Establishing business in Kazakhstan through LLP (Part 1)

By Wang Jihong and Liu Ying, Zhong Lun Law Firm
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The China-Central Asia Summit, held in Xi’an from 18-19 May, was the first in-person summit among heads of the six countries since China’s establishment of diplomatic relations with Central Asia 31 years ago. It signals the beginning of a new era of comprehensive co-operation with the five Central Asian countries.

Notably, the “permanent comprehensive strategic partnership” between Kazakhstan and China is exceptional, offering vast prospects for Chinese enterprises to engage in projects in the oil-rich Central Asian republic.

This series of articles details the basic company types in Kazakhstan, focusing on the most common and widely adopted corporate form: the limited liability partnership (LLP).

Wang Jihong, Zhong Lun Law Firm
Wang Jihong
Senior Counsel
Zhong Lun Law Firm

MAIN COMPANY TYPES

Main legal provisions governing corporate legal relations in Kazakhstan include:

  • The Civil Code
  • Entrepreneurial Code
  • Law on Partnerships with Limited and Additional Liability
  • Law on Economic Partnerships
  • Law on Joint Stock Companies

Business can be carried on by establishing business partnerships, joint stock companies or production co-operatives.

Business partnerships can take the following forms:

  • Limited Liability Partnership (LLP)
  • Additional Liability Partnership (ALP)
  • General Partnership (GP)
  • Limited Partnership (LP)

Joint stock companies are a distinct type of entity and are not classified as business partnerships.

Pursuant to the Entrepreneurial Code, enterprises are categorised as small, medium or large based on factors such as number of employees and average annual revenue. Requirements relating to minimum registered capital, taxes, terms of employment contracts and such vary depending on the enterprise’s size.

The monthly calculation index is a measurement unit used in legal provisions and unit of accounting for taxation and other payable fiscal levies specified by the Ministry of Finance. This is revised annually in light of changes in state fiscal policy and the population’s income level, and is published in the state budget.

LIMITED LIABILITY PARTNERSHIP

The LLP is the most common and widely adopted legal organisational form. Companies invested in and established by Chinese enterprises to develop new energy projects and mining development project companies acquired by them are usually LLPs.

An LLP is established by one or more founder shareholders, who can be individuals or legal entities, with no limit on the number of shareholders. The shareholders bear limited liability for debts of the company only to the extent of their capital contributions. An LLP can have a single shareholder, but a one-person LLP cannot be the shareholder of another one-person LLP.

Liu Ying, Zhong Lun Law Firm
Liu Ying
Partner
Zhong Lun Law Firm

FOUNDATION AGREEMENT

The primary corporate documents of an LLP are its articles of association and foundation agreement.

A foundation agreement is mandatory for LLPs with two or more shareholders. Under Kazakhstan law, the concept of a “shareholders’ agreement” does not exist, but shareholders of an LLP can use a shareholders’ agreement at their own discretion, as long as its provisions do not contradict those of the foundation agreement.

If a new shareholder joins the company, he or she is required to sign an admittance agreement to the foundation agreement or, in the case of a single-shareholder LLP, the new shareholder is required to sign the agreement on accession to the foundation agreement.

MINIMUM REGISTERED CAPITAL

With respect to minimum registered capital requirements, the registered capital of a small enterprise may be zero. If it is zero, the shareholder’s equity is determined based on the foundation agreement, but the shareholder will be recommended to invest a certain amount as the registered capital.

The minimum registered capital for a medium or large enterprise is 100 times the monthly calculation index, which is about USD650.

It is important to note that the minimum registered capital requirement specified in law is a multiple of the monthly calculation index, which is in Kazakhstani tenge (KZT) currency and varies each year.

Therefore, to determine the exact registered capital amount, it is crucial to first establish the applicable amount when registering an enterprise to avoid non-compliance of the registered capital amount.

For example, the monthly calculation index was KZT3,063 (USD6.80) for 2022 and 3,450 tenge for 2023. Although the difference in conversion to US dollars is minimal, it can lead to legal distinctions, and rectifying it later may involve complex procedures.

Additionally, it is important to avoid discrepancy in the registered capital amount arising due to the exchange rate.

For example, if a company reports to its parent company using renminbi as the currency unit, but registers its capital in US dollars or the local currency overseas, remitting the amount in renminbi approved by the parent company could lead to a discrepancy between the registered capital amount and recorded amount, particularly during periods of significant exchange rate volatility.

This could draw regulatory attention and require a series of remedial measures and explanations, rather than a simple payment adjustment.

CORPORATE CAPITAL SUBSCRIPTION

Unlike China’s registered capital subscription system, after a company is registered in Kazakhstan all shareholders are required to make actual capital contributions within the timeframe determined by the shareholders’ meeting.

This timeframe cannot exceed one year from registration of the LLP. Failure to punctually pay the capital contributions could become grounds for termination of the LLP. Additionally, shareholders who have not fully contributed their capital will be jointly liable for the company’s debts within the value range of the outstanding contributions.

In the next article of this series, the authors will continue to explore the governance structure of LLPs, providing insights and ideas on how to conduct corporate governance when investing in local companies.

Wang Jihong is a senior counsel and Liu Ying is a partner at Zhong Lun Law Firm

Zhong Lun Law Firm

22-31/F, South Tower of CP Center

20 Jin He East Avenue

Beijing 100020, China

Tel: +86 10 5957 2288

Fax: +86 10 6568 1022

E-mail:

wangjihong@zhonglun.com

liuying@zhonglun.com

www.zhonglun.com


Read the related article here:


Establishing business in Kazakhstan via LLPs (Part 2)

This article provides investors with a detailed overview of the governance structure of Kazakhstan LLPs, including their composition and the authority of each level, as well as specific design ideas


For more stories about establishing businesses, visit law.asia.

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