Reorganization of an LLC into a JSC in Uzbekistan

Introduction

The need for investment, changes in business scale, entry into new markets, etc., can trigger the need to transform the legal form of a business entity. One of the most common forms of transition is the reorganization of a Limited Liability Company (LLC) into a Joint Stock Company (JSC).

In Uzbekistan, the transformation process is regulated by the Civil Code and specific laws on JSCs and LLCs. Transitioning from an LLC to a JSC is a complex process that requires detailed analysis and compliance with numerous legal and financial formalities.

In this article, the procedure for changing from an LLC to a JSC in Uzbekistan will be examined in detail, as well as analyzed the advantages and disadvantages of this transition, the potential risks, and their minimization.

Difference Between LLC and JSC

The main differences between an LLC and a JSC relate to management structure, ownership method, share capital, and liability.

Management and Ownership Methods:

LLC

The supreme governing body of an LLC is the General Meeting of Participants. The LLC's charter may provide for the formation of a Supervisory Board. The day-to-day operations of the LLC are managed by a sole executive body or a collegial executive body. The executive body is accountable to the General Meeting of Participants.

JSC

In the JSC, the supreme governing body is The General Meeting of Shareholders. The Supervisory Board provides general oversight of the JSC's operations, except for issues that fall under the exclusive competence of the General Meeting of Shareholders, as defined by law and the charter. The General Meeting is chaired by the Chairman of the Supervisory Board or, in case of his justified absence, by one of its members. Day-to-day management is carried out by a Director or the Executive Board, whose powers are defined in the charter. If management is carried out by an Executive Board, the charter must also define the powers of its Chair.

The General Meeting of Shareholders may decide to delegate executive powers to a management company (trustee) under a contract. The contract's terms are approved by the Supervisory Board unless otherwise provided by the charter.

Share Capital and Liability

In an LLC, the capital is divided into shares owned by the participants, and their liability is limited to the value of their contributions. In a JSC, the share capital is formed from the nominal value of shares acquired by shareholders. LLC participants do not bear responsibility for the company’s obligations and are only at risk up to the value of their contributions. A JSC is liable for its obligations with all of its property. Shareholders are not liable for the JSC’s obligations and bear the risk of losses only up to the value of their shares. A JSC does not bear liability for the obligations of its shareholders.

Transition from LLC to JSC

Preparation of Necessary Documents

In Uzbekistan, transitioning from an LLC to a JSC could be done via transformation. It is important to note that when an LLC is transformed, the newly formed JSC inherits all rights and obligations of the reorganized LLC. The transformation process begins with a resolution passed by the General Meeting of the LLC's participants. This resolution must include the procedure and terms of transformation, the procedure for converting LLC shares into JSC shares (or units/quotas), the approval of the JSC's founding documents, and the approval of the transfer deed.

Upon successful registration of the transformation, the newly formed JSC must comply with all legislative requirements regulating JSC activities. This includes obligations related to information disclosure, maintaining a shareholder register, and observing corporate procedures. It is important to note that the legal rights and obligations are transferred to the new legal entity in accordance with the transfer deed.

Asset Valuation

Asset valuation is not merely a formality but a critical element ensuring a proper and transparent transition from LLC to JSC. It also protects the interests of participants and potential investors. Proper valuation affects the price of shares and the attractiveness of the company to investors. Mistakes in valuation can lead to legal and tax consequences.

Key reasons for asset valuation:

Forming share capital – Valuation determines the nominal value of the shares distributed to former LLC participants.

Reducing legal and tax risks – Incorrect valuation may result in tax reassessments or penalties. Also, incorrect valuation can lead to disputes between shareholders.

Notification of Reorganization

Before submitting an application for state re-registration, a notification of reorganization must be published on the Single Portal for creditor awareness. The format of this notification must comply with Appendix No. 10 of the Resolution of the Cabinet of Ministers of the Republic of Uzbekistan No. 66, dated February 9, 2017. In this regard, publication of the above-mentioned notice in the print media is not required.

Share Issue Registration. Once documents are prepared and asset valuation is complete, the company submits an application to the Capital Market Development Agency of the Republic of Uzbekistan. This agency verifies compliance with legal requirements and issues a permit for the share issuance. Only after receiving this permit can the shareholder register be created and the securities issued.

Registration of the New Legal Entity. After obtaining the registration certificate, new changes are entered into the Unified State Register of Enterprises, and the LLC is officially dissolved.

From this point on, the company operates as a joint-stock company.

Conclusion

Transitioning from an LLC to a JSC is a major step that requires a careful approach. Transformation provides opportunities to attract investment, increase capitalization, and reach a new business level.

Before making the decision to change the legal form, it is crucial to thoroughly study the relevant legislation, analyze the financial and tax implications, and prepare all required documents. The optimal approach is to involve professionals in corporate law and finance to ensure a smooth and error-free procedure.