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Key Benefits of Private Enterprises

In the practice of doing business in Uzbekistan,quite commonly can be heard the question of whether it is more profitable to open a private enterprise (PE) or a limited liability company (LLC). Some practical advicecan be given.

15.07.2014Юридическая фирма "Diplomat Law", www.diplomatlaw.com

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Private Enterprise (PE) is one of the organizational forms (OF) of commercial organizations (companies). An Act of the Republic of Uzbekistan "On private enterprise" defines a private company as a commercial organization established and managed by the owner - a single individual.

Here are the main characteristic features, including the benefits of PE:

1) In contrast to the individual entrepreneur - an individual without legal entity, PE is a legal person in the full sense of the word with all the ensuing consequences. Private enterprise has its own property, may in its own name acquire and exercise property and personal non-property rights, incur obligations, sue and be sued. Private enterprise is liable for its obligations with all its assets. In other words, it is - a company in the full sense of the word.
In this case, the abbreviation "PE" should be used in relation to "private enterprise" and not the private entrepreneur, as has been erroneously used in practice to "sin" by majority - starting with government employees and ending by the individual entrepreneurs.

2) PE from the outsetis characterizedby so-called "personality" of doing business: this commercial organization is created and managed by the owner - a single individual. In other words, the owner (founder) of such an organization may be only one individual. Consequently, there cannot be two or more owners (founders) and, furthermore, the owner (founder) of the PE may not be legal entity.

3) One of the advantages of PE is that the authorized capital of private enterprise is indivisible and is determined by the owner. There are no characteristic to LLC shares in the statutory fund, and hence the assignment of shares.
In judicial practice, there were cases in terms of property disputes where the above provisions clearly played in favor of the owner of PE.

4) Another important advantage is that the legislator does not determine the required size of the authorized capital of PE - it can be in any size. This means that almost any amount can be determined as the size of the authorized capital of PE, but should not be too "overzealous" by setting unreasonably small amount.
Such OF is subject of small and medium-sized businesses, although in practice there are PE and with huge assets.

5) The owner (founder) is simultaneously the head (director) of PE and has no rights to delegate powers to manage the organization to another person (owner).
The Act provides for only one case of the head (Director) of Company may delegate its powers: in the case of his/her temporary absence of the owner of the PE writesa decision on imposing duties of the head to another individual for a period of absence. With that, the owner of a private company may restrict the right interim manager for the disposition of property of private enterprise.
It is hardly possible to call this point as an advantage, but quite objectively legislator solved the possible risks.

6) Legislation provides additional (subsidiary) liability of the PE owner (founder). As a general rule, "the founders (participants) of the legal entity or the owner of his/her property is not liable for the obligations of a legal entity and the legal entity is not liable for the obligations of the founder (participant) or owner, except as provided by this Code or by the constituent documents of the legal entity" (Part 3 of Article 48 Civil Code of Uzbekistan). However, the owner of the PE in accordance with the law shall be vicariously liable with its property for the obligations of private enterprise with insufficient assets of the enterprise(Part 4 of Article 3 of the Act of Uzbekistan "On private enterprise").

7) One of the significant advantages of PE is also a clear and well-defined procedure for obtaining profit of the PE: private enterprise profit after paying all taxes and other mandatory payments placed at the disposal of the owner and is not taxable.

Possible difficulties in practice of receiving dividends faced in LLC in respect of PE differ markedly in favor of the latter.
Thus, PE as one of the OF ofbusiness in the country has a total number of more advantages than disadvantages in the variety of other forms.



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