Previously in this series, the authors discussed requirements for establishing a limited liability partnership (LLP) in Kazakhstan, including number of shareholders, key company documents, registered capital, and payment obligations (see China Business Law Journal, volume 14, issue 6: Establishing business in Kazakhstan through LLP (Part 1)).
In this article, the authors delve further into establishing the LLP’s governance structure.
Governance structure
Senior Counsel
Zhong Lun Law Firm
The governance structure of a Kazakhstani LLP typically comprises two levels: (1) the supreme body, namely the general meeting or sole shareholder; and (2) the executive body (collegial or sole).
In addition to these two management levels, an LLP may also set a supervisory board and audit commission (auditor).
Officers of an LLP are members of the executive body or those performing functions of the executive body, as well as members of the supervisory board.
The executive body represents the LLP in its dealings with third parties. In most cases, shareholders opt for a sole executive body, usually a general director.
However, for LLPs with foreign investors as shareholders, the establishment of a collegial executive body is becoming more common.
Any individual, including foreigners, can become a member of a collegial executive body or become a sole executive body. However, it is important to note that if a foreign natural person is appointed as the general director of the LLP, they need to obtain: (1) a taxpayer identification number (TIN); and (2) a work permit (with certain exceptions).
The authorities of each executive body of the LLP, as well as its decision-making and operational processes on behalf of the company, are determined by the Law on Partnerships with Limited and Additional Liability (law on LLP), other Kazakhstani laws, and the company’s articles of association.
Governance authorities
Paralegal
Zhong Lun Law Firm
Authorities of the general meeting or sole shareholder. The articles of association determine the authorities of the general meeting in an LLP in accordance with the law on LLP. Accordingly, exclusive authorities of the general meeting include:
- Amending the articles of association, including changes to the registered capital, company address and company name, or approving a new version of the articles of association;
- Establishing the executive body and terminating its authority in advance, deciding to transfer the company or its assets to a trustee for management, and determining the conditions for such transfer;
- Setting the supervisory board and/or audit committee (auditor) and terminating their authorities in advance, approving the reports and conclusions of the company’s audit committee (auditor);
- Approving financial reports and distribution of net profits;
- Approving internal regulations, the procedure for their adoption and other documents governing the company’s internal activities, except for those documents, according to the articles of association, requiring the exercise of authority by other bodies of the company;
- Deciding on the company’s participation in other companies and non-profit organisations;
- Deciding on the restructuring or liquidation of the company;
- Appointing a liquidation committee and approving the balance sheet after liquidation;
- According to article 34 of the law on LLP, deciding on the company’s compulsory purchase of a shareholder’s shares;
- Deciding to pledge all of the company’s property;
- Deciding on capital increase in accordance with article 39 of the law on LLP;
- Approving the procedures and timing for providing operational information to the company’s shareholders or third-party purchasers; and
- Approving decisions to conduct a relevant transaction or series of transactions that may result in property transfer (or possible transfer), where the book value of such property reaches 51% or more of the company’s total assets.
Resolutions regarding the above-mentioned items (1), (7), (9), and (10) must be passed by a 75% majority of shareholders present at the meeting, except for cases where the articles of association require a higher voting ratio or unanimous consent of all shareholders.
Other matters are passed by simple majority resolutions, except when the articles of association require a higher voting ratio.
Authorities of the executive body. Specific authorities for the executive body are not prescribed by Kazakhstan law. Neither is the required voting proportion for executive body resolutions.
Decision-making matters and procedures are determined by the company’s articles of association and other internal regulatory documents approved by the general meeting.
Matters outlined in the LLP law, articles of association or other internal regulatory documents approved by the general meeting that do not fall within the scope of authority of the general meeting or supervisory board are under the purview of the company’s executive body.
However, regardless of how the articles of association of an LLP define the scope of authority for the general meeting, it has the right to review any matters related to the company’s activities.
Executive body options
Considering the regulations and also practical experience, the authors present the following options for an LLP executive body structure for investors to consider:
- Sole general director. Company resolutions are made solely by the general director, with the option to specify limitations on his or her exercise of authority in the articles of association.
- General director + management board. Both the general director and the management board operate in parallel. The management board, led by the chairperson, decides which resolutions should be made by the general director alone, and which should be collectively decided by the board. However, the general director may also serve as chairperson of the board.
- Management board. The management board, led by the chairperson, collectively makes all resolutions, which are passed according to the approved procedure (usually, each member holds one voting right). In case of disputes or deadlocks, the chairperson casts the deciding vote.
- Directorate (non-collegial executive body). Authorities of each officer are delineated, with all financial matters decided solely by the chief financial officer and operational issues handled by the general director alone.
Wang Jihong is a senior counsel and Chen Haobi is a paralegal at 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
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Read the related article here:
Establishing business in Kazakhstan through LLP (Part 1)
With the deepening strategic relationship between China and Kazakhstan, opportunities for Chinese companies to participate in projects in the oil-rich Central Asian republic are increasing
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