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Legal nature of shares in authorized capital of limited
liability companies: comparative legal analysis
Khamdambek ATAJANOV
1
, Enkhtur TSELMEG
2
Tashkent State University of Law
BDF Investors LLC
ARTICLE INFO
ABSTRACT
Article history:
Received October 2024
Received in revised form
15 November 2024
Accepted 15 December 2024
Available online
25 January 2025
This article explores the legal nature of shares in the
authorized capital of limited liability companies in Uzbekistan,
France, Germany, the United Kingdom, and Mongolia. It
examines the definition and classification of shares as objects of
civil law, emphasizing their dual nature as both property and a
bundle of corporate and associated rights and obligations.
These rights and obligations are proportionate to the
participant’s contribution to the company's authorized capital.
The article analyzes the conceptual and legal frameworks that
categorize shares as "other properties" under Article 81 of the
Civil Code of Uzbekistan and compares this approach with the
legal treatment in other jurisdictions. By identifying
commonalities and differences, the article concludes that a
share embodies a participant’s economic and managerial
interests in the company, regulated by civil law principles. This
comparative analysis offers insights into the broader
understanding of shares in limited liability companies across
diverse legal systems.
2181-
1415/©
2024 in Science LLC.
https://doi.org/10.47689/2181-1415-vol5-
This is an open access article under the Attribution 4.0 International
(CC BY 4.0) license (https://creativecommons.org/licenses/by/4.0/deed.ru)
Keywords:
shares,
legal nature of shares,
corporate rights,
authorized capital,
transfer of shares.
Mas’uliyati cheklangan jamiyatlar ustav fondidagi
ulushlarning huquqiy tabiati: qiyosiy-huquqiy tahlil
ANNOTATSIYA
Kalit so‘zlar
:
ulushlar,
ulushlarning huquqiy tabiati,
korporativ huquqlar,
Ushbu maqolada O‘zbekiston, Fransiya, Germaniya,
Buyuk Britaniya va Mo‘g‘ulistonda mas’uliyati cheklangan
jamiyatlarning ustav fondidagi ulushlarning huquqiy tabiatini
1
Senior Lecturer, Tashkent State University of Law. Tashkent, Uzbekistan. E-mail: h.atajanov@tsul.uz
2
Head of Legal Department at BDF Investors LLC. Ulaanbaatar, Mongolia. E-mail: tselmeg.e@bdfi.mn
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425
ustav fondi,
ulushlarning o‘tishi
tadqiq qilinadi. Ulushlarning fuqarolik huquqi obyektlari
sifatidagi ta’rifi tahlil qilingan bo‘lib, ularning mulkiy va
korporativ huquqlar va majburiyatlar kompleksi sifatidagi ikki
tomonlama tabiatiga e’tibor qaratadi. Ushbu h
uquq va
majburiyatlar kompaniyaning ustav kapitaliga ishtirokchining
hissasiga mutanosibdir. Maqola O‘zbekiston Fuqarolik
Kodeksining 81-moddasiga muvofiq ulushlarni
“
boshqa mol-
mulk
”
sifatida tasniflaydigan konseptual va huquqiy asoslarni
tahlil qiladi va ushbu yondashuvni boshqa yurisdiksiyalarda
ulushlarning huquqiy muomalasi bilan taqqoslaydi. Maqolada
umumiylik va farqlarni aniqlash orqali ulush ishtirokchining
kompaniyadagi
iqtisodiy
va
boshqaruv
manfaatlarini
ifodalashini va bu fuqarolik huquqi tamoyillari bilan tartibga
solinishini xulosa qiladi. Ushbu qiyosiy tahlil mas’uliyati
cheklangan jamiyatlarda ulushlarning kengroq tushunilishini
taqdim etadi.
Правовая природа долей в уставном капитале обществ
с ограниченной ответственностью: сравнительно
-
правовой анализ
АННОТАЦИЯ
Ключевые слова:
доли,
юридическая природа
долей,
корпоративные права,
уставный капитал,
переход долей.
В статье исследуется правовая природа долей в
уставном
капитале
обществ
с
ограниченной
ответственностью в Узбекистане, Франции, Германии,
Великобритании
и
Монголии.
Рассматриваются
определения и классификация долей как объектов
гражданского права, уделяя особое внимание их
двойственной природе: как имущественных объектов и как
комплекса корпоративных прав и обязанностей. Указанные
права и обязанности соотносятся с размером вклада
участника в уставный капитал компании. Особое внимание
уделено анализу концептуальных и правовых основ,
определяющих доли как «иное имущество»
в соответствии
со статьей 81 Гражданского кодекса Узбекистана. Также
проведено сравнение данного подхода с правовым
регулированием в других юрисдикциях. На основе
выявления общих черт и различий делается вывод, что
доля представляет собой совокупность экономических и
управленческих интересов участника в компании,
регулируемых
принципами
гражданского
права.
Сравнительный анализ, представленный в статье,
позволяет глубже понять особенности трактовки долей в
обществах с ограниченной ответственностью в различных
правовых системах.
Nowadays, there is currently no legal clarity in determining the legal nature of
shares in Uzbek legal doctrine due to the fact that clear theoretical and legal views on the
legal nature of the share in the authorized capital of a limited liability company have not
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been fully developed. As a result, a number of problems arise in law enforcement and
judicial practice, in particular, in practice in such matters as the conclusion and execution
of transactions on the alienation of shares, as well as state registration of shares.
The legislation uses the concepts of "participant's share" and "share in the
authorized capital", based on the fact that the authorized capital of the company consists
of the shares of the participants, they can be accepted as synonymous terms. At the same
time, the Law also uses the term "contribution", which, in our opinion, implies property
or property rights included in the authorized capital of the company for the formation of
the share, that is, the share of the participants is formed from contributions.
In disclosing the legal nature of the share, it is first necessary to clarify whether the
rights conferring the share are a
material right
,
an obligation
right or
an object of
corporate law
, an exclusive or relative right. It should be noted that there has been
sufficient debate in legal doctrine and scientific debate on each of the above issues.
Researcher Fahrutdinov also analyzes the share from a lexical and grammatical
point of view, raising reasonable questions about whether the share is part of the
property mass in the authorized capital of LLC, but to what extent this part can be an
object of civil relations.
Based on the norms established by the LLC Law, a part of the share
can also be
transferred, indicating that the share is a divisible material as an object of civil law.
First, to determine the legal nature of the share, we turn to the norm of the Civil
Code concerning objects of civil relations. Article 81 of the Civil Code stipulates that the
objects of civil rights include
materials, including money and securities, other goods,
property, including property rights, works and services, inventions, industrial designs,
science, literature, works of art and other results of intellectual activity, as well as personal
non-property rights and other material and intangible assets
, but the legal nature of the
share is not specified.
France.
For example, according to Article 529 of the Civil Code of the French
Republic, shares (interests) and bonds are defined as moveable property. However, these
views can only be applied to relations related to the transfer of shares and do not cover
the liabilities of the share owner (participant) arising from the ownership of the share.
In France, limited liability companies are primarily st
ructured as Société à Responsabilité
Limitée (SARL) and Société par Actions Simplifiée (SAS).
In a SARL, ownership is divided into "parts sociales" (company shares), which are
not represented by physical certificates. These shares are registered and documented in
the company's articles of association. The minimum share capital required to establish a
SARL is €1, providing flexibility for small and medium
-sized enterprises.
Shares in a SARL are not freely transferable. Any transfer to a third party requires
the approval of shareholders representing at least half of the company's shares, unless
the articles of association stipulate a higher majority. This restriction ensures control
over the company's ownership structure.
Germany.
GmbH shares are not represented by physical certificates but are
documented in the company's shareholder list. Each shareholder's ownership percentage
corresponds to their contribution to the company's share capital. According to German
GmbH law, shares may be freely disposed of and are transferable by inheritance which
means that they are fully circulated in civil law relations. Notarial form is required for a
contractual obligation to assign, as well as for the assignment itself.
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The 2008 reform, known as MoMiG (Law for the Modernisation of the German
Limited Liability Company Law and the Prevention of Misuse), introduced provisions to
enhance the security of share transactions. Section 16(3) GmbHG allows for the
acquisition of shares in good faith, provided the transferor is listed as the shareholder in
the commercial register's shareholder list. This reform aimed to protect bona fide
purchasers from undisclosed claims.
Great Britain.
In Companies Act 2006, Section 541, it is established that the shares
or other interest of a member in a company are personal property (or, in Scotland,
moveable property) and are not in the nature of real estate (or heritage).
A share represents a portion of ownership in a company, conferring specific rights
and obligations upon the shareholder. Legally, shares are considered a form of property,
specifically a "chose in action," meaning they are intangible rights enforceable by legal
action. This classification was articulated in the case of Borland's Trustee v Steel Brothers
& Co Ltd [1901] 1 Ch 279, where Farwell J. described a share as "the interest of a
shareholder in the company measured by a sum of money... but also consisting of a series
of mutual covenants entered into by all the shareholders."
Mongolia.
The Company law of Mongolia /2011/ does not limit the usage of the
word “shares” to only apply to joint stock companies, but also to be used for limited
liability companies as well, which is in contrast to other countries that maintains a
distinction betwe
en the terms, “shares” and “contribution”, based on the composition of a
given company.
Regardless of the term used, the classification of property, as defined in the Article
84 of the Civil Code of Mongolia, does not give us a clear picture on whether a share in a
limited liability company is considered a tangible or intangible property. This ambiguity
is further deepened by the the Article 7 of the Law on Pledging Movable and Intangible
Assets /2015/, where it specifically did not categorize whether shares are movable
property or intangible assets.
From the outset, it might be easy to define “shares” as a tangible property, given its
nature that it can be transferred from one person to another, meaning that it intrinsically
is a commercial object. However, the answer may get murkier, when one ponders
regarding the concept of what “shares” represent in a company and what legal
consequence that it can create for its holder.
Shareholder’s acceptance into a company comes with the price of turning one’s
prope
rty into company’s property and in return, earns one a seat at the table to decide
the fate of a legal entity and its capital therein. This separation also comes with a set of
rules for a shareholder to follow in exercising one’s right as a shareholder, su
ch as being
restricted from freely disposing one’s shares to third parties or limited fiduciary duties in
some cases.
When viewed from this perspective, one might be tempted to answer the foregoing
question by stating that while shares are indeed commercial objects, the concept that it
represents in corporate law can be classified more accurately as a “property right” that
one may exercise against the corporation itself, other shareholders and third parties and
that this property right is merely governed by statutory regulations and any founding
documents that shareholders might have agreed upon to govern their behavior in
relation to the company.
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Nevertheless, “shares” are regarded as a tangible, movable property in Mongolia as
opposed to intangible rights or property rights, given that the Clause 3, Article 84 of the
Civil Code of Mongolia limits intangible rights to the following:
(i) subjective rights and cause of actions that creates a profit to their owner;
or (ii) subjective rights and cause of actions which entitles a person to make a demand
from third parties; and (iii) intellectual properties”
The foregoing definition limits intangible rights to contractual/subjective rights
and in the context of corporate law in Mongolia, intangible rights will be limited to
contractual demands a shareholder may have against the company, and its shareholders.
Further, statutory rights that apply to shareholders are regarded to be attached to one’s
status as a shareholder in a company. This view is further solidified by the fact that share
pledges are registered by the state registration authority in their “movable property
pledge registration”.
However, the lack of clear definition of shares as a tangible property or a property
right may create further complication in the future as the Company law of Mongolia does
not have any regulation which pertains to requiring consent of the other shareholders of
a company when it comes to pledging one’s shares in a limited liability company. Albeit,
this gap is often times filled by lawyers who are drafting the constituent documents of a
given company, this still creates a question on whether a bank that acts as a pledgee has a
right to vote on behalf of the shareholder while in the possession of a pledged share or
may bypass the right of first refusal established by the Company Law when it comes to
exercising its rights as a pledgee to have the shares sold by auction.
Russian Federation.
S.D. Mogilevsky, analyzing the views of modern legal
scholars on the legal nature of shares, notes that there are 4 concepts of the legal nature
of a participant's share in an LLC. These are:
–
the material-legal concept of the legal nature of the share;
–
the obligation based concept of the legal nature of the share;
–
property-legal concept of the legal nature of the share;
–
corporate-legal concept of the legal nature of shares.
A number of scholars suggest defining it as a material right, a law of obligation, or a
type of corporate law in order to reveal the legal nature of a share. For example, O.
Lomidze, when considering the issue of the rights of the participants of the limited
liability company, shows that these rights are related to the right of obligation, and on
this basis conducted research.
This may also be because there is a priority view in the special literature that the
share in the LLC is recognized as a property right, and its purchase or other alienation
should be carried out in the form of transfer of rights in accordance with the rules of the
exchange of persons in the obligation of civil law. This view is called the concept of
obligation-law. According to it, the share of the company is considered as an object of the
right of obligation and its transfer can be transferred through a session.
Also, R. Bevzenko believes that "a share in the authorized capital is a symbol, a sign
of rights belonging only to a participant of the company... It is only a number that shows
the ratio of interest, fraction, share of the authorized capital paid by the person and the
total amount of capital." At the same time, the object of legal relations is not a share in the
authorized capital, but a set of rights of the participant.
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One of the national researchers, M. Saidov, having studied the scientific approaches
to the share so far, emphasizes that the rights arising from the share are a component of
corporate law in a complex form, and recognizes the processes of exercising the rights of
participants as an element of corporate relations. "Corporate law is a set of legal norms
that determine the rights and obligations of the subjects of corporate relations, regulate
external and internal social relations related to the activities of the corporation."
At the same time, to date, in assessing the legal nature of the share, the view that
the share is a set of rights and obligations in the doctrine of law has been sufficiently
substantiated among the scientific community.
Therefore, according to the general rule, when a participant contributes to the
authorized capital, the added property (property rights) and rights to it are transferred
to the society, and the participants are deprived of their exclusive rights to this property.
At the same time, participants will continue to use this property economically through
community management mechanisms. For this, they are given a special set of rights, and
it is the nature of these rights that has so far caused debate in academic circles. The basic
view in this area is that participants exercise indirect ownership of property through
these rights, but the rights are no longer
tangible but
corporate
.
Summing up the legal nature of the share, Fahrutdinov notes that the complex
nature of the share in the authorized capital is a combination of signs of absolute and
relative rights, as a result, the share as a right of participation does not fall within the
scope of exclusive or relative legal relations, it is a subjective right (sui generis) of its own
kind.
According to the general definition, a share in limited liability companies
is a property right that provides its owner with a set of rights of a proprietary and non-
property nature in relation to the company.
Based on the above, it can be concluded that the share in the authorized capital of a
limited liability company is a set of property (corporate and other related to them) rights
and obligations of the participant. These rights and obligations are determined in relation
to the amount of the participant's contribution. In determining the status of a share as an
object of civil law, the share falls under the category of "other properties" according to
Article 81 of the Civil Code.
REFERENCES:
1.
Фахрутдинов Р.С., Правовые проблемы уступки доли в уставном капитале
общества с ограниченной ответственностью, дисс. к.ю.н. Москва, 2009. С.18
2.
Article 529 of French Civil Code https://french-business-law.com/french-
legislation-art/article-529-of-the-french-civil-code/ (Accessed on December 2, 2024)
3.
https://www.dlapiperintelligence.com/goingglobal/corporate/index.html?c=FR
&t=38-restrictions-transferability-of-shares (Accessed on December 21, 2024)
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Section 15 of German Act on Limited Liability Companies. Limited Liability
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4123-1, as last amended by Article 9 of the Act of 22 February 2023 (Federal Law Gazette
2023 I No. 51)
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Companies Act 2006, Section 541. https://www.legislation.gov.uk/ukpga/
2006/46/section/541 (Accessed on December 2, 2024)
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6.
For example, §18
-
101(a) of Delaware’s Limited Liability Company Act
specifically opts for the term “contribution” with regards to defining the concept of a
person’s
contribution towards limited liability company as a member.
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https://mpr.gov.mn/
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