Main Provisions
It is proposed to implement a mechanism of subsidiary liability for the founders of LLCs for the tax obligations of the company in certain cases specified by law. This is intended to help eliminate the practice of creating fictitious legal entities and ensure compliance with budget obligations.The draft law also emphasizes increasing the involvement of founders in the company's activities at early stages. In particular, during the first two years after state registration, the sole executive body of the LLC must be a founder, and if there are multiple founders, one of them will be appointed as the director by their agreement.
In the case of creating other companies by the same founders during this period, the functions of the executive body will also be performed by the original founders. The appointment of non-founders to the position of sole executive body will only be possible after confirming the actual economic activity of the company in state registration. This mechanism is designed to prevent the appointment of formal leaders and the use of front persons.
The draft law also proposes mandatory disqualification of leaders of legal entities recognized as bankrupt for a period of one to three years for the first violation and up to ten years for a repeated violation, taking into account the degree of fault and the amount of losses caused to creditors. This measure aims to prevent intentional and fictitious bankruptcies and exclude the repeated involvement of unscrupulous leaders in the management of companies.
Goals of the Initiative
The main goal of the proposed draft law is to create a transparent and fair business environment, prevent abuses by LLCs, ensure compliance with tax obligations, and balance private and public interests in accordance with the legislation of the Kyrgyz Republic.“There is a persistent practice of abuse of LLCs in the country, where participants do not bear responsibility for the obligations of the company. This creates risks of evasion of public obligations, including tax obligations,” the justification for the project states.
An additional factor of abuse is the ability to establish LLCs by other LLCs, leading to the formation of complex corporate structures where the actual owner has no direct legal ties to the final company. This complicates tax administration and the application of liability measures.
The Ministry of Economy emphasizes that every citizen, according to the Constitution, is obliged to pay taxes and fees. However, the current model of regulating LLCs does not provide an effective mechanism for this.
Considering that the founder of an LLC enters into public relations with the state, the legislation has the right to introduce additional guarantees for the proper fulfillment of tax obligations, which is necessary to ensure a balance of interests.
There are also cases of registering legal entities using the passports of citizens who do not have a permanent place of residence or are in difficult social situations, who do not actually manage the companies. These individuals are typically appointed as formal leaders, without taking real part in their activities.
