Novelties In Kazakhstan's Legislation On LLPs

On July 23, 2018 changes came into effect to the normative decree of the Supreme Court of the Republic of Kazakhstan dated July 10, 2008 No. 2 "On certain matters of application of legislation on limited and additional liability partnerships" (Decree).

One of the key points covered by the amendments is the question of the effect the state re-registration of a partnership with the justice authorities has on the buyer's title to the interests in the charter capital of a partnership.

It follows from section 6 Article 42 of Kazakhstan's Civil Code that a partnership must be re-registered if a composition of participants changes. Because "re-registration of the partnership" is not the same as "registration of the transaction to acquire interests," there had been no direct connection between the state re-registration of the partnership and the accrual by the buyer of its rights to the interests.

That premise had its confirmation in the previous version of section 6 of the Decree, where re-registration with the justice authorities gave rise to a right to dispose of the interests (which in effect used to mean that such elements of title as the right to possess and the right to use interests could accrue earlier at a moment determinable in the sale and purchase agreement - and usually parties would agree such moment to be when the sale and purchase agreement is executed).

In its amended version, section 6 of the Decree states that a buyer acquires title to the interests only from the moment of re-registration of the partnership. It means that before re-registration the buyer is unable to acquire any of the elements of title to interests, including those which it could have acquired previously.

In transactions where completion takes place soon after the sale and purchase agreement is executed the buyer may ask the seller to procure the adoption of a general meeting's resolution to re-register the partnership at the same time the sale and purchase agreement is signed. However, in transactions where there is a large time gap between execution of the sale and purchase agreement and completion (for instance, time needed to obtain state approvals) procuring the adoption of a general meeting's resolution to re-register the partnership (which is valid only for one month from the date of its adoption) beforehand will be impossible. From the buyer's perspective it means that additional risks arise mitigation of which requires additional contractual means of...