We have recently advised our Client, a sole proprietor of a business providing international transportation services, on the establishment of a limited liability company together with another entrepreneur as his partner.
Since one of the prospective partners was running a successful sole proprietorship in international transportation, the entrepreneurs wished to join forces and establish a joint business on a larger scale. The entrepreneurs’ choice was to establish a limited liability company, to which they would make a contribution in kind (i.e. a non-monetary contribution) in the form of a business, and thus, in their view, the company would hold a licence for international transportation. Well, nothing could be further from the truth. Why?
Unfortunately, a license for international transportation may only be transferred to a newly formed entity, as a result of the division, transformation or merger of an enterprise holding a license for international transportation.
Therefore, the question is whether the establishment of a limited liability company by the aforementioned prospective partners, according to their conception, will meet the statutory requirements. The prospective partners unanimously say: “Counsellor, after all, we are merging our businesses and so the license will also pass to the company.”
However, the establishment of a limited liability company by two partners making a contribution in kind in the form of a business does not constitute a merger under the provisions of the existing Traffic Law Act.
Therefore, what steps should be taken so that our Clients can enjoy the status of partners in a limited liability company as well as a transferred licence for international transportation? Firstly, each case should be addressed on its own merits, but in the analysed case, the best solution was to transform the sole proprietorship holding the licence for international transportation into a limited liability company, and then dispose of part of the shares to the other entrepreneur. In this way, both entrepreneurs are now able to enjoy the status of partners in a limited liability company, continue their transportation business and expand into the international market!
Please note that the simultaneous transformation of a sole proprietorship into a limited liability company and the transfer of the licence for international transportation reduces its duration to a maximum of 10 years, even if it was previously granted for 50 years.
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