 and rights to immovable property other than land have been registered separately from land rights which is in conflict with international practice and has led to the decrease in the consistency and accuracy of the registration of property rights. Such separation of registration also raises issues in respect of land rights disputes, economic exploitation of immovable property and enforcement of mortgages. Accordingly, Article 10 of the Property Rights Registration Law provides that immovable property rights will be initially registered on the basis of the land plot number underneath the building with each land plot having its own record file setting out the immovable properties thereon.

  • Introduction of concepts of state registrar professional indemnity insurance and role of notaries:

The Property Rights Registration Law also introduces the requirement for state registrars to be fully covered by professional indemnity insurance in order to be able to compensate for any loss or damage resulting from incorrect registrations. Insurance premiums relating to such insurance shall be covered by the state.

Another new concept introduced is that notaries may now submit information to the state registration authority for the registration at the request of applicants on the basis of an agreement with the General Authority for State Registration. Notaries carrying out this type of activities have the duties of submitting and registering applications on behalf of their clients to the state registration authority and entering and obtaining information from the electronic state registration database for the purposes of providing the aforementioned services. When providing the services, the notary shall be liable for the accuracy of the submitted documents and any legal implications which may arise.

If you have any questions or comments regarding this legal update, please do not hesitate to contact us.

TSOLMONCHIMEG.E, Partner (tsolmonchimeg@gtsadvocates.mn, tel+976 331020)

KHULAN.B, Associate (khulan@gtsadvocates.mn, tel+976 331020)

gtsadvocates: 28 8 2018