• Later: Significant amendments have been introduced in the 2003 JSC Law, from its adoption until the present day.
7. Current structure of Kazakhstan's legislation on corporate forms for business
The structure of Kazakhstan's legislation concerning corporations rests on the following important approaches. First of all, the Civil Code (in its General Part) defines the basic concept of a legal entity and establishes various classifications of legal entities, depending on such different criteria as: (і) whether the entity is a commercial or non-commercial organisation and (ii) who are the founders of the legal entity and what the legal nature of the relations between the entity and its founder(s) is. A legal entity shall be recognised as a commercial organisation if it is founded for the purpose of earning profits and its profit is distributable to its founders / members. A non-commercial organisation cannot pursue profit-earning as its main goal, and its profit cannot be distributed among its founders / members under any circumstances. Legal entities of corporate type can be set up by one or more persons by way of cash or other property contributions to the capital or assets of a company in exchange for membership rights with respect to the company and its profit. There are also other types of legal entities (both commercial and non-commercial), which can be founded by a single founder who transfers property to the legal entity but remains the owner of the property transferred, and such entities cannot be considered corporations. There is no classification of legal entities in Kazakhstani law analogous to that in Germany or Estonia wherein an organisation can be either a private-law company or a public-law company. Secondly, each legal entity can be founded and perform its activities in one of the organisational forms allowed by the law, in a manner depending on the commercial or non-commercial nature of the entity and on specifics of its foundation. The numerus clausus principle applies to regulate legal forms of commercial organisations. The founders of a legal entity decide whether it is to be a commercial or non-commercial organisation, and whether they want to be its members or choose to remain the owner of its property. This decision is a precondition for the founders' decision on the organisational form of the legal entity. For each type of legal entities (commercial and non-commercial), the Civil Code proposes allowed organisational forms. For entrepreneurial activity, if the founder is the State (either the Republic of Kazakhstan or a local state authority) and if the law allows this, it may choose to found a state enterprise and remain the owner of the property transferred to the entity while the enterprise would exercise the so-called right of economic management (pravo khozyaistvennogo vedeniya) with respect to the property.*36 This legal construction has been inherited from the system of Soviet times, and this is the reason there is such a specific legislative system for regulation of legal forms for business activities in Kazakhstan. Nevertheless, the vast majority of commercial legal entities in Kazakhstan perform in organisational forms based on principles of association and membership. The Civil Code allows the following organisational forms for such commercial entities: economic partnership (khozyaistvennoye tovarischestvo), production co-operative (proizvodstvennyi kooperativ), and joint-stock company (aktcionernoye obschestuo). In turn, economic partnerships can be set up in any of the following four organisational forms, depending on the intention and personality of their founders and expected members: general partnership (polnoye tovarischestvo), limited partnership (kommanditnoye tovarischestvo), partnership with limited liability (tovarischestvo s ogranichennoy otuetstuennos'u), and partnership with additional liability (tovarischestvo s dopolnitel'noy otvetstvennost'u). ____________________ 36 Субъекты гражданского права ['Persons in Civil Law']. M.K. Сулейменов [М. Suleimenov] (ED.) - Алматы: НИИ частного права КазГЮУ, 2004 [Almaty: Institute of private law, 2004] (538 p.), pp. 172-178 (in Russian).
Private persons (legal entities and individuals) as well as the State or a local state authority may be shareholders / members in a JSC or LLP, while only individuals can be general partners in general and limited partnerships. More detailed description and explanation of all of the aforementioned organisational forms of commercial legal entities (including economic partnerships, joint-stock companies, state enterprises, and production co-operatives) can be found in our previous publications.*37 With the exception of the form of state enterprise (gosudarstvennoye predpriyatiye), all of them can be identified as corporations.
8. Main trends in the development of company/corporate law in Kazakhstan
Although the corporate legislation (or company law) of most European countries is acknowledged as developed, our study reveals that there are a lot of aspects wherein our European colleagues see the potential for its further development. A range of key issues under consideration for such development has usually been identified in relevant publications (though mostly in the context of harmonisation and/or unification).*38 Similar issues related to development of corporate law are urgent in Kazakhstan. But, besides these, there are many other problems awaiting an adequate legislative solution. In particular, we need corporate relations to be clearly recognised and the term 'corporation' to find its legal definition in the law. Reclassification of corporations is also required, to differentiate between regulation of partnerships and of capital companies. Reconsideration of the legal framework for general and limited partnerships, as well as for LLPs, is necessary. Also, significant modernisation of the legislation concerning joint-stock companies is on the agenda. And there is also the important topic of harmonisation or even unification of corporate legislation, which remains relevant in the context of Kazakhstan's participation in the Customs Union (Tamozhennii Soyuz) alongside the Russian Federation and the Republic of Belarus, as well as in the Eurasian Economic Union. As a separate challenge there is a task to eliminate such types of property rights as the right of economic management (pravo khozyaistvennogo vedeniya) from the law of Kazakhstan and cease to use the form of a state enterprise (gosudarstvennoye predpriyatiye) for legal entities performing business activities.*39 The following understanding is becoming more common among legal scholars: that corporate forms of legal entities represent the most appropriate choice for business purposes, and that developed corporate legislation serves the purpose of economic progress. The following can be considered to be important tasks on the route of development of corporate law in Kazakhstan: ___________________ 37 Ф.С. Карагусов. Правовое положение коммерческих организаций по законодательству Республики Казахстан [F. Karagussov. 'Legal Status of Commercial Organisations underthe Laws of the Republic of Kazakhstan]. Алматы [Almaty], 2012 (333 p.) (in Russian); Ф.С. Карагусов. Основы корпоративного права и корпоративное законодательство Республики Казахстан [F. Karagussov. 'Basics of Corporate Law and Corporate Legislation of the Republic of Kazakhstan]. 2nd ed. amended. Алматы: Издательство «Бастау», 2011 [Almaty: Bastau, 2011] (368 p.) (in Russian); F. Karagussov and S. Tynybekov. Development of corporate law in the Republic of Kazakhstan. - KazNU Bulletin (Law series), 2015, №1(73) (537 p.), pp. 158-163. 38 G. Roth, P. Kindler. The Spirit of Corporate Law: Core Principles of Corporate Law in Continental Europe. Germany: C.H. Beck, Hart, Nomos, 2013 (190 p.), pp. 1-26; P. Davies (Note 6), pp. 61-71; P. Hommelhoff (Note 1), pp. 585-603. 39 M.K. Сулейменов. Гражданское право как наука: проблемы теории и практики [М. Suleimenov. 'Civil Law as the Science: Problems of the Theory and Practice']. - Гражданское право как наука: проблемы истории, теории и практики: Материалы междунар. науч.-практ. конф. в рамках ежегодных цивилистических чтений, посвященной 70-летию М.К. Сулейменова (Алматы, 29-30 сентября 2011 г.) ['Civil Law as the Science: Problems of the History, Theory and Practice: Materials of the International Scientific and Practical Conference' (Almaty, 29-30 September 2011)]. M.К. Сулейменов [M. Suleimenov] (Ed.). Алматы [Almaty], 2012 (800 p.), p. 34 (in Russian).
• Development of the legal framework for use of a joint-stock company as an organisational form to conduct large-scale business and qualified types of business activities (mostly in the fields of finance, banking, and capital markets) could be carried out. The legal framework for formation and activities of JSCs shall be based on imperative legal regulations and companies' professional management allowing a guarantee of transparent corporate governance and efficient control of the financial performance of the company, better protection of shareholders' rights and creditors' interests, effective achievements of business goals of the company, and correlation of its activities with public interests. Since 2001, the National Bank of Kazakhstan has concentrated on creation of a proper corporate governance and financial reporting system and their improvements in joint-stock companies acting in the jurisdiction of Kazakhstan. Enactment of the current JSC Law, in 2003, has been implemented as a major step in this regard. And in this context the JSC Law has been amended to a significant extent numerous times. For example, in 2007 an amending law was passed to improve protection of rights of minority shareholders and new concepts were introduced into the legal environment - 'minority shareholders', 'corporate web site', 'corporate secretary», and some others - together with introduction of the disclosure and information access mechanisms ensuring heeding of interests of shareholders in JSCs and members of LLPs. In 2008, a new set of amendments to the JSC Law were made, to ensure sustainability of the financial system in Kazakhstan by way of increasing the role of the board of directors alongside the management board in managing a company, as well as restricting possibilities for major shareholders to interfere in the functioning of the corporate governance bodies of a JSC. Later, in 2011-2014, other amendments were made to the JSC Law and other legislative acts of Kazakhstan, to regulate JSCs and LLPs with the State's direct or indirect participation in their capital, to provide better protection of investors' rights by strengthening provisions related to responsibilities and liability of JSC directors and managers, to promote development of the securities market, etc. However, the idea of a better legal framework for corporate governance practice and organisational structure in JSCs still remains important. The work focused on creation of a legislative basis harmonised with modern patterns of legal regulation for corporate relations in the EU and worldwide is ongoing. • Improvement of legislation related to economic partnerships is necessary. This is needed to exclude inconsistency in current legislation addressing the status and activity of different types of economic partnership, as well as to increase investment-attractiveness of Kazakhstani business. The need for such reform is obvious in Kazakhstan, and it has great significance in terms of both legal development in the field of private law and economic growth in Kazakhstan. • Harmonisation or unification of corporate legislation in the space of the Eurasian Economic Union has been inevitable, and an attempt at harmonisation of private law within the EurazEC has taken place already. This work remains unfinished for various reasons, of different nature. One of them was the failure to agree on the role and significance of the proposed EurazEC civil code: (і) whether it should serve as a binding legal instrument or as a set of recommendations to improve national legislation and (ii) whether such improvement should be made with a view to unification or harmonisation, or as something else. Nevertheless, this co-operation had a very positive impact on creation of common approaches to regulate corporate relations and improve national laws on private-law corporations. Particularly, this gave rise to discussions of whether only commercial organisations having members can be considered to be corporations or, instead, such entities as non-commercial organisations can also be subject to corporate law. The approach adopted to amend the Russian Civil Code by direct indication that corporate relations shall be regulated by civil legislation and that most of the legal entities performing business activities in a market economy are corporations*40 has been shared in Kazakhstan. However, even with the recent modernisation of the Russian Civil Code, a certain inconsistency remains in separating commercial entities and non-commercial organisations. The newly introduced classification into corporations and non-corporate organisations has been carried out in addition to the existing separation between commercial and non-commercial organisation.*41 And this seems to cause unnecessary complication in the legislative structure for the following reasons: (і) non-commercial organisations have a different organisational structure, and no membership rights exist in non-commercial membership organisations similar to those existing in business corporations, and (ii) as Basin indicated, there are some commercial organisations (like state enterprises) as well as non-commercial organisations (like public unions and funds, along with religious organisations) that are not corporate organisations, and totally different rules apply to these types of legal entities.*42 Finally, there are more common legal characteristics for all types of non-commercial organisations than for non-commercial and commercial corporations, which makes it more reasonable to avoid extension of any general regulation to both commercial and non-commercial corporations (other than that common for all types of legal entities). __________________ 40 The concept paper concerning development of civil legislation of the Russian Federation (Note 15), p. 25; Ye. Sukhanov (Note 4), p.147 - 187; Г.Е. Авилов, Е.А. Суханов. Юридические лица в современном российском гражданском праве [G. Avilov, Ye. Sukhanov. 'Legal Entities in Modern Russian Civil Law']. Москва: Вестник гражданского права, том 6, 2006, №1, [Moscow: Herald of Civil Law, Volume 6, 2006, #1], pp. 17-18 (in Russian). 41 Е.А. Суханов. О концепции развития законодательства о юридических лицах [Ye. Sukhanov. 'About the Concept of Development of Legislation Concerning Legal Entities']. - Е.А. Суханов. Проблемы реформирования Гражданского кодекса России: избранные труды 2008-2012 гг. [Ye. Sukhanov. 'Problems of Reforming the Civil Code of Russia: Selected Works 2008-2012]. Москва: Статут, 2013 [Moscow: Statut, 2013] (494 p.), pp. 82 - 83 (in Russian). 42 Ю.Г. Басин. Юридические лица по гражданскому праву. Понятие и общая характеристика. [Yu. Basin. 'Legal Entities in Civil Law. The Concept and General features']. - Ю.Г. Басин. Избранные труды по гражданскому праву. Предисловие М.К. Сулейменов, Е.У. Ихсанов. Сост. Сулейменов М.К. Алматы: АЮ - ВШП 'Адилет', НИИ частного права КазГЮУ. 2003 [Yu. Basin. 'Selected Works on Civil Law'. Introduction by M. Suleimenov and Ye. Ikhsanov. Compiled by M. Suleimenov. Almaty: Law School 'Adilet', 2003] (734 a), p. 95 (in Russian).
Therefore, it appears to be more practicable if corporate law (or company law) were institutionalised in Kazakhstan primarily (or only) as the law regulating relations pertaining to implementation of the material interest and property rights of private persons in connection with their participation in business entities of any corporate form. In turn, any membership in non-commercial organisations and their activities would be regulated by a separate set of rules because the primary goal for such regulation is to provide adherence to public and/or non-property interests, and not to protect property rights of a private person (whether it be a private-law corporation, a member of one, or a creditor). It has been the traditional approach in Kazakhstani law to regulate commercial and non-commercial organisations separately,*43 and this has been reflected in the legislation: (і) the law on non-commercial organisations has been separated from the legislation dealing with organisational forms for commercial organisations (though regulation of both types of legal entities is based on the Civil Code's concept of a legal entity and its general provisions applicable to all legal entities) and (ii) the notion of corporation has been applied with respect to commercial organisations based on membership (though often limited to joint-stock companies) only and not to non-commercial organisations. Such an approach differs from the one reflected in Russian law wherein the distinction between commercial and non-commercial organisations has not been made so clear.*44
9. Conclusions
The Civil Code of Kazakhstan establishes the most important provisions for regulation of organisational corporate forms for economic activities. These provisions include the legal definition of the concept of a legal entity, classifications of legal entities and their organisational forms, and general regulation applicable to each separate form of legal entities. All the detailed regulation of each of the allowed organisational forms of commercial legal entities is done on the level of separate legislative acts supported (in certain situations) by lower-level regulations. In relation to business entities, all the types (forms) of corporate organisations under the laws of Kazakhstan in their basic features can be compared with types of companies provided for in the European jurisdictions (e.g., by the Estonian Commercial Code), though certain jurisdiction-specific elements can certainly be found. There are sufficient grounds to conclude that the Kazakhstani legislator acknowledges that: (і) a corporation shall be considered to be a legal entity established by its members participating in formation of the entity's assets and being entitled to participate in the process of managing the entity; (ii) the core object of corporate relations includes rights and obligations in connection with foundation of a corporate organisation, formation of its assets, managing its affairs and its representation in the process of its economic activities, and protection of rights of its members and creditors; and (iii) such corporate relations are predominantly regulated by civil law. __________________ 43 Yu. Basin (Note 42), pp. 101-104. 44 Persons in Civil Law (Note 36), pp. 177-178.
Nevertheless, since the company / corporate law in Kazakhstan does not have its institutionalisation in accordance with the best patterns of developed jurisdictions, the need for its further development and improvement seems to be obvious. Certain directions for such development are of a similar nature to those existing in countries with a developed market economy, though others can be identified as Kazakhstan-specific issues. The following position seems to have more perspective for implementation: (і) the concepts of a corporation and corporate relations shall be those of 'business law», not of legislation of non-commercial organisations, and (ii) legislation pertaining to business activities should be separated from laws regulating non-commercial activities. Such a functional approach appears to have proved its practicability and efficiency in European jurisdictions.*45 And we believe it can be effective within the legal system of Kazakhstan. Finally, legislative solutions for all of the aforementioned tasks, as well as other, related matters, require joint efforts of the legislator, the government, businesses, and legal scholars. None of the tasks can be properly resolved in the law if there is a lack of adequate legal research (including doctrinal analysis of a national law, as well as legal historical and comparative study) proposing reasonable and well-grounded legal constructions and mechanisms. _________________ 45 P. Hommelhoff (Note 1), pp. 585-592.
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