Navigating the Roadmap: Steps for Payment Entities in Uzbekistan's Transformation

In response to the escalating demand from paytech entities engaged in the intricate process of joint-stock company transformation, Alkes Research finds itself at the nexus of heightened inquiries. In acknowledgment of this discernible interest, we are pleased to unveil a collaborative guide with Daryo — a meticulous roadmap thoughtfully designed to shepherd these enterprises through the labyrinthine contours of regulatory compliance.

Bekhruzbek Ochilov, Investment Banking Director at Alkes Research and a Professional Member of the Association of Governance, Risk & Compliance has designed this guide to help you navigate all these changes. As the proverbial curtain ascends, we delve into the multifaceted realm of financial regulation, spurred by the profound implications set forth by President’s Decree No. 381, unveiled on November 30, 2023.

This regulatory paradigm compels the transformation of payment systems and organizations into joint-stock entities, necessitating meticulous execution by the formidable deadline of July 1, 2024. Beyond the realm of procedural evolution, this initiative mandates a substantive amplification of authorized capital. Payment organizations are entrusted with the imperative task of elevating their capital to a minimum of UZS 10bn by mid-2024, further scaling to UZS 20bn by July 1, 2025. Concurrently, payment systems confront the challenge of attaining an impressive UZS 50bn by the same date.

The gravity of regulatory compliance looms large, underscored by the peril of license forfeiture, casting its shadow over 49 payment organizations and 12 payment systems. Within this cohort are industry titans such as PayMe, Oson, Click, and Humans’ UPay. As this formal exposition unfolds, it extends an invitation for you to immerse yourself in the unfolding saga of Joint Stock Company transformation—a narrative where meticulous planning and strategic acumen stand as imperatives for triumph.

1. Streamlined Transformation Process

The shift to a joint-stock entity involves three key steps: reorganization, issuance of shares, and placement of shares.

1. Reorganization initiates with the adoption of a decision on the transformation and the preparation of a new Company Charter and reorganization application. Within 30 days of this decision, requisite notices are disseminated to creditors and counterparties, and the reorganization documentation is submitted to the Public Services Center. Post-registration, the company proceeds to formulate and publish regulations governing the General Meeting of Shareholders, the Supervisory Board, the Executive Body, and the Audit Committee.
2. The step encompasses the issuance of shares. The company designates a shares issuance advisor, formulates a Decision on shares issuance, and submits the pertinent documents to the regulating body, the National Agency for Perspective Projects (NAPP). Following NAPP's registration of the shares issue, the company is obligated to disclose the information on its website and the Unified Corporate Information Portal. Simultaneously, the Central Securities Depository undertakes the creation of securities, assigns ISIN codes, establishes a share account, and transfers shares to the company's account. Subsequently, shareholders open brokerage and custody accounts with licensed broker-dealers, facilitating the transfer of shares.
3. The final step involves the placement of shares on the organized or unorganized market. Shareholders are mandated to fund the authorized share capital of the company for the issue amount corresponding to their shares before the allocation process commences.

III. Benefits of Joint Stock Company Status

The principal benefit of transitioning to a joint-stock company is the exemption from dividend tax until the culmination of 2028. This fiscal advantage may outweigh the associated costs for a majority of enterprises seeking public status. Furthermore, compliance with regulatory requirements not only enhances transparency and accountability but also instills investor confidence. Additional advantages encompass the provision of liquidity to shareholders through stock exchange transactions and the ability to offer equity-based incentives to employees, augmenting talent retention and attraction.

1. What are the costs of operating a Joint Stock Company?

Operating as a joint-stock company in Uzbekistan entails substantial costs, necessitating compliance with rigorous transparency standards. Non-banking joint-stock companies are mandated to publicly disclose financials quarterly, undergo annual audits, and report eight distinct corporate events. This heightened scrutiny often prompts companies to either hire specialized personnel or outsource corporate disclosures to brokerage firms. The latter is more prominent, given that there are over 600 joint-stock companies that exist in Uzbekistan, and less than 100 people in the country being licensed securities market professionals (data by MinFin as of 3rd of August 2023).  Annual audits, in particular, contribute to the overall expense of joint-stock company status. The combined impact of regulatory compliance, increased authorized share capital, and operational changes may pose challenges for paytech companies, although, at the same time, allow for better transparency and solvency.

1. General Recommendations for Payment Organizations

During the transformation of payment organizations from limited liability companies (LLCs) to joint-stock entities, adherence to the following recommendations is crucial:

• Ensure meticulous compliance with all legal requirements and regulations governing the transformation process.
• Update corporate documents, including articles of incorporation and bylaws, to accurately reflect the new structural framework.
• Disseminate comprehensive notifications to stakeholders, including shareholders, employees, and business partners, regarding impending changes.
• Consider seeking professional legal and financial advice to navigate the complexities of the transformation process seamlessly.
• In conclusion, given the unique circumstances surrounding each transformation, consultation with professionals is advisable to ensure a judicious and prosperous transition.

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