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Reorganization by spin-off

24.09.2021

A spin-off is one of the forms of reorganization of a legal entity named in the Civil Code. Part of an LLP’s property, rights and obligations passes under a separation balance sheet to one or more new partnerships, while the LLP itself does not terminate (Art. 46(4) of the Civil Code, Art. 63(2) of the Law “On Limited and Additional Liability Partnerships”). Below: how a spin-off differs from the other forms, how it works step by step, what the separation balance sheet must contain and who is liable for debts after the reorganization. We have carried out a reorganization of an LLP in the form of a spin-off.

Forms of reorganization of an LLP

A voluntary reorganization of an LLP is carried out by decision of the general meeting of participants (Art. 61(1) of the Law on LLPs, Art. 43(2)(7)). In cases established by legislative acts, a division or a spin-off is carried out by decision of authorized state bodies or a court (Art. 61(2)). The Civil Code names five forms of reorganization, and legislation may provide for other forms (Art. 45(1) and Art. 46 of the Civil Code):

  • merger — several LLPs combine into a new one and terminate; rights and obligations pass under a transfer deed;
  • accession — one or more LLPs join another and terminate; their rights and obligations pass under a transfer deed to the LLP they have joined;
  • division — the LLP terminates, and its property, rights and obligations are divided among new partnerships under a separation balance sheet;
  • spin-off — the LLP remains, and one or more new LLPs are separated from it; part of its rights and obligations passes to them under a separation balance sheet;
  • transformation — the legal entity changes its legal form; rights and obligations pass to the new entity under a transfer deed.

A transfer of a share or any other change in the participants is not a reorganization (Art. 61(1) of the Law on LLPs). How a merger, accession or division works — see the service page “Liquidation and reorganization of LLPs in Kazakhstan“.

How a spin-off differs from a division

  • What happens to the LLP. In a division the partnership terminates, in a spin-off it remains (Art. 63(1) and (2) of the Law on LLPs). Entities that terminate in a merger, accession, division or transformation are excluded from the National Register of Business Identification Numbers; the law says nothing of the kind about a spin-off (Art. 6-3 of the Law “On State Registration of Legal Entities and Registration of Branches and Representative Offices”).
  • Taxes. In a division, within three working days of the decision the LLP files liquidation tax reporting and an application for a tax audit with the tax authority; in a spin-off — only the application for a tax audit (Art. 77(5) of the Tax Code).
  • Licenses. In both a division and a spin-off a license is reissued to only one new LLP and only if it meets the qualification requirements; in a spin-off the consent of the partnership from which it was separated is also required (Art. 34(4) and (5) of the Law “On Permits and Notifications”).

How a spin-off works

  1. Documents for the meeting. The executive body of the LLP prepares the spin-off plan, draft charters of the new partnerships and the separation balance sheet (Art. 63(3) of the Law on LLPs).
  2. Decision of the general meeting. The meeting decides on the spin-off, approves the plan, the charters of the new LLPs and the separation balance sheet, and elects their executive and other bodies (Art. 63(3)). From then on, the decision must be reported to creditors under obligations arising after it (Art. 63(5)).
  3. Tax audit. Within three working days of the decision the LLP files an application for a tax audit with the tax authority at its location (Art. 77(5)(2) of the Tax Code). The separation balance sheet is submitted to the tax authority if the audit shows no tax debt, no social payment debt and no overpaid amounts to be refunded. The tax authority then sends the registration authority information on the absence of debt (Art. 77(6) and (7) of the Tax Code).
  4. Notice to creditors. Within two months of the decision the LLP sends written notices to all its creditors and places an announcement in official print media. The separation balance sheet and the name, location and address of each new partnership are attached (Art. 63(6) of the Law on LLPs).
  5. Creditors’ period. Within two months of receiving the notice or of the publication, creditors may demand in writing early termination or performance of obligations and compensation for losses, and may send copies of their demands to the registration authority (Art. 63(7) of the Law on LLPs, Art. 48 of the Civil Code).
  6. Registration of the new LLP. It is carried out after the period given to creditors expires. If the registration authority has received copies of creditors’ demands, the new LLP is registered once evidence is provided that the demands have been met or that those creditors do not object to the reorganization (Art. 67(3) of the Law on LLPs). The application is filed electronically via the e-government portal; the documents attached include the reorganization decision, the separation balance sheet with provisions on succession and the decision approving it, and a document confirming notice to creditors (Art. 6-3 of the Law on State Registration). An LLP that is a private business entity is registered within one working day of the electronic application, and one with foreign participants without Kazakh identification numbers — no later than the next working day (Art. 9).

The LLP is deemed reorganized from the moment the new partnership is registered (Art. 45(4) of the Civil Code). The property passes to the new LLP at the same moment, unless otherwise provided by law or by the reorganization decision (Art. 61(4) of the Law on LLPs). If the registration application is not filed, or evidence on creditors’ demands is not provided, within one year of the decision, the reorganization is deemed not to have taken place (Art. 67(4)).

Separation balance sheet

  • The separation balance sheet must contain provisions on succession to all obligations of the LLP towards all its creditors and debtors, including obligations disputed by the parties (Art. 47(1) of the Civil Code).
  • The balance sheet is approved by the body that decided on the reorganization. If it is not submitted together with the constituent documents, or contains no provisions on succession, registration of the new LLP will be refused (Art. 47(2) of the Civil Code).
  • Unless the charter provides otherwise, each participant is entitled to a share in the new partnership equal to its share in the charter capital of the reorganized LLP (Art. 63(4) of the Law on LLPs).

Who is liable for debts after a spin-off

  • Partnerships that arise from a spin-off are jointly and severally liable for the obligations of the reorganized LLP for one year from their registration (Art. 63(8) of the Law on LLPs).
  • If the separation balance sheet does not make it possible to identify the successor, or the successor lacks property to meet obligations that arose before the reorganization, the new partnerships and the LLP from which they were separated are jointly and severally liable to its creditors (Art. 48(3) of the Civil Code).
  • Fulfilment of the tax obligation of the reorganized LLP rests with its successor, except for liquidation tax reporting in a division or spin-off. The successor and its share in paying off the tax debt are determined under civil legislation. A reorganization does not change the deadlines for paying taxes (Art. 77(1) and (2) of the Tax Code).

License in a spin-off

The LLP’s license is reissued to the spun-off partnership if the LLP from which it was separated consents and the spun-off LLP meets the qualification requirements. The application is filed by the spun-off LLP within 30 calendar days of completion of the reorganization. Information on meeting the requirements and the consent decision are attached to the reissue documents. A license can be reissued to only one spun-off LLP (Art. 34(4) of the Law “On Permits and Notifications”). More — in our video “What to do with a license if a reorganization has taken place?” and on the page “Obtaining licenses and permits in Kazakhstan“.

How we can help

We will prepare the spin-off plan, the charters of the new partnerships and the separation balance sheet, the general meeting decision, notices to creditors and the announcement, file the application for a tax audit and support the registration of the new LLP. Other forms of reorganization and liquidation of an LLP — see the service “Liquidation and reorganization of LLPs in Kazakhstan“. Our reorganization case — in the article “The law firm KORGAN successfully carried out a reorganization in the form of a merger of one legal entity with another“.

The first consultation is free. Call us: +7 700 500 05 53 or write on WhatsApp.


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