The Role Of The Charter And The Foundations Agreement: LLPs Vs Private Companies In The AIFC

A foreign investor rarely begins by asking whether to establish an LLP or a private company in the AIFC. Instead, the starting point is usually "where should control mechanisms be embedded". By control, investors typically mean a familiar set of issues: who appoints the director, which transactions require investor consent, how the budget is approved, how borrowings and security are restricted, how a 50/50 deadlock is resolved, and how an exit from the project is structured.

In Kazakhstan and in the AIFC, these issues can formally be addressed under both legal forms. In practice, however, the answer depends on how flexible the constitutive document is and how easily commercial arrangements can be translated into functioning and enforceable corporate procedures. For an investor, the decisive factor is not the legal form itself, but how effectively and predictably control mechanisms are embedded into the company's corporate governance and how they operate in day-to-day business.

Constitutive Documents in an LLP and in a Private Company Incorporated in the AIFC

In an LLP, the legal framework is built around two core documents. Where an LLP is established by more than one foundation, a foundations agreement is entered into in written form and signed by the foundations or their representatives. Alongside this, a charter is adopted, which defines the legal status of the LLP as a legal entity. Under the legislation of Kazakhstan, companies may also operate on the basis of a standard charter upon registration, should this option be selected.

It is important to note that the LLP charter is a public document and shapes the legal expectations of third parties, counterparties, and state authorities. By contrast, the foundations agreement retains the nature of an internal arrangement between the foundations and primarily governs their commercial relationship.

In a private company incorporated in the AIFC, there is a single central constitutive document – the Articles of Association. The AIFC Companies Regulations expressly provide that the Articles of Association may include any provisions the shareholders consider appropriate, provided such provisions do not contradict the Companies Regulations or the Companies Rules. In addition, a company may adopt standard Articles of Association in full or in part, which often simplifies the initial establishment of the structure.

At the same time, the flexibility of the Articles of Association is limited. The Companies Regulations and Companies Rules contain mandatory provisions, including those relating to directors' duties, standards of conduct, and core corporate procedures. These rules are imperative in nature and cannot be amended or excluded, even by unanimous shareholder consent. For investors, this ensures a minimum guaranteed level of corporate discipline and protection against arbitrary or uncontrolled management.

Why Flexibility Ultimately Depends on the Governance Architecture

In an LLP, the "skeleton" of the corporate governance model is largely prescribed by law. The LLP Law expressly identifies the governing bodies of an LLP and provides that the supreme body is the general meeting of foundations. In practice, this means that a significant portion of corporate control is structured around the general meeting, quorum requirements, voting thresholds, and the list of matters that cannot be decided without foundation approval. Even with a limited number of foundations, this model may create procedural delays and reduce the speed of decision-making.

As a result, practical flexibility in LLP governance is often achieved through expanding the powers of the supervisory board. Although under the law the supervisory board is formally a control and oversight body, its powers are frequently extended through the charter to include elements of managerial authority. In substance, this brings its role closer to that of a board of directors as envisaged under joint-stock company legislation. Even where simplified procedures for general meetings are available, operational control in investment and joint venture structures is often exercised primarily through the supervisory board.

In contrast, in an AIFC private company the governance framework is generally perceived as more configurable. Many governance mechanisms can be integrated directly into the Articles of Association, which function as the company's constitutional document. This is not merely theoretical. AIFC rules allow private companies to adopt written shareholder resolutions for most matters, unless restricted by the Articles of Association. In addition, AIFC law permits a company not to hold an annual general meeting unless the Articles of Association require otherwise. For foreign investors, this structure is typically more familiar and easier to administer, as many decisions can be taken without convening formal meetings.

Where There Is Greater Practical Flexibility and What This Means for Investors

If flexibility is understood as the ability to embed a greater number of control mechanisms directly into the constitutive document, a private company incorporated in the AIFC generally offers broader scope. The principle that any provisions may be included provided they do not contradict the Regulations and Rules allows the Articles of Association to be drafted in a detailed and transaction-specific manner, covering approval mechanics, internal procedures, and special voting thresholds. Written resolutions, in particular, often save significant time, especially where shareholders are located in different jurisdictions and coordinating meeting schedules becomes a challenge in itself. At the same time, investors should bear in mind that this flexibility operates strictly within the framework of the AIFC's mandatory corporate governance rules, particularly those governing directors' duties.

In an LLP, flexibility is typically achieved through a different approach. While the charter defines the legal status of the LLP and provides a convenient vehicle for setting out basic governance rules, the statutory role of the general meeting as the supreme body often requires investor control mechanisms to be split between the charter and the contractual layer. The foundations agreement and any shareholders' agreements allow for detailed regulation of the economic arrangements between the foundations, but corporate control mechanisms intended to operate as binding rules of the company are generally more robust when embedded in the charter.

This distinction is driven by the fact that the foundations agreement primarily governs the commercial relationship between the foundations and is not intended to apply vis-à-vis third parties. As a result, corporate decisions based solely on foundations agreement provisions may be more vulnerable to challenge.

What Should Be Included in the Charter or Articles of Association, and What Should Remain Contractual

In both systems, one practical rule applies. Matters relating to the allocation of authority, the powers of corporate bodies, decision-making procedures, and key control mechanisms are best embedded in the LLP charter or in the Articles of Association of a private company incorporated in the AIFC. In LLPs, this is particularly important because the statutory governance model is built around the general meeting and the executive body, and corporate practice assumes that the charter defines the legal status and core operating rules of the company.

In the AIFC, this approach is further reinforced by the public nature of the Articles of Association, which disclose decision-making criteria and procedures in advance. This transparency reduces the risk of disputes and enhances predictability for investors and counterparties.

The commercial substance of a transaction is generally better retained in a shareholders' agreement or a share purchase agreement. This is where pricing formulas, earn-out mechanisms, indemnities, exit valuation rules, and similar provisions are typically placed. For foreign investors, this distinction is particularly important: contractual arrangements are easier to amend, are usually confidential, and are better suited to detailed commercial mechanisms that should not form part of the company's corporate "skeleton". Such mechanisms can also be more easily adapted over the life cycle of an investment project.

How This Plays Out in Practice

If an investor wishes to ensure that the company cannot incur debt, grant security, dispose of key assets, or amend the budget without its consent, a reliable structure in an LLP usually requires these matters to be embedded at the charter level through the competence of the general meeting or the supervisory board, combined with special voting thresholds and approval procedures. In an AIFC private company, a similar outcome is often achieved more directly through the Articles of Association, supplemented by written resolutions and streamlined procedures for taking corporate decisions, thereby reducing transactional delays in routine corporate actions.

Conclusion

From a corporate control perspective, an LLP is most effective for structures involving local business operations, local foundations, and a relatively simple ownership model that does not contemplate the involvement of third-party investors.

A private company incorporated in the AIFC, by contrast, is better aligned with the expectations of foreign investors and projects with an international element, as well as structures designed for future capital raising or expansion into foreign markets. The ability to tailor the Articles of Association in detail, combined with mandatory corporate governance standards and transparent procedures, makes this form particularly suitable for investment-driven and cross-border transactions.

Sources:

1. https://aifc.kz/legal-framework/aifc-companies-regulations/
2. https://aifc.kz/legal-framework/companies-rules/
3. https://adilet.zan.kz/rus/docs/Z980000220_

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.