September 16, 2021

Procedure and methods of increasing the authorized capital of LLP

  1. Methods for increasing the authorized capital.
  2. Making a decision to increase the authorized capital
  3. Amendments to the constituent documents. Notification of the authorized body on the increase in the authorized capital. Re-registration of a legal entity
  4. Consequences of failure to notify / untimely notification of the body that carried out the state registration

The reasons for the increase in the authorized capital of a legal entity may be different, in particular, the lack of working capital, the entry of new participants into the LLP, etc. Below we will consider the methods and procedure for increasing the authorized capital of a limited liability partnership.

1. Ways to increase the authorized capital

According to clause 2 of Article 26 of the Law of the Republic of Kazakhstan dated April 22, 1998 No. 220-I “On limited and additional liability partnerships” (hereinafter referred to as the law), an increase in the charter capital of a LLP can be carried out by:

1) additional proportional contributions made by all participants in the partnership;

2) increasing the size of the authorized capital at the expense of the partnership’s equity capital, including at the expense of its reserve capital;

3) making additional contributions by one or more participants with the consent of all other participants;

4) admitting new participants to the partnership.

With additional proportional contributions made by all participants in the partnership or at the expense of the partnership’s own capital, including at the expense of its reserve capital, the size of the participants’ shares does not change.

When one or more participants make additional contributions with the consent of all other participants or when new participants are accepted into the partnership, the shares of all participants in the authorized capital are recalculated.

2. Making a decision to increase the authorized capital

The body that makes the decision to increase the charter capital is the general meeting of the LLP participants, whose exclusive competence includes making decisions on changing the size of the charter capital of the partnership (clause 1, clause 2, article 43 of the LLP Law). Such a decision in accordance with paragraph 2 of Art. 48 of the LLP Law is adopted by a qualified majority of three quarters of those present and represented at the meeting of the participants of the partnership, unless the charter of the LLP requires a larger number of votes or unanimity.

With an additional proportional contribution made by all participants in the partnership on the basis of a decision made by the general meeting of participants, an obligation arises between the partnership and the participants, according to which the partnership acts as a creditor and the participants as debtors. Due to this obligation, one party – the partnership, represented by its supreme body – the general meeting of participants, imposes on the other party – all participants of the LLP the obligation to make additional proportional contributions to the authorized capital. The law does not require the expression of the will of the participants themselves for this obligation to arise. This is due to the fact that when all participants make additional proportional contributions to the charter capital of the partnership, only the nominal value of the share of each participant increases, while the ratio of their shares does not change.

Regarding the increase in the authorized capital by one or more participants making additional contributions with the consent of all other participants, the following circumstance must be taken into account.

With this method of increasing the authorized capital, the decision on making additional contributions is made by the participants themselves, who are ready to make additional contributions. However, the approval of this decision is possible only after obtaining the consent of all other participants. Thus, the participant or participants of the LLP who decide to make additional contributions to the charter capital of the partnership must initiate the inclusion in the agenda of the general meeting of the issue of increasing the charter capital of the LLP by making additional contributions by these participants. The decision on this issue will be considered adopted only if all the participants of the partnership appear at the general meeting and vote for its adoption, despite the fact that clause 2 of Art. 48 of the Law on LLP establishes that a decision on the issue of changing the authorized capital is made by a qualified majority of three quarters of the votes of those present and represented at the meeting of participants.

3. Amendments to the constituent documents. Notification of the authorized body on the increase in the authorized capital. Re-registration of a legal entity

According to paragraph 5 of Article 26 of the Law, a limited liability partnership is obliged to notify the body that carried out its state registration of the increase in the authorized capital within three months from the date of the decision by the general meeting to increase the authorized capital. By the time of notification, contributions must be made in the amount of at least half of the amount by which the authorized capital is increased.

After the actual contribution to the charter capital of the partnership, the general meeting makes the appropriate changes to the charter of the partnership to change the size of the charter capital, in accordance with subparagraph 1) of paragraph 2 of Article 43 of the Law.

Changes in the registration data of a legal entity, on an increase in the authorized capital, are made on the basis of an electronic notification to the State Corporation “Government for Citizens” on the e-government portal https://egov.kz.

Changes and additions to the registration and other information of a legal entity, branch (representative office) are made within three working days from the date of submission of the electronic notification.

If the partnership does not notify the body that carried out its state registration, the increase in the charter capital is considered invalid.

When the method of increasing the authorized capital by accepting new participants into the partnership, it is necessary to re-register the legal entity.

So, according to subparagraph 3) of paragraph 6 of Article 42 of the Civil Code of the Republic of Kazakhstan, a legal entity is subject to re-registration in the event of a change in the composition of participants in business partnerships.

Changes made to the constituent documents on the indicated grounds without re-registration of the legal entity are invalid.

4. Consequences in the event of a failed increase in the authorized capital

1) If the increase in the authorized capital did not take place, a participant or a third person intending to enter a limited liability partnership that has made a contribution has the right to demand from the partnership the return of the contribution and payment of a penalty in accordance with Article 353 of the Civil Code of the Republic of Kazakhstan (general part) or with compensation for losses, including lost profits due to the inability to use the property contributed as a contribution (paragraph 6 of Article 26 of the Law).

2) If the participant fails to fulfill the obligation to make an additional proportional contribution to the charter capital of the partnership within the prescribed period, the LLP must make a contribution not made by the participant at the expense of equity capital (its net assets) or reduce the size of the increase in the charter capital to its contributed part. In this case, a participant who has not made an additional contribution in time is obliged to compensate the partnership for losses, and also, unless otherwise provided by the foundation agreement or the charter of the partnership, pay the partnership a penalty in accordance with Art. 353 of the Civil Code (clause 3 of article 24 of the Law on LLP).

3) By the decision of the general meeting of the LLP, an additional proportional contribution not made by a participant within the specified time period may be distributed among the other participants in the manner provided for in paragraph 1 of Art. 31 of the Law or the constituent documents of the partnership, or proposed for acquisition as an independent share to third parties (clause 4 of Article 24 of the Law).

4) If the partnership does not notify the body that carried out its state registration, the increase in the charter capital is considered invalid. There is no administrative violation for untimely notification of the justice authority about the increase in the authorized capital of the LLP. The tasks of the tax authority do not include checking the completeness and timeliness of the formation of the charter capital of the LLP, therefore, the tax authorities will also not draw up a protocol on an administrative offense. At the same time, the income received by the partnership from the participant as an increase in the authorized capital, which is eventually recognized as invalid, must be properly drawn up in the accounting department.