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THE ROLE OF THE CHARTER CAPITAL IN CLAIMS SETTLEMENT OF THE CREDITORS OF LIMITED LIABILITY COMPANIES

THE ROLE OF THE CHARTER CAPITAL IN CLAIMS SETTLEMENT OF THE CREDITORS OF LIMITED LIABILITY COMPANIES
Sevada Sargsyan, student

Kh. Abovyan Armenian State Pedagogical University, Armenia

Conference participant

The article refers to the role of the authorized capital which operates in creditors’ claims satisfaction affairs of limited liability companies. The category of charter capital of a company forms its material base, which consists of the deposit costs of its participants, paid in process of establishment. Charter capital is considered to be the base for company's activities. In the process of establishment of LLC the capital has its unique place , which is formed with the help of the deposits’ contribution by the founders (founder). It helps to make protection mechanisms for company’s participants’ claim settlement. By analyses of the legislation, the author comes to final conclusion, that minimal size of charter capital will not suffice to satisfy the company's participants' claims settlement. Assuming the starting and guarantee functions of charter capital as a basis, which regular activities can be provided only by defining the amount of charter capital adopted legally, and possible consequences, the author find necessary to re-establish the minimum amount of charter capital for avoiding possible consequences. Taking into account the fact, the author presents shortcomings and gaps concerning to authorized capital, as well as within the legal settlement according to which suggested for their solution.

Limited liability companies (henceforth Company or LLC) for the first time were legally adopted in Germany as an organisational legal form of an economic company, after which were legally adopted and applied in different European countries[1]. In 1998 LLC has been adopted also by the civil code of RA[2], and later by the law of RA "On Limited liability companies" henceforth Law)[3].

As we know, charter capital of a company forms its material base, which consists of the deposit costs of its participants. Charter capital is considered to be the base for company's activities. In doctrinal sources, there are different approaches concerning the charter capital. Particularly according to the viewpoint of M.G. Lontsev[4], the company's charter capital is the indicator of the effectiveness of its economic activities, which is applied to economic companies. In the establishment of LLC, its unique place has the deposits contribution in the company's charter capital by the founders (henceforth the founder). The contribution implies the formation of charter capital. The order and time for deposit contribution are determined by the contract of the company's foundation. But the third paragraph of Article 30 of the RA law ''On Limited liability companies'' defines, that at the moment of its registration at least half of charter capital of the company must be paid. The first paragraph of the same article defines, that each founder of the company is obliged to make his contribution completely to the charter capital of the company by defined exact date of the foundation contract, which cannot exceed one year, starting from the moment of the company's official registration.

The official registration of LLC is implemented by the eighth article of the Law, according to which company is considered to be created at the moment of its state registration. The law apparently links, that provision to the RA law[5] ''On the state registration of legal entities'' adopted on April 3, 2001. Charter capital's functions of LLC are notable. In legal literature various scientific thesis have been suggested about charter capital's functions of LLC. The theoretical literature suggests the following functions of charter capital: starting, guarantee and participation (the resolution function of the participation department).

The meaning of the starting function of charter capital of LLC is that it decides the minimum amount of the company's property. That property is considered to be the material means, forming the base of company's activities, which represent the base for implementing company's primary activities.

The meaning of the guarantee function of charter capital of LLC is, that charter capital is considered the minimum amount of the company's property, the presence of which is already a fact about being guaranteed, and it is called to satisfy company's possible creditors' claims settlement.

The participation function of LLC charter capital is assumed to allow to decide the participation degree of participants in company's activities.

RA law ''On limited liability companies'' adopted in 2001 defines, that the minimum amount provided for charter capital. The minimum amount equals to 50 (fifty) thousand AMD. The law in force with the amendments, made in 2012[6] leaving its role and meaning out of account requires no minimum amount of charter capital, which causes mess.

For example, in Russian theory the problem of the minimum amount of charter capital is favoured with attention, where is offered to increase the amount of charter capital so that it could be possible to implement the starting and guarantee functions.

For example, according to S.A. Makarov[7] such amount of sum can be three hundred-five hundredfold of the minimum salary, and Yu. Yershova offers thousand fold of the minimum salary [8].

Considering the doctrinal approaches towards the role of Charter capital, it becomes clear that not defining the minimum amount of charter capital assumes that it can implement neither the starting nor the guarantee functions. We find necessary the definition of minimum amount of charter capital higher than fiftyfold of minimum salary. Adoption of such approach by law will favour to the due implementation of the mentioned functions of charter capital.

As it was mentioned charter capital is called to satisfy company's creditors' claims settlement. Therefore, after the liquidation of the company, charter capital should be distributed among the company's participants. And in the case when the minimum amount is not defined for charter capital, it can have consequences that after the liquidation of the company the sum left in charter capital will not suffice to satisfy the creditors' claims settlement. That is to say, if we consider a situation, that it is possible to establish LLC even with 1 (one) dram, which is already a fact, then after the liquidation of the company charter capital will not suffice to satisfy the creditors' demands.

Not defining the minimum amount of charter capital contradicts also RA law ''On bankruptcy''[9] . Particularly RA law ''On bankruptcy'' Article 70 point 3 defines ''after acclaiming the liquidation decision of a debtor legal entity, the manager implements sale of a debtor's property in manner prescribed by this law''.

Referring to nowadays legal regulation, let us suppose that the debtor legal entity implemented the property sale, the amount of money received, does not suffice to satisfy the debtors' claims settlement. In that case the problem will be solved referring to the rules of Article 84 of the “Law on Bankruptcy”, that is to say, will be formed a queue, and the sum will be distributed proportionally, but in this case, the minimum size of the capital of LLC, suppose 1 dram, paid in the process of establishment of company, will not suffice to satisfy fully and normally the company's participants' claims settlement. The existing legal regulation directly contradicts also the guarantee function of charter capital, which is the guarantee of the contributed amounts of money of the depositors in charter capital, which in this case actually is not implemented.

Assuming the starting and guarantee functions of charter capital as a basis, which regular activities can be provided only by defining the amount of charter capital adopted legally, and possible consequences, we find it necessary to re-establish the minimum amount of charter capital for avoiding possible consequences.

In accordance with this, we suggest to make an addition in RA law ''On limited liability companies'' Article 28 Point 1 second part with the following statement: ''The minimum amount of charter capital cannot be less than fiftyfold (50.000 AMD) of the minimum salary.''

Moreover, it should have an imperative essence. We think that adopting such approach will favour the formation of more progressive LLC in the economic field and will exclude the development of ''1 dram'' LLC into the economic system of the Republic of Armenia.

References:

1. V. Bergman, A.S. Komarov, Introduction to the basic concept of German commercial

 rights and economic organizations' rights. German law. P. 2, 1996

2. The Civil Code of the Republic of Armenia was adopted by the National Assembly on

May 5, 1998

3. RA law on limited liability companies was adopted on October 24, 2001

4. M.G. Iontsev Joint stock companies, the legal framework. Property relations. Protection of shareholders' rights. M., 2007

5. RA law about official registration of legal entities was adopted on June 11, 2004

6. S.A. Makarov, Limited Liability as the subject of civil rights. Dissertation of the candidate of jurisprudence, Saratov, 2004

7. I.V. Yershova, property and finance company. Legal regulation: Teaching Practical Guide. M., 1999

8. RA law ''On bankruptcy'' was adopted on December 25, 2006

 

 


  • [1] V. Bergman, A.S. Komarov, Introduction to the basic concept of German commercial rights and economic organizations' rights. German law. P. 2, 1996, page 13.
  • [2] The Civil Code of the Republic of Armenia was adopted by the National Assembly on May 5, 1998, RAOR 1998.08.10/17(50).
  • [3] RA law on limited liability companies was adopted on October 24, 2001, RAOR 2001.12.07/38(170) Article 910.
  • [4] M.G. Iontsev Joint stock companies, the legal framework. Property relations. Protection of shareholders' rights. M., 2007, page 29.
  • [5] RA law on state registration of legal entities was adopted on June 11, 2004, RAOR 2001.05018/14(146).
  • [6] RAOR 2009.02.04/7(673) Article 131.
  • [7] S.A. Makarov, Limited Liability as the subject of civil rights. Dissertation of the candidate of jurisprudence, Saratov, 2004, page 7-8.
  • [8] I.V. Yershova, property and finance company. Legal regulation: Teaching Practical Guide. M., 1999, page 60.
  • [9] RA law ''On bankruptcy'' was adopted on December 25, 2006, RAOR 2007.01.31/7(531)
Comments: 2

Marukyan Gayane Soso

The article refers to one of the most important issues in civil relations. The conclusions made by the author make the scientific world think over the problems existing in the sphere. The results can be successfuly used both in doctrine and in legal regulation sphere developement.

Zulfugarzade Teymur El'darovich

Весьма интересная статья представлена автором. Выводы и предложения, изложенные в работе, представляют интерес для развития страховых институтов и финансовой науки в целом.
Comments: 2

Marukyan Gayane Soso

The article refers to one of the most important issues in civil relations. The conclusions made by the author make the scientific world think over the problems existing in the sphere. The results can be successfuly used both in doctrine and in legal regulation sphere developement.

Zulfugarzade Teymur El'darovich

Весьма интересная статья представлена автором. Выводы и предложения, изложенные в работе, представляют интерес для развития страховых институтов и финансовой науки в целом.
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