Shareholders’ Agreements in Kazakhstan

When a foreign investor wants to invest in Kazakh partner’s startup project, a joint venture is created. The first thing to take care of in such case is the shareholders’ agreement.[1]

The shareholders’ agreement is the main document that can protect the foreign investor from any possible risks and losses. Thus, we believe that the shareholders’ agreement should have the main focus and attention in the beginning of the cooperation.

Kazakhstan law does not have limitations regarding the structure and volume of the shareholders’ agreement and the shareholders’ agreement may include any provision that does not contradict the law.[2]

But in Kazakhstan practice, the shareholders usually conclude standard shareholders’ agreement with the general mandatory rules mentioned below [3]:

  1. Resolutions on LLC incorporation;
  2. List of shareholders’ with their details;
  3. Procedure of LLC establishment;
  4. Charter capital amount;
  5. Procedure of shareholders’ contributions to the charter capital;
  6. Shareholders’ shares amount in LLC, procedure of shares transfer;
  7. Approval of LLC’s Charter;
  8. Profit distribution procedure

Such standard shareholders’ agreements do not cover a lot of risks and matters. Therefore, at the time of a dispute, it could be very hard to resolve issues. In this article you may find general and brief information on the shareholders’ agreement possibilities in Kazakhstan.

Decision-making and voting rights

One of the key aspects in the shareholders’ agreement is the distribution of decision-making powers, i.e. the voting rights. Despite the fact that most important decisions are usually made by the general meeting of shareholders[4], the shareholders’ agreement may specify that certain issues are resolved exclusively by one shareholder. For example, we had a case where only an investor could decide who to hire as the company’s chief accountant.

Preliminary agreements

There could be cases when a foreign investor and Kazakh partner indicate main points and conditions at the beginning of their cooperation in framework documents, such as term-sheets.[5] Or the preliminary conditions could be discussed orally during the negotiations.

All of these preliminary agreements can be incorporated in the shareholders’ agreement.

We had a case when the Kazakh company invested in the individual’s startup project. The only document they had in the beginning of the cooperation was the term-sheet with general framework agreements. We represented the investor’s interests and drafted shareholders’ agreement on the basis of the term-sheet, carefully reviewing and analyzing any possible risks for the investor.


Often, the shareholders include particular restrictions and limitations in the shareholders’ agreements. For example, limits regarding the share transfer.[6]

We had a case, where Shareholder-A was restricted from transferring or disposing his shares in any way during 5 years from the date of signing the agreement. At the same time, the Shareholder-B did not have any such limitation. Thus, the limitations could only be applied to one shareholder, and not apply to others.

The most common limitation specified in the shareholders’ agreement is that a shareholder must obtain other shareholder’s consent to transfer the shares to third parties.[7]

Approvals, consents and pre-emptive rights

Alternatively to the restrictions, the shareholders’ agreement may specify parties’ prior consents and approvals for any particular operation.

For example, Kazakh legislation provides pre-emptive rights to shareholders. If one shareholder wishes to sell his shares to a third party, the other shareholders have pre-emptive right to purchase such shares.[8] In the shareholders’ agreement, a shareholder can waive such pre-emptive right in advance.

Intellectual property

The most valuable asset of a startup could be its intellectual property. Thus, it is very important to outline in the beginning who will be the owner of the intellectual property rights. This could be indicated in the shareholders’ agreement.

Mostly in practice the shareholders indicate that all intellectual property would belong to the joint-venture itself.

Deadlock situations

There is always a risk in business that something could go wrong. So there is always a risk of the deadlock situations when the two shareholders with equal 50% voting rights completely disagree on some particular issues.

The shareholders can outline ways of resolving such deadlock situations in the shareholders’ agreements. These ways could include special clauses, like the repurchase of shares by other shareholder or the Russian roulette clause, exiting the partnership, the arbitral clause, the liquidation clause, and etc.


Usually the investors want to have the right to exit the project at any time they deem convenient. Such exiting right could be outlined in the shareholders’ agreement. There are no particular restrictions on this matter.[9]

For example, an investor could exit the partnership in the following ways:

  1. The investor could transfer his shares to the third parties with the standard procedure of transferring the shares. In this case it’s important to consider the pre-emptive rights and the necessary approvals.[10],[11]
  2. The investor could sell his shares to the other shareholder. In this case, the shareholders’ agreement should outline the other shareholder’s obligation to purchase such shares.[12] The price of shares could also be agreed in advance. For example, in one of our cases, the price of shares depended on the shares’ market value at the date of transfer.
  3. The investor could use any other option, not contradicting the law.

We note that, to avoid any potential disputes, it is important to precisely outline the procedure of exiting the partnership considering all the crucial aspects of the shareholders’ agreement.

Arbitral clause

We believe that the disputes relating to the shareholders’ agreements are best resolved through the arbitration rather than through the ordinary courts for following reasons:

  1. the arbitration hearings are held behind closed doors, which is very important for maintaining the reputation of shareholders;
  2. there can be up to three arbitrators, which would make it less likely to challenge the arbitral decision.

Kazakhstan law does not provide any restrictions on arbitral clauses in shareholders’ agreements. Thus the arbitration clauses may be applied in the shareholder agreements.[13] In Kazakhstan there are two arbitrages: Kazakhstani International Arbitrage, which is more private, and the pro-governmental arbitrage financed by the government. We usually specify the arbitrage depending on the possible amounts of the claim.


This article includes only general and brief information on some of the shareholders’ agreements possibilities in Kazakhstan.

As mentioned above, the shareholders’ agreements in Kazakhstan do not have particular restrictions or limits in terms of their structure or volume. However we note that each case is different. There could be any kinds of situations and provisions. The shareholders’ agreement is the main document that covers shareholders’ relationships in regards to the company, so it is very important to check every step with the professional lawyers.

  1. Article 14.1 of the Law of the Republic of Kazakhstan dated April 22, 1998 № 220-I “On partnerships with limited and additional liability” (with changes and additions as of 21.01.2019) (hereinafter – the Law on LLC )Law on LLC
  2. Article 380 of the Kazakhstan Civil Code (General part), adopted by Kazakhstan Supreme Council on 27 December 1994 (as amended on 02.04.2019).) (hereinafter – the Civil Code)
  3. Article 14.2 of the Law on LLC
  4. Article 43.2 of the Law on LLC
  5. Article 390 of the Civil Code
  6. Article 32.1 of the Law on LLC
  7. Article 30.2 of the Law on LLC
  8. Article 31.1 of the Law on LLC
  9. Article 67.1 of the Civil Code
  10. Article 30.1 of the Law on LLC
  11. Normative resolution of the Kazakhstan Supreme Court dated July 10, 2008 № 2 “On some issues of application of the legislation on limited and additional liability partnerships” (with amendments and additions as of 29.06.2018.)
  12. Article 29.2 of the Law on LLC
  13. Article 9 of the Law of the Republic of Kazakhstan from April 8, 2016 No. 488-IV “On arbitration” (with changes and additions as of 21.01.2019)

By Ms. Symbat Tursyngali
Associate, Synergy Partners Law Firm LLC

Bitcoin PHOTO

Market Watch: Bitcoin has fallen to its lowest point since November

On Friday the price of Bitcoin fell to $5,791, the lowest since last November, and while it recovered in Tokyo, the fall has led to a flurry of speculation that it will be wiped out. We cannot know, but since it is the largest of the cryptocurrencies, and other smaller examples are apparently now worthless, the possibility is clearly there. But of course, that may prove wrong – there may be some value after all.

What can we sensibly say?

First some thoughts about money in general; next some about this particular so-called “currency”; and then some about the consequences of a total collapse, or a recovery.

Cryptocurrencies are quite new but the history of money is very old. People have used something as money for at least 20,000 years. Paper money is only a few hundred years old in Europe but was used a couple of thousand years ago by the Chinese. The classic functions of money are threefold: they are a medium of exchange, a unit of account and a store of value. The second is simply something we can price things in, thereby measuring comparative values, and the first and third are obvious.

On this tally, none of the cyber currencies stack up. They have a marginal use as a medium of exchange because some people will accept them in exchange for goods and services, but they are too volatile to be useful as a unit of account or store of value. Indeed in most transactions, they don’t really serve as mediums of exchange because they have to be switched into real money first. They are, however, an asset class like gold, fine wines or classic cars.

That leads to the next question, and maybe soon very relevant question: what happens now to their value?

With regular currencies there is an issuing body that will in extremis stand behind them: usually a national government. Ultimately the backing is the taxing power of the state. Sometimes that taxing power is inadequate to support the currency, or the central bank issues too much of it. The most recent example of this is Venezuela right now. The Bolivar has lost 99 per cent of its value against the dollar this year (Bitcoin has lost 58 per cent), and if I have got my decimal point in the right place the current rate is more than 100,000 Bolivars to the dollar. So it is in effect worthless. The poor country (which given its oil revenues should be the richest in Latin America) is running on barter and dollars. Currency reform is promised for August, and we’ll see.

So what is behind Bitcoin? Well, it is not clear that there is anything there at all. It may be that the holders of Bitcoin will collectively support it, in that they will accept it in return for goods and services. That would allow it to continue. But if they collectively try to bunk out, there would be a Bolivar situation.

Might there be collective support? The trouble is that we don’t know who owns the Bitcoin. A huge amount of energy has gone into uncovering ownership but apart from a few high-profile holders such as the Winklevoss twins in America, the names remain concealed. By looking at IP addresses, it is clear that ownership is very concentrated. According to BitInfoChart, 87 per cent of all coins issues are held by 0.5 per cent of holders. But the big holders don’t seem very active, for many of them don’t seem to have sold any at all.

Anecdotal evidence suggests that the larger holders in the developed world fall into five groups. There are some tech-savvy people who got in very early and saw cryptocurrencies almost as a game. They are probably still holding onto all or most of their stock. Second, there are people around the world who have suddenly come into money – oil workers in Kazakhstan – and want to pop it into a variety of different investments. Third, there are computer students, who literally bought the hype and put cash into a few Bitcoin while there were still affordable. Four, there are general investors, many of whom who got suckered in last autumn and are sitting on big losses. And finally there are the illegal or tax-avoiding holders who want an asset that is under the radar.

The intriguing question is this: who, among these groups, really needs to sell? We have seen a collapse of the currency, but from a very high level. Many holders, probably most, will be still on a profit. So the question will be whether enough of them decide that they do want the deposit for a house or whatever else.

But this is in the West. Most of the trading in Bitcoin is now in Asia, with much of that in China. It may be that this is more trading than holding, or it may be that investors in the developed world have indeed been gradually unloading their stock and this is being picked up by Chinese investors. It may be that as and when the final collapse comes, the run will start in Asia. We simply don’t know.

What we do know is that cybercurrencies are much frowned upon by the financial establishment in the West. There are a few supporters but not many. On Friday Mohamed El-Erian, chief economic advisor at Allianz, said Bitcoin would be a buy if the price falls below $5,000. The most scathing and detailed commentary came last week from the Bank for International Settlements (BIS). It said there were three problems: scalability, stability and trust.

On scalability it pointed out that these currencies were now using enough electric power to run Switzerland. It follows that if they were to grow further there would not be enough power in the world to drive them. Stability, well – we have seen what has happened. And trust? The BIS thinks that the decentralised nature of cryptocurrencies is a weakness rather than a strength.

We will know the answer pretty soon. My instinct is that these cryptocurrencies will disappear in a puff of smoke. I just hope too many people are not too damaged when it happens.