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Compulsory Buyout of a Participant’s Share in a Limited Liability Partnership (LLP)
📘 I. General Characteristics of the Institution
A compulsory buyout of a share is a legal mechanism by which an LLP may exclude a participant who systematically violates their obligations, through a court procedure, with payment of the actual value of their share.
🔍 The purpose of this institution is to:
· protect the partnership from disruptive behavior of participants;· ensure stability in management and economic activities of the LLP.
⚠️ A participant cannot be excluded by a unilateral decision — this is only possible through a court and only on the grounds provided by law.
📑 II. Commentary on the Content of the Article
🔹 Grounds for buyout — breach of obligations
“In the event that a participant violates obligations to the partnership established by legislative acts or constituent documents...”
🔍 Obligations may be of two types:
1. Statutory (legal) obligations, for example:
· timely contribution of capital (Article 15 of the LLP Law);· avoidance of conflicts of interest (Article 39 of the LLP Law);· participation in management and voting when required;· maintaining confidentiality (if such obligation exists).
2. Charter (internal) obligations, for example:
· participation in meetings;· compliance with non-compete restrictions;· execution of decisions of the general meeting.
📘 Examples of violations:
· systematic obstruction of meetings;· refusal to make an additional contribution where such obligation exists;· disclosure of confidential information to a competitor;· use of the share to the detriment of the partnership’s interests.
🔹 Right to apply to court — based on a decision of the general meeting
“…in accordance with a decision of the general meeting...”
📌 Before filing a claim:
The general meeting of the LLP must formally adopt a decision on the compulsory buyout of the share.
The decision must be documented in the minutes of the meeting.
The minutes must specify:o the nature of the violation;o facts proving the violation;o authorization of the executive body to apply to the court.
📎 Related provision:· Law of the Republic of Kazakhstan “On LLPs and ALCs”, Article 28 — regulates the procedure for compulsory buyout in detail.
🔹 Judicial procedure
“…has the right to demand a compulsory buyout of the share through the court...”
🔍 The LLP files a claim:
· at the place of residence/location of the defendant (participant);· with supporting evidence of the violation;· with an assessment of the actual value of the share (usually at market value as of the date of filing the claim).
📘 Important: a buyout is not a punishment — the participant must be paid the value of their share; it is not confiscation.
⚖️ III. Case Law
📌 Example 1:In case No. 2-3872/2022, “Astana Invest” LLP succeeded in court in buying out the share of a participant who had not attended meetings for two years and blocked decision-making. The court recognized a breach of charter obligations and satisfied the claim.
📌 Example 2:In case No. 2-2018/2021, the court refused the compulsory buyout because the LLP failed to prove the violation — the participant’s refusal to make an additional contribution was not an obligation, and the charter did not provide for such a duty.
📚 IV. Related Norms and Acts
Norm — Content
Civil Code of the Republic of Kazakhstan, Articles 77–81 — Legal status of LLP participantsLaw “On LLPs and ALCs”, Article 28 — Procedure for compulsory buyoutCivil Procedure Code of the Republic of Kazakhstan — Procedural rules for filing a claimTax Code — Taxation of share disposalSupreme Court Resolution No. 1 dated June 27, 2003 — Overview of corporate disputes
📝 V. Conclusions and Recommendations
A compulsory buyout of a share is an exceptional measure, applicable only through the court and only in case of a proven violation.
The violation must be:o material (affecting the LLP’s activities);o supported by documents and witnesses;o recognized by the general meeting.
The participant must be paid the actual value of their share or provided with property of equivalent value.
The LLP must:o hold a general meeting and formalize the decision;o collect evidence of the violation;o conduct a valuation of the share and prepare a statement of claim.
Attention!
Law and Law Law Law draws your attention to the fact that this document is basic and does not always meet the requirements of a particular situation. Our lawyers are ready to assist you in legal advice, drawing up any legal document suitable for your situation.
For more information, please contact a Lawyer / Attorney by phone: +7 (708) 971-78-58; +7 (700) 978 5755, +7 (700) 978 5085.
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