Entrepreneurial Activity Requiring a License and Risk Management in Business - FChain

Licenses and risks are closely linked aspects of any business. A license grants the legal right to conduct certain activities, while risks arise from obtaining, using, and complying with license requirements. The main risks include legal and financial liabilities for operating without a license or in violation of its conditions, potential business losses, and operational or reputational issues.
In Azerbaijan, certain businesses cannot be started freely—they require a special permit (license). A license is official confirmation from the state that a company or entrepreneur is authorized to perform a specific type of activity, typically due to increased risks related to public safety, financial operations, or government oversight.

1. When a license is required and what it means in practice
Some activities can only be legally conducted with a license. The state defines the list of such activities and the procedures for issuing licenses.

Without a license, an entrepreneur cannot:
• Start the activity;
• Continue after the license expires;
• Use someone else’s license or a copy.

Operating without a license exposes the business owner to:
• Fines;
• Suspension of business activities;
• Legal action;
• Complete shutdown of the business.

Practical rule for entrepreneurs:
Before launching a business, check if the activity is on the licensed activities list.

2. Licenses for foreign companies

A license obtained in a foreign country does not automatically authorize operations in Azerbaijan. Recognition of foreign licenses depends on international agreements.

If no agreement exists, a foreign company must either:
• Obtain a local license; or
• Partner with an Azerbaijani resident who already holds the necessary license.

This is especially important for international contractors, construction, IT, engineering, and large-scale projects.

3. License application process and timelines
The government reviews license applications within 15 days.
If documents are incomplete or incorrect, entrepreneurs are given the chance to correct errors. After resubmission, the review takes an additional 5 days.

License denial can only occur in legally defined cases:
• Required documents not submitted;
• Documents contain false information;
• Entrepreneur lacks necessary conditions or qualifications;
• Other cases explicitly provided by law.

Denied applicants must receive a written explanation.

4. Judicial protection if an entrepreneur’s rights are violated

Entrepreneurs can challenge refusals or delays in court. The court may:
• Declare the refusal illegal;
• Order the authority to issue the license;
• Hold responsible officials accountable.

The licensing authority must comply with the court decision within three days. This ensures entrepreneurs are protected from unlawful actions by officials.

1. Risk management in entrepreneurial activity

The state uses a risk-oriented control system to determine:
• Who requires frequent checks;
• Who can be monitored less;
• Who needs only minimal oversight.

Businesses are categorized into three risk groups:
1. High
2. Medium
3. Low

2. Classifying entrepreneurs by risk
Entrepreneurs are assessed on multiple criteria to assign their business to a risk group.

Key factors include:
1. Business size (larger scale = higher potential risk);
2. Industry experience;
3. Nature of products or services (e.g., food, construction, healthcare);
4. Past violations or consequences;
5. Results of previous inspections;
6. Quality of reporting (accuracy, consistency, timeliness).

If a business meets criteria for multiple groups, it is assigned to the higher-risk category.

3. Legal limits on risk classification

The law protects entrepreneurs from excessive control:
• High risk: maximum 10% of businesses;
• Medium risk: maximum 30%;
• Low risk: remaining businesses.

Control authorities cannot conduct scheduled inspections without approved risk criteria, providing an essential safeguard for entrepreneurs.

4. How the risk management system works

The system follows several steps:
1. Risk Identification. Determine potential harm to people, business, or the state.
2. Risk Analysis. Assess factors increasing the likelihood of issues.
3. Risk Assessment.

Evaluate risk based on:
• business size,
• industry,
• potential consequences,
• statistical data.

4. Business classification by risk level.

Based on the risk assessment, the following are determined:
• Control priority
• Inspection frequency
• Monitoring measures

5. Risk management.

Authorities take action based on the business’s risk group.

6. Implementation of measures.

• Actions may include:
• inspections,
• directives,
• recommendations,
• restrictions,
• support initiatives.

What This Means for the Entrepreneur in Practice

• Know if your activity requires a license.
• Obtain the license correctly and on time.
• Document errors are the most common cause of fines.
• High-risk businesses face more frequent inspections.
• Transparent reporting, compliance, and timely responses reduce risks.
• Entrepreneurs always have the right to protection, including legal action if necessary.