T. Kulteleev 10 burning questions to a lawyer about activities of private companies in the AIFC // Zakon.kz - 2025.01.27

(information valid as of 10 December 2024)

We continue a series of publications covering legal aspects of activities in the Astana International Financial Centre ("AIFC"). Our publications previously posted on zakon.kz:

• Specifics of setting up and registering companies in the AIFC; • Procedure for registration and licensing of private companies in the AIFC; • AIFC versus national legislation of the Republic of Kazakhstan; • 10 questions to a lawyer about registration of companies in the AIFC; • 10 questions to a lawyer about redomiciliation of companies to the AIFC; • 10 questions to a lawyer about a director and the CEO in the AIFC; • 10 questions to a lawyer about post-registration actions in the AIFC; • 10 questions to a lawyer about recent legislation amendments on the issues of migration and registration of legal entities in the Republic of Kazakhstan and the AIFC; and • Specifics of winding up, strike off and suspension of activities of companies in the AIFC.

This publication highlights the answers to 10 burning practical questions in the sphere of corporate, migration and currency regulation arising in the course of activities of private companies in the AIFC. This organizational legal form of legal entities is most commonly used in the AIFC. From 3,300 organizations registered in the AIFC, more than 3,000 entities are registered in the form of private companies. We additionally offer a comparison with regulation of similar issues as applied to activities of limited liability partnerships ("LLPs") as a dominant organizational legal from of legal entities in the Republic of Kazakhstan.

1. Does the "Russian doll" rule apply to participation of private companies in the share capital of LLPs?

It is a common fact that, according to the LLPs Law[1] , a "limited liability partnership may not have another economic partnership consisting of one person as its sole participant" (Article 10). This rule is set out in a manner not clear enough and, in practice, gives rise to different interpretation.

We are aware of various opinions on this issue of officials holding the position of the Minister of Justice at different times. In 2010, the Minister of Justice commented on this Article, stating that its provisions do not apply to foreign legal entities[2] . We are also aware of other (contrary to the above) opinions of the ministers on this issue, which change from time to time; however, this did not affect any practical aspects, and the registration authority always registered LLPs without regard to this rule. We believe that one of the reasons was that the registrar could not always see the founder structure from an abstract from the Trade Register or any other document on the founder.

However, starting 2023, the registration authority and the justice authority[3] started differently interpreting the said rule, prohibiting to set up the Russian doll companies. Now the registrar in the person of State Corporation "Government for Citizens" NJSC believes that this rule relates to all persons, including foreign.

To date, the opinion of the Minister of Justice of 2010 is disregarded, because such letters are not of regulatory nature. Although this rule has been effective since 1998, yet it is still unclear what must be done with the LLPs registered during the period when the opinion of the former Minister of Justice was in effect.

In light of the above, of great interest is the issue of a potential structure, under which LLP will have a private company consisting of one person as its sole participant. For example, a foreign investor sets up a private company, which, in turn, acquires any asset (e.g. in the form of LLP) in the Republic of Kazakhstan.

We applied to the Ministry of Justice for clarification of legislation, but did not receive a clear-cut answer. We have recently noticed that governmental authorities tend not to give clear and definite answers. The Ministry of Justice limited itself to quotation of Article 1.2 of the Economic Partnerships Law, stating that "…economic partnerships may be set up in the form of a full partnership, commandite partnership, limited liability partnership, additional liability partnership…" and confirmed that, according to Article 1.5) of the AIFC Constitutional Law[4] , "AIFC participants are the legal entities registered under the current laws of the AIFC and other legal entities accredited by the AIFC"[5] .

According to the existing practice, so far, employees of the registration authority have not refused to register/re-register LLPs with private companies composed of one person as their sole participants.

The AIFC acts regulating corporate issues are the Companies Regulations ("Regulations")[6] and the Companies Rules ("Rules")[7] .

None of the above acts provides for any restrictions on setting up of private companies, which have another legal entity composed of one person as a shareholder.

Thus, if an investor intends to structure its ownership using a private company in the AIFC, one may conclude that the AIFC laws allow doing this without any restrictions, providing flexible opportunities for ownership structuring, which makes it an attractive jurisdiction for investors wishing to optimize corporate structure subject to international standards.

2. Is it necessary for a foreigner to obtain a temporary residence permit or a С5 visa to set up a private company?

According to Article 4.1 of the AIFC Constitutional Law, the current AIFC laws are based on the Kazakhstan Constitution and composed of:

1. AIFC Constitutional Law;
2. AIFC acts issued by the AIFC bodies, which do not contradict the AIFC Constitutional Law; and
3. current legislation of Kazakhstan applied to the extent not regulated by the AIFC Constitutional Law and the AIFC acts.

The AIFC acts cover major part of relations arising between legal entities registered in the AIFC and other relevant persons relating to corporate, contractual, labor, and other issues.

At the same time, not all relations are regulated by the AIFC laws.

Thus, Article 7.4 of the AIFC Constitutional Law establishes as follows: "The terms of, and procedures for, entry into the Republic of Kazakhstan and leaving the Republic of Kazakhstan, for foreign nationals and stateless persons coming to the Republic of Kazakhstan to conduct activities in the AIFC, are as determined by the AIFC Bodies in coordination with relevant state authorities of the Republic of Kazakhstan".

With respect to migration issues, the AIFC bodies issued only the following acts:

• Qualifications necessary for employment in the AIFC; • Guidance on the conditions of stay of seconded foreign employees of AIFC participants; and • AIFC rules on keeping records.

Therefore, we believe that the acts of Kazakhstan relating to compliance with migration requirements must apply in the AIFC territory as well.

Specifically, many acts of Kazakhstan in the sphere of migration were supplemented by the provisions applicable only to the AIFC participants. For example, the list of persons who do not need foreign labor engagement permits[8] includes a separate category of foreigners engaged by the participants and bodies of the AIFC. Furthermore, visas are issued to the employees of the AIFC participants without the necessity to obtain a foreign labor engagement permit and for a term of up to 5 years (paragraph 33 of Schedule 1 of the Visa Issue Rules[9] ).

The previous article dedicated to migration issues considered in detail the legislation amendments relating to registration of legal entities. In particular, Article 40.2 of the Migration Law[10] was set out as follows: "Foreigners failing to obtain entry visas or temporary residence permits as business migrants, except for the immigrants holding the foreigner's residence permit or a stateless person certificate, shall be prohibited to set up legal entities and participate in the share capital of for-profit organizations by becoming one of participants of legal entities" (for details, please see the article by T. Kulteleev "10 questions to a lawyer about recent legislation amendments on the issues of migration and registration of legal entities in the Republic of Kazakhstan and the AIFC").

If this rule had previously contained only a requirement on the presence of C5 visa for business migrants, the new amendments affected individuals, citizens of the countries enjoying the visa-free regime with Kazakhstan (e.g. citizens of the EAEU member states[11] ). Now the citizens of these countries need a business migrant temporary residence permit ("TRP").

This requirement has been rigorously fulfilled by the registrar of for-profit legal entities (Government for Citizens JSC).

Furthermore, Article 40.2 of the Migration Law establishes that a business migrant must register a for-profit organization in the Republic of Kazakhstan or become one of participants (shareholders) of a for-profit organization carrying out activities in the territory of the Republic of Kazakhstan within 2 months of the date of entering the territory of the Republic of Kazakhstan. According to Article 1.5) of the AIFC Constitutional Law, the AIFC participants are legal entities registered under the current laws of the AIFC and other legal entities accredited by the AIFC. Since the AIFC is located in the territory of Kazakhstan and legal entities are its residents, the above requirements must be complied with by the AIFC participants as well.

It is worth mentioning that, according to the position of the Migration Service Committee, a legal entity could be registered without arrival of founders in the territory of Kazakhstan, and foreigners could set up legal entities without the С5 visa [12]. At the same time, the state revenue authority adhered to another position, and there were cases of filing claims for invalidation of registration of legal entities (including in case of registration under a power of attorney), but the court did not always take the side of the governmental agencies, and we are aware of the cases where such stated claims were dismissed[13] .

However, amendment of Article 40 of the Migration Law (since the TRP may be obtained only at arrival) made it obvious that in doing so the state wants to filter the "shell companies", which have no actual intention to carry out activities in Kazakhstan and provide benefit to its people and economy.

This is not the only change. If it was previously possible for a representative of a founder under a power of attorney to submit documents for the LLP registration and a foreigner could stay in his/her country at that moment, now it is not sufficient to obtain a C5 visa/TRP. It is necessary to stay in the territory of Kazakhstan until the legal entity registration process is completed (since the registration authority's system is connected to UIS "Berkut" of the border service for automatic verification). Accordingly, a person holding a С5 visa/TRP must also stay in the territory of Kazakhstan in the course of registration of a legal entity (about 2 days).

At the same time, it is worth pointing out that the very Astana Financial Services Authority (AFSA) ("Registrar") has no requirement on presence of a C5 visa/TRP of a business migrant in case of registration of private companies. This may be primarily connected with the fact that legal entities are registered in the AIFC online on the e-Residence portal (www.digitalresident.kz); however, we believe this does not mean that the requirement of the Migration Law may be disregarded. However, it is still unclear, if an applicant decides to obtain a С5 visa or TRP as a business migrant, how much time he/she must stay in the territory of Kazakhstan, since the process of considering documents with the participation of non-residents is now conducted under the Strategic Fit procedure and takes approximately 2 months (For details, please see the article by T. Kulteleev "10 questions to a lawyer about registration of companies in the AIFC").

3. Is it necessary to obtain a consent to economic concentration in case of acquiring shares of a private company?

The market entities, which intend to effect or have effected economic concentration, apply to the antitrust authority for consent to economic concentration or notify the antitrust authority of the effected economic concentration in accordance with the procedure stipulated by the Entrepreneurial Code (Article 200.2 of the Entrepreneurial Code)[14] .

The Code provides for no exceptions for the AIFC participants and, accordingly, due to subsidiary application of legislation of the Republic of Kazakhstan, which applies to the extent not regulated by the AIFC Constitutional Law and the AIFC acts, such requirement must be complied with by the AIFC participants as well.

Just a kind reminder that preliminary consent of the antitrust authority is required in case of acquiring more than 50% of voting shares (participatory interests in the share capital) subject to presence of one of the following conditions:

• aggregate balance sheet value of assets of an acquirer (group of persons) under a transaction and the acquired legal entity or their aggregate goods turnover for the past financial year exceeds 10,000,000 MCI[15] (approximately USD 80 million); • one of persons participating in a transaction is a market entity holding a dominant or monopolistic position on a relevant commodity market.

This requirement does not cover the founders of a legal entity in case of setting up such legal entity and if a transaction takes place within one group of persons (Articles 201.1.2 and 201.2.3 of the Entrepreneurial Code).

4. How can we increase the share capital of a private company?

The share capital of a private company may be increased in accordance with Article 44 of the Regulations (Alteration of share capital) and may include the actions, as follows:

1. Increase in the share capital on account of the issue of new shares: o A private company may create new shares of the existing class with the same nominal value or shares of a new class with appropriate nominal value. o Example:  If a private company has 1,000 shares of class A with the nominal value of USD 10, it may additionally issue 500 shares of the same class, increasing the share capital by USD 5,000.  A private company may also create a new class of shares, for example, class B with the nominal value of USD 5 and issue 2,000 such shares, thus increasing the share capital by USD 10,000.

2) Consolidation and split of shares: o A private company may unite the existing shares to increase their nominal value. o Example:  A private company has 100 shares with the nominal value of USD 1. After consolidation each 2 shares are united into 1 share with the nominal value of USD 2. As a result, the number of shares reduces up to 50 but the total share capital remains the same (USD 100).

3) Split of shares into shares of lower nominal value: o Shares may be split into a greater number of shares with lower nominal value in case of preserving the ratio between the paid and outstanding amount. o Example:  A share with the nominal value of USD 10 may be split into 2 shares with the nominal value of USD 5 each. If the initial share has been paid in full, the new shares will be fully paid as well.

The Regulations do not establish any specific type of a resolution (Ordinary or Special)[16] to be passed to execute the shareholders' will. According to the standard articles of association for a private company, a resolution on increase in the share capital must be passed by an Ordinary Resolution of shareholders, unless otherwise provided for by the Regulations (Article 11 of Schedule 5 of the Rules).

The method of increasing share capital most often used in practice is the creation of new shares of the existing class with the same nominal value. In this case, if a private company has only one shareholder, it is sufficient for the sole shareholder to pass a resolution. As regards the private companies with several shareholders, a resolution to increase the share capital may be passed by a general meeting. Then the right to (a) allot and issue shares; or (b) grant rights to subscribe, may be delegated to the Board of Directors (if authorized by the articles of association or a resolution of shareholders)[17] (Articles 44.3(a) and 44.5 of the Regulations). In this case, when allotting new shares, the current shareholders will have the pre-emptive purchase right to third parties (Article 48 of the Regulations).

If a private company places shares for any consideration other than monetary funds, the board of directors of the private company must pass a resolution meeting the requirements of Article 45.2 of the Regulations and submit a copy of the relevant resolution to the Registrar together with a notice of placement. It is worth mentioning that in case of making a non-monetary contribution as a payment for shares, there is no requirement on the necessity to conduct evaluation of such contribution (unlike similar regulation for the LLPs). Besides usual property, the example of a non-monetary contribution may be the participatory interests or shares in other legal entities contributed by a shareholder on account of payment for the shares issued by a private company. Following such contribution the private company becomes a participant or shareholder of the respective legal entity, for which purpose it is necessary to re-register such legal entity.

According to the Guidance on Filing Obligations of AIFC Participants[18] , the Registrar must be notified of the fact of increasing the share capital within 14 days by sending a notice in section Submit paper forms on the e-Residence portal (www.digitalresident.kz). All required forms of notices and certain sample documents can be found at this website. We also recommend reviewing the following documents [Guidance](https://afsa.aifc.kz/uploads/AFSA/Registration Division/Post Registration/Guidance on the Registration Process in the AIFC.pdf) on the Registration Process in the AIFC and [Guidance](https://afsa.aifc.kz/uploads/AFSA/Registration Division/Post Registration/Guidance on Post-registration 14012025.pdf) on Post-Registration Applications.

A notice consists of the following AIFC forms, which must be signed by a company director and attached as scan copies:

1. AIFC Notification of Change in Registered Details;
2. AIFC Notification of actualization of information; and
3. AIFC Notice of Amendment of Articles of Association.

In addition to this, an applicant must attach a copy of the articles of association and resolution on the share capital increase and amendment of the articles of association, certificate issued at least by one of the company directors confirming that the proposed change meets the requirements of the Regulations and the Rules, and a receipt confirming payment of a duty, which is USD 100[19] . An invoice is generated online.

Violation of the said requirements entails a fine in the amount of up to USD 10,000 (Schedule 3 to the Rules); however, the Guidance on Filing Obligations of AIFC Participants specifies that the fine is up to USD 2,000.

According to the post-registration section of the AIFC website[20] , the time required to process an application is up to 10 days. However, in practice, an application is initially processed by the Registrar within 10 days, then information on the share capital increase is sent to the justice authority, of which the Registrar informs in its letter, specifying that the justice authority will consider the documents within another 10 days. Only after updating data in the database of legal entities, which may be found out from the information on all registration actions of a legal entity[21] , the Registrar will update data in the Public Register[22] . Thus, the entire process may take up to 20 days.

5. Is it necessary to perform record registration of a currency operation in case of forming/increasing the share capital of a private company?

It is commonly known that for the purposes of monitoring over currency operations the National Bank of the Republic of Kazakhstan performs record registration of currency agreements, based on and/or in pursuance of which the capital movement operations are effected (Article 13.1 of the Currency Regulation Law[23] ).

Record registration of a currency agreement on capital movement provides for assignment of a record number to such agreement and subsequent submission of information and reports by a resident participant to the currency agreement on capital movement to the National Bank of the Republic of Kazakhstan using the record number (Article 14.1 of the Currency Regulation Law).

Subject to record registration must be a currency agreement on capital movement providing for:

1. transfer of property (money) to the Republic of Kazakhstan and/or origination of obligations with a resident on return of property (money) to a non-resident for the amount exceeding the equivalent of USD 500,000;
2. transfer of property (money) from the Republic of Kazakhstan and/or origination of claims with a resident for return of property (money) by a non-resident for the amount exceeding the equivalent of USD 500,000. [24]

The most common currency operations we usually encounter involve registration of a loan agreement, share capital increase, under which money is transferred to the Republic of Kazakhstan from a non-resident or occurs a sale of participatory interests/shares of a Kazakhstan legal entity resulting in the transfer of money from the Republic of Kazakhstan by a resident to a non-resident.

However, the requirements on record registration of a currency agreement on capital movement do not cover currency operations effected by the AIFC participants in its territory (Article 14.6 of the Currency Regulation Law, Article 5.4 of the AIFC Constitutional Law).

Thus, no record number is required in case of increasing the share capital, receiving money under a loan agreement if a recipient is a private company of the AIFC. In practice, this exception also applies in case of selling the participatory interests/shares of a Kazakhstan legal entity (not mandatorily located in the AIFC); however, it is sufficient if a party to a currency agreement is a private company of the AIFC (e.g. buyer of any asset in the Republic of Kazakhstan, the purchase of which will result in the necessity to pay money to a non-resident seller).

At the same time, according to paragraph 5.1 of Schedule 5 of the Rules on Currency Regulation[25] , an AIFC Participant must submit information to AFSA regarding a contract, on the basis and in pursuance of which the capital movement operations are effected for the amount equal to or exceeding the equivalent of USD 500,000 in accordance with the form as per Exhibit 4 hereto. The information must be submitted until expiration of thirty (30) calendar days of the date of starting the payments under this currency contract.

In case of untimely submission of reporting stipulated by the Rules on Currency Regulation, AFSA will take measures in accordance with paragraph 7.1.3 of the Fees Rules (Article 9.2 of the Rules on Currency Regulation). The fine is USD 300 in case a notice, report or declaration has not been submitted within 3 business days after a violation. If failing to pay the fine within 30 calendar days an additional fine of 10% of the amount for each day of delay is imposed[26] .

6. What are the specifics of financing private companies, and is it necessity to obtain a license in case of extending an intragroup loan?

Private companies providing financial services are regulated companies (please see Schedule 1 – 4 of the General Rules[27] ). Carrying out of regulated activities requires obtainment of a relevant license.

At the same time, legislation does not prohibit registering companies in the AIFC territory, which do not provide financial services but are active in other branches; however, in this case, such companies will have no tax preferences (except for exemption from taxes on dividends paid on shares/participatory interests of an AIFC participant company and tax on capital gains from the sale of shares/participatory interests of an AIFC participant company)[28] . The AIFC also allows to register holding companies. This type of activities is not regulated and requires no license.

Accordingly, the AIFC acts pertaining to regulated activities will not apply to such companies and no license for regulated activities will be required. If the contemplated type of activities is not licensable from the viewpoint of the AIFC laws, but it is licensable or requires a permit under the Kazakhstan legislation, licensing of such activities will be regulated by the general Permit Law[29] .

The main methods of financing private companies is the issue of additional shares and share capital increase, and distribution of such shares among the current shareholders or admission of a new shareholder (investor) to the composition of shareholders (for details please see the Article by T. Kulteleev "10 questions to a lawyer about post-registration actions in the AIFC"), as well as by a shareholder's contribution to the private company's property without increasing the share capital (by analogy with the LLPs on the basis of Article 39.3 of the LLPs Law) and by an intragroup loan.

The advantage of financing via the increase in the share capital is that money received by a private company is neither considered as income, nor subject to taxation (unlike a contribution to the company's property without increasing the share capital). As regards the intragroup loan, the received money is not considered as income of a private company, but the loan must be eventually returned. In case of the loan forgiveness, the monetary funds will be considered as income, which will be subject to corporate income tax.

In practice, the issue of necessity to obtain a license for the regulated type of activities in case of performing borrowing operations (e.g. if a private company contemplates to extend loans to other companies within its group), if this is not the primary type of activities of an AIFC participant and such services are provided to its affiliates, has been raised many times.

The key AIFC regulatory legal act in the field of currency regulation is the Rules on Currency Regulation.

Paragraph 3.1.1 of the Rules on Currency Regulation states that, unless other prohibitions are established by the AIFC laws and/or legislation of the Republic of Kazakhstan, the AIFC participants may provide financial and ancillary services to residents that are not the AIFC participants only in accordance with Schedule 2 to the Rules. This Schedule lists the types of banking and payment services, insurance, investment services, and services involving digital assets, which may be provided by the AIFC participants on the basis of a relevant license.

This act does not regulate the so-called intragroup loans, which are extended for effective structuring of the money flows and activities of a group of companies.

At the same time, we believe that activities on extension of intragroup loans are excluded from the licensing sphere. Thus, paragraph 1.1.12 of the General Rules establishes an exception with respect to activities with or for the group companies: A person does not carry on any of the regulated activities for the purpose of providing credits where that person is a body corporate and carries on that activity solely as principal with or for other bodies corporate:

(a) which are within the same group as that person; or (b) which are or propose to become participators in a joint enterprise and the transaction is entered into for the purposes of or in connection with that enterprise.

The exception also applies to investment activities[30] . Thus, when an AIFC participant invests in activities of a foreign legal entity or renders financial assistance to a foreign legal entity (within one group of persons), this is not considered as carrying out of financial services requiring a relevant license under the AIFC laws.

7. What is a share class? May a private company have non-voting shares?

The AIFC acts provide for the possibility of issuing shares of different classes. The standard articles of association for a private company (Article 7.1) set out in Schedule 5 to the Rules establish that a share may be issued with rights, privileges or restrictions that the private company may determine by an Ordinary Resolution. Article 33 of the Regulations (Variation or abrogation of class rights) establishes the procedure for changing or cancelling rights attached to a certain class of shares of a private company.

A private company may increase its share capital by creating new shares of the existing class with the same nominal value or shares of a new class with the nominal value, which it deems appropriate (Article 44.2 of the Regulations).

Classes of shares are different categories of shares, which a private company may issue for the shareholders. Each class of shares may have its unique rights and privileges. Below are the key aspects, which may differ in share classes:

Voting: Shares may differ by the number of votes given to shareholders at a general meeting. For example, one class of shares may give more votes per share than the other, or even not give any right to vote.

Dividends: Different classes of shares may have different rights to dividends. Certain shares may give right to fixed dividends, others to variable dividends, and the third class may even not provide for the receipt of any dividends.

Priority in case of liquidation: In case of liquidation of a private company, holders of one class of shares may be of higher priority than other classes in terms of receipt of a part of assets of a private company.

Convertibility: Certain classes of shares may be convertible, i.e. shareholders may exchange their shares for shares of another class under certain conditions.

Participation in capital: Shares may differ in the right to participate in capital of a private company when issuing new shares or in case of additional investments.

Presence of different classes of shares allows a private company to flexibly manage the rights of shareholders, attracting investments and preserving control or ensuring different levels of profitability.

Disproportionate distribution of dividends. One of practical issues arising when distributing dividends is the possibility of their disproportionate distribution.

It is important that the AIFC acts and, particularly, Chapter 8 of the Regulations dedicated to distribution of dividends, do not regulate the procedure for proportionate distribution of dividends among the shareholders. Unlike the LLPs Law where a rule on proportionate distribution of dividends is imperative (Article 40.2), the AIFC does not have such restrictions.

As regards distribution of dividends not in proportion to the shares of shareholders via establishment of special classes of shares, the standard Articles of Association for a private company contain the following provisions:

• share may be issued with the rights, privileges or restrictions that a company may decide by an Ordinary Resolution of shareholders;
• directors may distribute interim dividends, but subject to priority rights of other classes of shares; and • private company does not pay interest on dividends or any other amounts due on shares, unless this is stipulated by the rights attached to such shares.

Thus, despite the absence of an express permit for disproportionate distribution of dividends among shareholders (depending on the percentage of shares held), such opportunity may be converted via establishing special rights, privileges or restrictions for different classes of shares.

As an example, here are the private companies that have shares of different classes: ZHYLDYZ Ltd., Sota Ltd., Real Estate Investment Trust TS Property Group OEIC Ltd, Kazakhstan Green Hope Ltd.

Another commonly used method of disproportionate distribution of dividends is the regulation of this issue in a shareholders agreement ("SHA"), which is in line with the rule of Article 8 of the Contract Regulations[31] , pursuant to which any person is free in conclusion of a contract and determining of its conditions (for details please see the answer to question 9).

Furthermore, the AIFC does not have strict restrictions on the terms of paying dividends unlike the imperative requirement on payment of dividends in LLPs, pursuant to which the payment must be made within one month of the moment of passing a resolution (Article 40.2 of the LLPs Law). In the AIFC, private companies themselves establish the deadlines for paying dividends in the articles of association or a relevant order.

Different voting rights. Another important issue is the possibility to establish different voting rights.

Such rights may be determined both with respect to specific issues and regardless of the number of shares. With respect to the LLPs this issue is regulated via an opportunity to determine the shares disproportionally to a contribution made (Article 28.1 of the LLPs Law) and the possibility to provide for another voting procedure, regardless of the number of votes corresponding to a share in the share capital (Article 42.5 of the LLPs Law). Such rights may be exercised in private companies of the AIFC via establishing special rights, privileges or restrictions pertaining to the specific classes of shares.

PLIX Ltd. May serve as a good example. This company has both voting and non-voting shares.

When filling out information on shares in the course of a company registration on the e-Residence portal (www.digitalresident.kz), it is possible to specify their class, nominal value and number of votes given by shares. For example, it is possible to create two classes of shares with equal number of shares and equal nominal value, but with different number of votes attributable to each share, or make one of the classes completely non-voting.

Shareholders may agree upon the distribution of shares in a manner that one of them will receive shares of one specific class, while another shareholder will receive shares of another class. This allows establishing different number of votes for shareholders even in case of equal number of shares.

Thus, if an investor needs increased protection on certain issues considered at a general meeting of shareholders, the investor may use the instrument of different classes of shares. However, this is not always effective and requires consideration of all circumstances. For example, establishing different classes of shares may fail to ensure the expected result.

8. What are the disadvantages of the standard articles of association for a private company?

The AIFC approved the standard articles of association for a private company, which are set out in Schedule 5 to the Rules.

In our view, the obvious disadvantages of the standard articles of association are as follows:

• no rights and obligations of shareholders; • no clear competence of a general meeting, board of directors, chief executive officer ("CEO"), insufficiently definite and clear procedure for passing and executing resolutions; • no procedure for approval of internal documents of a private company, staff schedule, including the documents, which a director may sign with respect to himself/herself; • insufficiently definite and clear procedure for distribution of dividends in a private company; • inconsistent regulation or contradictions in the norms, when different provisions establish different requirements for the same situation.

According to the standard articles of association for a private company (Article 11), a resolution on increase in the share capital is passed by an Ordinary Resolution of shareholders, unless otherwise provided for by the Regulations. However, if it is necessary to amend the articles of association in connection with changes in the share capital (since the articles of association contain information on the share capital), according to the standard articles of association for a private company, a resolution on introduction of amendments to the articles of association is passed by a Special Resolution (Article 30).

The requirements to the content of the articles of association are established in section 2.2.2 of the Regulations and allow for incorporation of any provisions in the articles of association, including those relating to the procedure for passing resolutions (Articles 14(3), 75(1) and 98).

The exclusive competence of the superior body is not contained in any single article and the issues referred to the competence of the superior body may be determined in the articles of association.

Furthermore, the Regulations provide that the following resolutions must be passed by the shareholders:

• introduction of amendments into the articles of association – Article 19(1); • change of the company name – Article 22(1); • share capital increase – Article 44; • re-registration as a public company – Article 40(1); • purchase of own shares – Article 61(2); and • reduction of the share capital – Article 64(1).

According to the Rules, shareholders must approve the following issues:

• conversion into an investment company – Article 6.3.1; • conversion into a protected cell company[32] - Article 8.3.1.

According to the AIFC Insolvency Regulations, shareholders pass a resolution on voluntary liquidation of a company and may appoint one or several liquidators (Article 32).

The authorities of the general meeting of shareholders are duplicated in the articles of association and authorities of directors come to a laconic wording "the business of the Company must be managed by the Directors" (Article 18.1). Thus, the AIFC acts give the main managing rights to the board of directors, while shareholders are given only the key authorities, such as amendment of the articles of association, change of share capital, appointment of directors, and passing of resolutions on liquidation.

Such concept may be unusual for those who has been working with the articles of association of the LLPs, which traditionally secure extensive exclusive competence of the general meeting of participants [33].

The shareholders may select the standard articles of association or approve the bespoke articles of association. This information is specified when registering a private company on the e-Residence portal (www.digitalresident.kz) and filling out relevant information. In this case, the articles of association must set out the competence of the management bodies, including the procedure for convening and holding meetings, procedure for passing resolutions, and must determine the issues referred to the competence of shareholders (Shareholders Reserved Matters) and the board of directors (Board Reserved Matters).

Furthermore, it is necessary to set out the CEO's authorities in detail, since the AIFC acts almost do not establish the competence of the CEO because the standard Articles of Association is limited to the following wording: CEO must have the broadest powers to act in all circumstances in the name of the Company, within the limits of the corporate objects and subject to powers expressly reserved by law for shareholders’ meetings and the directors. The CEO must represent a company in its dealings with third parties (Articles 18.1 and 18.2 of the standard Articles of Association).

The AIFC acts do not contain a detailed definition of the "CEO" and the issues referred to the CEO's competence. The shareholders of a private company may appoint the same person to the positions of a director and the CEO. However, if these are different persons, their obligations and responsibilities must be clearly distinguished in the articles of association. This is an essential necessity, especially in light of extensive interaction with governmental agencies and banking institutions, for which it is important to deal with an authorized person entitled to represent a company (for details regarding the competence of directors and the CEO, please see the article by T. Kulteleev "10 questions to a lawyer about a director and the CEO in the AIFC").

Another significant disadvantage is that the articles of association for a private company may be signed by a person authorized by the general meeting of shareholders. We believe that this may give rise to risks and allow for discreditable practices.

9. Is there a requirement to enter into shareholders agreements?

Shareholders may enter into the SHA at their own discretion, determining the rights and obligations of shareholders, including on withdrawal from a company, pre-emptive purchase right; structure of the company's management bodies; procedure for appointing directors and the CEO; procedure for referring issues to the competence of certain bodies (these issues must be duplicated in the articles of association or incorporate a reference to the SHA); procedure for admission of new shareholders; dividends distribution procedure; ways to settle deadlock situations, and securing different instruments, including put option, call option, tag alone, drag alone, etc. As regards the laws applicable to the agreement, the parties may select any laws as the governing law, including the laws of England and Wales.

The SHA is not a mandatory document unlike the requirements for founders (participants) of LLPs to enter into a foundation agreement on a mandatory basis (the exception is the LLPs keeping the register of participants at the Central Depository). In the JSCs, a foundation agreement ceases to be effective from the date of state registration of the issue of authorized shares[34] .

There is no requirement on notarization of the SHA; however, the parties may apply to a notary at their own discretion. If the parties to the agreement are individuals, we recommend performing notarization to ensure additional legal force of the document.

It is not necessary to notify the Registrar of the fact of entering into or amending the SHA.

The director signs a notice of amendment of the articles of association[35] and attaches a copy of the articles of association and a special resolution of shareholders on approval of the articles of association, as well as a certificate issued by at least one of directors of the company, which confirms that the proposed amendment meets the requirements of the Regulations and the Rules. It is important to remember that, according to section 28 of the Regulations "Filing of special resolutions and certain other resolutions and agreements affecting a company's constitutional documents", a company must submit a written copy of each resolution or agreement within 15 days after the date of passing a resolution or entering into an agreement. Violation of this requirement entails a fine in the amount of up to USD 5,000. Analysis of this paragraph and definition of the term "constitutional documents" set out in paragraph 4 of Schedule 1 to the Regulations allows making a conclusion that the SHA is not referred to constitutional documents, because such agreement is not approved by any company resolution.

10. AIFC Public Register: What information is subject to disclosure and what the registrar must be notified of?

The AIFC Public Register (https://publicreg.myafsa.com/) is available for general use and does not require any special registration on this portal, and works without the EDS. The Register contains information on the registered organizations, authorized firms (holding a license for regulated activities), lists of participants of the FinTech laboratory, suppliers of ancillary services, insolvency practitioners and liquidators.

Data on organizations contain the following information: name, form of organization, BIN, date of registration, type of activities, status of registration, address (active or excluded from the Register), information on shareholders and share capital, issued shares and their classes, information on pledges, roles in a private company (director, CEO, authorized signatory).

It is interesting that neither the Regulations nor the Glossary[36] or any other acts mention the role of the authorized signatory. Our understanding is that anyone authorized to act on behalf of a company, including on the basis of a power of attorney or a corporate resolution, may act as such person. Normally, after the company registration, if performed by a representative, information on such representative automatically appears in this field (even if the representative's functions were limited only to the company registration).

We previously mentioned that private companies may issue shares of different classes with special rights, privileges or restrictions attributable to certain classes of shares; however, it is worth mentioning that the Public Register does not contain any detailed information on rights attached to shares.

According to Articles 52.2, 52.4 and 52.14 of the Regulations, a company must promptly introduce certain data into the register of shareholders (or submit data to the Registrar if the register is kept by the Registrar). Specifically, for the shares, which have not been paid in full, it is necessary to specify an outstanding amount for each share. However, this information is not reflected in the AIFC Public Register.

The Public Register does not provide information on beneficial owners either. Furthermore, we mentioned in previous answers that a company must notify the Registrar of a number of important events and resolutions, which include (i) passing of special resolutions and some other resolutions or agreements affecting the constitutional documents of a company; (ii) placement of shares for consideration other than monetary funds; (iii) change of beneficial owner; (iv) annual filings, and other cases stipulated by regulatory legal acts (for details please see the article by Tair Kulteleev "10 questions to a lawyer about post-registration actions in the Astana International Financial Centre").

[1] Law No. 220-I of the Republic of Kazakhstan "On Limited and Additional Liability Partnerships" dated 22 April 1998 (amended as of 17 July 2024) ("LLPs Law"). [2] Answer of the Minister of Justice of the Republic of Kazakhstan dated 26 July 2010 to the question No. 45784 dated 16 July 2010. [3] Answer No ЗТ-2023-01589800 of the Ministry of Justice of the Republic of Kazakhstan dated 11 September 2023. [4] Constitutional Law No. 438-V of the Republic of Kazakhstan "On the Astana International Financial Centre" dated 7 December 2015 ("AIFC Constitutional Law"). [5] Answer No.ЗТ-2024-05438716 of the Ministry of Justice of the Republic of Kazakhstan dated 16 October 2024. [6] AIFC Companies Regulations No. 2 dated 20 December 2017 (amended as of 28 December 2022, in effect since 1 January 2023). [7] AIFC Companies Rules No. GR0004 dated 29 December 2017 (amended as of 17 October 2021, in effect since 1 January 2022). [8] List of persons who do not need permits from the local executive authorities for foreign labor engagement to carry out labor activities, as approved by the Decree No. 1041 of the Government of the Republic of Kazakhstan dated 24 November 2023 ("Foreign Labor List"). [9] Rules for executing invitations, approval of invitations for the entry of foreigners and stateless persons to the Republic of Kazakhstan, issuing, cancellation, restoration of visas of the Republic of Kazakhstan, and extension and reduction of their validity terms, as approved by the Joint Order No. 11-1-2/555 of the Acting Minister of Foreign Affairs of the Republic of Kazakhstan dated 24 November 2016 and the Order No. 1100 of the Minister of Internal Affairs of the Republic of Kazakhstan dated 28 November 2016 (amended as of 11 June 2021) ("Visa Issue Rules"). [10] Law No. 477-IV of the Republic of Kazakhstan "On Population Migration" dated 22 July 2011 (amended as of 22 July 2024) ("Migration Law"). [11] EAEU (Eurasian Economic Union) is an international organization of regional economic integration created to ensure free movement of goods, services, capital, and labor force among the member states. The EAEU is composed of Russia, Kazakhstan, Belarus, Armenia, and Kyrgyzstan. The key purpose of the Union is to create a common economic space contributing to the development of economy, trade, and cooperation among the member states. [12] Letter No. 8-8-3-33/ЖТ-М-149 of the Migration Service Committee of the Ministry of Internal Affairs of the Republic of Kazakhstan dated 30 April 2021 (available at ILS "Paragraph"). [13] For example, please see the judgment No. 7527-21-00-2/4314 of the Specialized Inter-District Economic Court of Almaty dated 15 July 2021 (available at judicial cabinet at http://office.sud.kz). [14] Entrepreneurial Code No. 375-V of the Republic of Kazakhstan dated 29 October 2015 (amended as of 21 October 2024) ("Entrepreneurial Code"). [15] MCI is a monthly calculation index used in Kazakhstan to calculate taxes, fines, social payments, and other mandatory payments. The amount of 1 MCI is established each year by the National Budget Law. In 2025, 1 MCI is KZT 3,932. [16] According to paragraph 4 of Schedule 1 of the Regulations, Ordinary Resolution of a company means a resolution passed by a simple majority of votes of shareholders (or shareholders of the relevant class of shares) who (being entitled to do so) vote in person or, if proxies are allowed, by proxy…// Special Resolution of a company means a resolution passed by at least 75% of votes of shareholders (or shareholders of the relevant class of shares) who vote in person or, if proxies are allowed, by proxy…. [17] Subscription is executed by entering into a subscription agreement between a company and a shareholder. [18] Guidance on Filing Obligations of AIFC Participants to the Registrar ("Guidance on Filing Obligations of AIFC Participants"). [19] Schedule 5-1 of the AIFC Fees Rules (fees) No. FR0007 dated 10 December 2017 (amended as of 9 December 2022, in effect since 1 January 2024) ("Fees Rules"). [20] Post-registration section of the AIFC: https://afsa.aifc.kz/en/post-registration. [21] Provision of information on all registration actions https://egov.kz/cms/ru/services/facts_on_legal_persons/e_080. [22] AIFC Public Register: https://publicreg.myafsa.com. [23] Law No. 167-VI of the Republic of Kazakhstan "On Currency Regulation and Currency Control" dated 2 July 2018 (amended as of 8 June 2024 ("Currency Regulation Law"). [24] Paragraph 9 of the Resolution No. 64 of the Management Board of the National Bank of the Republic of Kazakhstan "On Approval of the Currency Operation Monitoring Rules in the Republic of Kazakhstan" dated 10 April 2019 (amended as of 15 September 2024). [25] AIFC Rules No. 6 dated 10 November 2021, amended as of 15 February 2024 ("Rules on Currency Regulation"). [26] Schedule 10 to the Fees Rules. [27] AIFC GENERAL RULES AIFC RULES No. FR0001 dated 2017 (amended as of 10 September 2023, in effect since 1 January 2024). [28] Article 6.7 of the AIFC Constitutional Law and https://aifc.kz/tax-benefits/. [29] Law No. 202-V of the Republic of Kazakhstan "On Permits and Notices" dated 16 May 2014 (amended as of 9 October 2024) ("Permit Law"). [30] Dealing in Investments as Principal, Dealing in Investments as Agent, Managing Investments, Advising on Investments, Arranging Deals in Investments. [31] AIFC Contract Regulations No. 3 dated 20 December 2017 (amended as of 10 June 2022, in effect since 1 October 2022). [32] Protected cell company (PCC) is a company dividing its assets and obligations into separate "cells". Each cell works separately from others, which protects the assets of one cell from the risks threatening to the other cell. [33] It is interesting that legislation of the Kyrgyz Republic on limited liability companies also limits the exclusive competence of the general meeting of participants by a small group of issues, which is very similar to the approach used for private companies in the AIFC (Law No. 60 of the Kyrgyz Republic "On Economic Partnerships and Companies" dated 15 November 1996, amended as of 16 February 2023). [34] Law No. 415 of the Republic of Kazakhstan "On Joint Stock Companies" dated 13 May 2003 (amended as of 1 September 2024) [35] Form of the AIFC Notice of Amendment of Articles of Association. [36] AIFC GLOSSARY AIFC ACT No. FR0017 dated 2018 (amended as of 22 September 2024, in effect since 18 October 2024).