• Charter Capital of LLP and Its Formation (China Law and Practice, July/August 2008)
  • August 11, 2008 | Author: Vladimir P. Furman
  • Law Firm: McGuireWoods Kazakhstan LLP
  • To establish an LLP the founders must form the charter capital (the initial volume of operating assets necessary for carrying out charter activities of the LLP).

    Pursuant to Article 78 of the Civil Code of the Republic of Kazakhstan and Article 23 of the Law of the Republic of Kazakhstan “On Partnerships with Limited and Additional Liability” (“Law”), an LLP’s charter capital is formed by combining contributions from founders/participants of the LLP. The minimum size of the charter capital may not be less than the amount equivalent to 100 monthly calculation indexes (“MCI”) on the date of submitting documents for state registration of the LLP, which in 2008 constitutes equivalent of approximately US $1,000.

    Contributions to LLP’s charter capital may be made in cash, securities, assets, property rights and other assets, as objects of civil rights. It is prohibited to make contributions into the charter capital in form of personal non-property rights and other non-material values.

    Contributions to the charter capital in kind or in the form of property rights are evaluated in monetary form pursuant to consent of all LLP founders/participants. If the value of such contribution exceeds the amount equivalent to 20,000 MCI (approximately US $24,000), the evaluation must be confirmed by an independent evaluator.

    Pursuant to Article 24 of the Law, founders/participants of the LLP must contribute not less than 25 per cent of the total amount of the charter capital prior to state registration of the LLP, which, in any case, must not be less than the minimum amount of the LLP’s charter capital - 100 MCI. The period for making contributions into LLP’s charter capital by the founders/participants is determined by a resolution of the general meeting of founders/participants of the LLP. The period for making contributions into the charter capital must not exceed one year from the date of state registration of the LLP.

    A founder/participant, having made its contribution into the charter capital in full, is entitled to receive from the LLP a certificate confirming its participation in the LLP. If a registry of the LLP participants is maintained by a registrar, the document confirming the title to a share in the LLP’s charter capital is an extract from the registry of the LLP participants. A founder/participant that has not made its contribution into the charter capital is obliged to compensate to the LLP for damages and to pay the LLP a penalty in amount contemplated by provisions of Article 353 of the Civil Code, unless otherwise provided for by foundation documents or LLP’s charter.

    If any founder/participant does not contribute its share into the charter capital within the established period, pursuant to a resolution of the general meeting of the LLP such share or its part may be distributed among other participants or offered to third parties.

    The charter capital after it has been paid in full may no longer exist in kind and has an accounting function. Pursuant to Article 25 of the Law, the charter capital and its proportion to own capital during registration or re-registration of the LLP is not subject to a check. The charter capital of the LLP may be checked only:

    1. By an independent expert upon request of any of the LLP participants. The expertise is paid for by an interested participant;
    2. Pursuant to a court decision; and
    3. Upon results of each financial year on the basis of financial reporting documents.

    Increase and Decrease of Charter Capital

    Increase of the initial charter capital of the LLP is allowed only if the charter capital has been paid in full and may be carried out by means of:

    1. Making additional proportionate contributions from all LLP participants;
    2. Increasing the charter capital size at the expense of the LLP’s own capital, including reserve capital;
    3. Making additional contributions from one or a few participants upon consent of all other participants thereto; and
    4. Accepting new participants into the composition of the LLP.

    The charter capital may be decreased pursuant to a resolution of the general meeting of the LLP participants only after all participants have made their contributions to form the entire charter capital. The charter capital may be decreased by proportionate decrease of the amount of contributions of all LLP participants or by means of full or partial redemption of shares of certain participants, which amounts to proportionate changes in shares of other participants. Decrease of the charter capital of the LLP amounts to re-registration with the state registration authority.

    The ratio of each participant’s contribution to the total amount of the charter capital is called participation interest of the participant in the charter capital. Article 23 of the Law, however, allows founders/participants to determine, by means of incorporating relevant provisions in the LLP’s foundation documents, a different procedure for determination of size of participation interests. The amount of participation interest may be expressed in percentage or in part of a whole. Any change in the size of the charter capital in view of acceptance of new participants into the LLP or withdrawal of any of the previous participants from the LLP amounts into respective recalculation of participant interests of participants in the charter capital at the moment of such acceptance or withdrawal.