November 17, 2023

The legal destiny of the unpaid share in a limited liability company

Share means a share of participation (participatory interest) in the authorized capital (fund) of a limited liability company registered under the legislation of the Republic of Uzbekistan.

  1. An unpaid share cannot be sold

In order for a share to be sold by a participant, it must be paid, that is, the participant must complete his (her/its) contribution in full. If the share is not paid, then it passes in full or in part to the company. The company, having become the owner of the share, sells it to other participants (one or more of the participants) or third parties, subject to the restrictions established by the company’s charter (regulatory details are specified in Article 23 of the LLC Law).

  1. The unpaid share must be transferred to the company in one of two options:

Option (A): transfer of the share from the participant to the company in full:

In this case, the founding participant does not have any share, since he transfers even the purchased part of the share to the company. Obviously, a full redemption of a share cannot be applied to the instance when the company has a sole participant.

or

Option (B): transfer of part of the share from the participant to the company:

In this option, only that part of the share that was not paid shall be transferred from the participant to the company. The unpaid part of the share is transferred to the company, and the paid part of the share remains with the founding participant.

  1. Transfer to the company of the entire share in which part of the share has not been paid

Such a transfer of a share in full should occur in all instances when the company’s charter does not contain a provision on the transfer under Option (B) – that is, on the transfer of a part of the share.

Please pay attention to this!

Here is a link to the text of the Law on LLC: “The share of a participant of company who, when establishing the company, did not make his contribution to the authorized fund (authorized capital) of the company in full on time, passes to the company.”

That is, in the event of incomplete payment of a share in the authorized capital of the company within the period determined by the charter, the entire share distributed to the participant, including its paid part, passes to the company .

“In this case, the company is obliged to pay to the company‘s participant the actual value of part of his share, in proportion to the part of the contribution made by him (the period during which the property was in the use of the company), or with the consent of the company‘s participant, give him property in kind of the same value.” Article 22 of the LLC Law).

  1. Transfer to the company of only the part of the share that was unpaid

“The charter of the company may provide that a part of the share is transferred to the company, proportional to the unpaid part of the contribution or the amount (cost) of monetary compensation.” (Article 22 of the LLC Law).

Under this option, in case of incomplete payment of a share in the authorized capital of the company within the period determined by the Charter, the unpaid part of the share passes to the company .

  1. The legal destiny of the share having passed to the company

According to Article 23 of the LLC Law:

“The share owned by the company, within one year from the date of its transfer to the company, must, by the decision of general participants‘ meeting of the company, be distributed among all participants of the company in proportion to their shares in the authorized fund (authorized capital) of the company or sold to all or some participants of the company and (or ), unless prohibited by the company’s charter, to third parties and fully paid in. The undistributed or unsold part of the share must be repaid with a corresponding reduction in the authorized capital (authorized capital) of the company […] .”

Thus, a share in respect of which ( i ) no payments (contributions towards its payment) have been received or (ii) a decision has been made by the general participants meeting on its annulment, must be annulled. The share is unnulled in the form of decrease of the authorized capital.