Mongolia is the most sparsely populated independent country in the world, with a population of 3 million spread out over land more than 6 times the size of the UK.
Mongolia is now dealing with many major concerns, including political and economic obstacles, in its quest to become a developed nation, and these issues may be seen while considering a Mongolia company formation. However, the legal system has failed to accept new corporate and public rules, with many Mongolians lacking a thorough understanding of the country’s current business law and how it is applied. Mongolian laws govern economic and business operations, including the Company Law of October 6, 2011, the Civil Code of January 10, 2002, and the Investment Law of October 3, 2013.
Representative office
This is one of the quickest and easiest ways to start a business in Mongolia. Foreign legal entities can establish representative offices, which are not separate legal entities, under the Investment Law. They do not have access to charter capital, and the head office is legally liable for third-party liabilities. The registration procedure is the same as for Mongolian legal entities, and ROs must register with the Mongolian State Tax Department.
Steps to Take:
- Confirm and reserve a distinct business name
- Pay the registration fee
- Register a firm and a taxpayer
- Apply for a social security number
- Create a seal
Registration takes about one week for MNT 148,800
Wholly Foreign-Owned Enterprise (WFOE)
WFOEs are limited-liability enterprises formed by foreign nationals and funded by foreign money. WFOEs are frequently utilized in Mongolia to manufacture a foreign firm’s goods for eventual export. This can give you more control over your Mongolian business endeavor and prevent a slew of problems that can arise when dealing with a domestic joint venture partner.
Profit maximization is frequently an issue, as is intellectual property leakage and the possibility of joint venture partners setting up in competition.
The WFOE is the most expensive business structure to set up because it must go through the complete registration and incorporation process.
Joint Venture
A joint venture (JV) is a type of foreign-invested enterprise (FIE) formed by bringing together foreign and Mongolian investors. Contractual JVs, on the other hand, are uncommon in Mongolia and are not a business alternative that Mongolian enterprises or governments are familiar with. In Mongolia, the word “joint venture” usually refers to a formally organized joint venture, such as an LLC. Unincorporated joint enterprises are not forbidden, but they are simply ignored by the law.
Joint ventures are unusual in Mongolia; they are normally formed as incorporated LLCs, although Mongolian law does not recognize unincorporated LLCs, creating a legal grey area. Unincorporated joint ventures in Mongolia confront many issues, including common ownership of property, which is particularly problematic in the resources business because the Minerals Law stipulates that only one party may be registered as the license holder for an exploration or mining license. This law further states that these licenses cannot be held by foreign corporations. Furthermore, because Mongolia has no concept of equitable interest in the property, there are no guarantees that one’s equitable interest in the property will be protected.
This poses a risk to JV partners, who rely on their contractual arrangements to protect their distinct property rights.
The ideal option is to form an incorporated JV, which uses the same company form (LLC) as a WFOE. The minimal initial capital for this business form is $100,000, which is preferred because it allows for more management flexibility. The procedure is the same as above.
