Some Aspects Of Payments Of Dividends To LLP Participants

When advising our clients in the past year we noted that due to general economic instability along with foreign exchange fluctuation shareholders of Kazakh companies seek to protect their interests in getting the net profit (dividends) which would be fair to both shareholders and a company itself. Thus, they start raising questions regarding possibility of early payment of dividends. Since statutory restrictions with respect to annual distribution of net profit apply only to limited liability partnerships (LLP), participants of this type of legal entities are especially keen on finding solutions on this matter.

In this client note, we would like to pose a few related questions, propose possible solutions along with associated risks and bring these up before a wider legal community in order to start discussions as to how legally protect both participants and LLPs in net profit distribution. We do hope that following a more profound legal analysis, these proposed options may be viable in practice in the future.

One can easily imagine material losses foreign investors face when they get net profit from LLP operations distributed as per the financial results of the year with USD dollar rate in Kazakhstan having increased more than twice as against KZT within one year. Therefore, it becomes obvious for LLP participant that it would be rather advantageous to receive net profit on a monthly or quarterly (e.g. shareholders in joint stock companies are entitled to get dividends each quarter subject to certain conditions) basis.

Based on the foregoing, LLP participants seek to consider all possible options for early payment of dividends without waiting for the LLP's year-end results and approval thereof.

The main objective of LLP in Kazakhstan is to gain profit from its operations. Pursuant to the Law of the RK on LLP, distribution of net profit is done at the ordinary general meeting dedicated to approval of the financial results of LLP for the prior year. LLP participants are entitled to adopt the following resolutions with respect to LLP's net profit:

To fully distribute net profit among participants as per participating interests; To partially distribute net profit among participants; Not to distribute net profit and keep retained earnings on the LLP balance. At the outset, one should raise a question as to whether the Kazakhstan laws allows LLP participants to distribute net profit absent approval of the year-end results of the partnership.

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