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Options for closing a business in Kazakhstan. Liquidation and Bankruptcy.

The legislation of Kazakhstan provides for different options for closing a business and alternatives thereto.

1. Voluntary liquidation (for business entities, branches and representative offices, simplified liquidation for entrepreneurs)

2. Sale of a 100% participatory interest in the authorized capital of a legal entity

3. Reorganization in the form of mergers and acquisitions

4. Bankruptcy

5. Voluntary liquidation.

The main practical stage of liquidation is the liquidation in the territorial Tax authorities at the location of the business entity; this stage requires a mandatory comprehensive tax audit of the business entity. According to Article 58 of the Tax Code of the Republic of Kazakhstan, a tax audit shall be initiated by the tax authorities no later than twenty business days after the tax authority receives a tax statement from the entity. Thus, before the commencement of all liquidation processes, the entity should practically prepare for the upcoming multistage process of closing the business, especially the liquidation stage in the Tax authorities.

From a practical point of view, the owner of a business entity need to:

* make sure that there are second copies of the paper or electronic version of the submitted reports for all periods of the LLP’s existence,

* pay all tax obligations by the time of preparation of the liquidation tax reporting (Article 61 of the Tax Code of the Republic of Kazakhstan, the obligation to pay the tax duties within 10 calendar days from the date of the liquidation tax reporting),

* be aware of the details and availability of documents on the subject of major transactions, the presence of payables and receivables and the resulting tax liabilities for them,

* have the contact person available and the ability to contact the former accountants and financially liable persons for clarification on previous periods of the entity.

For certain categories of business entities, the liquidation procedure may vary to some extent.

LIQUIDATION FOR BRANCHES AND REPRESENTATIVE OFFICES

BRANCHES AND REPRESENTATIVE OFFICES need to carry out a proper liquidation procedure with a record of termination of activity in the justice authorities, filing a certificate from the Tax authorities, a certificate of destruction of the seal of the branch or representative office, media announcements, proper notification of creditors and debtors, liquidation balance sheet and resolutions of the parent company.

Sale of 100% participatory interest in the authorized capital of a legal entity

The sale of a 100% participatory interest in the authorized capital of LLP can also be attributed to the conditional option of closing the business from the side of the previous participant, as due to the sale of its 100% participatory interest in the LLP, the participant relieves itself of the liability for the subsequent work and activities of the business, while the entire procedure for transferring the business should be strictly observed, and the legal details and terms of the contract for alienation of shares in the authorized capital are also important. According to the procedure approved by law, a re-registration procedure should be carried out. During the re-registration between old and new participants, it is important to clarify and delimit the issues of liability for certain periods of activity of a business entity.

Reorganization in the form of mergers and acquisitions

One of the options for closing a business may be the transfer of the entire LLP by merging and acquisition to another LLP (reorganization). With this form of resolving the issue, all tax obligations do not cease, but are transferred to the legal entity, successor (Article 62 of the Tax Code of the Republic of Kazakhstan). Such a reorganization takes place based on resolutions of the supreme bodies of the reorganized legal entities and a deed of transfer signed by both parties.

However, it should be noted that a reorganized legal entity shall also submit liquidation tax reporting to the territorial tax authority. The obligation to submit the liquidation tax reporting during the reorganization by merger is assigned to each legal entity that is a part of the newly established legal entity, and during the reorganization by merger – to the joined legal entity (Article 62 of the Tax Code of the Republic of Kazakhstan).

Bankruptcy

Bankruptcy is a multi-stage and complex process that requires significant time and resources; it requires the full participation of the administrator, bankruptcy manager, creditors, founders, liquidation commission, officials of the entity, and other persons, as the case may be.

The legislation of the Republic of Kazakhstan provides for the simplified bankruptcy procedure. For example, liquidation of a bankrupt without initiating bankruptcy proceedings by an authorized body (tax authorities). In the absence of assets from the bankrupt, as well as transactions subject to recognition as invalid in accordance with the legislation, the authorized body is obliged to submit a final report and liquidation balance sheet to the creditors’ meeting within a month for approval.

 

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