Commentary to article 19. Entrepreneurial activity of citizens of the Civil Code of the Republic of Kazakhstan  

In addition to the Civil Code, individual entrepreneurship is regulated by a number of regulatory legal acts, among which the most important are the Law on Individual Entrepreneurship, the Law on State Support for Small Business dated June 19, 1997, the Law on Peasant (Farmer) Farming dated March 31, 1998, the Decree of the President of the Republic of Kazakhstan dated April 27, 1998 "On the protection of the rights of citizens and legal entities the right of individuals to freedom of entrepreneurial activity".

The concept of individual entrepreneurship is formulated in Article 1 of the Law on Individual Entrepreneurship. It corresponds to the generic concept of entrepreneurship given in art. 10 of the Civil Code, which covers the entrepreneurial activity of both citizens and legal entities.

Article 1 of the said law defines individual entrepreneurship as a type of private enterprise as the initiative activity of citizens aimed at generating income, based on the ownership of citizens themselves and carried out on behalf of citizens at their risk and under their property responsibility. Thus, individual entrepreneurial activity is characterized by a set of the following features: a) it is an initiative activity; b) it is aimed at generating income; c) it is based on the property of the citizens themselves engaged in entrepreneurship.; d) is carried out on behalf of citizens at their risk and under their financial responsibility.  

Individual entrepreneurial activity should be distinguished from other activities of citizens that bring them income, but are not entrepreneurship, since it lacks the features specified in paragraph 2 of the commentary to this article. Thus, work under a contract of employment does not apply to entrepreneurship, and work performed for remuneration by citizens' own labor on the basis of civil law contracts cannot be considered entrepreneurship if such work is carried out on the property base of counterparties, and not on the employees' own business (property) or is not their initiative activity. So, it is impossible to attribute to entrepreneurship the work performed under copyright agreements, the work of experts, consultants, for example, the work of persons performing legislative work on the instructions of the customer and on his property base, and similar personal work under civil law contracts, if it is not based on the employee's own business (property) or not is proactive. The legislation on individual entrepreneurship does not apply to these activities that do not have signs of entrepreneurship.

Types of individual entrepreneurship, according to Article 3 of the Law on Individual Entrepreneurship, are personal and joint. Personal entrepreneurship is carried out by one citizen independently. Joint entrepreneurship is carried out by a group of citizens without forming a legal entity. The Law establishes that the forms of joint entrepreneurship are:

a) the business of the spouses carried out on the basis of joint ownership;  

b) family business carried out on the basis of joint ownership of a peasant (farmer) farm or joint ownership of a privatized dwelling;  

c) a simple partnership in which business activities are carried out on the basis of common shared ownership.  

Individual entrepreneurship, as a rule, refers to small businesses to which the state provides special support (see art. 3 of the Law on State Support for Small Businesses. This law defines the criteria for small business and establishes a number of benefits for small businesses).

Individual entrepreneurs engage in entrepreneurial activities, acquire and exercise rights and obligations under their own name. In the case of joint individual entrepreneurship, all transactions related to entrepreneurial activity are carried out on behalf of all participants in the joint venture, with the exception of cases provided for by law (art. 25 of the Law on Individual Entrepreneurship).

An individual entrepreneur has the right to carry out any type of entrepreneurial activity, unless otherwise established by law.

Individual entrepreneurship is carried out on the basis of and at the expense of property owned by citizens by right of ownership or other rights allowing the use and/or disposal of property for entrepreneurship. For the first time in the legislation of Kazakhstan, the Law on Individual Entrepreneurship formulated the concept of entrepreneurial business (art. 15). An entrepreneurial business is a set of assets, including property rights, on the basis and through which an individual entrepreneur carries out his activities. An entrepreneurial business as a whole or part of it may be the object of purchase and sale, pledge, lease, and other transactions related to the establishment, modification, or termination of rights.

The commented article in paragraphs 2 and 4 speaks about the state registration of individual entrepreneurs, and the Law on Individual Entrepreneurship devotes a number of articles of Chapter 2 "State registration and licensing of individual entrepreneurship" to this registration.

Paragraph 4 of this article establishes cases of mandatory registration of an individual entrepreneur, without which his activity is prohibited. In other cases, such activities, including trading, may be carried out without registration. But at the same time, state registration is possible at the request of the entrepreneur.  

The mandatory state registration of an individual entrepreneur is provided for in two cases. Firstly, when an entrepreneur uses employees on a permanent basis. At the same time, it is sufficient to use at least one employee on a permanent basis. However, periodic short-term recruitment of employees is possible without registration of an individual entrepreneur.

Secondly, the state registration of an individual entrepreneur is mandatory, regardless of the employment of employees, if the entrepreneur receives a cumulative annual income from entrepreneurial activity that exceeds the tax-free amount of total annual income established by tax legislation for individuals.  

The state registration of individual entrepreneurs is by proxy, does not require any permits, except for the cases specified in paragraph 12 of the commentary to the article, and consists in registering as an individual entrepreneur with the territorial tax authority at the place of residence of a citizen. However, the activity of an individual entrepreneur is not limited to his place of residence.

For state registration, an individual entrepreneur submits to the registering authority an application in the prescribed form and a document on the payment of a fee for state registration.  

It is prohibited to require any other documents from the entrepreneur during his registration.  

If the necessary documents are available, the registration authority must register on the day they are submitted. At the same time, an individual entrepreneur is issued a certificate of state registration (Articles 9, 10 and 11 of the Law on Individual Entrepreneurship).  

In order to carry out activities subject to licensing, according to paragraph 5 of the commented article, an individual entrepreneur must have a license. Individual entrepreneurs receive a license in accordance with the procedure established for legal entities by the Decree on Licensing. The Government of the Republic of Kazakhstan has the right to establish a simplified procedure for issuing licenses to individual entrepreneurs. A fee is charged for issuing a license from an individual entrepreneur, the amount and payment procedure of which are determined by tax legislation. A license for the right to carry out a licensed type of activity is issued regardless of whether a citizen is registered as an individual entrepreneur or not.

Along with the aforementioned Decree on Licensing, some issues of licensing individual business activities are regulated by the Law on Individual Entrepreneurship. For example, clause 4 of Article 9 of this law provides for the terms for which a license is issued. For example, a license for the right to carry out individual medical, medical, and veterinary activities is issued without a time limit, a license for the right to carry out transport activities is issued for a period of at least five years, and other types of individual licensed business activities (with the exception of licenses for the export and import of goods) are issued for a period of at least one year.  

According to paragraph 3 of the commented article, the rules of the Civil Code apply to the individual entrepreneurial activity of citizens, which regulate the activities of legal entities that are commercial organizations, unless otherwise follows from the legislation or the nature of the legal relationship. Currently, many issues of individual entrepreneurship are regulated by special legislation, but a number of rules are applicable to the activities of individual entrepreneurs, relating to both commercial organizations and individual entrepreneurs. In particular, individual entrepreneurs are subject to clause 2 of Article 359 of the Civil Code on the liability of entrepreneurs for their obligations without fault, the rules of Article 360 of the Civil Code on entrepreneurial risk.

Taxation of individual entrepreneurs is carried out in accordance with the procedure established by the tax legislation.

Article 31 of the Law on Individual Entrepreneurship establishes that in cases of violation of the rights and legitimate interests of individual entrepreneurs during their registration, license issuance, verification of their activities, demands for its termination or suspension, as well as in other similar cases, the individual entrepreneur has the right to appeal the actions of the relevant body and/or official in court at the location the body (official) or (at the choice of the applicant of the complaint) the place of individual entrepreneurial activity.

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The commentary was prepared within the framework of the scientific and practical research program of the Scientific Research Center of Private Law of the Kazakh State Law University.  

Head of the working group on the preparation of the draft Civil Code of the Republic of Kazakhstan, Corresponding Member of the Academy of Sciences of the Republic of Kazakhstan, Professor Suleimenov M.K.

Deputy head Professor Basin Yu.G.