UNCITRAL Legislative Guide on Limited Liability Enterprises (2021)
The UNCITRAL Legislative Guide on Limited Liability Enterprises (2021) is designed to assist legislators and policymakers in devising and regulating a simplified legal form for micro-, small and medium-sized enterprises (MSMEs) that can facilitate the formation and operation of MSMEs in the formal economy.
In the development of the Legislative Guide, UNCITRAL forged a consensus, considering good practices and principles on the creation or improvement of simplified business forms – both MSME-specific or otherwise – from diverse geographic regions and legal traditions, and ultimately compiling those which are international in their application.
As part of UNCITRAL texts series on micro, small and medium-sized enterprises (MSMEs), the text contributes to other UNCITRAL texts addressing the legal obstacles faced by MSMEs throughout their life cycle, such as the UNCITRAL Legislative Guide on Key Principles of a Business Registry (2019) and the Legislative Guide on Insolvency Law for Micro and Small Enterprises (2021).
MSMEs constitute the majority of businesses in most countries and play an important economic role. They contribute to job creation and preservation, supply chain development, entrepreneurship, innovation and the economic and social welfare of society. Despite this important role, MSMEs face several challenges that affect their performance and the capacity to develop. Unlike larger enterprises, MSMEs often lack the economies of scale to tap into new markets and expand business. As a result, they may miss out on opportunities to grow that are offered by globalization and economic integration (e.g. regional economic organizations). MSMEs may also suffer disproportionately from the impact of regulatory hurdles and often face difficulties in accessing credit through regulated financial systems, especially if they operate informally (i.e. they are not compliant with all mandatory requirements of the jurisdiction where they do business). For many MSMEs, traditional legal or regulatory requirements and the costs of formalization may raise entry barriers which outweigh their interest in formalizing. A simplified legal form for MSMEs attempts to lower entry barriers and facilitate the formalization and continued development and growth of MSMEs. A simplified legal form can also promote the economic inclusion of women and other entrepreneurs who may face unfavourable economic, cultural and social conditions.
Key features of the Legislative Guide
The Legislative Guide recommends the development of a simplified, dedicated legal regime that focuses on the needs of MSMEs, rather than the simplification of existing company law. The simplified legal form provides the MSME with a legal personality distinct from its members. This permits the MSME to acquire rights and assume obligations in its own name. Legal personality of the MSME results in the limited liability of its members as it ensures that they are not personally liable for the activities of the MSME solely by reason of being a member (even if the sole member) of that MSME. The Legislative Guide also recommends that domestic laws not impose any minimum capital requirements for the establishment of an MSME, both to facilitate MSME formation and because it is consistent with many legislative reforms.
The Legislative Guide also stresses the importance of the freedom of contract of members in establishing the internal governance of an MSME, which permits the members to tailor rights and obligations in a way that is consistent with the needs of smaller businesses. However, to ensure transparency and protect creditors and other third parties dealing with an MSME, the Legislative Guide includes certain provisions from which members may not derogate. Finally, to assist smaller or less-experienced MSME owners, the Guide includes several default rules that can fill gaps in the MSME internal governance and operation (e.g. rules on management structure, rights and obligations of the members, their contribution to the MSME and the dissolution of the MSME).
Impact of the Legislative Guide on the Sustainable Development Goals (SDGs)
The legislative regime proposed in the Legislative Guide contributes to the achievement of SDG 8.3 which, among other things, aims to encourage the formalization and growth of MSMEs.