Business representatives express concerns that these changes may negatively impact corporate law and overall business operations in the country.
Essence of the Proposals
According to the Ministry of Economy, the draft law has been developed by the State Tax Service with the aim of creating a transparent and fair entrepreneurial environment. This involves preventing abuses by LLCs, ensuring compliance with tax obligations, and balancing private and public interests in accordance with the legislation of the Kyrgyz Republic, as well as implementing state policy on the digitalization of tax procedures.Among the innovations, for example, the first appointment of a director in an LLC must be made from among the founders within the first two years. If a non-founder is appointed as the director, confirmation from state authorities regarding the actual activities of the company will be required. Additionally, the leaders of bankrupt firms may be disqualified:
- up to 3 years for the first violation;
- up to 10 years for a repeat violation.
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Many businessmen and corporate law specialists oppose these changes.Contradictions with Business Principles
Sergey Ponomarev, head of the Markets Association of the Kyrgyz Republic, characterized the draft law as an unprecedented case where the body responsible for the development of entrepreneurship proposes amendments that could complicate business operations without prior discussions.“These changes effectively destroy the form of LLCs. In international practice, investors make investments, and management manages, whereas we may face a situation where an LLC will have additional liabilities,” noted Ponomarev.
In his opinion, such innovations could reduce the investment attractiveness of the country. “The state is trying to combat shell companies, but this is a task for law enforcement and tax authorities,” he added.
Ponomarev also emphasized the absurdity of the proposal to prohibit business operations for a period of 3 to 10 years after bankruptcy, reminding that many successful entrepreneurs, such as Donald Trump and Steve Jobs, went through bankruptcy, but this did not prevent them from achieving success afterward.
The expert expressed concern that the new rules would lead to the loss of talented entrepreneurs. He quoted a joke from one of the businessmen: “If we follow this logic, we should ban remarriage for those who have already been divorced.”
Ponomarev also pointed out the need for more open dialogues between officials and businesses.
Risks for the Economy
Gulnara Uskenbaeva, head of the Suppliers Association, noted that the introduction of unconditional subsidiary liability poses a serious threat to the economy. “These amendments increase risks for honest entrepreneurs, who may refrain from investing,” she added.Uskenbaeva emphasized that such changes violate the main principle of corporate law, where investors are only liable for their contributions. “This may lead to investors being unable to hire competent managers, which will limit business development,” she noted.
“If problems arise, and they are highly likely to arise, investors will be responsible for all tax and other consequences. Who would agree to such conditions?” - Uskenbaeva posed a rhetorical question.The expert called for the preservation of the existing corporate model and the use of already existing tools for controlling tax violations.
“All schemes of fraud are impossible without corruption and the involvement of state bodies. Perhaps we should focus on combating corruption?” - Uskenbaeva concluded.
A Blow to Entrepreneurs
Askar Sydykov, head of the International Business Council, expressed surprise at the proposals, which, in his opinion, undermine the foundations of corporate law. “These amendments dictate who can open companies and who can manage them, which contradicts the principles of a market economy,” he noted.Sydykov also pointed out that the new norms undermine the fundamental principles of separating legal entities from individuals, leading to increased risks for new entrepreneurs.
He called for simplifying the procedure for closing LLCs and bankruptcy to support a healthy entrepreneurial environment and emphasized the need to use market mechanisms to solve problems.
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The public discussion of the draft law will last until the end of March, after which it will be considered in parliament. The business community intends to seek consensus and the repeal of controversial provisions.
