Limited Liability and Additional Liability Companies in Uzbekistan

In accordance with the Law on “Limited and Additional liability companies” [https://lex.uz/docs/18793] (hereinafter – the “Law on LLC”) Limited Liability Company (hereinafter – the “LLC” or “Company”) is a business entity founded by one or more persons. The statutory fund of an LLC is divided into shares of the sizes determined by the constituent documents. It is also interesting to mention that LLC is one of the most common forms of entrepreneur activity.

Distinctive features of LLC over other legal forms of commercial organizations are:

• LLC is not responsible for the obligations of its participants, and the participants of LLC are not responsible for the obligations of the company;
• The participants of LLC bear the risk of losses within the value of their contributions;
• LLC cannot have another LLC consisting of one person as the Sole participant;
• LLC should not have more than fifty founders. If there are more than fifty participants in the Company, LLC must be transformed into a Joint Stock Company within a year;
• participants can make their contributions within a year from the date of state registration of the LLC;
• a contribution to the authorized capital of an LLC can be money, securities, other things or property rights, or other alienated rights that have a monetary value;
• the general meeting of the LLC participants conducts a monetary valuation of non-monetary contributions. Thus, there is no requirement to involve independent appraisers for a monetary valuation of non-monetary deposits.

The governing bodies of LLC are:

• General Meeting of Participants;
• Supervisory Board of the Company;
• Executive Body of the Company.

General Meeting of Participants is the supreme governing body, carries out the duties provided in art. 30 of the Law on LLC, in particular - changes the size of the statutory fund, changes the constituent documents, issues of reorganization and opening of branches, as well as approves the processing of major transactions. 

The creation of a Supervisory Board in LLC becomes mandatory when the book value of assets exceeds one billion UZS. In such a case, LLC creates an Internal Audit Service that operates under the authority of and reports to the Supervisory Board. Moreover, Supervisory Board appoints the employees of the Internal Audit Service.

An executive body that can be created as a sole (Director) or collegial body or trustee (legal entity). Executive bodies as a rule are appointed by the highest management body but the trustees can be appointed by the Supervisory Board as well. In accordance with art. 39 the director acts on behalf of the company without a power of attorney, issues power of attorney for the right of representation, concludes and terminates employment contracts with employees of the company, applies incentive measures, imposes disciplinary sanctions on them, and performs other functions not attributed to the competence of the General Meeting of Participants and the Supervisory Board of the Company.

• THE PROCEDURE FOR THE FORMATION AND STATE REGISTRATION OF AN LLC

Under art. 10 of the Law on LLC, in order to form LLC, the founders conclude the Deed of incorporation and approve the Charter of the LLC - the constituent documents of the company. If LLC is formed by a Sole participant, then the Charter of the LLC is approved by the decision of the Sole participant.

The provisions of the constituent documents of the company must comply with the requirements of art. 13 of the Law on LLC.

The statutory fund of an LLC is determined by the Charter of the LLC and consists of the nominal value of the shares of its participants. Despite the absence of a requirement for a minimum size of the statutory fund in the law, the requirements for the minimal size of the statutory fund may differ depending on the licensing requirements. For example, these may include:

• License to carry out activities for the preservation of immovable objects of material cultural heritage (200 or 300 basic estimate amounts depending on the category of the license – 54 000 000 UZS or 81 000 000 UZS - approx. 5000-7500 USD); [https://lex.uz/ru/docs/4654711]

• License for activities in the wholesale trade of alcoholic beverages (1000 basic estimate amounts – 270 000 000 UZS - approx. 25 000 USD). [https://lex.uz/docs/4817426]

LLC acquires the status of a legal entity from the moment of its state registration. Consequently, according to paragraph 10 of the Regulations on the procedure of state registration of business entities approved by Decree the Cabinet of Ministers On measures to implement the presidential decree No. 2646 dated 28.10.2016 "On improvement of state registration and registration of business entities" No. 66 dated 09.02.2017 [https://lex.uz/docs/3111342#3111673] (hereinafter – the “Regulation”) the applicant (representative of LLC) files a form through the automated system of state registration and registration of business entities (hereinafter - the “System”) [https://my.gov.uz/ru/service/57] or applies in person. So, the following requirements and conditions shall be met:

• ADDITIONAL LIABILITY COMPANY

It should also be mentioned that another type of legal form the Law on LLC provides is an additional liability company (hereinafter – the “ALC”). The distinctive feature of ALC is that the participants of such a company jointly bear subsidiary liability for its obligations with their property in the same multiple for all to the value of their contributions, determined by the constituent documents of the company. However, despite the fact that the registration procedure, governing bodies, and general requirements for ALC are the same as LLC, the obligation to jointly bear subsidiary liability with its property for the obligations of the company makes this type of legal form unattractive for the founders.

• THE CONCEPT OF ENTERPRISES WITH FOREIGN INVESTMENTS AND THEIR FEATURES.

Under the Law "On Investments and Investment Activity" [https://lex.uz/ru/docs/4664144] (hereinafter - the Law on Investments), an enterprise with foreign investments in the territory of the Republic of Uzbekistan (hereinafter - EFI) are enterprises in which foreign investment constitutes at least fifteen percent (15%) of shares or statutory funds. Under the Decree of the President "On measures to substantially improve the investment climate in the Republic of Uzbekistan" [https://lex.uz/docs/3845276], the minimal size of the statutory fund of EFI is 400 million UZS. It is important to note that the Republic of Uzbekistan, in order to attract foreign investment, provides several privileges for EFI. These include:

1. Rights of investor. First of all, the Law on Investment provides privileges for EFI by granting certain rights to the investor. According to the art. 10 of the Law on Investments, investors have a right to:

• freely exercise investment activities that do not contradict the legislation of the Republic of Uzbekistan;
• contract both with legal entities and individuals;
• possess, use and dispose of their investments and the results of investment activities, as well as sell and transfer the results of investment activities;
• independently and freely dispose of the income, upon payment of all necessary payments provided by law;
• manage the property and owned property rights;
• Attract credits and loans;
• Receive compensation for losses in cases of illegal actions or inaction and decisions of public administration, and public authorities, as well as obtaining adequate compensation in the event of requisition (expropriation) of his investments and other assets.

2. EFI privileges. Under Article 51 of the Law on Investment, EFI enjoys such rights as:

• possessing, using, and disposing of their accounts in any currency, in any bank on the territory of the Republic of Uzbekistan and abroad;
• opportunity to form subsidiaries, branches, as well as associations, and other business associations on the territory of Uzbekistan.

• THE PROCEDURE FOR THE FORMATION AND STATE REGISTRATION OF EFI

EFI itself does not represent one of the legal forms of legal entities, and most often they are created in the form of an LLC in the Republic of Uzbekistan. Thus, the norms specified in the Law on LLC are also applicable to them and they must be registered under the law to obtain the above privileges. Consequently, according to paragraph 10 of the Regulations on the procedure of state registration of business entities approved by Decree the Cabinet of Ministers On measures to implement the presidential decree No. 2646 dated 28.10.2016 "On improvement of state registration and registration of business entities" No. 66 dated 09.02.2017 [https://lex.uz/docs/3111342#3111673] (hereinafter Regulation) the applicant (representative of EFI) fill in the form through the automated system of state registration and registration of business entities (hereinafter - the System) [https://my.gov.uz/ru/service/57] or applies in person. So, the following requirements and conditions shall be met: