Corporate Law in Kazakhstan

By Nicolas Zambrana, Zarina

Omaralieva and Togzhan Ahmed-Zaki
• Corporations in KZ are regulated by the Civil
Code and other laws

• Corporate law in KZ regulates the creation,

operation and termination of legal entities

• Legal entities differ by the level of personal

involvement of the founders in the activities
 A Legal entity in KZ (art 33 Cciv)
• Has property separate from the founders’ property

• Has a right of business management or right of

operational management (State companies)

• Is liable for its obligations with this property

• Can in its own name acquire and make use of property

and personal non-property rights and obligations

• Can be a plaintiff and a defendant in court

• Has independent balance-sheet or budget

• Has a seal with its name

 Legal entities are divided into…

• For Profit organizations

And

• Not for profit organizations

 For-profit organizations

• Their purpose is to make profits

• Profits may be distributed among the

participants

• Types of profit organizations (art. 34 (1,2) CC):

– state enterprise
– business partnership
– joint stock company
– production cooperative society
 Not for-profit organizations
• Its main aim is not to make profits

• The income is not distributed between the participants

• Types of non-profit organizations (art. 34 (1,3) CC):

– Institution
– Public foundation
– Non-commercial joint-stock company
– Religious association
– Consumer cooperative society
– Social fund
– Other types
(The list is not exclusive)
 Legal entity

Profit Non-profit
(Commercial) (Non-commercial)

State enterprise Institution

On the basis of business authority

Public association

On the basis of operational management

Joint Stock Company

Business Partnerships

General Partnership Consumers Cooperative Society

Kommandit Partnership Public Fund

Limited Liability Partnership Religious association

Partnership with Additional Liability Association (Union)

Joint Stock Company Other forms

Production Cooperative Society

 Organs of a legal entity
• A legal entity acquires civil rights and assumes
civil obligations exclusively through its organs

• If the procedures of making decisions are

followed by these organs then they are
considered to be the expression of the will of
the legal entity
 Organs of Legal Entities

1. Officers and Managers

2. Independent Director / Board of Directors / Committees
3. Board’s Secretary
4. General Shareholder´s Meeting
 OBLIGATORY
CORPORATE ORGANS

Executive Body General Board of Directors

(officers & Shareholders Single Director
managers) Meeting Committees

Art. 33, Statute on Corporations

 Foundation documents of a
Legal Entity
• A legal entity acts on the basis of its Charter and its Foundation
Agreement

• The charter lists

– Goals and object of activity

– Name and address

– Procedure of formation of its bodies and their powers

– Conditions of reorganization and liquidation

• The charter has to be made public

 Foundation Agreement
• Regulates the activities of the founders in the creation
of a legal entity and the object of the legal entity

• Defines the ways in which the founders contribute

assets to the legal entity

• May be considered a trade secret

• If there is only one founder, the foundation

agreement is not required
 Representative office of the legal entity

• It does not have legal personality

• Its main objective is the protection, gathering of information and representation of its legal entity

• It is not entitled to conduct business activities

• Its liability is borne by the legal entity it represents

•
• Has all functions of a Representative Office and also carries out commercial activities

• The branch’s operations are limited to the types of activity of the parent company
Branch of the legal entity
• Both Branches and Representative Offices are not legal entities and do not require the formation of individual charter capital
 Business partnership (art. 58 (1) CCiv)

• Commercial organization whose charter capital is

divided into shares owned by the founders

• The property of the business partnership is

created on the basis of the contributions of the
founders as well as the property that is produced
or acquired by the business partnership during
the period of its activity
 Types of business partnerships
• general partnership: its participants (general partners), in the case of
insufficiency of the property of the partnership, bear the joint liability for
the obligations of the partnership with all their property (art. 63 CC)

• kommandit partnership : besides one or more general partners there are

also one or more participants with limited liability; only general partners
can manage the business activity of the partnership (art.72 CC)

• limited liability partnership : its partners bear the risk of losses

associated with the activities of the partnership within the limits of the
contributions made by themselves (art.77 CC)

• partnership with additional liability : its participants are liable for the
obligations of the partnership with their contributions to the charter fund
and in the case those are insufficient – additionally with the property that
belongs to them in the amount proportionate to the contributions made by
them (art.84 CC)
•

• The most popular and useful form of doing business in KZ

Limited Liability Partnership
• Common form for wholly owned subsidiaries

• Participants of an LLP are not liable for its obligations and bear the risk of loss associated with th e activities of the LLP to the extent of their contrib utions

• Exceptions to limited liability in the case o f bankruptcy occurring as a result of a the founder´s actions, when participant may be secondarily liable

• Law of the Rep ublic of Kazakhstan on Limited Liability Partnerships and Additional Liability Partnerships o f April 22 , 1998 No. 220 -1
 CHARTER CAPITAL OF LLP
• LLP issues participatory interests, not shares subject to securities regulations

• LLP requires a specific amount of charter capital in money (or in kind) in the
national currency (tenge)

• Minimum amount of charter capital: 100 Tenge (for small businesses); 100
monthly calculation index (MCI) (for medium and large businesses) (as of
February 2015, 1 MCI = 1 982 tenge )

• The period for payment of the charter capital of a Partnership is specified by

its participants in the foundation documents, but shall not exceed one year
from the date of registration of the Partnership

• Participants enjoy pre-emptive rights for participatory interests offered for

sale by a withdrawing participant

• It cannot be owned by a sole business participant which is itself 100% owned

by another shareholder
 Management structure of LLPs

• General Meeting of Participants (or the sole participant):

supreme governing body. It can be convened…

• - As an ordinary general meeting (annually)

• - As an extraordinary general meeting (every time it is

necessary)

• Supervisory Board and Audit Committee (supervising and

controlling roles) (sometimes)
 Management structure of LLPs

• Executive body:

• - Collegial executive body (Board of Directors,

Management Board, etc.)

• - Sole executive body (Director, Manager, etc.)

• - Members of the Executive body are elected by

the General Meeting for a term not exceeding 5 years.
 Joint stock company
• It is a legal entity, which issues shares to attract capital (art.3 (1) of the
Law of RKZ on JSC)

• Its participants (shareholders) bear the risk of losses associated with the
activities of company within the limits of the shares that belong to them

• Exceptions to limited liability in the case of bankruptcy occurring as a

result of a the founder´s actions, when participant may be secondarily
liable

• Regulated by Law of the Republic of Kazakhstan dated 13 May 2003

No.415 on Joint Stock Companies

• A Joint Stock Company may be both for profit or not for profit
 Joint stock company
• A Joint Stock Company (other than a not for profit
organisation) has the right to issue shares, bonds and
other types of securities.

• The charter capital of a JSC is formed by its founders

through the payment for the shares at their nominal
value, and by investors - at the price of offering

• The minimum size of the charter capital of a Company

(paid in money or in kind) is 50,000 MCI
 Joint stock company
• Different share types provide different rights to their owners

• Common shares allow the holder to participate on any

issues put to the vote; receive dividends if the JSC generates
net income or a share of assets following its liquidation and
also to make a pre-emptive purchase of common shares

• Holders of preferred shares exercise the above rights ahead

of holders of common shares as well as the pre-emptive
purchase of preferred shares. They do not give voting right

• The holder of a golden share may veto company decisions

• A JSC is able to issue shares, bonds, options and derivative

securities
 Joint stock company
• Subject to stricter reporting requirements and
more complex corporate governance
structures than an LLP

• Obliged to publish consolidated or non-

consolidated (if it has no affiliates) financial
statements

• Financial audits are obligatory in some cases

 Main bodies of JSC: General
Shareholders Meeting
• Supreme governing body of the JSC

• Held annually

• Makes decisions on…

• Management of the Company

• Types of shares to be issued

• Formation and determination of the powers of other bodies of the

Company

• Approval of the financial statement

• Procedure for distribution of net income and dividend payments

Main Bodies of JSC: the Board of Directors
• Managing body responsible for the general management of
the Company

• Determination of the Company’s direction in activity

• Offering and redemption of shares

• Issue of other securities (bonds, debentures, notes)

• Formation and determination of the powers of the Executive

Body and Corporate Secretary

• Approval of documents governing the internal activities of the

Company, etc.
 Main bodies of JSC: Managers
• Collegial or individual as determined by the Charter

• Supervises ongoing operation of JSC

• Authorised to make decisions on any issue of the Company not

referred to the competence of other bodies and officers of the
Company, pursuant to the decisions of the General Meeting of
Shareholders and Board of Directors

• Other bodies may be specified in the Charter of the Company

Production cooperative society
For profit voluntary association of no less
than two members which is based on
personal labor contribution and association
by the members of their property
contributions (shares) (art.96 CCiv)

Regulated by the Law on PCS of 5 October 1995

 Consortium
• Temporary association in which legal entities combine certain
resources and coordinate efforts to solve specific business issues

• They are not a separate legal entities

• The revenue and expenses of a consortium are passed through to the

participants

• All of the participants in a consortium should register in Kazakhstan for

legal and tax purposes

• One of the participants in a consortium normally serves as the

operator (manager) of the consortium
How does a legal entity cease to exist?

Liquidation:

• Voluntary decision of the owner (or of

the competent body of the legal
entity)

• Compulsory (by court decision)

 Liquidation by court decision
(art. 49 CCiv)

• Bankruptcy

• Invalidity of the registration of the legal entity due to

irreparable violations of legislation on the registration

• Activity contradicts the charter aims of the legal entity

• Activity without licence or a prohibited activity

• Other cases provided for by the legislation

Process of liquidation of a legal entity
1. Informing the Tax authorities and the Territorial Unit of the Ministry
of Justice where entity was registered

2. Creation of liquidation commission

3. Liquidation commission publishes the information about the

liquidation of the legal entity and the period of claims of debts (no
less than two months)

4. Intermediate liquidation balance

5. Selling of the property of the legal entity in a case of insufficiency of

money to meet the claims of the creditors

6. Final liquidation balance

7. Registration of liquidation in the state register (art. 50 CC)

How can a legal entity cease to exist?

2.Reorganization of a legal entity

• Merger
• A+B = C
• Joining
• A+B = A
• Division
• A/2=B+C
• Separation
• A-B -> A+B
• Transformation
• A -> B
(art. 45 CC, arts. 82-86 Law on JSC)
 Some statutes on corporations
• Statute on corporations
• http://www.clgc.kz/doc/akt01.pdf
• Statute on Business Partnerships:
• http://www.adilet.gov.kz/ru/node/7576
• Statute on LLP:
• http://online.zakon.kz/Document/doc_id=100
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