Anyone wishing to start a business (start-up), not only in Uzbekistan, but also in almost any other country, firstly faces with the question of optimal choice of organizational form (OF) of the company. By avoiding too legal technicalities of this issue in Uzbekistan, it was decided to give some practical advice on this subject.

Some general points

The legislation of the Republic of Uzbekistan defines entrepreneurship as proactive activities undertaken by business entities in accordance with the legislation, aimed at generating income (profit) at own risk and on own financial responsibility.

Business entitiesare presented in the forms of legal entities (LE) and individuals, duly registered and engaged in entrepreneurial activities.

Entrepreneurial activity by an individual is called "self-employment" (more on that later).

However, it should be noted that the implementation of business entity in practice is the main form of business in the country. The law defines the legal entity form as follows: the legal entity that is a commercial organization can be created in the form of business partnerships and companies, production cooperative, unitary enterprise and in another form stipulated by legislative acts.

Incidentally, it should be noted that the widely used by law and practice categories, such as "small enterprise", "enterprise with foreign investments", "joint venture", "foreign company", "holding" etc.that have ameaning of certain sense and even some practical value, but there they have no relationship to the OF of legal entities (companies). On the contrary, the relevant entities are created in one of the OFof commercial or non-profit organizations under the law.

Individual entrepreneur

Establishment of the individual entrepreneur (IE) is quite advantageous to organize small and sometimes medium production of goods, works and services.

In accordance with the law, a citizen is entitled to engage in business activities from the moment of state registration as an individual entrepreneur. With that, the individual entrepreneurshipis implementation of individual entrepreneurial activity without establishing a legal entity (sole proprietorship). Individual businessesare performed by individual entrepreneursthemselves, without the right to hire workers, on the basis of the property belonging to him/her by right of ownership, and also by other proprietary rights, allowing possession and (or) use of the property .

At the same time, the law allows the implementation of individual entrepreneurship not only by one person, but also together with other individuals. Thus, individuals may carry out joint entrepreneurial activities without forming a legal entity in the following forms:

a) family business, carried out on the basis of common property of spouses;

b) simple partnership;

c) dekhkan farm unincorporated.

It is often mistakenly referred to an individual entrepreneur as PE (as "private entrepreneur"), although, in fact, the abbreviation "PE" is correctly to usein relation to one of the types of business organizations (legal entities) - private enterprise.

Doing business as IE is very convenient for business purposes: at least in tax compliance - a fixed tax is established (Chapter 58 of the Tax Code of the Republic of Uzbekistan). It is a kind of a simplified form of doing business, taking into account the existence of a bank account. In addition, there is not much need of the complex accounting, complex reporting, receiving dividends issues etc.

However, the law allows only a certain number of activities that may make an individual entrepreneur. In particular, Appendix №1 to the Regulation of Cabinet of Ministers on January 7, 2011 № 6 defined "List of activities that may be engaged in individual entrepreneurs without legal entity".

Moreover, the legislation makes provisions of certain types of activities, so-called "licensed" activities (under a special permit (license)) that can be performed only by legal entities.

Thus, the principle of "the simpler is the better" is quite applicable to the choice of IE for small businesses in the country.

Stanislav Kim

Partner, Head of Corporate Practice

Diplomat Law Firm