Outbound investment to Kazakhstan: Doing Business in Kazakhstan: Establishing a Legal Presence

Branch/Representative Office

A legal presence in Kazakhstan can be established through opening a subdivision of a foreign company in a form of a representative office or branch, which is a not a legal entity under Kazakhstan law. They act on behalf of a parent company within limits defined by the latter. A representative office merely represents and protects the interests of its parent company and is not entitled to generate profit. A branch, in addition to representing the parent company's interests, may carry out all or a part of the parent company's activities, including those subject to licensing, and may generate profit.

The organizational legal forms of legal entities depend on what types of activities foreign investors and businessmen intend to carry out in Kazakhstan. Kazakhstan legislation provides for a number of forms for organizing business in Kazakhstan. The most common and effective forms of a legal entity are: (i) limited liability partnership and (ii) joint stock company.

A Limited Liability Partnership (LLP) is a corporate entity established by one or several individuals or legal entities, whether foreign or local, vested with its separate property, rights and liability. Participants of an LLP are not liable for its obligations and bear the risk of losses associated with the activities of the partnership only to the extent of the amount of their contributions into the LLP's charter capital, except in certain cases.

The minimum charter capital of an LLP must be not less than the equivalent of approximately US$1,000, divided into shares (participation interest), amounts of which are stipulated in the LLP's foundation documents.

An LLP is a commercial organization, whose objective is to carry out activities aimed at generation of profit and conducting any types of activities not contrary to Kazakhstan legislation, subject to obtaining a special license or permit where required. A list of activities subject to licensing is set forth in the Law On Licensing dated January 11 2007, and the procedures for obtaining certain types of licenses are regulated by a number of normative legal acts.

The LLP appears to be the most used form of making investments through either a subsidiary or a joint venture in Kazakhstan.

A Joint Stock Company (JSC) is another available form for a Kazakhstan company or a joint venture, which is a more complex type of a legal entity.

A JSC, public company, is a legal entity which issues shares to raise funds for carrying out its activities. A JSC is liable for its obligations to the extent of the value of its property. A capital charter of a JSC consists of founders' payments for shares at their par value and payments from investors for JSC's shares placed at a securities market. The minimum amount of the JSC's charter capital is equivalent of approximately US$482,500 to be paid by the founders within 30 days following state registration.

A JSC's supreme managing body is the general meeting of shareholders, which has the exclusive competence of deciding on the most vital aspects of the JSC's activities, including approval of “major transactions” (a transaction or a series of transactions for the amount of at least 25% of the total amount of the JSC's assets).

Disadvantages of a JSC compared to an LLP may include: (i) a higher amount of charter capital; (ii) a more complex corporate structure; (iii) a more complicated state registration procedure; (iv) stricter reporting requirements, as JSCs are subject to control and supervision of the Agency for Regulation and Supervision of Financial Market and Financial Organizations; (v) mandatory requirement to publish accounts; (vi) strict internal regulations to enter into major transactions; (vii) longer decision-making procedures; and (viii) special requirements for entering into interested-party transactions.

Legal entities and representative offices/branches must be registered with the Ministry of Justice or its territorial subdivisions. The procedure for state registration is carried out by the Ministry of Justice or its territorial subdivisions within 10 business days pursuant to the law.

Seeking competent legal advice with regard to advantages and disadvantages of certain forms available for establishing a representative office/branch or a legal entity in Kazakhstan is highly recommended with respect to a wide range of issues, including but not limited to, control and management of the established presence, intended activities, currency regulations, work permits, customs, and licensing of certain types of activities.