Rights and Obligations of LLC Shareholders

A participant/shareholder of a limited liability company (LLC) is an individual or legal entity that owns a share in the charter fund, that is, the charter capital of the company. Participation in an LLC has a dual legal nature.

On the one hand, a participant is an investor, since he/she/it contributes to the charter fund of the company and bears the risk of losses within the value of the contributed amount. On the other hand, a participant is a subject of corporate governance, since, through the general meeting of participants, he/she/it participates in the formation of the will of the legal entity.

The new Law of the Republic of Uzbekistan “On Limited Liability Companies” dated April 21, 2026 No. ZRU-1137 is based on the classical model of limited liability: the participants of the company are not liable for the obligations of the company, and the company is not liable for the obligations of its participants. However, this rule is not absolute. If a participant has not fully paid his/her/its contribution, he/she/it may bear joint and several liability for the company’s obligations within the unpaid part of the contribution. In addition, if a participant, through his/her/its unlawful actions, contributed to the insolvency of the company, subsidiary liability may be imposed.

Thus, the status of an LLC participant includes three elements:

1. Property element — a share in the charter fund, the right to profit, and the right to a liquidation quota;
2. Governance element — the right to participate in management, vote, and influence the decisions of the company;
3. Obligatory element — the obligation to make a contribution, comply with the charter, not disclose confidential information, and act in good faith.

According to the new Law, legal entities and individuals may be participants of an LLC. The Law allows a company to be established by one person, as well as the subsequent transformation of a company into a company with one participant.

At the same time, the legislator establishes a number of restrictions:

No.	Restriction	Legal significance
1	Certain categories of individuals may be restricted or deprived of the right to participate in an LLC	The restriction may arise from special laws
2	State bodies, as a rule, may not be participants of an LLC unless otherwise provided by law	Prevents the mixing of public authority and entrepreneurial participation
3	An LLC may not have another company consisting of one person as its sole participant, except where the sole participant is a joint-stock company with one shareholder	Prevents the creation of artificial corporate chains
4	The number of participants of an LLC must not exceed 50 persons	If the limit is exceeded, the company must be reorganized

If the number of participants exceeds 50, the company is obliged, within one year, to transform into a joint-stock company or a production cooperative. If this does not occur and the number of participants is not reduced, the company may be liquidated by court order.

This restriction reflects the closed nature of an LLC. Unlike a joint-stock company, an LLC is intended for a relatively limited circle of participants between whom an element of personal trust is preserved.

The rights of LLC participants may be divided into several groups:

1. governance rights;
2. information rights;
3. property rights;
4. rights of disposal in relation to a share;
5. protective rights;
6. contractual corporate rights.

This classification demonstrates that an LLC participant is not only the owner of a share, but also an active subject of corporate relations.

Governance Rights of Participants

The key right of a participant is the right to participate in the management of the company’s affairs. This right is primarily exercised through participation in the general meeting of participants.

The right to management includes:

Element of the right	Content
Right to participate in the general meeting	A participant has the right to attend the meeting, discuss agenda items, and vote
Right to vote	The number of votes is usually connected to the size of the share, unless otherwise provided by the charter
Right to initiate consideration of issues	A participant may seek the inclusion of significant issues in the corporate agenda
Right to participate in the formation of the company’s bodies	Through the general meeting, participants elect or appoint the executive body, supervisory board, audit bodies, if such bodies are provided
Right to influence amendments to the charter	Amendment of the charter is among the most important corporate decisions

Governance rights are of special importance because through them a participant exercises control over the fate of invested capital. At the same time, the legislation allows the charter to establish a special procedure for adopting decisions, including the need for a qualified majority or unanimity on certain issues.

Right to Information

One of the fundamental rights of a participant is the right to receive information on the company’s activities and to review its financial statements and other documents.

The right to information has not only a technical, but also a protective significance. Without access to information, a participant cannot:

• assess the financial condition of the company;
• verify the good faith of the executive body;
• identify transactions involving a conflict of interest;
• prepare for the general meeting;
• protect his/her/its rights in court;
• make a decision on selling the share, withdrawing from the company, or bringing claims against other participants.

The right to information is especially important for minority participants who do not control the executive body and do not have direct access to the company’s current business activities.

From a practical point of view, it is advisable to define the following in detail in the charter of the LLC:

Issue	Recommended regulation in the charter
Which documents are provided to a participant	Charter, foundation agreement, accounting reports, minutes of meetings, major contracts, information on indebtedness
Term for providing information	For example, 5–10 business days from receipt of the request
Form of provision	Paper copy, electronic copy, review at the company’s office
Costs	The company may charge only within the costs of making copies
Restrictions	Trade secrets may be protected, but a participant may not be fully deprived of the right to information

 

Right to Participate in the Distribution of Profit

An LLC participant has the right to participate in the distribution of the company’s profit. This property right is one of the main purposes of participation in a commercial organization.

Profit is distributed among participants, as a rule, in proportion to their shares, unless otherwise provided by the charter or law. However, the right to profit does not mean an automatic right to demand payment of dividends at any time. For the right to receive distributed profit to arise, a relevant decision of the authorized body of the company is required.

The right to profit includes several legal elements:

Element	Content
Right to participate in the adoption of a decision on profit distribution	Exercised through the general meeting of participants
Right to receive part of the profit	Arises after a decision on distribution is adopted
Right to demand payment	If a decision has been adopted but the company does not pay the amount due
Right to challenge unlawful profit distribution	For example, if profit is distributed in violation of shares or to the detriment of creditors

 

Right to Dispose of a Share

A participant has the right to transfer his/her/its share or part thereof to one or several participants of the company or to third parties in accordance with the procedure established by law and the charter.

This right is of substantial importance because a share in an LLC is a property asset. It may be sold, gifted, inherited, contributed as an investment, transferred to a legal successor, or pledged.

However, unlike shares of a joint-stock company, a share in an LLC is not a freely circulating instrument. The Law preserves the closed model of the company and protects participants from the undesirable entry of third parties.

The main restrictions on the circulation of a share are:

Restriction	Content
Pre-emptive purchase right	Participants of the company have a pre-emptive right to acquire the share before third parties
Possibility to prohibit transfer to third parties	The charter may restrict or prohibit alienation of a share to third parties
Requirement for consent of the company or participants	The charter may provide for the need to obtain consent
State registration of transfer of the share	The right to the share transfers after an entry is made in the Unified State Register of Business Entities
Restriction on an unpaid share	Until full payment, the share may be alienated only in the paid-up part

Of special importance is the rule that a person who has acquired 50 percent or more of the share in the charter fund is obliged to offer minority participants to sell their shares to him/her/it at market value. This mechanism is aimed at protecting minority participants in the event of a change of corporate control.

Right to Withdraw from the Company

A participant has the right to withdraw from the company regardless of the consent of other participants, if this is provided by law and the foundation documents.

The right of withdrawal is an important means of protecting a participant in a closed corporation. In the event of a corporate conflict, a participant may not have a real opportunity to sell the share to a third party. Therefore, the right of withdrawal allows the participant to terminate participation in the company and receive the value of the share.

However, the right of withdrawal must be balanced with the interests of the company and creditors. Mass or sudden withdrawal of participants may worsen the financial condition of the company. Therefore, the procedure for withdrawal, settlement terms, methodology for determining the actual value of the share, and consequences of withdrawal must be clearly regulated in the charter.

It is recommended to provide in the charter:

Issue	Practical significance
Form of withdrawal application	Eliminates disputes regarding the validity of the expression of will
Date of withdrawal	Important for calculating the value of the share
Methodology for share valuation	Reduces the risk of corporate disputes
Term for payment of the share value	Protects the interests of the withdrawing participant
Possibility of payment in property	Useful for the company in case of lack of funds
Restrictions in case of insolvency	Protects the company’s creditors

 

Right to a Liquidation Quota

Upon liquidation of the company, a participant has the right to receive part of the property remaining after settlements with creditors, or the value of the corresponding part of the property.

This right is a residual property right. It arises only after the creditors’ claims have been satisfied. Therefore, participants may not claim the company’s property before the complete settlement of the company’s obligations.

The right to a liquidation quota confirms the corporate nature of the share: a participant is not the owner of the company’s property, but has an obligatory corporate right to part of the property upon liquidation.

Right to Conclude Corporate Agreements

The new Law directly provides for the right of founders and participants to conclude corporate agreements in the manner established by the Civil Code of the Republic of Uzbekistan.

A corporate agreement is an instrument for private-law adjustment of corporate relations. It allows participants to agree on the procedure for exercising their rights, including:

• voting in a certain manner;
• coordinating positions on key issues;
• refraining from selling a share;
• selling a share upon the occurrence of certain circumstances;
• ensuring a balance between majority and minority participants;
• providing mechanisms for resolving deadlock situations;
• regulating the procedure for financing the company;
• establishing veto rights on strategic issues.

A corporate agreement is especially important for joint ventures, family companies, startups, investment projects, and companies with equal distribution of shares, for example 50/50.

Protective Rights of Participants

The Law provides special protective mechanisms for company participants. One such mechanism is the right of participants collectively holding at least 10 percent of the charter fund to demand, through court proceedings, the exclusion of a participant who fails to perform his/her/its obligations or whose actions or inaction obstruct the company’s activities.

This right is of great importance in corporate conflicts. It allows the company to be protected from a participant who:

• does not make a contribution;
• blocks the adoption of decisions;
• abuses voting rights;
• discloses confidential information;
• obstructs the activities of the executive body;
• commits actions to the detriment of the company;
• effectively paralyzes corporate governance.

However, exclusion of a participant is an extreme measure of corporate liability. The court must establish the materiality of the violation and its impact on the company’s activities.

Obligations of LLC Participants

The obligations of LLC participants are less numerous than their rights, but they are of key importance for the stability of the company.

The main obligations of participants are:

No.	Obligation	Content	Legal significance
1	Make a contribution	A participant is obliged to make a contribution in the procedure, amount, manner, and terms provided by law and the foundation documents	Forms the property base of the company
2	Notify of changes in their data	A participant must inform the company of changes in location, postal address, telephone, and email	Ensures proper corporate communication
3	Not disclose confidential information	A participant is obliged to maintain the confidentiality of information on the company’s activities	Protects the commercial interests of the company
4	Comply with the charter and foundation documents	Arises from the general nature of corporate participation	Ensures the stability of corporate order
5	Not abuse corporate rights	A participant’s rights must not violate the rights and legitimate interests of other participants	Protects the company from bad-faith behavior
6	Bear the consequences of non-payment of the contribution	In case of non-payment of the contribution, restrictions, liability, and exclusion from the company may apply	Disciplines participants

 

Obligation to Make a Contribution

The obligation to make a contribution is the main property obligation of an LLC participant.

A contribution may be made in money, securities, things, property rights, or other alienable rights having monetary value.

The Law establishes that each participant must fully make his/her/its contribution within the term determined by the foundation documents, but no later than one year from the date of state registration of the company.

Failure to make a contribution may entail the following consequences:

Violation	Possible consequences
The contribution is not fully made	The participant bears the risk of liability within the unpaid part
The contribution is not made within the established term	The company may reduce the charter fund or take other measures
Failure to make the contribution obstructs the company’s activities	The participant may be excluded by court order
An unpaid share is alienated	The share may be transferred only in the paid-up part

It is especially important that a participant’s contribution is confirmed by a relevant certificate issued by the company. This has evidentiary significance in disputes regarding the size of the share, payment of the contribution, and voting rights.

Obligation to Notify the Company of Changes in Data

A participant is obliged to notify the company of changes in his/her/its data, including:

• location or postal address;
• telephone number;
• email address.

At first glance, this obligation seems technical, but it has substantial corporate significance. Notices of meetings, corporate decisions, offers to sell a share, requests, and other legally significant communications are sent to a participant using the specified data.

If a participant has not notified the company of changes in data, he/she/it bears the risk of non-receipt of notices. Therefore, it is advisable to directly state in the charter that communications sent to the participant’s last known address are deemed delivered.

Obligation Not to Disclose Confidential Information

An LLC participant has access to the company’s internal information. Therefore, the Law imposes on him/her/it the obligation not to disclose confidential information about the company’s activities.

Such information may include:

Type of information	Examples
Financial information	Reports, profit, losses, indebtedness, tax information
Commercial information	Clients, suppliers, prices, discounts, commercial terms
Production information	Technologies, formulas, technical solutions
Contractual information	Contract terms, negotiation positions
Corporate information	Internal disputes, reorganization plans, transactions with shares
Personal data	Data of employees, clients, representatives of counterparties

To strengthen the protection of the company, it is recommended to include in the charter and corporate agreement a detailed confidentiality provision, including:

• definition of confidential information;
• duration of the obligation;
• prohibition on transferring information to competitors;
• liability for disclosure;
• obligation to compensate losses;
• contractual penalty;
• procedure for access to documents;
• exceptions for disclosure of information at the request of a court, state bodies, or auditors.

Limits on the Exercise of Rights by Participants

The Law directly establishes that the exercise of rights by participants must not violate the rights and legitimate interests of other participants.

This provision is of fundamental importance. It introduces into corporate law the category of good faith and the prohibition of abuse of rights.

Examples of abuse of corporate rights:

Situation	Possible qualification
A participant systematically blocks decisions without a reasonable cause	Abuse of voting rights
A participant requests an excessive volume of documents in order to paralyze the company’s work	Bad-faith use of the right to information
A participant discloses information to competitors	Breach of confidentiality obligation
A majority participant adopts decisions exclusively in his/her/its own favor	Violation of minority rights
A participant obstructs registration of changes	Corporate bad-faith conduct
A participant does not make a contribution but demands the full scope of rights	Violation of the balance of rights and obligations

Thus, an LLC participant must exercise his/her/its rights reasonably, in good faith, and in accordance with the purpose of those rights.

Balance of Rights of Majority and Minority Participants

One of the central issues of corporate law is the balance between majority and minority participants.

A majority participant has factual control over the company, but may not use such control to prejudice the minority. A minority participant, in turn, must not use his/her/its rights solely to block the company’s activities.

Rights of a Majority Participant

Right	Risk of abuse
Form management bodies	Appointment of a dependent director
Determine the company’s strategy	Ignoring the interests of the minority
Adopt decisions by majority vote	Asset stripping, unfavorable transactions
Increase the charter fund	Dilution of the minority participant’s share

 

Rights of a Minority Participant

Right	Protective significance
Receive information	Control over the company’s activities
Challenge decisions	Protection against unlawful actions of the majority
Demand the exclusion of a violating participant, if holding 10% of shares	Protection of the company from a harmful participant
Use the pre-emptive right to purchase a share	Protection against the entry of undesirable third parties
Receive an offer to sell the share when another person acquires 50% or more	Protection in case of change of control

 

Corporate Conflict Between Participants

The new Law separately addresses the situation where irreconcilable disagreements arise between participants, making it impossible to reach agreement on issues of company management.

Such a situation is especially typical for companies with equal shares, for example 50/50. If participants cannot adopt decisions on key issues, the company’s activities may be effectively paralyzed.

Possible ways to resolve a deadlock situation:

Mechanism	Content
Judicial resolution of the dispute	Applied if other methods have not produced results
Mediation	Possible if provided by the foundation documents
Arbitration court	Possible if there is an arbitration clause
Corporate agreement	May provide in advance the procedure for overcoming a deadlock
Purchase and sale mechanism	One participant buys out the share of the other
Deadlock resolution mechanisms	Contractual mechanisms for buyout of a share in a deadlock situation
Appointment of an independent director	Used in companies with equal shares
Veto on key issues	Protects the strategic interests of participants

In practice, it is important to include such mechanisms in the charter or corporate agreement in advance, before a conflict arises.

Liability of LLC Participants

Although an LLC is based on the principle of limited liability, a participant is not exempt from all legal risks.

Possible types of liability of a participant:

Ground	Type of liability
Non-payment of contribution	Liability within the unpaid part of the contribution
Causing losses to the company	Civil liability
Bringing the company to insolvency through unlawful actions	Subsidiary liability
Disclosure of confidential information	Compensation of losses, contractual penalty
Breach of a corporate agreement	Contractual liability
Obstruction of the company’s activities	Possibility of judicial exclusion
Abuse of right	Denial of judicial protection, recovery of losses

Subsidiary liability is of particular importance. If a participant who has the ability to give binding instructions to the company or actually determine its actions brought the company to insolvency through unlawful actions, he/she/it may be liable for the obligations of the company if the company’s property is insufficient.

Role of the Charter in Regulating the Rights and Obligations of Participants

The charter of an LLC is the main internal corporate document of the company. The new Law directly requires that the charter include information on the rights and obligations of participants.

The charter may specify and expand regulation of the following issues:

Issue	What should preferably be provided
Rights of participants	Detailed procedure for participation in meetings, voting, receiving information
Obligations of participants	Confidentiality, notifications, making contributions, non-compete
Procedure for alienation of a share	Pre-emptive right, consent of participants, prohibition on sale to third parties
Procedure for withdrawal	Application, date of withdrawal, calculation of share value
Liability	Penalty, losses, exclusion of a participant
Conflicts	Mediation, arbitration court, mechanisms for purchase and sale of shares
Deadlock situation	Mechanisms for resolving deadlock situations
Information rights	Terms and procedure for providing documents
Confidentiality	List of protected information
Minority protection	Veto, qualified majority, consent on key transactions

A well-prepared charter reduces the risk of corporate conflicts and allows the company to function predictably.