The Limited Liability Partnership in Kazakhstan:
Corporate Identity and Shareholder Rights
By Ian Millard, Barrister
[also Admitted to the Bars of New York and Anguilla]
[Note: This article is published on the understanding
that the writer is not legally qualified in Kazakhstan.
Specialist advice should be taken before acting by
reason of that which may be contained hereinafter.
Russian terms and words are given in Latin
transliteration and should ideally be re-transliterated
into the Cyrillic]
1. For Western large investors engaged in operations
in Kazakhstan, whether in the oil and gas sector, mining
sector or any other major industrial sector, the Limited
Liability Company has become the corporate vehicle
of choice, particularly since the law changed in 1998.
2. In Kazakhstan, entities with separate legal identity
(i.e. going beyond the status of Representative Office
or Branch) are:
(a) Full Partnerships;
(b) Kommandit Partnerships;
(c) Limited Liability Partnerships (LLP's);
(d) Partnerships with Additional Liability;
(e) Open and Closed Joint Stock Companies.
3. Focussing on LLP's, the LLP is, in effect a
"company" (in English usage) or "corporation"
(in American usage) rather than a "partnership"
even with limited liability, as understood in most
American jurisdictions or (since 2001) in England.
For example, in England, an LLP has to have two
or more partners, just like a traditional unlimited
liability partnership, whereas the Kazakhstan LLP
can have a sole "partner". It is generally accepted
in Kazakhstan that LLP's, indeed all "business
partnerships", are, in the English and American
usages, companies or corporations.
4. In Russian the term "LLP" is "TOO", meaning
"Tovarichestvo c Ogrannichnuu Otvetstvenuu" ,
the first word coming from the root "tovarishch"
meaning "comrade" and literally meaning
"comradeship", "fellowship" or, finally,
"partnership". The Oxford Russian English
Dictionary also gives secondary meanings as
"association" or "company" although both of
these English words are usually translated
into Russian via other Russian words (that is,
"obshchestvo" and "kompaniya"). There is
another word in Russian which is used less
formally for "partnership" and which is closer
to the English meaning (and probably taken
from the English before the upheavals
following 1917), that word being "partnyorstvo".
5. Advantages of using the LLP form in
Kazakhstan, rather than another corporate form
such as a joint stock company, revolve around
the question of control. Under the Law of the
Republic of Kazakhstan "On Partnerships with
Limited Liability", adopted in April 1998, the
supreme governing authority of an LLP is the
General Meeting of Participants, which has
exclusive authority. There may also be a
supervizory board or council, which may set
general policy for the LLP; another part of an
LLP will be the managerial or executive board,
which will operate the LLP's affairs day-to-day.
6. The capital of the LLP is divided into
"ownership interests" by percentage. The
"partners", i.e. "participants" bear liability
only according to their share of the capital
registered upon foundation. The minimum
capital for a Kazakhstan LLP presently stands
at "100 monthly index factors" which is an
administrative method of mathematically
calculating escalating costs and fees etc
without having to pass new laws or
regulations. 100 monthly index factors
presently stands or until very recently in 2003
stood) at approximately USD 570
(five hundred and seventy US Dollars).
7. Apart from the obvious advantages of control
and low liability (since a sole partner's financial
liability might be as little as the minimum capital,
that is, less than USD 600), another point of
favour is that the ownership interests in the
LLP do not themselves have to be registered
with the authorities, so if the ownership interests
change, there is no actual need to amend the
Charter (in Russian, "Ustav") except for reasons
of clarity inter partes.
8. The supreme authority in a Kazakhstan LLP is
the General Meeting of Participants and, no
matter what the Charter may say about the
function of the Supervizory Board or Executive
Organ, it seems that the better view is that the
rights of the Participants (i.e. those "owning"
a percentage of the LLP) remain unaffected.
This would seem to be the right view under
English law, that is, that if a company document
purports to take away rights of shareholders
given to them under the general law of companies,
then the law of companies should prevail and not
the corporate document, unless the general law
contains provision for such curtailment of rights.
This view is supported by the situation as applies
to Kazakhstan joint stock companies (Law of the
Republic of Kazakhstan "On Joint Stock
Companies", of 10 July 1998), which is that
shareholder rights given by the law cited cannot
be restricted, neither by resolutions or decisions
of management bodies, nor by the Charter or
amendments thereto.
9. Kazakhstan law is as yet not sufficiently
sophisticated to exactly delineate the above
rights of LLP participants beyond the list of
rights given in paragraph 13, below; it would
of course be a mistake to attempt to
understand rights given under Kazakhstan
law by reference to concepts of usage or
contractual construction current in England
or any other jurisdiction.
10. The general view of Kazakhstan legal
commentators publicly available concerning
Kazakhstan LLP's, is that their tax treatment
by other jurisdictions, such as the UK or USA,
is unclear and little tested in court in those
other taxing jurisdictions. However, the rights
of participants in a Kazakhstan LLP are to
share of capital and not income as such. It is
true that Kazakhstan law states that participants
in an LLP have a right to receive income from
the business; however, this right is probably
better understood as being an undefined right
to "gains" in general rather than "income" in
an English-jurisdictional term of art sense, as
used in English revenue or tax law.
11. As to any relationship of the interests of a
participant in a KZ LLP to those attaching to a
shareholder in a joint stock company in England
or Kazakhstan, in terms of "classes" of "shares",
the interest of a shareholder in a Kazakhstan joint
stock company consists, inter alia, of his being
the holder of one of the following classes of shares:
i. Common shares;
ii. Non-voting preference shares;
iii. Voting preference shares.
13. The rights of "participants" of a partnership with
limited liability (LLP) are not defined in that way and
are laid out as follows:
i. the right to participate in management as provided
for by law or under the Charter of the LLP;
ii. the right to "obtain business";
iii. the right to receive income from the business
[but see paragraph 10 above] ;
iv. the right to receive a share of net assets following
liquidation of the LLP;
v. the right to alienate their interest.
14. The ownership interest of an Kazakhstan LLP
participant cannot be equated with that attaching to any
particular "class" of shareholder rights in England, or
even in Kazakhstan. Investors in Kazakhstan Limited
Liability Partnerships need to be aware, before they
invest, of the flexible advantages but also the
limitations of their rights in respect of this form of
corporate organization.
Ian Millard spent a year in Kazakhstan in 1996-97,
on contract for two major UK and US law firms. He is
currently practising as a Barrister from Rougemont
Chambers, 8 Colleton Crescent, Exeter EX2 4DG.
where he advises on commercial and civil law,
including matters involving the Former Soviet Union.
***********
The Offshore Company:
Disclosure Requirements in Anguilla,
the Bahamas, the BVI and Panama
By Ian Millard, Barrister
[also Admitted to the Bars of New York and Anguilla]
_____________________________________________
_____________________________________________
Contact:
ianrmillard@hotmail.com
copyright 2004, Ian R Millard, Barrister, Rougemont Chambers, Exeter, Devon UK EX2 4DG
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