FORM AND CONTENT
WHY SHOULD ALL PAYMENT SYSTEMS IN THE REPUBLIC OF UZBEKISTAN BECOME JOINT-STOCK COMPANIES AND WHAT CHANGES ARE TAKING PLACE INSIDE COMPANIES IT WILL ENTAIL
One of the important news of December was the Decree of the President of the Republic of Uzbekistan No.PP-381 dated 11/30/2023, which, among other measures, obliges all payment organizations and payment system operators to switch to the form of a joint-stock company, as well as to increase the capital to 50 billion sums for operators and up to 10 billion sums for payment organizations by July 1, 2024 (with the following increase up to 20 billion soums by July 1, 2025).
The tasks, functions and powers in the field of regulation and development of electronic commerce are transferred to the National Agency for Promising Projects (NAACP), which is quite logical, since the NAACP has been regulating the capital market since September within the framework of the implementation of legislation on joint- stock companies.
What are the reasons for such changes? There is no exact answer, but we note that the changes coincided with recent news about attempts and facts fraud through various applications and payment services. Perhaps subsequent investigations and analysis showed an insufficient level of reliability of internal control, the presence of a gap in the corporate governance system, etc. A logical solution in such a situation, in addition to the introduction of regulatory mechanisms for the operations themselves, could be a change in the organizational and legal form to one that provides additional levels control and transparency.
In general, regulators in Uzbekistan, and throughout the world, and in any industry, are always aimed at consolidation We see this in the domestic banking and insurance market. Now it's the turn of the payment organizations. The need to increase the amount of capital and additional obligations to comply with the shareholder legislation will require them to expand teams and increased costs, which may push companies to merge, attract third-party investments, and in case of failure, perhaps even close down.
What awaits the company when it switches to the form of a joint- stock company? If we single out one, the main aspect, it is, of course, the disclosure of information. It was precisely greater transparency that could be an argument when making a decision. Joint-stock companies are required to disclose financial statements on a quarterly basis, as well as more than a hundred other significant facts about their activities.
At least the regulator and the client will be able to see which companies have sufficient resources, who is having problems, and where the situation has already reached such proportions that it cannot even be "hidden" in the accounting balance sheet. For example, it is the monthly publication of data on problem loans (NPL) of banks by The Central Bank has helped many attentive users to anticipate the problems of individual credit institutions that later lost their licenses.
But for many owners of races-it can be called a "red rag" — everyone notes the criticality and commercial secrecy of such information. It is difficult to argue with this. However, I would point out two interesting factors.
The first. Disclosure of financial and other information increases the value of the company in the field of long-term relationships with creditors and investors. If in the future the company decides to attract external investments due to a lack of minimal capital or, conversely, due to rapid growth and the need for rapid development, then a large and high-quality database of disclosed information will significantly increase investor confidence. They will be confident that they will be able to receive the necessary information on time and their rights will be protected.
The second. So far the disclosure is based on quarterly reports prepared by the NBU, and includes only two forms with figures without any comments, it is quite difficult to understand anything other than very large-scale changes in the dynamics of the company's development or its position relative to other market participants.
The rest of the disclosure forms are important, but not so critical, and most companies probably won't even face the need to fill them out. For example, if the company is developing steadily without switching to a new one at the level of the organization, it is unlikely that it needs to open branches, obtain new licenses, or even change its location. Of the critical ones, I would note the necessity of disclosing information about large transactions and obtaining loans, where counter-partners need to be shown, which may initially cause management outrage.
Another important factor is the change in the decision -making system: companies will have an additional level of management - the Supervisory Board. In public companies, this body is the link between management and shareholders and monitors the overall development of the company, directing and controlling management.
The shareholders themselves may be appointed to the Supervisory Board, and its the composition may repeat the composition of the general meeting. But it will be characterized by a more expeditious decision-making process: the Board can meet at any time, and to hold a general meeting of shareholders, it takes time to organize and notify the parties. It will be more difficult for companies where the shareholder also performs direct management functions: such companies will have to think about changing the management structure to avoid a conflict of interest between the shareholder, Advice and management.
Among the important factors, we note that now transactions in the amount of more than 15% of the capital (the amount of net assets, the first section of the balance sheet liability) will have a special status - their adoption will become the prerogative of the Supervisory Board, and transactions in the amount of more than 50% of the capital will pass into the exclusive powers of the meeting shareholders.
Thus, the company's management is somewhat limited in its powers and in carrying out certain operations (including, for example, loans, loans, purchase and sale of property, etc.) will require better planning and coordinated work with lawyers. Neglecting the procedures for signing a deal threatens its subsequent cancellation and personal liability for damage.
Even though decisions are made more quickly in the LLC (after all, the contract can sometimes be signed retroactively or all documents can be prepared overnight), the introduction of the Supervisory Board into the decision-making chain has great advantages for improving the quality of the company management. The obvious advantages are additional control over the performance of operational indicators (the Council can and should require management to implement the goals of the business plan, explain the reasons for deviations, etc.), reduced risks due to the concentration of management powers,- The presence of a consulting body in decision—making, etc. A less obvious plus is the appearance of the possibility of attracting additional competencies to the company through the correct composition of the Board.
There is a concept of the Council's competence matrix - ideally, professionals who have in— depth expertise and knowledge in various fields necessary for the development of the company gathered there. For example, I think that payment organizations will need people with knowledge of the banking and financial sectors to develop operational activities, technical specialists to control the development IT infrastructure, lawyers and specialists in corporate governance to control and contribute to the development of the company's management and reporting system, experienced auditors for implementation reporting standards according to If previously the company did not have the opportunity to attract such specialists permanently, now they can participate in the Board and share knowledge and experience during regular meetings, although not daily.
Returning to the issue of operational difficulties, it should be noted: if information disclosure can be dealt with by hiring a specialist, and a properly organized Supervisory Board only improves the quality of management, then the process of organizing a general meeting of shareholders remains a rather serious disadvantage of the form of a joint-stock company compared to an LLC.
This process takes about twenty- five days since the announcement of its convocation must be made at least 21 days before the meeting, and before that, the Supervisory Board must decide on its conduct, approve the agenda and the form of the bulletin, as well as the closing dates of the register (i.e. e. the list of shareholders) to notify and hold the meeting.
For all decisions that may require their mandatory agreement with shareholders to be well planned, prepared, and properly organized, the coordinated work of all services of the company is needed, including operational managers, the procurement and finance department, accounting, legal services, etc.
It is worth making a reservation that for a joint- stock companies with a single shareholder (when one person, legal or natural, resident or non-resident, owns 100% of all shares), the situation does not change, but there is no need to make announcements and you can hold a meeting at any time. Of the total list of payment organizations, more than twenty currently have only one founder.
As for the transformation process itself, it is not something very complicated, but, of course, it has its peculiarities and requires the accumulation of experience. I would recommend that companies plan for the entire process for about two months. Now the main contact will not be the service A single window of public services, and the market regulator represented by NAPPA, where companies will need to register resolutions and share issue prospectuses, and then transfer them to the Central Depository and investment intermediaries for registration of transactions.
In general, the process of working with the exchange infrastructure opens up many opportunities and amenities for shareholders: the purchase and sale of shares does not require additional re-registration, a bunch of contracts and can be carried out by pressing a button from the phone, while the completeness of calculations and execution of the transaction are guaranteed. The sale of shares on the stock exchange market is not subject to income tax, i.e. investors have an excellent opportunity to use the accumulated profits and receive transparent and reliable confirmation of the sources of capital formation.
The logic of the state is also half-obvious here: to sell shares on the stock exchange at a good price, the company must be as successful and efficient as possible, as well as have low risks. This means that it is necessary to declare income as transparently as possible, pay taxes, pay salaries, voice and explain development plans, report on the process and execution of the business plan, etc. In such a situation, the state will receive more benefits at the level of corporate taxes and taxes from employee income, not to mention the accelerated GDP growth and improvement of the business climate in the country.
This is also important because many companies are now thinking about finding minority or strategic investors, merging with other players, or selling businesses due to a lack of funds to increase capital. Out of almost five dozen companies, about three-quarters do not have a sufficient size of authorized capital today, according to the data of the USRPO. Given the likely additional factors in the form of regulation of the industry by the Central Bank, which may limit the sources and form of capital increase with funds from non-offshore companies, the search for investors and gaining public status can be an important
opportunity.
If we think about future changes, it seems that companies that will be able to raise capital, establish a management and reporting system, and interest investors in transparency and growth prospects, may also think about obtaining online banking licenses and increasing competition in this segment. And those companies that can do this without attracting third-party investors will probably join the group of private joint-stock companies that ask the regulator to differentiate the requirements of the legislation in terms of public and not- the public status of joint-stock companies.
Summing up, we can say that there is nothing terrible in transferring to the form of a joint-stock company, and with the correct organization of the process, a lot of benefits can be derived from this by setting up and re- checking all internal processes, positions, and relationships. Lack of experience at the initial stage is compensated by the search for consultants and specialists, and long- term benefits in terms of flexibility in attracting public investments or selling shares are difficult to provide in the form of a limited liability company.
One of the important news of December was the Decree of the President of the Republic of Uzbekistan No.PP-381 dated 11/30/2023, which, among other measures, obliges all payment organizations and payment system operators to switch to the form of a joint-stock company, as well as to increase the capital to 50 billion sums for operators and up to 10 billion sums for payment organizations by July 1, 2024 (with the following increase up to 20 billion soums by July 1, 2025).
The tasks, functions and powers in the field of regulation and development of electronic commerce are transferred to the National Agency for Promising Projects (NAACP), which is quite logical, since the NAACP has been regulating the capital market since September within the framework of the implementation of legislation on joint- stock companies.
What are the reasons for such changes? There is no exact answer, but we note that the changes coincided with recent news about attempts and facts fraud through various applications and payment services. Perhaps subsequent investigations and analysis showed an insufficient level of reliability of internal control, the presence of a gap in the corporate governance system, etc. A logical solution in such a situation, in addition to the introduction of regulatory mechanisms for the operations themselves, could be a change in the organizational and legal form to one that provides additional levels control and transparency.
In general, regulators in Uzbekistan, and throughout the world, and in any industry, are always aimed at consolidation We see this in the domestic banking and insurance market. Now it's the turn of the payment organizations. The need to increase the amount of capital and additional obligations to comply with the shareholder legislation will require them to expand teams and increased costs, which may push companies to merge, attract third-party investments, and in case of failure, perhaps even close down.
What awaits the company when it switches to the form of a joint- stock company? If we single out one, the main aspect, it is, of course, the disclosure of information. It was precisely greater transparency that could be an argument when making a decision. Joint-stock companies are required to disclose financial statements on a quarterly basis, as well as more than a hundred other significant facts about their activities.
At least the regulator and the client will be able to see which companies have sufficient resources, who is having problems, and where the situation has already reached such proportions that it cannot even be "hidden" in the accounting balance sheet. For example, it is the monthly publication of data on problem loans (NPL) of banks by The Central Bank has helped many attentive users to anticipate the problems of individual credit institutions that later lost their licenses.
But for many owners of races-it can be called a "red rag" — everyone notes the criticality and commercial secrecy of such information. It is difficult to argue with this. However, I would point out two interesting factors.
The first. Disclosure of financial and other information increases the value of the company in the field of long-term relationships with creditors and investors. If in the future the company decides to attract external investments due to a lack of minimal capital or, conversely, due to rapid growth and the need for rapid development, then a large and high-quality database of disclosed information will significantly increase investor confidence. They will be confident that they will be able to receive the necessary information on time and their rights will be protected.
The second. So far the disclosure is based on quarterly reports prepared by the NBU, and includes only two forms with figures without any comments, it is quite difficult to understand anything other than very large-scale changes in the dynamics of the company's development or its position relative to other market participants.
The rest of the disclosure forms are important, but not so critical, and most companies probably won't even face the need to fill them out. For example, if the company is developing steadily without switching to a new one at the level of the organization, it is unlikely that it needs to open branches, obtain new licenses, or even change its location. Of the critical ones, I would note the necessity of disclosing information about large transactions and obtaining loans, where counter-partners need to be shown, which may initially cause management outrage.
Another important factor is the change in the decision -making system: companies will have an additional level of management - the Supervisory Board. In public companies, this body is the link between management and shareholders and monitors the overall development of the company, directing and controlling management.
The shareholders themselves may be appointed to the Supervisory Board, and its the composition may repeat the composition of the general meeting. But it will be characterized by a more expeditious decision-making process: the Board can meet at any time, and to hold a general meeting of shareholders, it takes time to organize and notify the parties. It will be more difficult for companies where the shareholder also performs direct management functions: such companies will have to think about changing the management structure to avoid a conflict of interest between the shareholder, Advice and management.
Among the important factors, we note that now transactions in the amount of more than 15% of the capital (the amount of net assets, the first section of the balance sheet liability) will have a special status - their adoption will become the prerogative of the Supervisory Board, and transactions in the amount of more than 50% of the capital will pass into the exclusive powers of the meeting shareholders.
Thus, the company's management is somewhat limited in its powers and in carrying out certain operations (including, for example, loans, loans, purchase and sale of property, etc.) will require better planning and coordinated work with lawyers. Neglecting the procedures for signing a deal threatens its subsequent cancellation and personal liability for damage.
Even though decisions are made more quickly in the LLC (after all, the contract can sometimes be signed retroactively or all documents can be prepared overnight), the introduction of the Supervisory Board into the decision-making chain has great advantages for improving the quality of the company management. The obvious advantages are additional control over the performance of operational indicators (the Council can and should require management to implement the goals of the business plan, explain the reasons for deviations, etc.), reduced risks due to the concentration of management powers,- The presence of a consulting body in decision—making, etc. A less obvious plus is the appearance of the possibility of attracting additional competencies to the company through the correct composition of the Board.
There is a concept of the Council's competence matrix - ideally, professionals who have in— depth expertise and knowledge in various fields necessary for the development of the company gathered there. For example, I think that payment organizations will need people with knowledge of the banking and financial sectors to develop operational activities, technical specialists to control the development IT infrastructure, lawyers and specialists in corporate governance to control and contribute to the development of the company's management and reporting system, experienced auditors for implementation reporting standards according to If previously the company did not have the opportunity to attract such specialists permanently, now they can participate in the Board and share knowledge and experience during regular meetings, although not daily.
Returning to the issue of operational difficulties, it should be noted: if information disclosure can be dealt with by hiring a specialist, and a properly organized Supervisory Board only improves the quality of management, then the process of organizing a general meeting of shareholders remains a rather serious disadvantage of the form of a joint-stock company compared to an LLC.
This process takes about twenty- five days since the announcement of its convocation must be made at least 21 days before the meeting, and before that, the Supervisory Board must decide on its conduct, approve the agenda and the form of the bulletin, as well as the closing dates of the register (i.e. e. the list of shareholders) to notify and hold the meeting.
For all decisions that may require their mandatory agreement with shareholders to be well planned, prepared, and properly organized, the coordinated work of all services of the company is needed, including operational managers, the procurement and finance department, accounting, legal services, etc.
It is worth making a reservation that for a joint- stock companies with a single shareholder (when one person, legal or natural, resident or non-resident, owns 100% of all shares), the situation does not change, but there is no need to make announcements and you can hold a meeting at any time. Of the total list of payment organizations, more than twenty currently have only one founder.
As for the transformation process itself, it is not something very complicated, but, of course, it has its peculiarities and requires the accumulation of experience. I would recommend that companies plan for the entire process for about two months. Now the main contact will not be the service A single window of public services, and the market regulator represented by NAPPA, where companies will need to register resolutions and share issue prospectuses, and then transfer them to the Central Depository and investment intermediaries for registration of transactions.
In general, the process of working with the exchange infrastructure opens up many opportunities and amenities for shareholders: the purchase and sale of shares does not require additional re-registration, a bunch of contracts and can be carried out by pressing a button from the phone, while the completeness of calculations and execution of the transaction are guaranteed. The sale of shares on the stock exchange market is not subject to income tax, i.e. investors have an excellent opportunity to use the accumulated profits and receive transparent and reliable confirmation of the sources of capital formation.
The logic of the state is also half-obvious here: to sell shares on the stock exchange at a good price, the company must be as successful and efficient as possible, as well as have low risks. This means that it is necessary to declare income as transparently as possible, pay taxes, pay salaries, voice and explain development plans, report on the process and execution of the business plan, etc. In such a situation, the state will receive more benefits at the level of corporate taxes and taxes from employee income, not to mention the accelerated GDP growth and improvement of the business climate in the country.
This is also important because many companies are now thinking about finding minority or strategic investors, merging with other players, or selling businesses due to a lack of funds to increase capital. Out of almost five dozen companies, about three-quarters do not have a sufficient size of authorized capital today, according to the data of the USRPO. Given the likely additional factors in the form of regulation of the industry by the Central Bank, which may limit the sources and form of capital increase with funds from non-offshore companies, the search for investors and gaining public status can be an important
opportunity.
If we think about future changes, it seems that companies that will be able to raise capital, establish a management and reporting system, and interest investors in transparency and growth prospects, may also think about obtaining online banking licenses and increasing competition in this segment. And those companies that can do this without attracting third-party investors will probably join the group of private joint-stock companies that ask the regulator to differentiate the requirements of the legislation in terms of public and not- the public status of joint-stock companies.
Summing up, we can say that there is nothing terrible in transferring to the form of a joint-stock company, and with the correct organization of the process, a lot of benefits can be derived from this by setting up and re- checking all internal processes, positions, and relationships. Lack of experience at the initial stage is compensated by the search for consultants and specialists, and long- term benefits in terms of flexibility in attracting public investments or selling shares are difficult to provide in the form of a limited liability company.
