Different Types and Forms of Legal Entities under Mongolian Law

This article provides a brief overview of certain types and forms of legal entities and their key characteristics under the legal framework of Mongolia.

First and foremost, it is important to outline how the concept of a legal entity is defined under Mongolian law. According to legislation, a legal entity is an organizational unit established for a specific purpose, which owns, possesses, uses, and disposes of its designated property, acquires rights and assumes obligations in its own name, is liable for the consequences of its operations with its own assets, and may act as a claimant or defendant in legal proceedings.[1]

Any legal entity obtains the right to independently participate in legal relations upon registration with the state registration authority. In other words, a legal entity enters into legal relations under its own name, using its seal, emblem, and designated property, and is responsible for the consequences of its operations.

Legal entities are primarily classified into two categories: for-profit and non-profit. For-profit legal entities are established in the form of partnerships or companies, whereas non-profit entities are formed as associations, foundations, or cooperatives.[2] A for-profit legal entity operates with the objective of generating profit, while a non-profit entity operates based on voluntary participation for a specific non-commercial purpose.

A company is a legal entity that possesses separate property and whose capital is divided into a certain number of shares contributed by its shareholders. According to the National Statistics Office of Mongolia, as of the first quarter of 2025, a total of 88,371 companies are operating in the country, making it the most common form of business entity.[3] (In comparison, there are 4,210 cooperatives and 1,610 partnerships.) A company can be established in two ways: (1) A limited liability company (LLC) or  (2) a joint stock company (JSC). In the case of a limited liability company, the right to transfer shares is restricted by law and by the company's charter.[4] In other words, shares are not publicly traded, and the limited liability company is the most prevalent form of company in Mongolia. Conversely, a joint stock company may raise capital by issuing shares to the public and can be further classified as either public or private.[5]

Partnerships may be established in forms where all members bear full liability, or in mixed forms where some members have full liability while others have limited liability. These matters are regulated in detail by the partnership agreement, which serves as the founding document of the entity, which is its charter.[6]

Understanding the types of legal entities, their legal foundations, and core operational distinctions enables individuals and businesses to select the most suitable organizational form for their needs and objectives when establishing a new entity. Moreover, such knowledge facilitates a clearer understanding of one's legal rights and obligations and allows for more effective participation in legal relations.

References:

[1] sub-clause 25.1 of Article 25 of the law on Civil Code of Mongolia

[2] sub-clause 25.2 of Article 25 of the law on Civil Code of Mongolia

[3] National Statistics Office of Mongolia, “Number of Active Business Entities by Quarter, Type of Responsibility, and Legal Form,” Q1 2025

[4] sub-clause 3.5 of Article 3 of the law on Company Law of Mongolia

[5] sub-clause 3.6 of Article 3 of the law on Company Law of Mongolia

[6] Article 3 of the Law on Partnerships

Disclaimer: This legal information and article are intended for general informational purposes only and have been prepared in accordance with the laws in effect at the time of writing. For legal advice, please consult a professional attorney.