AIFC versus National Legislation of the Republic of Kazakhstan: Incorporation and Registration of Legal Entities
(Information as of 13 October 2023)
Head of AEQUITAS branch in the AIFC, Head of Registrations,
Senior Associate, AEQUITAS Law Firm
Investors considering the possibility of launching their businesses in Kazakhstan have been increasingly focusing on the attractive conditions offered by the Astana International Financial Centre (the "AIFC").
Over 6 years of activities of the financial centre, more than 2,000 organizations have been successfully registered with the AIFC1. In most cases, investors opt for a "private company" (the "Private Company"), an organizational legal form of a newly established legal entity. As of today, there are 1,867 registered private companies.
As regards the number of registered legal entities set up in accordance with requirements of the national legislation, at the date of writing, there are 510,797 legal entities. The prevailing organizational legal form used among them is a limited liability partnership (the "Partnership")2.
We propose a comparative analysis of the process of incorporating and registering Partnerships and Private Companies.
AEQUITAS is one of Kazakhstan’s leading law firms acknowledged in the global legal services market. AEQUITAS, a Kazakh national law firm, was founded in 1993.For many years, authoritative legal guides, including Chambers & Partners, Legal 500, and Who’s Who Legal, are rating AEQUITAS and its partners and associates as the country’s most recommended.
AEQUITAS’s clients are companies active in the leading sectors of economy from more than 50 countries, including major international corporations, companies representing world famous brands, banks and financial institutions, most of them working with AEQUITAS for years.
AEQUITAS lawyers have been actively participating in the development and improvement of the most important legislative acts governing market relations and business activities in Kazakhstan, which allows the firm not only to keep abreast of potential amendments in legislation, but also to influence, to a certain extent, the making of the rules of the game.
|Concept. Selection of an organizational legal form||
Partnership is a partnership incorporated by one or several persons whose charter capital is divided into shares of specific amount as determined by the constituent documents. Participants of the Partnership are not liable for its obligations and bear the risk of losses in connection with the Partnership's activities up to the value of their contributions3.
Participants of the Partnership who have not paid the contributions to the charter capital in full bear joint and several liability for the Partnership's obligations within the value of unpaid part of each participant's contribution4.
Private Company is a limited liability company. Liability of a shareholder(s) is limited to the amount (if any) unpaid for the shares held by the shareholder(s)5.
The Private Company must have at least one shareholder. The shareholder's liability is limited to the amount of invested share capital.
At the same time, we believe that the following provisions of the civil legislation of Kazakhstan regarding vicarious liability of shareholders of the Private Company (as well as the participants of the Partnership) will apply to both the Partnership participants and shareholders of the Private Company:
If a legal entity is a participant of the Partnership or a shareholder in the Private Company, such legal entity will bear vicarious liability for the transactions entered into by the Partnership/Private Company to fulfil the instructions of the shareholder/participant (Article 94.2 of the Civil Code6);
In case of bankruptcy / false bankruptcy of the Partnership/Private Company through the fault of its participant / shareholder, the latter bears vicarious liability for its debts (Article 44.3 of the Civil Code).
|Selection of name||The company name must include the name of the Partnership and the words "limited liability partnership" or the abbreviation "LLP".||The company name must include the name of the company and the word "Limited" or the abbreviation "LTD". It is allowed to reserve a name at the stage of registration (subject to adequate registration period).|
The name of a legal entity must not duplicate in full or in part the names of legal entities registered in the Republic of Kazakhstan (Article 38 of the Civil Code).
|Selection of address||
The registered office (legal address) of the Partnership must be located within the Republic of Kazakhstan.
||The registered office of the Private Company must be within the boundaries of the AIFC. This must be a "physical office"7, a co-working space with a possibility to receive correspondence, or an office provided by a company providing legal address and mail receipt services.|
|No lease agreement or a letter of guarantee from the owner is required for the registration purposes.||It is necessary to enter into a preliminary lease agreement or obtain a letter of guarantee from the owner.|
According to Article 39.1 of the Civil Code, recognized as the registered office of a legal entity is the location of its permanent body, Such body is the executive body, which means that the head must be present at the Partnership's registered office.
According to the AIFC's clarifications, the head does not need to be permanently present at the registered address of the Private Company. However, if the Private Company's representative cannot be found at the specified address, and the AIFC makes several unsuccessful attempts to contact the company, the Strike-Off procedure may be applied (exclusion from the register).
At the same time, the head of the Private Company engaged in regulated activities must be present at the registered address of the company8.
The Partnerships normally have two-level management structure:
superior body is the general meeting of participants or the sole participant;
executive body (sole and/or collective).
The Private Companies normally have three-level management structure:
superior body is the general meeting of shareholders or the sole shareholder;
management body is the board of directors or a director;
executive body is the chief executive officer9.
|Partnerships may establish supervisory (e.g. Supervisory Board) and audit bodies (e.g. Audit Commission).||The AIFC's acts do not prohibit establishment of other bodies within the Private Company.|
|Appointment of Directors indicating the full names of the candidates||Not applicable.||To set up the Private Company at least one director (with indication of full name) must be selected and appointed. The CEO may combine the functions of a director all in one.|
|Appointment of the CEO indicating the full name||The head may be a citizen of the Republic of Kazakhstan or a foreign citizen.||The head may be a citizen of the Republic of Kazakhstan or a foreign citizen.|
||A foreigner needs an Individual Identification Number (IIN). Work permits are not required for the chief executive officers and their deputies in case of 100% foreign participation in the charter capital of the Partnership.||
A foreigner needs an Individual Identification Number (IIN). No work permit is required for all categories of employees10.
|A work visa is required in case of physical stay in Kazakhstan, except for the citizens of the EAEU member states.||A work visa is required in case of physical stay in Kazakhstan, except for the citizens of the EAEU member states.|
||The key powers of the management bodies, including the chief executive officer (executive body) of the Partnership, are provided for in the Civil Code of the Republic of Kazakhstan and the LLPs Law, and must be set out in the Partnership's charter.||The AIFC acts give no comprehensive definition to the term "CEO" (Chief Executive Officer). Therefore, it is advisable to determine in detail the full powers of this person in the Private Company's charter and appoint such person in accordance with the established procedure. This is a crucial necessity, especially with a view to extensive interaction with the governmental authorities and banking institutions, for which it is important to deal with an authorized person entitled to represent the company.|
|Company secretary (appointment and indication of the full name)||Not required.||Optional for the Private Companies (mandatory for public companies).|