Responsibility of the general director in Kazakhstan

published on 19 November 2024 | reading time approx. 3 minutes

In this article we will deal with the liability of the sole executive body of a Limited Liability Partnership in Kazakhstan (hereinafter - the “Partnership”, “LLP”) – the General Director.

The General Director, as stated above, is an executive body and an officer of the LLP. His competence includes all matters relating to the operation of the LLP, except for those that fall within the exclusive competence of the general meeting or the supervisory body of the Partnership. In accordance with these competences, the General Director of the LLP is vested with appropriate powers. In turn, by assuming these powers and assuming office, the General Director should understand that he bears a commensurate responsibility.

The liability of the General Director can be divided into three types, viz:

Civil Liability
Administrative Responsibility
Criminal liability

We should start with civil liability. This liability arises in accordance with the provisions of the Civil Code of the Republic of Kazakhstan (hereinafter – the “CC RK”), on the basis of which he is liable for breach of obligations and for causing damage. It is also necessary to take into account the provisions of the LLP law, namely, paragraph 3 of Article 52, which states that members of the executive body of the LLP, in our case the General Director, may be held liable at the request of any of the members of the LLP for damages caused by them to the Partnership. In this case, they are jointly and severally liable for losses caused by their joint exercise of improper management of the Partnership.

In particular, the following, for example, may be considered a breach of the General Director’s obligations:

In accordance with the Charter of the Partnership, the Law on LLP and the CC RK, the General Director is obliged to act in good faith and reasonably in the interests of the Partnership. If for selfish purposes he enters into contracts which he knows in advance will cause losses to the Partnership, it will mean that the General Director has failed to fulfill his obligations to the Partnership and its participants, resulting in damage. On the basis of which, the persons who have suffered the damage are entitled to claim damages from the General Manager. In order to correctly recover the amount of damage, it is necessary to calculate the damage incurred and prove the fault of the General Director.

It is also worth bearing in mind the statutory restrictions on the activities of members of the executive body set out in Article 55 of the LLP Law, such as the prohibition to engage in business activities that compete with the activities of the LLP or to act on behalf or in the interests of third parties in relations with the Partnership. At the same time, any member of the LLP has the right to claim in court to compensate the Partnership for losses incurred by the Partnership due to violation of the prohibitions by the General Director or his relatives.

In addition to his responsibility to the Partnership and its participants, the General Director is also obliged to comply with the norms of the legislation of the Republic of Kazakhstan, in particular the norms of the Tax Code of the Republic of Kazakhstan (hereinafter – the “TC RK”), the Code of Administrative Offenses of the Republic of Kazakhstan (hereinafter – the “CAO RK”) and the Criminal Code of the Republic of Kazakhstan (hereinafter – the “CC RoK”). Administrative and criminal liability is imposed for violation of these provisions.

For example, the General Director and his spouse are required by the TC RK to submit a tax return on assets and liabilities. In case they fail to submit or submit incomplete, unreliable information, this may result in a fine.

The above offense is not the only offense for which administrative liability is threatened. The General Director may also be held liable for failure to comply with the provisions of labor legislation, in particular for failure to ensure occupational health and safety, or violations of fire safety rules, may also be held liable for unlawful actions in the rehabilitation and bankruptcy of legal entities, and for other possible administrative offenses.

In addition to administrative offenses, the General Director may commit more serious acts for which criminal liability may be provided. These may include liability for embezzlement or misappropriation of entrusted property, illegal entrepreneurship, issuing invoices without actual fulfillment of obligations, money laundering, driving to insolvency, as well as for other offenses related to property or committed in the sphere of economic activity.

Also, it should be borne in mind that, unlike other offenses, in cases where the General Director is found guilty of intentional bankruptcy in administrative or criminal proceedings, he will bear subsidiary liability to creditors in addition to administrative or criminal liability, depending on the gravity of the offense.

However, it should be borne in mind that in order to hold the General Director liable for the above offenses, it is necessary to prove his involvement in them, and that he committed illegal actions, including inaction, intentionally, in particular, it is necessary to prove his guilt. In this regard, I would like to point out that the electronic digital signature (“EDS”) of the Partnership is issued to the General Director of the LLP. That is, all actions performed by the EDS of the LLP will be performed on behalf of the General Director and that is why he should treat the EDS responsibly and not transfer it to third parties.

In view of the above, it is clear that the liability of the General Director of an LLP is multifaceted and covers a wide range of duties, the breach of which may entail serious offenses. The General Director of the LLP must realize the full extent of his responsibility when making decisions and act in the interests of the LLP in good faith and reasonably, strictly complying with the law. Compliance with these conditions will reduce the risk of the General Director being held liable for any of the liabilities.