The business community expresses concerns that these changes may lead to negative consequences for corporate law and the overall practice of doing business.
Essence of the Proposals
According to information from the Ministry of Economy, the draft law was prepared by the State Tax Service with the aim of creating a transparent and fair entrepreneurial environment. It is aimed at preventing abuses of the organizational and legal form of LLCs, ensuring compliance with tax obligations, balancing the interests of the private and public sectors, as well as implementing state policy on the digitalization of tax procedures and combating the shadow economy.Among the new requirements is the appointment of the founder as the director for the first two years. In the case of appointing another person, the company will have to prove its active operations. Disqualification for the leaders of bankrupt companies is also introduced:
- up to 3 years for the first violation;
- up to 10 years for a repeat violation.
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Entrepreneurs and corporate law specialists have criticized these innovations.Problems with the New Rules
Sergey Ponomarev, head of the Markets Association of the Kyrgyz Republic, characterized the draft law as an unprecedented case where an agency intended to support entrepreneurship proposes changes without proper discussion with the business community.“These changes effectively destroy the LLC form. In international practice, founders make investments, while managers handle management,” Ponomarev stated.
He added that such measures will deter investors and may lead to a deterioration of the investment climate. “I understand the government's desire to combat shell companies, but this should be handled by the relevant authorities,” he noted.
According to Ponomarev, the proposal to ban business operations after bankruptcy is absurd. “Global business leaders have also gone through bankruptcies. What would have happened to Apple if Steve Jobs had been banned from doing business for 10 years?” he questions.
“As one of our entrepreneurs joked, if we follow this logic, we should ban remarriage for those who have already been divorced,” Ponomarev quotes.The expert also noted that the new rules could lead to the loss of talented entrepreneurs and create an atmosphere of presumption of guilt.
Furthermore, Ponomarev pointed out the lack of analysis of regulatory impact, which violates the procedures for adopting draft laws. “I would like the officials of the Ministry of Economy to communicate more often with the business community,” he added.
Lack of Volunteers for Creating New LLCs
Gulnara Uskenbaeva, head of the Suppliers Association, noted that unconditional subsidiary liability raises many questions. “These amendments could create risks that outweigh the supposed economic benefits,” she believes.Uskenbaeva also emphasized that such changes could make conscientious investors reconsider the feasibility of their investments. “If an investor lacks the necessary management skills, they will not be able to hire suitable specialists, which will limit business development,” she warned.
“Moreover, if problems arise, the investor will be liable for everything,” Uskenbaeva added. “Who in their right mind would agree to such conditions?”In the expert's opinion, due to a few unscrupulous players, 98-99% of honest entrepreneurs suffer. “I don’t understand why new rules are being introduced when the country has already done a lot to simplify doing business,” she summarized.
The business community insists on maintaining the existing model that complies with international standards and suggests that tax authorities use existing mechanisms to control violations.
“All fraudulent schemes are only possible with the involvement of state bodies. Perhaps it is worth focusing on combating corruption, as the president suggests,” Uskenbaeva concluded.
Increased Liability for Founders Will Negatively Impact Business
Askar Sydykov, head of the International Business Council, expressed surprise at the initiative. According to him, such changes contradict the foundations of corporate law.“This is an attempt to establish rules on who can open companies and who is responsible for all obligations,” he noted.
Sydykov added that the new rules undermine the principles of LLC functioning, which are based on the separation of the legal entity from the individual. “If liability for tax obligations is placed on the founders, who will risk opening new companies?” the expert questioned.
He also noted that effective business management requires professional management. “Bankruptcy is a normal part of the economy, and people should not be prohibited from doing business after a failure,” Sydykov added.
In his opinion, the initiators of the amendments want to simplify the management of inactive legal entities, but instead, the process of bankruptcy should be simplified so that entrepreneurs can close their companies more quickly.
Sydykov emphasized that in a market economy, only market mechanisms should be used; otherwise, it may lead to a return to administrative methods, which are ineffective.
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The draft law will be discussed by the public until the end of March, after which it will be considered by the parliament. The business community hopes to reach a compromise and repeal the controversial provisions, as well as obtain the necessary documents for the draft law.
