September 23, 2024

Reorganization of legal entities in Uzbekistan

Legislation:
1. Civil Code of the Republic of Uzbekistan Part One (hereinafter – “Civil Code”);
2. Law “On Limited and Additional Liability Companies” (hereinafter – “Law on LLC”);
3. Law “On Joint–Stock Companies and Protection of Shareholders’ Rights” (hereinafter – “Law on JSC”).

Content:
1. The concept and types of reorganization of legal entities;
1.1 Merging;
1.2 Joining;
1.3 Separation;
1.4 Selection;
1.5 Conversion;
2. State registration of legal entities created through reorganization.

1. The concept and types of reorganization of legal entities
The reorganization of a legal entity means that the company or organization is being changed in a way that leads to some parts of it ending and new ones being created.  Essentially, some companies stop existing while new ones are formed. According to Article 49 of the Civil Code, there are five types of reorganization of a legal entity: merger, accession, separation, allocation, and conversion. 

1.1 Merger
A merger of companies is the creation of a new legal entity with the transfer to it of all rights and obligations of two or more legal entities and the liquidation of the latter.
According to Article 50 of the Civil Code, when merging legal entities, the rights and obligations of each of them pass to the newly formed legal entity by the transfer act. It is worth noting that the merger of various organizational and legal forms of legal entities has its characteristics.
Thus, in accordance with Article 50 of the Law on LLC, the general meeting of participants of each company participating in the reorganization in the form of accession decides on such reorganization, on approval of the accession agreement, and the general meeting of participants of the company being joined also decides on the approval of the transfer act. The joint general meeting of the participants of the companies participating in the accession shall make changes to the constituent documents of the company to which the accession is being carried out related to changes in the composition of the company’s participants, determining the size of their shares, other changes provided for in the accession agreement, and also, if necessary, resolve other issues, including issues on the election of the company’s bodies, which is being joined.
When one company joins another, all the rights and obligations of the affiliated company are transferred to the latter in accordance with the transfer act. The terms and procedures for holding such a general meeting are determined by the accession agreement.
According to Article 93 of the Law on JSC, the merger of a joint-stock company with legal entities in another organizational and legal form is not allowed.
The company participating in the merger enters into a merger agreement, which defines the procedure and conditions for the merger, as well as the procedure for converting shares (shares) of each company into shares and (or) shares of a new legal entity. The Supervisory Board or the authorized body of each legal entity submits to the general meeting of shareholders (participants) participating in the merger issues on reorganization in the form of a merger, on approval of the merger agreement, and on approval of the transfer act. The approval of the charter of a newly emerging legal entity and the election of its supervisory board are held at a joint general meeting of shareholders (participants) of companies participating in the merger. The voting procedure at the joint general meeting of shareholders (participants) of companies is determined by the agreement on the merger of legal entities.

1.2 Accession
The termination of the activity of one or more legal entities with the transfer of their rights and obligations to another legal entity on the basis of a transfer act is recognized as the accession of a company. The transfer act and the separation balance sheet must contain provisions on succession for all obligations of the reorganized legal entity in respect of all its creditors and debtors, including obligations disputed by the parties.
The transfer act and the separation balance sheet are approved by the founders (participants) of the legal entity or the body that made the decision to reorganize legal entities and are submitted together with the constituent documents for state registration of newly formed legal entities or amendments to the constituent documents of existing legal entities. It is worth noting that the failure to submit, together with the constituent documents, a transfer act or a separation balance sheet, respectively, as well as the absence of provisions on succession to the obligations of a reorganized legal entity, entail a refusal to state registration of newly formed legal entities.
In accordance with Article 51 of the Law on LLC, the general meeting of participants of each company participating in the reorganization in the form of accession decides on such reorganization, on approval of the accession agreement, and the general meeting of participants of the company being joined also decides on the approval of the transfer act.
The joint general meeting of the participants of the companies participating in the accession shall make changes to the constituent documents of the company to which the accession is being carried out, related to changes in the composition of the company’s participants, determining the size of their shares, other changes provided for in the accession agreement, as well as, if necessary resolves other issues, including the election of the bodies of the company to which the affiliation is being carried out.
When one company joins another, all the rights and obligations of the affiliated company are transferred to the latter in accordance with the transfer act. The terms and procedures for holding such a general meeting are determined by the accession agreement.
In accordance with Article 94 of the Law of the Russian Federation on JSC, the affiliated company and the legal entity to which the accession is being carried out conclude an accession agreement, which defines the procedure and conditions for accession, as well as the procedure for converting shares (shares) of the affiliated company into shares and (or) shares of the company. The Supervisory Board or the authorized body of each legal entity submits to the general meeting of shareholders (participants) of its company participating in the merger the issue of reorganization in the form of accession and approval of the accession agreement. The Supervisory Board or the authorized body of the affiliated company also submits to the general meeting of shareholders (participants) of the companies the issue of approving the transfer act.
The joint general meeting of shareholders (participants) of these legal entities decides on amendments and additions to the charter of the legal entity. The voting procedure at the joint general meeting of shareholders (participants) of legal entities is determined by the accession agreement. When one legal entity joins another, all rights and obligations of the joined legal entity are transferred to the latter in accordance with the transfer act.

1.3 Separation
The division of a company is the liquidation of a company with the transfer of all its rights and obligations to newly created companies. According to Article 52 of the Law on LLC, the general meeting of participants of a company reorganized in the form of a division decides on such reorganization, on the procedure and conditions for dividing the company, on the creation of new companies, and the approval of the dividing balance sheet.
The participants of each company created as a result of the division sign the founding agreement. The General Meeting of the participants of each company created as a result of the division approves the charter and elects the bodies of the company.
When a company is divided, all its rights and obligations are transferred to the companies created as a result of the division, in accordance with the separation balance sheet.
If the dividing balance sheet does not make it possible to determine the legal successor of the reorganized company, legal entities created as a result of the reorganization are jointly and severally liable for the obligations of the reorganized company to its creditors.
On the basis of Article 95 of the Law on JSC, the supervisory board of a company reorganized in the form of a division submits to the general meeting of shareholders issues on the reorganization of the company in the form of a division, the procedure and conditions of this reorganization, the creation of new one’s legal entities and the procedure for converting shares of the reorganized company into shares and (or) shares of created legal entities.
The General Meeting of Shareholders of a company reorganized in the form of a division decides on the reorganization of the company in the form of a division, the procedure and conditions for this reorganization, the creation of new legal entities, and the procedure for converting shares of the reorganized company into shares and (or) shares of the created legal entities. The General Meeting of Shareholders (participants) of each newly created legal entity decides on the approval of its charter and the election of the supervisory board.
When a company is divided, all its rights and obligations are transferred to two or more legal entities being created in accordance with the separation balance sheet.

1.4 Allocation
The separation of a company is recognized as the creation of one or more companies with the transfer to it (them) of part of the rights and obligations of the reorganized company without the liquidation of the latter. The difference between such types of reorganization as separation and allocation is only that in the first case, the legal entity whose rights and obligations are transferred is liquidated, and in the second case, the liquidation of the legal entity is not required because not all rights and obligations are transferred, but only a part.
With such a division, two or more legal entities transfer part of their rights and obligations to the newly formed legal entity.
According to Article 53 of the Law on LLC, the general meeting of participants of a company reorganized in the form of a separation decides on such reorganization, on the procedure and conditions of separation, on the creation of a new company (new companies) and the approval of the dividing balance sheet, introduces changes related to the constituent documents of the company reorganized in the form of separation with the change in the composition of the company’s participants, the determination of the size of their shares, and other changes provided for by the decision on allocation, as well as, if necessary, resolves other issues, including issues on the election of the company’s bodies.
The participants of the allocated company sign the founding agreement. The General Meeting of the participants of the allocated company approves its charter and elects the company’s bodies.
If the only participant of the allocated company is the reorganized company, the general meeting of the latter decides on the reorganization of the company in the form of allocation, on the procedure and conditions of allocation, as well as approves the charter of the allocated company and the dividing balance sheet, elects the bodies of the allocated company. When one or more companies are separated from the company, a part of the rights and obligations of the reorganized company passes to each of them under the dividing balance sheet.
If the dividing balance sheet does not make it possible to determine the legal successor of the reorganized company, legal entities created as a result of the reorganization are jointly and severally liable for the obligations of the reorganized company to its creditors.
In joint-stock companies, the allocation process takes place based on Article 96 of the Law on JSC. Thus, the supervisory board of a company reorganized in the form of an allocation submits for a decision of the general meeting of shareholders questions on the reorganization of the company in the form of separation, the procedure and conditions for separation, the creation of a new legal entity, the possibility of converting the company’s shares into shares and (or) shares of the allocated legal entity and the procedure for such conversion, on approval of the dividing balance sheet.
The General Meeting of Shareholders of a company reorganized in the form of allocation decides on the reorganization of the company in the form of allocation, the procedure and conditions for allocation, the creation of a new legal entity, the possibility of converting the company’s shares into shares and (or) shares of the allocated legal entity and the procedure for such conversion, on approval of the dividing balance sheet.
Upon separation of one or more legal entities from the company, each of them receives a part of the rights and obligations of the reorganized company in the form of separation by the separation balance sheet.

1.5 Conversion
When a legal entity of one type is conversed into a legal entity of another type (a change in its organizational and legal form), the rights and obligations of the reorganized legal entity are transferred to the newly formed legal entity in accordance with the transfer act.
According to Article 53 of the Law on LLC, the company has the right to transform into a commercial organization of another organizational and legal form provided for by legislative acts.
The General Meeting of the participants of a company reorganized in the form of transformation decides on such reorganization, on the procedure and conditions of transformation, on the procedure for exchanging shares of the company’s participants for shares (shares, units) of a legal entity created as a result of the transformation and approving the constituent documents of this legal entity, as well as approving the transfer act.
The participants of a legal entity created as a result of the transformation decide on the election of its bodies per the requirements of the law on such legal entities and instruct the relevant body to carry out actions related to the state registration of the legal entity created as a result of the transformation.
When the company is transformed, all the rights and obligations of the reorganized company are transferred to the legal entity created as a result of the transformation following the transfer act.
The process of transformation of joint-stock companies takes place in accordance with Article 97 of the Law on JSC. Thus, the supervisory board of the transformed company submits questions on the transformation of the company, the procedure, and the conditions of transformation to the general meeting of shareholders. The General Meeting of Shareholders of the transformed company decides on the transformation of the company, the procedure, and the conditions of transformation. The participants of the formed legal entity as a result of the transformation of the company after making settlements with the retiring shareholders approve the constituent documents and elect (appoint) the governing bodies of the legal entity in accordance with the legislation.
During the transformation of the company, all its rights and obligations are preserved.
The law, and decisions of the President of the Republic of Uzbekistan and the Cabinet of Ministers of the Republic of Uzbekistan may establish requirements for the creation of organizations engaged in certain types of activities only in the form of a joint-stock company. State registration of legal entities created through reorganization
We have defined the concept of “reorganization of a legal entity”, and also disclosed each of its forms. Next, we will consider the stages of state registration of legal entities during reorganization.

2. State registration of legal entities created through reorganization

Stage 1. First of all, the participants (or shareholders) of the company must decide on its reorganization in a form determined by them (merger, affiliation, division, separation, or transformation).

Stage 2. The next step, each company that participates in the reorganization process must notify all its creditors, and interested parties about the beginning of the reorganization, within 30 days from the date of the decision by the last of the reorganized enterprises, according to Article 52 of the Civil Code, paragraph 28 “Regulations on the procedure for state registration of business entities” Appendix No. 1 to the Resolution of the Cabinet of Ministers of the Republic of Uzbekistan dated 09.02.2017 No. 66, Article 92 of the Law on JSC, as well as Article 49 The Law on LLC. You can notify creditors:
• by publishing a message on the Unified Portal of Interactive Public Services in the prescribed form, on the reorganization;
• by sending personal notifications (registered letter) by mail or courier;
• by publishing messages in the media resources.

Stage 3. Inventory is a mandatory stage in the implementation of reorganization. It must be complete, that is, it is necessary to check all the property, accounts receivable, and accounts payable of companies that are being reorganized. Conducting an inventory of property and obligations by each of the parties to the reorganization process before drawing up the transfer act.

Stage 4. It is necessary to prepare the final financial and tax statements by each of the reorganized companies before making an entry in the Unified State Register of Business Entities on the termination of the activities of the reorganized companies (in case of accession, merger, separation, or conversion). The financial statements will be prepared based on National Accounting Standard No. 23 “Formation of Financial Statements during Reorganization”.

Stage 5 Transfer act and agreement on reorganization in a form determined by the parties (merger, affiliation, division, separation, or transformation). Before registration, it is necessary to prepare transfer acts for each of the companies based on the results of the preparation of financial statements, as well as a general agreement on reorganization and new constituent documents of the legal successor (or legal successors). The members of the companies must hold a joint meeting and approve the transfer act, and approve and sign the reorganization agreement and new constituent documents. 

Stage 6. Within 30 days from the date of the joint meeting of participants (or shareholders) and approval of the necessary documents, the company is obliged to make state registration at the Public Services Center based on the “Regulations on the Procedure for State Registration of Business Entities” Appendix No. 1 to the PCM No. 66 dated 02/09/2017.