LLC Charter in Uzbekistan: Mandatory Provisions and Common Mistakes

What the charter must contain

Article 14 of Law No. ZRU-1137 lists the mandatory information:

• the full and short company name;
• the subject of activity;
• the postal address;
• the structure and powers of the governing bodies, including the exclusive competence of the general meeting, the powers of a supervisory board (if provided for), the decision-making procedure and the matters decided unanimously or by a qualified majority of at least two thirds of votes;
• the amount of the charter fund (charter capital) and the size and nominal value of each participant’s stake;
• participants’ rights and obligations;
• the procedure and consequences of a participant’s exit and the procedure for transferring a stake;
• how documents are kept and information is provided to participants and others;
• information on representative offices, branches, subsidiaries and dependent companies;
• other information not contrary to law.

Registering the charter and amendments

• The charter and its amendments are subject to state registration and take effect for third parties from registration (Article 14).
• Amendments relating to branches, representative offices, subsidiaries and dependent companies, and to a change of postal address, take effect for third parties from notification of the registering authority (Article 14).
• Amendments to the founding documents are made by decision of the general meeting (Article 12), a matter within its exclusive competence (Article 31).
• A participant, auditor or interested party may inspect the founding documents; the company must give a participant copies, for a fee not exceeding the cost of producing them (Article 12).

Charter capital and stakes

• The charter fund consists of the nominal value of the stakes; a stake is expressed as a percentage or a fraction (Article 15).
• A non-cash contribution worth more than ten thousand times the BCV is valued by an appraiser and may not exceed the appraised value (Article 15).
• Each participant must pay in its contribution in full within the period set by the founding documents, but no later than one year after state registration (Article 15).
• The charter may cap the maximum stake and the ability to change the ratio of stakes, but not for individual participants only (Article 15).
• The number of participants may not exceed fifty; above that, the company must convert into a joint stock company or production cooperative within a year (Article 8).

Clauses that protect participants

The law leaves many matters to the charter. They are best settled when the company is formed, before any dispute arises:

• Sale of a stake to third parties. A participant may sell to third parties unless the charter prohibits it (Article 21). The other participants have a pre-emptive right to buy, and if they do not use it, the company has a pre-emptive right (Article 21).
• Pre-emption period. By default the participants and the company exercise it within one month of notice, unless the charter or a participants’ agreement sets another period (Article 21).
• Consent to a transfer. The charter may require consent of the participants or the company to a transfer; consent is deemed given if no written refusal is received within thirty days (Article 21).
• Inheritance. The charter may provide that a stake passes to heirs and successors only with the consent of the remaining participants (Article 21).
• Notarial form. By default a transaction with a stake is in simple written form; the charter may require notarisation (Article 21).
• Qualified majority. The list of matters decided unanimously or by at least a two-thirds majority is set in the charter (Article 14).
• Deadlock resolution. If the founding documents provide for mediation or arbitration, a deadlock is resolved that way; otherwise by a court (Article 8).

Governing bodies and the director

• The exclusive competence of the general meeting includes the main lines of business, changes to charter capital and founding documents, forming executive bodies, approving financial statements, distributing net profit, deciding on an audit, and reorganisation and liquidation (Article 31). These matters cannot be delegated to the supervisory board or the director.
• The director is elected by the general meeting for the term set in the charter and need not be a participant (Article 42), so the term of office must be written into the charter.
• By decision of the meeting, the powers of the executive body may be transferred under contract to a commercial organisation acting as manager (Article 42).

Profit distribution

The company may decide to distribute net profit quarterly, semi-annually or annually; dividends are distributed in proportion to stakes (Article 26). The payment term and procedure are set by the charter or the meeting’s decision but may not exceed sixty days from the date of the decision (Article 26).

Common charter mistakes

• no term of office for the director, although the law refers this to the charter (Article 42);
• no list of matters requiring a qualified majority, which with two equal participants leads to deadlock;
• no rules on inheritance of a stake, so it passes under the general rule of Article 21;
• a charter that conflicts with the founding agreement, so the charter prevails (Article 12) and the participants’ arrangements are lost;
• a charter not brought into line with the new law; a charter drafted under the previous rules should be reviewed.