Exclusion of a Shareholder from an LLC in Uzbekistan

Publication date: 21.09.2026

A limited liability company is one of the most common organizational and legal forms for conducting business activities. A distinctive feature of an LLC is the combination of the participants’ property interests with the granting of corporate rights to them, including the right to participate in the management of the company, obtain information about its activities, participate in the distribution of profits, and dispose of their respective interests.

At the same time, the joint participation of several persons in a business entity inevitably creates a risk of corporate conflicts. In certain cases, disagreements between participants go beyond ordinary differences in commercial interests and develop into situations where the actions of one of the participants objectively obstruct the company’s activities or materially hinder them.

To address such situations, Law of Uzbekistan No. ZRU-1137 dated 21 April 2026 “On Limited Liability Companies” provides for a special mechanism — the compulsory exclusion of a participant from the company through judicial proceedings. The new Law entered into force on 22 July 2026 and regulates the establishment, operation, management, reorganization and liquidation of limited liability companies, as well as relations between their participants.

Exclusion of a Participant (Shareholder) as an Exceptional Measure of Corporate Liability

The exclusion of a participant from an LLC constitutes the compulsory termination of their corporate membership irrespective of their will. Unlike voluntary withdrawal from the company, where the initiative comes directly from the participant, exclusion results from conduct by the participant that is incompatible with the normal functioning of the company.

Article 9 of Law No. ZRU-1137 provides that participants of the company whose interests collectively constitute at least 10 percent of the company’s charter fund (charter capital) are entitled to seek, through judicial proceedings, the exclusion from the company of a participant or several participants who:

fail to perform their obligations established by the company’s charter; or
by their actions or omissions obstruct the activities of the company; or
materially hinder the activities of the company.

Thus, the legislation does not allow the majority of participants to independently decide to exclude another participant merely by means of a corporate vote. As a general rule, the final decision is made by a court.

This approach is of substantial importance for the protection of a participant’s property rights and corporate rights. Even the possession of a controlling interest does not, in itself, entitle a majority participant to unilaterally deprive a minority participant of their status.

Who Is Entitled to Seek the Exclusion of a Participant

The right to bring the relevant claim does not belong to every participant of the company. The Law establishes a quantitative threshold: the claimants must collectively hold at least 10 percent of the company’s charter capital. Accordingly, a claim may be brought by:

one participant holding at least 10 percent of the charter capital;
several participants, if the aggregate amount of their interests reaches 10 percent or more.

For example, if one participant holds 6 percent of the charter capital and another holds 5 percent, they may jointly bring a claim for exclusion because together they hold 11 percent.

Conversely, a participant who individually holds a 5 percent interest, according to the literal wording of Article 9 of the Law, does not have the required level of corporate participation to bring such a claim individually.

The establishment of a minimum threshold of 10 percent serves as a procedural and corporate filter preventing the exclusion mechanism from being used to resolve minor personal disagreements between participants.

First Ground: Failure to Perform Obligations Established by the Charter

The first independent ground for exclusion is a participant’s failure to perform obligations provided for by the company’s charter. This wording is of fundamental importance. Article 10 of the Law establishes the principal obligations of LLC participants. In particular, participants are required to:

make contributions in the manner, amount, form and within the time limits prescribed by law and the constituent documents;
notify the company of changes to their contact details;
refrain from disclosing confidential information concerning the company’s activities.

In addition, the Law expressly permits other obligations to be established by legislation and by the company’s constituent documents. At the same time, Article 14 provides that the company’s charter must contain information on the rights and obligations of its participants. Accordingly, the content of the specific charter becomes critically important when resolving a dispute concerning exclusion.

It is insufficient for the claimant merely to make an abstract allegation of the other participant’s “bad-faith conduct.” When relying on the first ground, it is necessary to establish:

the specific obligation imposed on the participant;
where that obligation is established;
what actions the participant was required to take;
how exactly the failure to perform that obligation occurred;
what evidence confirms the violation.

Therefore, the more precisely the material corporate obligations of the participants are formulated in the charter, the greater the degree of certainty in corporate relations.

Obstruction of the Company’s Activities

The second ground consists of actions or omissions by a participant that obstruct the company’s activities. This ground is considerably broader than an ordinary breach of a formal obligation.

Obstruction of the company’s activities may include forms of conduct by a participant that effectively block the normal functioning of the legal entity. Depending on the circumstances of a particular case, such conduct may potentially include:

systematic blocking of decisions necessary for the company;
avoiding participation in decision-making where the required majority cannot be formed without such participation;
obstructing the appointment of management bodies;
creating obstacles to holding a general meeting;
unlawfully withholding corporate documents or the company’s property;
using corporate powers exclusively for the purpose of paralyzing the company’s activities;
refusing to perform actions required by the charter without which the company objectively cannot continue its normal business operations.

At the same time, the mere fact that a participant votes against a proposal made by other participants should not automatically be regarded as a ground for exclusion.

The right to participate in the management of the company is a corporate right of a participant expressly established by the Law. Article 9 grants participants the right to participate in the management of the company’s affairs, obtain information about its activities, participate in the distribution of profits, and exercise other corporate rights.

Therefore, a participant’s disagreement with the commercial strategy of the majority is not, in itself, equivalent to unlawful obstruction of the company’s activities. For such a serious measure as exclusion to be applied, it is necessary to establish the actual adverse effect of the participant’s conduct on the functioning of the company.

Material Hindrance to the Company’s Activities

The third ground provided for by Article 9 is actions or omissions by a participant that materially hinder the company’s activities. This provision covers situations in which the LLC’s operations formally remain possible, but the participant’s conduct creates such serious obstacles that normal corporate governance or the company’s business activities become materially complicated.

The inherently evaluative nature of the concept of “materially hinders” requires the court to examine the totality of the circumstances of each case. Relevant factors may include:

the duration of the conflict;
the systematic nature of the participant’s actions;
the number of decisions that have been blocked;
the economic consequences of the participant’s conduct;
the inability to appoint a director or another necessary governing body;
the inability to enter into transactions material to the company;
the inability to perform contractual, tax or other obligations;
the occurrence of losses;
the existence of a causal link between the defendant’s actions and the hindrance to the company’s activities;
the possibility of resolving the problem through less radical corporate measures.

Accordingly, not every difficulty constitutes a “material” hindrance. It must reach such a degree of severity that the continued existence of the corporate situation objectively threatens the normal functioning of the LLC.

A Corporate Conflict in Itself Does Not Constitute Grounds for Exclusion

The new Law separately regulates corporate deadlock situations. Article 8 provides that where, as a result of irreconcilable disagreements between participants and an insufficient number of votes, it is impossible to reach agreement on matters concerning the management of the company, the conflict is to be resolved through judicial proceedings or, where provided for by the constituent documents, through mediation or arbitration.

A systematic interpretation of Articles 8 and 9 makes it possible to distinguish between two legal concepts:

corporate conflict — the existence of irreconcilable disagreements concerning the management of the company;
grounds for exclusion — a specific breach of obligations or actions or omissions by one participant that obstruct the company’s activities or materially hinder them.

Accordingly, the existence of a conflict between participants does not automatically mean that one of them must be excluded. For example, where two participants in an LLC each hold a 50 percent interest and have different views on the company’s future business strategy, the mere absence of agreement does not indicate unlawful conduct by either of them.

A different assessment may be possible if it is established that one participant is using their corporate position not to protect legitimate commercial interests, but exclusively to block the activities of the legal entity.

Special Case: Failure to Make a Contribution to the Charter Capital

The Law separately regulates situations where a participant fails to perform the obligation to make a contribution. Each participant is required to make their contribution to the charter capital in full within the period established by the constituent documents, which may not exceed one year from the date of state registration of the company.

At the same time, the Law contains a special provision under which, unless otherwise stipulated by the constituent documents, participants who have failed to make their contributions and whose actions obstruct the normal activities of the company or seriously hinder them may be excluded from the company by decision of the general meeting, on the basis of an application by the company’s executive body, through judicial proceedings. Thus, failure to make a contribution may entail different corporate-law consequences.

In addition, Article 23 of the Law provides for a special mechanism for the transfer of an interest to the company: the interest of a participant who, upon establishment of the company, failed to make their contribution in full within the prescribed period is transferred to the company. In such case, the participant is paid the actual value of the relevant portion of the interest in proportion to the portion of the contribution actually made, subject to the conditions established by the Law.

Accordingly, when resolving a corporate conflict associated with failure to make a contribution, it is necessary to determine which particular mechanism is applicable, taking into account the date of establishment of the company, the content of its constituent documents, the actual amount of the contribution made, and the nature of the participant’s conduct.

Exclusion Is Possible Only on the Basis of a Court Decision

One of the most important safeguards protecting a participant is the judicial nature of the exclusion procedure. Article 9 does not provide for the possibility of terminating a participant’s membership solely by a decision of the general meeting of the remaining participants. Rather, it grants a qualified group of participants the right to seek exclusion through judicial proceedings.

Accordingly, until the relevant court decision enters into legal force, the defendant retains the status of a participant of the company and the corporate rights belonging to them, subject to any interim or other measures ordered by the court.

The Law further confirms this approach when regulating the legal status of the interest: the interest of an excluded participant is transferred to the company precisely from the moment the court decision on exclusion enters into legal force. Therefore, minutes of a general meeting, an internal decision of the director, or the expression of intent of a majority participant cannot, in themselves, substitute for a court decision on exclusion.

Consequences of Exclusion of a Participant

Compulsory exclusion does not mean that the participant is deprived of their interest without compensation. Article 23 of the Law expressly provides that the interest of an excluded participant is transferred to the company.

At the same time, the company is required to pay the excluded participant the actual value of their interest, determined on the basis of the company’s accounting statements for the most recent reporting period preceding the date of exclusion, or, with the participant’s consent, to transfer to them in kind property of an equivalent value.

Accordingly, it is necessary to distinguish between:

the nominal value of the interest — a value associated with the amount of the charter capital; and
the actual value of the interest — the economic value of the corporate participation.

Under Article 15 of the Law, the actual value of an interest corresponds to the portion of the value of the company’s net assets proportionate to the size of the participant’s interest. For example, if a participant owns 30 percent of the company, the determination of the actual value of their interest depends not only on the nominal value of the corresponding portion of the charter capital, but also on the proportionate share of the LLC’s net assets.

Moment of Transfer of the Interest to the Company

The Law precisely establishes the legal moment at which the excluded participant ceases to own the interest. The interest is transferred to the company from the moment the court decision excluding the participant enters into legal force. This rule has substantial practical significance. Until that moment, the interest cannot be regarded as already belonging to the company merely because:

a claim has been filed;
the other participants have adopted a decision to apply to the court;
the court of first instance has issued a judgment, if that judgment has not yet entered into legal force.

Thus, the legal effect of exclusion is directly linked to the entry into legal force of the court decision.

Payment of the Actual Value of the Interest

Once the interest has been transferred to the LLC, the company becomes obligated to settle with the excluded participant. Pursuant to Article 23, the actual value of the interest or property of equivalent value must be transferred to the participant within one year from the date on which the interest was transferred to the company, unless the charter provides for a shorter period.

The actual value is paid from the difference between the value of the company’s net assets and the amount of its charter capital. If that difference is insufficient, the company is required to reduce its charter capital by the amount of the shortfall. Accordingly, the exclusion of a participant may impose a substantial financial burden on the company.

This risk is particularly significant where the participant holds a large interest in an economically successful company: the actual value of such an interest may potentially be considerably higher than its nominal value. Therefore, participants initiating exclusion proceedings should assess not only the legal prospects of the claim, but also the financial consequences if the claim is granted.

What Happens to the Interest After It Is Transferred to the Company

The company’s acquisition of the excluded participant’s interest is temporary. Pursuant to Article 24, interests held by the company itself:

are not taken into account when determining voting results;
do not participate in the distribution of profits;
are not taken into account when distributing property in the event of liquidation.

Within one year from the date of transfer, the interest must be:

distributed among all participants in proportion to their respective interests;
sold to all or individual participants; or
if not prohibited by the charter, sold to third parties.

If the interest or any part thereof is neither distributed nor sold within the prescribed period, it must be cancelled, with a corresponding reduction of the charter capital. Accordingly, judicial exclusion triggers not only the termination of one person’s corporate rights, but also a subsequent procedure for changing the structure of the charter capital and the allocation of interests among the remaining participants.

Prohibition on Using Exclusion as an Instrument of Corporate Pressure

The exclusion mechanism should not become a means of forcibly squeezing an unwanted minority participant out of the business. The Law expressly provides that the exercise of rights by participants must not infringe the rights of other participants or legally protected interests.

Therefore, filing a claim for exclusion solely because a participant:

votes against the majority participant;
requests access to corporate information;
challenges decisions of the governing bodies;
objects to a particular transaction;
demands payment of lawfully distributed profits,

should not, in itself, be regarded as sufficient grounds for depriving that participant of their corporate status.

It is necessary to distinguish between bad-faith obstruction of the company’s activities and the lawful exercise by a participant of their corporate rights. It is precisely the judicial procedure that must ensure an appropriate balance between these interests.