Liability of a Legal Entity

📘 1. General Characteristics

Article 44 of the Civil Code of the Republic of Kazakhstan defines how a legal entity is liable for its obligations, as well as the limits of liability of its founders, owners, and officers, including cases of deliberate bankruptcy or abuse of authority.

This approach is based on the doctrine of the autonomy of a legal entity, according to which it:

• is an independent subject of civil legal relations (Article 33 of the Civil Code of the Republic of Kazakhstan);
• is liable exclusively with its own property unless otherwise provided by law.

📌 2. Liability of a Legal Entity with Its Own Property (Clause 1)

🔹 General Rule:

Legal entities (LLPs, JSCs, cooperatives, etc.) are liable for their obligations with all property belonging to them, except in special cases.

🔹 Exceptions:

1. Institutions financed by the founder — are liable only with the funds at their disposal. If such funds are insufficient, the founder bears liability.
2. State-owned enterprises — similarly, if funds are insufficient, the state bears subsidiary liability.
3. Special financial companies — are liable in accordance with special legislation (Law “On Project Financing and Securitization”).
4. State Islamic special financial companies — are liable only within the limits of the funds available to them.

📎 Related Provisions:

• Article 102 of the Civil Code of the Republic of Kazakhstan — “Institution”;
• Article 195 of the Civil Code of the Republic of Kazakhstan — “State-Owned Enterprise”.

📝 Example:

If a state-funded educational institution has debt to a contractor and lacks sufficient funds, recovery will be sought from the founder (the state).

👤 3. Liability of Founders and Participants (Clause 2)

🔹 Basic Principle:

“A founder (participant) is not liable for the obligations of a legal entity, and vice versa.”

🔹 Exceptions:

• where otherwise expressly provided by:
  • the constituent documents (for example, an LLP participants’ agreement);
  • the law (for example, in cases of deliberate bankruptcy or a fictitious legal entity — Articles 9 and 49 of the Civil Code).

📌 This reflects the principle of limited liability, especially in commercial organizations (LLPs, JSCs).

⚠️ 4. Liability in Case of Deliberate Bankruptcy (Clause 3)

🔹 Subsidiary Liability:

May be imposed on:

• the founder (participant),
• or an officer (director, chief accountant),

if:

• their actions led to deliberate bankruptcy;
• and, following bankruptcy proceedings, the debtor’s assets are insufficient to satisfy creditors’ claims.

🔹 Grounds:

• administrative offense (Article 155 of the Code of Administrative Offenses of the Republic of Kazakhstan);
• criminal offense (Article 218 of the Criminal Code of the Republic of Kazakhstan — deliberate bankruptcy).

📌 Guilt must be established by a court through the appropriate legal process.

⚖️ Example:

The head of an LLP transferred assets to affiliated companies before filing for bankruptcy. The court recognized the actions as deliberate bankruptcy, and creditors recovered damages personally from the director.

🧾 5. Liability for Actions of a Legal Entity’s Body Exceeding Authority (Clause 4)

🔹 Principle:

A legal entity remains liable even for actions of its governing bodies if:

• they exceeded the powers established by the charter;
• but it was reasonable for the counterparty to assume that the body acted within its authority.

📌 This rule protects commercial turnover and the interests of bona fide counterparties.

🔹 Exception:

If Article 159(11) of the Civil Code applies, the legal entity is not liable where:

• the counterparty knew or should have known about the lack of authority.

📝 Example:

A general director signed a contract exceeding the approved limit without participants’ consent. If the counterparty was unaware of this restriction, the LLP would still be obliged to perform the contract.

🧮 6. Comparative Analysis with Other Provisions

📚 7. International Standards

🔹 UNIDROIT Principles, OECD, UNCITRAL:

Support the principles of:

• autonomy of a legal entity;
• limited liability of participants;
• the possibility of piercing the corporate veil in cases of abuse of the legal entity structure.

✅ 8. Conclusion

Article 44 of the Civil Code of the Republic of Kazakhstan establishes a balance between:

• protection of creditors’ and counterparties’ interests (possibility of recovery);
• the principle of limited liability of participants;
• measures against abuse (deliberate bankruptcy, excess of authority).

📌 Effective application of this provision requires:

• analysis of charter restrictions;
• proper documentation of powers of attorney and participants’ resolutions;
• supervision of management’s good faith conduct.

Attention!   

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