Kulteleev T. AIFC versus National Legislation of the Republic of Kazakhstan: Incorporation and Registration of Legal Entities // Petroleum. – 2023. – 5.

AIFC versus National Legislation of the Republic of Kazakhstan: Incorporation and Registration of Legal Entities (Information as of 13 October 2023)

Tair Kulteleev Head of AEQUITAS branch in the AIFC, Head of Registrations, Senior Associate, AEQUITAS Law Firm www.aequitas.kz

  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 AIFC. 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").

  We propose a comparative analysis of the process of incorporating and registering Partnerships and Private Companies.

	Partnership	Private company
	PREPARATORY ACTIONS
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 contributions. 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 contribution.	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). 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 Code);	- 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).	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", 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 company.
Management structure	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 officer.
	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 employees.
	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).
Amount of the charter capital	The minimum charter capital is 100 MCI (345,000 tenge), and for small business entities it is 0 tenge; however, it is recommended to specify any positive figure since the system is technically designed not to accept a zero value, and because it does not seem possible to calculate a share from zero from a mathematical perspective.	The minimum charter capital is 0 tenge/US dollars; however, it is recommended to specify any positive figure for the same reasons as in the case of the charter capital of the Partnership. The charter capital may be formed in the US dollars.
	In certain cases, the industry-specific regulatory acts provide for a requirement on presence of the minimum charter capital not lower than a specific threshold. For example, for the Partnerships carrying out microfinance activities, the minimum charter capital is 150,000,000 tenge.	For the Private Companies carrying out regulated types of activities, the requirements to a prudential charter capital are established by the AIFC acts, and it is significantly higher than the minimum level. The amount varies from 10,000 to 500,000 US dollars.
Key type of activities	Required subject to the CCEA code.	Required subject to the CCEA code. It is also necessary to describe in detail the Private Company's activities.
If a company is going to carry out a licensable type of activities	It is necessary to obtain a license after the Partnership registration.	Prior to registration of the Private Company, it is necessary to contact the AIFC Business Development Department and, perhaps, obtain the In-Principle Approval.
Disclosure of a participant, shareholder	Information about participants must be provided in an application for registration. In addition, an excerpt from the trade register or its equivalent must be submitted for each participant.	Information about a shareholder must be provided in an application for registration. In addition, an excerpt from the trade register or its equivalent must be submitted for each shareholder.
	Information about a participant will be specified on the public portal of the electronic government.	Information about a shareholder will be specified on the public portals of the AIFC public register and the electronic government.
Disclosure of a beneficial owner	A beneficial owner must be specified in the application for registration.	A beneficial owner must be specified in the application for registration. Additionally, it is required to submit a passport. Furthermore, if the ownership structure consists of multiple levels, an excerpt from the trade register or its equivalent must be submitted for each legal entity in the ownership chain. When registering through the AIFC portal, it will be necessary to undergo the KYC procedure by way of making photos (applies to a beneficial owner, directors and CEO).
	Information about a beneficial owner is not disclosed in public sources.	Information about a beneficial owner is not disclosed in public sources.
"Russian doll" principle	A Partnership cannot have another business partnership consisting of one participant (shareholder) as its sole participant (Article 10 of the LLPs Law).	This rule does not apply.
Appointment of the Money Laundering Reporting Officer (MLRO) (if a company carries out a regulated type of activities)	Not required at the time of registration.	It is necessary to designate a candidate by the moment of registration. The MLRO must be a Kazakhstan resident and possess relevant qualifications. The MLRO is referred to the category of Designated Individuals.
Documents for the registration purposes include (using the example of foreign individuals and legal entities; in case of the Kazakhstan participants/shareholders, no documents are submitted, because all required information is obtained by a registrar from public databases).	Individual founder: Passport, Legal entity founder: Excerpt from the trade register or its analogue	Individual shareholder: Passport , Legal entity shareholder: Excerpt from the trade register or its analogue, Corporate structure
	application; power of attorney (in case of registration through a representative).	application; resolution to set up the Private Company; charter of the Private Company; office lease agreement for the Private Company; passports of the CEO, directors and beneficial owners; CEO's CV; statement of disclosure of the beneficial owner; application for obtainment of BIN (this application will be transferred by the AIFC registrar through own channels to the justice authority for BIN formation).
Adoption of a resolution to set up	A resolution is not submitted to the registration authority.	A copy of such resolution is submitted to the registrar.
Approval of the charter	No need to register the charter.	No need to register the charter.
	No need to submit the charter to the registration authority.	A copy of the charter must be submitted to the registrar.
	It is possible to use a model charter.	It is possible to use a model charter.
Foundation agreement	The foundation agreement must be notarized for large business entities.	According to the general rule, it is not required. However, if necessary, the shareholders may enter into an analogue of a foundation agreement, which is a Shareholders Agreement.
	The foundation agreement is not submitted to the registration authority.	The Shareholders Agreement, if any, is not submitted to the registrar.
Execution of documents	Legalization of documents (such as the resolution to set up the Partnership, excerpt from the trade register regarding the founder) is required for the registration purposes.	No legalization of documents is required for the registration purposes. However, in practice, the documents issued by governmental authorities or authorized organizations outside the Republic of Kazakhstan in relation to incorporation of the Private Company may still need to be legalized to open a bank account (similar to those required for the Partnerships).
	REGISTRATION
Submission of documents	At the Public Service Center (PSC). On the egov portal (if the founder and the director have their electronic digital signatures (EDS).	By email when applying to the Registration Department of the AIFC. On the digitalresident portal if an applicant (authorized person) has EDS.
Term	1 business day (without the day of submission).	After receiving the application, the registrar evaluates it and decides whether to conduct the Strategic Fit Process or not. Within 5 business days, the registrar will inform about the additional documents, which will be required for the Enhanced Due Diligence (if necessary). The maximum term for considering the application is three months.
Additional documents	Not required.	In case of Enhanced Due Diligence, the registrar may request for the following additional documents: - Employee hiring plan; - Financial plan; - Business plan; - Strategic Fit Questionnaire; - Legal opinion on sectional screening.
Interview with an applicant	Not required.	In case of Enhanced Due Diligence, the registrar may appoint the interviews with the applicant, shareholders and directors.
Duty	0 tenge for the small and medium business entities and 18,382 tenge for large business entities.	From 300 to 500 US dollars, depending on the method of submission (portal or email).
	POST-REGISTRATION ISSUES
Licensing	A license to conduct licensable types of activities is obtained after registering the Partnership. The average state duty is 30-50 MCI (220-350 US dollars / 103,500-172,500 tenge).	A license for the regulated types of activities is obtained after registering a company. The average duty is 5,000-10,000 US dollars. The annual Supervision Fee is stipulated for the regulated companies, which varies depending on the type of activities, but normally ranges from 1,000 to 10,000 US dollars.
Manufacturing of seal	Optional.	Optional.
Submission of reporting	Both Partnerships and Private Companies must maintain tax and statistical records and submit all necessary reports in accordance with legislation of the Republic of Kazakhstan.	Both Partnerships and Private Companies must maintain tax and statistical records and submit all necessary reports in accordance with legislation of the Republic of Kazakhstan.
		Private Companies must also submit reports on the engaged foreign specialists. Furthermore, the AIFC participants must annually submit a certain number of reports to the AIFC Companies Monitoring Department: - annual accounts; - annual return; and - annual confirmation statement.
Post-registration issues	The registrar must be notified in the event of a decrease in the charter capital, changes in the company's name or the composition of participants, which primarily serve as a basis for the state re-registration of the Partnership. The registrar must also be notified in the event of changes in the registered office (legal address), head, amendment of the foundation documents, transfer of a share in the charter capital of the Partnership into trust management, increase in the charter capital, changes in the primary type of economic activities, and changes in the beneficial owner of the legal entity. The registration data are changed free of charge, except for the cases of state re-registration of the Partnership.	The registrar must be notified of all changes in the registration data, including in case of changes in the registered address, name, head, director, secretary, auditor, amendment of the foundation documents, increase and decrease in the charter capital, changes in the primary type of economic activities, changes in the shareholders and the beneficial owner of the legal entity. To see the notification forms, please check the link. The fee for changing the registration data is 50 US dollars.
	The term, during which the registration authority must be notified, is 1 month. Failure to notify the registration authority in time about changes in information regarding the legal entity's registered office entails administrative liability from 5 to 30 MCI (40-220 US dollars / 17,750 - 103,500 tenge).	The term, during which the registration authority must be notified, is 14 calendar days. Failure to notify the registration authority in time about changes in the registration data may entail a fine of up to 2,000 US dollars.

  Establishment of the AIFC undoubtedly contributes to the development of legal environment in Kazakhstan and improves the country's international status.   In this article, we strive to highlight the key aspects requiring attention at the registration stage. These very aspects significantly affect not only the costs, convenience and time required to register either a Private Company or a Partnership, but, eventually, the selection of the legal form significantly forms the development and determines the legal environment of a future company.

  As the saying goes "Measure twice, cut once". AEQUITAS is committed to making every effort to provide investors with all required information and ensure support at every stage of setting up a company.