Law of Persons
As it is universally applied, under Kazakhstani law the term “person” implies someone or something that is recognized by law as the subject of rights and duties, i.e., someone or something that has legal personality. What is known as Law of Persons in common law systems (i.e., the law governing the legal status of persons under private law) is primarily encompassed by the General Part of the Civil Code (CC) of RK and in particular by Chapter I “General Provisions” (Articles 1- 11CC) and Chapter II “Subject of Civil Rights”
(Articles 12-144 CC).
The Civil Code distinguishes and provides rules with respect to two major types of persons (or subjects of civil rights): (a) natural persons; and (b) legal entities (organizations) (Article 1 CC).
Although the state (including its administrative territorial entities) may also participate in civil law relations, it may do so only on the principle of equality with other participants of these relations (Article 2, 111 I, 112 I CC).
I. NATURAL PERSONS
A. Generally Natural persons (zheke tulga, fizicheskoe litso) are defined by the Civil Code of RK to be “citizens of the Republic Kazakhstan, foreign citizens as well as stateless persons” (Article 12 CC). According to the Constitution of RK, foreign citizens and stateless persons enjoy the same right and freedoms and bear the same responsibilities established for the citizens of RK unless otherwise stipulated by the Constitution, laws and international treaties (Article 12 IV).
The Civil Code fully reflects this constitutional provision and stipulated that all natural persons (who are also traditionally termed “citizens” in the Civil Code ) have equal rights and obligations unless provided otherwise by legislative acts (Article 3 VII) .
Natural persons (like as other subject of civil law relations) must possess certain characteristics the so-called means of individualization) that enable them to be differentiated among other participants in civil law relations. These characteristics include: (1) name; (2) place of residence; (3) legal address; and (4) acts of civil status.
A “name”, as recognized in law, is given to a natural person at birth (Article 15 III CC). It includes a person’s surname, his forename and also, at his wish, his patronymic; its major purpose is to identify a person and distinguish him from others. The Civil Code specifically provides that a natural person acquires and effectuates his rights and obligations under his own name (Article 15 I CC). After achievement of the age of 16 any person may change his surname, forename and / or patronymic upon applying to the bodies of civil registration at the place of his residence (Article 194 I of the Law of RK of December 17, 1998, No. 321-I, “On Marriage and Family” (LMF). Also, the legislation may allow in certain cases, the acquisition of rights and obligations by natural persons on an anonymous basis as well as the use of a fictitious name (pseudonym). The right to a name is considered to be a “personal non-property right,” and it cannot be transferred or alienated to other persons. A citizens may demand the prohibition of the use of his name when this has been done without his consent. The acquisition of right and obligations under the name of another person is prohibited. Also, any citizen may demand compensation for the harm caused to him as a result of the unlawful use of his name (Article 15 VII-IX CC).
The “place of residence” is the population settlement where are a citizens permanently or primarily lives. The place of residence of persons who have not attained 14 years of age or citizens under trusteeship is deemed to be the place of residence of their parents, adoptive parents or trustees (Article 16 II CC). The legal address of a natural person is deemed to be the place of his registration. Another means of individualization of a natural person is acts of civil status which are official documents enabling identification of each person and individualizing his rights and obligations (Article 1 XII LMF). Such documents are issued with respect to such circumstances as: birth, death, marriage, divorce, adoption, establishment of paternity or change of name (surname, patronymic name) Article 163 LMF). A natural person, as a subject of civillaw relations, possesses legal personality (quqyq ieleni qabileti, pravosubektnost’), which includes two different components: legal capacity and dispositive legal capacity. Legal capacity is the capacity of a citizens to have civil rights and bear obligations while dispositive legal capacity is defined to be the capacity of a citizen by his own actions to acquire and effectuate civil rights, to create civil obligations for himself and to perform those obligations.
B. Legal Capacity of Natural Persons.
Legal capacity (quqyqtyq qabileti, pravosposobnot’) is recognized in equal measure for all natural persons. It arises at the moment of birth and is terminated by death (Article 13 CC).
The Civil Code provides specific provisions as to what constitutes the basic content of legal capacity and stipulates that any citizen is entitled to have the following rights: (1)to have property by right of ownership, including foreign currency,both within the limits of the RK and beyond its boundaries; (2) to inherit and bequeath property; (3) to move freely about the territory of the Republic and select the place of residence; (4) to freely leave the limits of the Republic and return to its territory; (5) to engage in any activity not prohibited by legislative acts; (6) to create legal entities independently or with other citizens and
legal entities; (7) to conclude any transactions not prohibited by legislative acts and participate in obligations; (8) to have the right to intellectual property in inventions, works of science, literature, art and any other results of intellectual activity; (9) to demand compensation for material and moral harm; and (10) to have other property and personal rights (Article 14 CC).
Obviously, the above list of legal authorities (which basically constitutes the “general” legal capacity of natural persons) is not complete, which means that natural persons may possess other rights defined either by legislative acts or by contract (i.e., they may have “special” legal capacity). In this regard, in particular to be noted are those natural persons who are engaged in entrepreneurial activity without the formation of a legal entity (individual entrepreneurs) and are given a number of additional rights (discussed infra).
C. Dispositive Legal Capacity of Natural Persons Dispositive legal capacity (areket qabileti, deesposobnost’) of natural persons arises in full with the ensuing of majority, that is, upon attaining 18 years of age. To be noted also is that a citizen may acquire dispositive legal capacity in full from the time of entering into marriage (Article 17 CC), which possible according to Kazakhstani Family Law under exceptional circumstances starting from the age of 16 (discussed infra in Chapter (“Family and Inheritance Law”).
It is common to deffentiate two components within dispositive legal capacity of a natural person: (1) the ability to conclude transactions and other lawful actions (mamile zhurguzu qabileti, sdelkosposobnost’) and (2) the ability to bear contractual and non-contractual liability (zauapkershilik alu qabileti, deliktosposobnost’).
Dispositive Legal Capacity of Minors: Until the age of 18, natural persons possess incomplete or partial dispositive legal capacity, amount of which depends on the attainment of certain ages.
According to the Civil Code of RK, there are two groups of minors: (1) up to 14 years of age; and (2) from 14 to 18.
For minor who have not attained 14 years of age, transactions are concluded in their names by their parents, adoptive parents or trustees (qamqorshy, opekun). Minors under 14 only have the right to autonomously conclude petty domestic transactions corresponding to their age, which are performed when they are concluded (Article 23 CC).
Minors in age from 14 to 18 years may conclude transaction generally only the consent of parents, adoptive parents or guardians (qorghanshy, popechitel’) (in so doing, the form of such consents must correspond to the form that has been established by legislation for a transaction concluded by a minor). Still, they may autonomously dispose of their earning, stipend and other revenues and of intellectual property created by them, and also conclude petty domestic transactions. Additionally, they may make deposits in banks and autonomously dispose of them. Furthermore, they autonomously bear responsibility for transactions committed by them and for any harm caused by their actions.
However, when there are sufficient grounds, a trusteeship and guardianship agency may limit or deprive a minor of the right to autonomously dispose of his earning or any other income (Articles 22 and 23 CC).
On January 12, 2007 the above general rules with respect to minors in age up18 to years were supplemented by rules stipulating that minor who have attained 16years may acquire full dispositive legal capacity if they work under a labor contract or are engaged in entrepreneurial activity (which is possible with the consent of their parents, adoptive parents, or guardians). It is possible for a minor who has obtained 16 of age to acquire dispositive legal capacity (defined as “emancipation” by the Civil Code) upon the decision of a trusteeship and guardianship agency in the event that the emancipation is done with the consent of their parents, adoptive parents or guardians. Should the minor’s parents, adoptive parents or trustees refuse to consent, the emancipation may be done by judicial decision. Emancipated minor may acquire civil rights and autonomously bear obligations except only for those that require age qualification as established by the legislation of RK. Parents, adoptive parents or guardians may not be held responsible for obligations of emancipated minors (Article 22-1 CC).
Deprivation and Limitation of Dispositive Legal Capacity: No one may be deprived of or limited in dispositive legal capacity other than in instances provided by the legislation of RK; the proper process, as stipulated in the relevant legislation, must also be followed (Article 18 CC). According to the Civil Code of RK, there are two such instances as follows:
First, a citizen who, as a consequence of his abuse of alcohol or narcotics, places his family in a grave material position may be limited in dispositive legal capacity by the courts. An application for the limitation of a citizen’s dispositive legal capacity may be submitted to the court by his family members, close relatives (parents, children, brothers and sisters), a procurator or trusteeship and guardianship agency (Article 302 I of the Civil Procedure Code (CPC). If the court limits a citizen in his dispositive legal capacity, a guardianship is established over him. As a result, he will be able to independently conclude only petty domestic transactions; concluding any other transactions and receiving earning, pension benefits or any other revenues and disposing of these revenues requires the consent of the guardian. If the citizen ends his abuse of alcohol or narcotics, the court may vacate the limitation of his dispositive legal capacity and remove the guardianship established over him.
Second, a citizen who, as a consequence of mental illness or feeble-mindedness, cannot understand the significance of his actions or direct them may be recognized by the court to lack dispositive legal capacity (or, in other words, to be incapable), in connection with which a trusteeship is established over him (Article 26 CC). An application for the recognition of a citizen as incapable may be submitted to the court by the same persons as with respect to the limitation of dispositive legal capacity, as well as by a psychiatric medical institution (Article 302 II CPC). Should the court recognize a citizen as incapable, all transactions in his name are to be concluded by his trustee. In the event of the recuperation of or significant improvement in the health of the citizen, a court may return him, his dispositive legal capacity, after which the trusteeship is removed (Article 26 CC).
Declaration of Person to be Missing or Deceased: A citizen may be deemed by a court to be missing if, for one year, there is no information at his place of residence concerning him (Article 28 CC). On the basis of the decision of a court, trusteeship may be established over the property of a person deemed to be missing. Maintenance is to be issued from this property to persons whom the missing person was obliged to maintain, and indebtedness must be repaid for taxes and other obligations of the missing person. If the person has been missing for less than one year, a trusteeship and guardianship agency may still appoint atrustee to protect and manage the property upon the application of interested persons. In the event of the appearance or discovery of the missing person, the court’s decision concerning the establishment of a trusteeship over his property must be vacated.
Should there be no information about a citizen at his place of residence in the course of three years, he may be declared by a court to be deceased. If a citizen was missing under threatening circumstances or giving ground to suppose he perished from an accident, he may be declared by a court to be deceased upon the expiry of six months. Special rules apply with respect to military servicemen or other persons who are missing in connection with military actions. Those persons may be declared to be deceased upon the expiration of two years from the date of the military action’s end (Article 31 CC). In the event of the appearance or discovery of the whereabouts of a person declared to be deceased, the respective decision will be vacated by the court. Irrespective of the time of his appearance, this person may demand from any other persons the return of property preserved that passed to them without compensation. If the property of this person was alienated by his legal successor to third parties who, at the moment of the appearance of the person, had not paid the purchase price in full, the right to demand the unpaid amount will pass to the person who has appeared.
Person to whom property of a citizen declared to be deceased has passed are obliged to return this property to him or to compensate the value thereof if it is proved that, at the moment of acquisition of the property, they knew that the citizen declared deceased was alive. The alienator of property who knew at the moment of alienation that the person declared to be deceased was alivemust bear jointly and severally with the acquirer the duty to return or compensate the value of the property. If the property of a person declared to be deceased has passed by right of inheritance to the state and was sold, then after the vacating of the court’s decision, he must be repaid the amount derived from the sale of the property (Article 32 CC).
An application for the declaration of a person either to be missing or to be deceased may submitted to the court by his family members, a procurator, public associations, a trusteeship and guardianship agency or other interested persons (Article 296 II CPC).
D. Individual Entrepreneurs
The Constitution of RK guarantees to have the right to freedom of entrepreneurial activity and free use of his property for any legal entrepreneurial activity (Article 26 IV). Following this constitutional provision, the legal Civil Code provides specifically that natural persons may engage in entrepreneurial activity without the
formation of a legal entity (Article 19 CC).
The Civil Code also stipulates that the rights of such natural persons, who are called ‘individual entrepreneurs”, will be defended and supported by the state. In particular, their rights (like the rights of legal entities engaging in entrepreneurial activity) are defended by: (1) the possibility of the effectuation of entrepreneurial activity without receiving any authorizations whatsoever except for types of activity that require licenses; (2) a maximally simply registration procedure, without prior arrangement, of all types of entrepreneurship in all spheres of the economy in one registration agency; (3) the limitation by legislative acts of verifications of entrepreneurial activity being effectuated by state agencies; (4) the compulsory termination of entrepreneurial activity only by the decision of a court rendered on grounds provided for by legislative act; (5) the establishment by legislative acts of a list of types of work, goods and services that have been prohibited for private entrepreneurship or prohibited or limited for export or import; and (6) the imposition of liability upon state agencies, officials and other persons and organizations, as established by legislation, for illegally obstructing the activity of entrepreneurs (Article 10 II CC).
At present, mandatory state registration is required only for those individual entrepreneurs who: (1) hire a labor force on permanent basis; and / or (2) receive annual income from private entrepreneurship that exceeds the tax-free amount established by the legislation of RK .
The registration is done in the local tax organ at the place of residence without preliminary permission. A certificate of the state registration must be provided within three working days upon the submission of all required documents and is issued for an unlimited period of time.
As was already mentioned, individual entrepreneurs possess special legal capacity, which is in particular expressed in the following rights: (a) to conduct any kinds of private entrepreneurship unless otherwise established by the legislation of RK; (b) to hire a labor force in accordance with the legislation of RK; (c) to establish branches and representatives offices; (d) to independently set prices for produced goods (work, services) except for cases provided for by the legislation of RK; (e) to conduct foreign economic activity within their legal capacity; (f) to establish associations; (g) to participate in work of expert councils through their certified associations; (h) to petition law-enforcement and judicial bodies for the purpose of protecting their rights and legal interests; and (i) to purpose to state bodies methods to eliminate causes of non-performance or improper performance of regulatory legal acts adopted to support private entrepreneurship (Article 8 I of the Law of RK of January 31, 2006, No. 124-III, “On Private Entrepreneurship” (LPE). However, the duties of the individual entrepreneurs include (along with general requirement to observe the legislation of RK as well as rights and interests of other persons) such responsibilities as; (a) to
assure compliance of output products (work, services) with the requirements of the legislation of RK; (b) to obtain licenses of RK; and (c) to maintain compulsory insurance of civil liability in accordance with the legislation of RK (Article 8 II LPE).
According to the LPE, individual entrepreneurs are differentiated into those who conduct their activity on separate and joint bases. While separate entrepreneurship is carried out by one person independently on the basis of his own property, joint entrepreneurship is conducted by a group of persons (e. g., spouses or a family) on the basis of property that belong to them under common ownership rights.
Furthermore, the Law distinguishes small-, mid-, large-scale businesses.
Individuals entrepreneurs may represent either small- or mid-scale businesses. Small-scale entrepreneurs are those who employ less than 50 people and whose assets’ value does not exceed 60,000montly calculation indexes (MCIs). Mid-scale entrepreneurs are those who employ between 50 and 250 people and whose assets’ value does not exceed 325,000VCIs. Large-scale businesses employ more than 250 employees and possess assets worth more than 325 MCIs, and may only be legal entities.
In particular small-scale entrepreneurs may receive a number of benefits and privileges related to state programs supporting private entrepreneurship (financial assistance, concessional lending, creation and maintenance of business incubators, etc.). However, certain individual entrepreneurs may not be recognized as “small -scale businesses” and thus be supported by the state, especially those whose activity is related to: (1) the production and / or wholesale of excisable products; (2) the storage of grain; (3) narcotic or psychotropic substances; (4) gambling show business or running lotteries; (5) radioactive materials; (6) the extraction, refining and sale of oil, oil products, gas and electrical and heat energy; (7) auditing, banking, insurance (except for the activities of an individual insurance agent); and (8) professional activity on the equity markets (Article 6 LPE).
State programs supporting private entrepreneurship may be at the republican or regional-level or sectoral (industry-specific).
They are approved by the President of RK and are mandatory for all state bodies. The government of RK must annually submit a report to the President on the result of the implementation of state programs supporting private entrepreneurship (Article 20 LPE).
A natural person’ liability for his obligations is extended to all of his property, expert for property against which execution may not be levied in accordance with legislative acts (Article 20 CC). In the case of the consistent inability of an individual entrepreneur to satisfy the demand of his creditor; to pay compensation to persons working under a labor contract; or to make tax, social, pension or other obligatory payments to the state, an individual entrepreneur may be deemed to be bankrupt by a court. Bankruptcy may be effectuated either voluntarily (on the basis of an application to that effect by an individual entrepreneur to a court) or compulsorily (on the basis of an application by a creditor or in cases provided for by legislation). As a result of the bankruptcy, the registration of the citizen as an individual entrepreneur loses its force. Generally, bankruptcy procedures follow the same rules as with respect to legal entities (see infra). However, there are also certain specific regulations. Thus, the claims of the creditors are satisfied only after the court and bankruptcy manager expenses are covered. After completing the settlement of accounts with creditors, the individual entrepreneur deemed to be bankrupt is relieved from the performance of his residual obligations connected with his entrepreneurial activity, except for demands relating to causing harm to life or health and other demands of a personal character (Article 21 CC).
II. LEGAL ENTITIES
A. Concept and Types of Legal Entities According to the Civil Code, a legal entity (zangdy tulga, yuridiccheskoe litso) is an organization that: (a) has specific separate property by right of ownership economic management or operative management; (b) must fulfill its obligations or face the seizure of its property; (c) may, in its name, acquire and effectuate property and personal non-property rights and duties; (d) may be a plaintiff or defendant in court; (e) must have an autonomous balance sheet or financial records and a seal with its own name (Article 33 CC).
This definition establishes four distinct characteristics of a legal entity. First, it has distinct organizational structure that allows it to operate as a separate person. Second, it has separate property owned independently from its members. Third, liability for its obligations is covered by its independent property. Fourth, it has individual legal capacity to participate in civil law transactions (substantive legal capacity) and capacity to sue and be sued in its own name (procedural legal capacity).
Legal entities are differentiated into two major types: commercial and non commercial.
A commercial legal entity is defined as “an organization pursuing profit as the basic purpose of its activity” while a non-commercial legal entity is an “organization not having profit as its basic purpose and not distributing profit as dividends to its participants” (Article 34 I CC). Thus, there are two features distinguishing a commercial organization from a non- commercial one: (a) the deriving of profit as the main purpose of the activity; and (b) the distribution of profit. Even though a non-commercial organization may also pursue entrepreneurial activity if so provided by its charter (Article 34 III CC), it may not pursue profit as its main objective. Although it may earn income, its activity’s main purpose must be different (and usually are of cultural, educational, political or social nature). Furthermore, in contrast to a commercial legal entity, a noncommercial one does not distribute the net profit between the participants.
These two major types of legal entities are subdivided into various categories specifically determined by the Civil Code. Thus, a commercial legal entity may be created solely in the form of a state enterprise, business partnership, joint-stock company or production co-operative (Article 34 II CC); no other kinds of commercial organizational may be created. A different approach is taken with respect to-non-commercial legal entities which may be in the form of an institution, public association, joint-stock company, consumer cooperative, public foundation, religious association or any other form provided for by legislative acts (Article 34 III CC). Accordingly, the Civil Code contains a possibility for the establishment of new kinds of non-commercial legal entities on the basis of legislative acts. Thus, the Law of RK of January 16, 2001, 2001, No. 142-II, “On Noncommercial Organizations” (LNCO) introduced new kinds of noncommercial legal entities such as notary chambers, associations of attorneys, commerce and industry chambers, chambers of auditors, cooperatives of apartment owners and other non-commercial organizations.
B. Legal Capacity of a Legal Entity
The legal capacity of a legal entity arises at the moment of its creation and terminates at the moment of the completion of its liquidation (Article 35 II CC).
Commercial and non-commercial legal entities have different amounts of legal capacity. The former have general legal capacity, implying that they may engage in any kinds of activities, except for those expressly prohibited for either all legal entities or only specific kinds of them (prohibitions may be contained either in legislative acts or in the constitutive documents of legal entities); while the latter possess special legal capacity, i.e., they may exercise only those activities that are provided for by their constitutive documents. Thus, commercial legal entities may have any civil rights and bear any duties that are necessary for the exercise of their activities, even if they are not explicitly indicated in their constitutive documents. The only exceptions is state enterprises, which are commercial organizations that have special legal capacity (in fact, they may not alienate property, lease property for a long term, establish branches and subsidiaries, etc. without consent of an authorized state body). Furthermore, it should be noted that the legal capacity of a legal entity that operates in a field requiring a license arises from the moment of receipt of that license and terminates at the moment of its withdrawal, expiration of the period of the license or the license’s invalidation resulting from procedures established by legislative acts (Article 35 II CC). The extensive list of fields requiring licensing as well as the procedure for issuing the licenses, is determined by the Law of RK of January.
C. Establishment of a Legal Entity
A legal entity may be founded natural persons, legal entities and the state. Certain legal entities may be created only by natural person (e.g., general partnership, Article 58 III CC); other, only by legal entities (e.g., associations of legal entities, Article 110 CC); while some can only be formed by the state (e.g., state enterprises, Article 102 CC). Some legal entities may require two or more founders (e.g., a kommandit partnership, Article 72 CC) while others can be created only by one person (e.g., a limited liability partnership, Article 58 II CC), who thus becomes the sole founder of a legal entity.
Depending on the nature of the founder’s right to the property of the legal entity, legal entities may be divided into: “established” and “self-established” (which is comparable to the division between institutions and corporations in common law systems). The former includes legal entities whose property remains owned by a founder; in this case, he retains his independent legal personality and may manage a legal entity by means of external management (e.g., by issuing administrative orders) (Article 36 CC). When a “self-established” legal entity is created, its founders become its participants and may manage the legal entity’s activities only by means of internal management (e.g., by decision of a general meeting or a board of directors, etc.).
A legal entity operates on the basis of a charter and a constitutive agreement, unless otherwise provided by legislation. Thus, business partnership, joint-stock companies, production cooperatives, public foundations and consumer cooperatives are created on the basis of a charter and a constitutive agreement. However, if a legal entity is founded by one person, it requires only a charter and a written decision on the establishment of the legal entity (the so-called decision of a solitary founder) (Article 41 I CC). Due to their legal nature, state enterprises and institutions are created only on the basis of a charter; the same applies also to public and religious associations (Article 21 LNCO). It should also be mentioned that in the case of a limited liability partnership, its charter is the only document that defines the legal the legal status of the partnership while the role of its constitutive agreement is merely to confirm the charter (Article 17 of the Law of RK of April 22, 1998, No. 220-I, “On Partnership with Limited and Additional Liability”). In addition, a legal entity that is considered a small-, mid- or large-scale business (see supra) can operate on the basis of a model statute whose content is determined by the Government of RK. (Article 41 I CC). Thus, model statutes for business partnership, joint-stock companies and production cooperates were approved by the Resolution of the Government of RK of September 16, 2008, No. 852.
Legal entities are subject to state registration and are considered to be created only from the moment of their registration. Generally, the state registration of legal entities (as well as the record registration of their branches, and representative offices) is conducted by regional bodies of the Ministry of Justice of RK. This Ministry exercises control over compliance with the requirements of the Law of RK of April 17, 1995, No. 2198, “On State Registration of Legal Entities” and maintains the unified state register of legal entities as well as their branches and representative offices. It should also be noted that the participants of the Regional Financial Center of Almaty are registered by a special state body regulating the activity of this Center. The refusal of the registering state body to register a legal entity, or the impeding of the registration process by the registering state body, may be appealed to a court (Article 42 V CC).
D. Name and Location of a Legal Entity
A legal entity must have its own name, enabling it to be distinguished from other legal entities. The constitutive documents must include the entity’s name, as well as indicate its organizations and legal form; it may include additional information provided for by legislation. The name of a legal entity may not be contrary to the requirements of legislation or to the norms of social morality. It may not designate organizational or legal forms not accepted in Kazakhstan (even if they are accepted abroad) or coincide with names of other persons (if they are not its participants or if no authorization of these persons or their heirs was received). The name of a commercial legal entity is called its “firm name” and must be registered when registering the legal entity. A legal entity has the exclusive right of use of its firm name. A person unlawfully using another’s firm name will, at the demand of the possessor of the right to the firm name, be obliged to terminate the use of such name and to compensate any losses caused (Article 38 CC).
The location of a legal entity is the location of its permanently operating organ. It must be specified in its constitutive documents with a full postal address (Article 39 CC). The practical significance of the location of a legal entity consists in the designation of the place where official and business correspondence can be sent. Third parties may send correspondence to a given legal entity to the address entered in the state register; if its legal address does not coincide with its actual address, the legal entity is still formally considered to have “received” the correspondence. Furthermore, the location of a legal entity is the decisive factor for the choice of a registering body or court, the place of performance of an obligation (Article 281 CC), the choice of applicable law (Article 1113 CC) etc.
E. Recognition of Foreign Legal Entities
According to the Civil Code “foreign natural and juridical persons, and also stateless persons,shall have the right to acquire the same rights and shall be obliged to fulfill the same duties as have been provided for by civil legislation for citizens and juridical persons of RK unless provided otherwise by legislative acts” (Article 3VII CC) . Thus, the RK effectively established the national regime for foreign legal entities.
There are three main legal forms for foreign legal entities to exercise their activities in Kazakhstan: (1) by concluding contracts; (2) through the establishment of their branches and representative offices; and (3) through the establishment of legal entities on the territory of Kazakhstan. Foreign legal entities enjoy free access to the territory of Kazakhstan with no special permits or approvals.
The only requirement is that they pay their taxes at the source of payment or through a permanent establishment (Articles 188-200 of the Tax Code of RK of December 10, 2008).
Also, it should be mentioned that the issue of registration of representative offices of foreign organizations (which are not legal entities) was raised quite often in 1990s. The legislation of RK does not foresee such a possibility; meanwhile, in many foreign countries such organizations (e.g., partnerships) are not uncommon and participate as full- fledged subjects in civil law relations despite the fact that they are not legal entities.
To resolve this problem, the Special Part of the Civil Code contains a provision stipulating that “the civil legal capacity of foreign organizations that are not legal entities according to foreign law shall be determined in accordance with law of the country where the organization is established. The rules of this Code, which regulates the activities of commercial legal entities, shall apply to the activities of such organizations if the RK is applicable, unless it otherwise ensues from the legislation of RK or the essence of an “obligation” (Article 1101 III CC).
F. Liquidation of a Legal Entity
There is no legislative definition of liquidation in Kazakhstan. According to the academic literature, the liquidation of a legal entity is defined as the system of legal measures aimed at the termination of its activities, or as the termination of its legal capacity by the means of excluding it from the state register of legal entities.
Liquidation may be either voluntary or involuntary. The first option is foreseen in the provision stating that a legal entity may be liquidated on any grounds by decision of the owner of its property or the organ of the legal entity authorized to do so by its constitutive documents (Article 49 I CC). The involuntary liquidation of a legal entity is conducted on the basis of a judicial decision. A court may issue the respective decision in instances of: (1) bankruptcy; (2) the deeming of the registration of a legal person to be invalid in connection with violations of legislation during the creation of the legal entity that are of an ineradicable character (including failure to submit a corporate income tax declaration, the absence of a legal entity in the place of its location or its actual address or a lack of the necessary participants without whom a legal person cannot operate during one year); (3) the systematic performance of an activity that is contrary to the charter purposes of the legal entity; (4) the performance of an activity without proper authorization (or the necessary license)or an activity prohibited by legislative acts or an activity that involved repeated or flagrant violations of legislation; and (5) in other instances provided for by legislative acts (Article 49 II CC).
The owner of the property of a legal entity or the managing organ of a legal entity (i.e., the person or body that ordered the liquidation of the entity) must immediately declare the liquidation in writing to the respective organ of justice (which maintains the state register of legal entities) and to the respective tax body at the place of registration. Either the owner or the managing organ must appoint a “liquidation commission” and establish the procedure and dates for the liquidation in accordance with the Civil Code. From the moment of its appointment, the liquidation commission will exercise powers relating to the management of property and affairs of the legal entity and may act in court in the name of the legal entity being liquidated (Article 50 II CC).
On of the most important ground for the liquidation of legal entities is bankruptcy, which is defined as the court-recognized insolvency of a debtor (Article 52 CC). The legislation on bankruptcy involves two similar concepts, insolvency and incapacity; nevertheless, each of them has an independent procedural meaning. Insolvency means the inability of a debtor, established by court, to satisfy the claims of creditors with regard to monetary obligations. Insolvency serves as the basis for a creditor to petition the court to recognize the debtor to be bankrupt, and a debtor is considered to be insolvent if he does not perform his obligations within three months from the date when performance is due. Also, it should be noted that when determining insolvency, not only those obligations whose performance is already due, but also all other obligations “accepted and / or being performed” must be taken into account (Articles 1, 3 VII, 4 I of the Law of RK of January 21, 1997 “On Bankruptcy”). Thus, insolvency may at least incline a debtor to start the process of voluntary bankruptcy and at most serve as the basis for the court to recognize a debtor to be bankrupt. It should also be mentioned that there a longstanding controversy in the scientific community with respect to the definition and delimitation of such related concepts as insolvency and incapacity. In our view, incapacity is a more stable form of insolvency.
When a legal entity is being liquidated, the demands of its creditors must be satisfied in the following priority: (1) demands relating to the recovery of alimony and compensation for harm caused to life or health; (2) demands relating to the payment of labor; (3) demands secured by a pledge of property of the legal entity being liquidated; (4) demands relating to tax indebtedness and other obligatory payments to the state budget; and (5) demands of all other creditors. The demands of each priority are satisfied after the full satisfaction of demands of the preceding priority. In the event the property of a legal entity being liquidated is insufficient, it must be distributed among the creditors of the respective priority in proportion to the amounts of demands subject to satisfaction
(Article 51 CC).
G. Commercial Legal Entities Business Partnership: A business partnership is a commercial organization with a charter fund divided into participatory shares (or contributions) of the founders (or participants) (Article 58 I CC). Along with the Civil Code, the legal status of all business partnerships is also determined by the Law of RK of May 2, 1995, No. 2255, “On Business Partnerships” (LBP). There are four kinds of business partnerships: (1) general partnerships; (2) kommandit partnerships; (3) limited liability partnership (LLPs); and (4) additional liability partnerships.
A “general partnership” is a business partnership whose partnership bear, in the event of an insufficiency of property of the general partnership, joint and several liability for its obligations with all of the property belonging to them (Article 10 LBP).The participants of a general partnership may only be natural persons.
A natural person may be a participant in only one general partnership. Another rule is that a general partnership must have not less than two participants (Article 3 LBP).
A “kommandit partnership” is a business partnership that includes, along with one or more participants bearing additional liability for the obligations of the partnership with all of their property (general partners), also one or more participants whose responsibility is limited by the amount of their contribution to the property of the general partnership (contributors) and who do not participate in the performance of entrepreneurial activity by the partnership (Article 26 of LBP). General partners in a kommandit partnership may be only natural persons, and a natural person may be a participant in only one kommandit partnership.
The activities of both limited liability partnerships and additional liability partnerships are regulated (in addition to the Civil Code and the LBP) by the Law of RK of April 22, 1998, No. 220-I, “On Partnerships with Limited and Additional Liability” (hereinafter Law on LLP). A “limited liability partnership” is a business partnership that has the following characteristics: (1) it may be founded by the one or several persons; (2) it has a charter fund that is divided into participatory shares in amount determined by the constitutive documents; and (3) is participants are not be liable for its obligations and bear the risk of losses connected with its activity only within the limits of the contributions made by them (Article 2 Law on LLP). The maximum number of participants of an LLP initially was 100 persons. However, in 2003, this limitation was abolished in connection with the termination of closed Joint-Stock Companies in Kazakhstan and the unimpeded reorganization of most of them into LLPs regardless of the amounts of participants. The minimal value of the charter fund of an LLP is currently 100 MCIs. An additional responsibility partnership is a business partnership whose participants are liable for its obligations with their contributions to the charter fund, and in the event these amounts are not sufficient, additionally with property belonging to them in the amount of a multiple of their contributions (Article 3 I of the Law on LLP). Joint-Stock Company: The activities of a Joint- Stock Company (JSC) are regulated by the Civil Code (Articles 85-93 CC) and the Law of RK of May 13, 2003, No. 415-II, “On Joint-Stock Companies”.
A JSC is defined as a legal entity that issues shares for the purposes of raising funds for the performance of its activities (Article 85 CC). JSCs are generally commercial legal entities. However, in certain cases provided for by the legislation of RK, JSCs may also be non-commercial organizations (Article 3 II of the Law on Joint-stock Companies). At present, examples include the Central Securities Depository (established by the Law of RK of July 2, 2003, No. 461-II, “On the Securities Market”), the Insurance Payments Guarantee Fund (established by the Law of RK of June 3, 2003, No. 423, “On the Insurance Payments Guarantee Fund”), the State Social Insurance Fund (established by Law of RK of April 25, 2003, No. 405-II, “On Compulsory Social Insurance”). At present the minimal amount of the charter fund of a JSC must be 50,000 MCIs (or about USD 500,000).
Joint-Stock Companies and Limited Liability Partnerships with Participation of the State: Legal framework for the activities of JSCs and LLPs with the participation of the state is provided by the Law of RK of March 1, 2011, No. 413-IV “On State Property” (LSP). This law distinguishes two kinds of such legal entities: (1) JSCs and LLPs with the participation of the Republic of Kazakhstan; and (2) JSCs and LLPs with the participation of an administrative-territorial unit of RK (either a region or a district). In addition, depending on the amount and proportion of the state’s property, such legal entities may be subdivided into two groups: (1) state-controlled JSCs and LLPs where the state holds controlling stake of shares or a controlling interest in the authorized capital; and (2) JSCs and LLPs where the state does not have a dominant portion of shares or capital (Article 171 LSP).
Among JSCs and LLPs with state participation, of particular interest are national companies, national holding and national managing holdings, which are all state- controlled JSCs. A “national company” may be created either by the Government of RK, regional –level executive bodies, cities with special “republican” status. A controlling stake of its shares may belong either to the state or to a national holding. Its major purpose is to perform activities in the core fields of the national economy or to promote the development of the regional economies. A “national holding” may be created only by the Government of RK. Generally, the Government is also its only shareholder; however, there may be also other shareholders if so stipulated by the laws of RK.
The major purpose of a national holding is to the manage shares (or participation investments) of national companies as well as JSCs and LLps with state participation. A “national Managing Holding” may be created only by Government of RK, which is also its solitary shareholder. Its major purpose is to manage the shares of national development institutions, national companies and other legal entities (Article 1 LSP).
National holding and national companies occupy an increasingly important place in Kazakhstan’s economy (KazMunayGaz, KazAtomProm, KazTransgaz, KazTemirZholy, etc.), are included in the National Managing Holding “National Welfare Fund Samruk-Kazyna”. Thus, at present Samruk-Kazyna represents a powerful structure that comprises more than 500 subsidiaries and affiliates.
Therefore, Kazakhstan can now be described as a country with corporate from of economic management.
Production Cooperatives: The legal status of production cooperatives is regulated by the Civil Code of RK (Articles 96-101) and the Law of RK of October 5, 1995, No. 2486, “On Production Cooperatives”. This kind of legal entity is defined as a voluntary association of natural persons that is created for the purpose of the joint entrepreneurial activity of its members and is based on the combining of the property contributions (or shares) of its members and the members’ personal labor (Article 96 I CC).
There must be at least two members in a production co-operative, and there is no upper limit with respect to membership. Unlike some other CIS countries, Kazakhstani legislation requires the participation of the cooperative’s members in the form of personal labor.
State Enterprises: The activity of state enterprises is regulated by the Civil Code (Articles 198-208) and the LSP (Chapter 11 “Implementation of Property Rights by the State with Respect to State Legal Entities”). State enterprises are differentiated into those based on the right of: (1) economic management; and (2) operational management. Both of them are commercial legal entities and are endowed with property by the state. However, there are also significant differences. The former may possess, use and dispose of its property within the limits established by legislative acts. Furthermore, it bears a separate liability for its obligations; the Civil Code emphasizes that the state may not made liable for the obligations of a state enterprises (Article 103 II CC). The latter (a state enterprise based on the right of operational management, also called a treasury enterprise) is required to possess, use and dispose of its property within the limits established by legislative acts and in accordance with purpose of its property and strategic directions given by the state (Article 1 LSP). In addition, the legislation distinguishes between republican – level legal entities and municipal legal entities. A republican- level legal entity is created by the Government of RK or bodies (Article 133 LSP). It should also be mentioned that Kazakhstani legislation contains specific provisions allowing the creation of supervisory boards within state enterprises based on the right of economic management (Articles 148-152 LSP). The creation of state enterprises is limited to certain sectors. Thus, they can be created only for certain kinds of activities, provided for by the LSP, separately for enterprises based on the right of economic management and for treasury enterprises (Article 134 LSP).
H. Non-commercial Legal Entities. Institutions and organizations created and financed by a person in order to perform management, social, cultural or other functions of noncommercial nature” (Article 105 I CC). Institutions may be both private and state-owned. They exercise their property rights on the basis of the right of operational management.
Also it should be noted that the Civil Code was supplemented on December 16, 1998 by additional provisions that introduced special kinds of institutions, such as state institutions. At present, the activities of state institutions are regulated by the LSP (Article 159-165). State institutions are created by the state in accordance with the Constitution and the laws of RK and regulatory acts of the President of RK, the Government of RK and the region-level “Akims”. They are maintained exclusively at the expense of the state budget or the budget of the National Bank of RK, unless additional sources of funding are determined by legislative acts.
Public Associations are “political parties, trade unions and other associations of citizens created on a voluntary basis for the purpose of the achievement of common purposes by them that are not contrary to legislation” (Article 106 I CC). They are established and operate in order to realize and protect the political, economic, social and cultural rights and freedoms of individuals: to promote the personal development of citizens, their professional interests and scientific, technical and artistic creativity; to protect the health of the population and the environment; to participate in charitable activities; to perform cultural, educational, physical and recreational activities; to protect monuments of history and culture; to promote patriotic and humanistic education; to expand and strengthen international cooperation; and to perform any other activities not prohibited by the legislation of RK. The activities of public associations are regulated also by other legislative acts (e.g., the Law of RK of July 15, 2002, No. 344-2, “On Political Parties” and the Law of RK of April 9, 1993, No. 2107-XII, “On Trade Unions).
Public Foundations are “noncommercial organization not having membership, founded by citizens and / or legal entities on the basis of voluntary property contributions and pursuing social, charitable, cultural, educational and other socially-useful purposes” (Article 107 I CC). Along with the Civil Code, the activities of public foundations are also governed by the LCNO.
This Law lists the following kinds of public foundations: (a) private; (b) corporate; (c) public; and (d) state foundations. A private foundation is established by a natural person (or a group of natural persons who are members of one family) from this (or their) own resources; it may also be established by the notarized will of a natural person. A corporate foundation is established by legal entity or several legal entities (commercial and / or non-commercial) at their expense. A public foundation is established by natural persons who are not members of one family, and / or by public associations. A state foundation is created by the decision of state bodies that have the right to possess, use and dispose of state property in the procedure established by legislation. This type of foundation carries out the goals of the foundations at the expense of the state budget, and its property is formed at the expense of the state budget of RK in accordance with an order established by legislation as well as from other sources that are consistent with the objective of the foundation’s activity.
With respect to the last kind of public foundations, it should be noted that their existence raises serious questions. The means of the state budget should not be engaged in charitable activities. The establishment of state foundations creates a possibility of abuse of the state means by the respective state bodies. Thus, their existence is as unacceptable as the existence of public- private foundations (which provide unlimited possibilities for abuse).
Consumer Cooperatives are voluntary associations of natural persons “ on the basis of membership for the purpose of satisfying material and other requirements of participants effectuated by means of combining their property (or share) contributions”(Article 108 I CC). The legal status of a consumer co-operate is defined by the Civil Code, the LNCO and the Law of RK of May 8, 2001, No. 197-II, “Consumer Cooperative”.
Religious Associations are voluntary associations of natural persons “who have combined in the procedure established by legislative acts on the basis of a community of their interests in order to satisfy their spiritual requirements” (Article 109 CC). The legal status of a religious association is determined by the Civil Code and the Law of RK of January 15, 1992, No. 1128-XII, “On Freedom of Religion and Religious Associations”.
Associations and Individual Entrepreneurs and Legal Entities may be created by individual entrepreneur and legal entities for the purposes of coordinating their entrepreneurial activity and / or representing and defending their common interests. Association’s members retain their autonomy. An association is not liable for the obligations in the amount and in the procedure provided for by the constitutive documents of the association (Article 110 CC).
Other Forms of Non-commercial Legal Entities (not specifically mentioned in the Civil Code) include notary chambers (whose legal status is determined by the Law of RK of July 14, 1977 “On Notary”); associations of attorneys (Law of RK of December 5, 1997 “ On Advocacy”); commerce and industry chambers (Law of RK of May 3, 2005, No. 47-III, “On Commerce and Industry Chambers”); and chambers of auditors (Law of RK of November 20, 1998 “On Audit Activity”).
It should also be mentioned that there are also non-commercial agricultural partnerships (regulated by the of RK of December 25, 2000, No. 133-II, “On Agricultural Partnership and their Associations), which provide their services at cost. In addition, Kazakhstani Legislation provides for three “specialized” consumer cooperatives: cooperatives of apartment owners and homebuilding cooperatives (both regulated by the Law of RK of April 16, 1997, No. 94-I, “On July 21, 1999, No. 450-I, “On Rural Consumer Cooperation in the Republic of Kazakhstan”).
Authors of the article: Suleimenov M.K., Kembayev Zh.
The article is published in "Научные труды "Әділет" [Scientific works of 'Adilet'] journal.
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