Corporate agreement between partners: why it is needed alongside the LLP charter

A lawyer is usually approached after the partners have already agreed verbally and one of them has changed their position: sold a share to a third party, voted differently at the general meeting or stopped taking part in the business. The LLP charter rarely reflects such arrangements — it is public and not intended for the personal arrangements of participants. A corporate agreement covers exactly this area: it operates between those who signed it and does not replace the charter.

The article examines how a corporate agreement differs from the charter, which terms may be included in it and which contradict the Law of the Republic of Kazakhstan on Limited and Additional Liability Partnerships, how to formalise the document and what happens if it is breached. Separately — typical mistakes that make the agreement useless in a disputed situation. The material is intended for an LLP participant who has encountered such an instrument for the first time.

What a corporate agreement is and why partners in an LLP need it

A corporate agreement is an arrangement between LLP participants governing their mutual rights and obligations in managing the company and disposing of shares. Relations between participants are governed by the Law of the Republic of Kazakhstan on Limited and Additional Liability Partnerships, but the charter does not cover all issues of running a business together. The agreement fills this gap: the partners agree in advance on rules that are inconvenient or impossible to set out in the charter.

It is needed for typical situations: how to vote at a meeting, who decides when votes are tied, how to sell a share to third parties, what to do in a conflict. The agreement operates alongside the charter, not cancelling it but clarifying the mechanics of interaction. Unlike the charter, which is available to third parties, it may contain confidential terms, including the procedure for profit distribution and resolving deadlock situations.

• Procedure for voting at the general meeting and recording of dissenting opinions of participants.
• Rules and restrictions on the sale or pledge of a share, including the pre-emptive right.
• Ways to resolve deadlock situations where votes are split and no decision is adopted.
• Terms for appointing the head and key employees of the LLP.
• Procedure for distributing profit and covering losses between partners.
• Obligations of participants upon withdrawal from the LLP and settlement of the share.

How a corporate agreement differs from the charter

The charter of an LLP is a constituent document, mandatory for all participants, the company and its bodies; it is presented to banks, counterparties and state bodies. Amending it requires a decision of the general meeting and registration of the amendments, so management cannot be restructured quickly. The charter determines the competence of the bodies, the procedure for adopting decisions and the limits of the director's powers.

A corporate agreement is an arrangement between the participants themselves. It operates between them, does not replace the charter, is not registered as a constituent document and is not disclosed to counterparties. It records what is not in the charter: how to vote at the meeting, to whom and at what price to sell a share, how to distribute dividends, who nominates the director. As a general rule, such arrangements do not create obligations for third parties.

• Accessibility: the charter is a public document, the agreement is internal.
• Mandatory nature: the charter is binding on all participants and bodies, the agreement on those who signed it.
• Amendment: the charter through the general meeting and registration, the agreement by agreement of the parties.
• Priority: in case of conflict, the charter applies as the constituent document.
• Registration: the charter is subject to state registration, the agreement is not.

A corporate agreement does not replace the charter and does not create obligations for third parties.

What can be fixed in a corporate agreement between partners

A corporate agreement is an agreement between the participants of an LLP that clarifies and supplements the charter to the extent not contrary to law. Relations between participants are governed by the Law of the Republic of Kazakhstan on Limited and Additional Liability Partnerships, and the parties rely on its provisions. The document records arrangements that are inconvenient or risky to disclose in a public charter.

The content depends on the partners' goals, but most often concerns management, voting and disposal of shares. The parties agree in advance how they vote on specific items of the agenda of the general meeting, including on candidates for the executive body. Mechanisms for resolving deadlock situations, when votes are split and no decision is adopted, are set out separately.

• Procedure for voting at the general meeting on predetermined matters
• Distribution of profit and procedure for payment of dividends
• Prohibition or restriction on selling a share to third parties without the partners' consent
• Pre-emptive right of participants to purchase a share
• Approval of major transactions and interested-party transactions
• Procedure for resolving deadlock situations and withdrawal from the participants

What cannot be included in a corporate agreement: restrictions under law

A corporate agreement in an LLP is governed by the Civil Code of the Republic of Kazakhstan and the Law of the Republic of Kazakhstan on Limited and Additional Liability Partnerships. It operates only between the parties and does not replace the charter: the charter remains the constituent document, while the agreement merely records the participants' arrangements. The limits are set by mandatory rules — anything contrary to them does not work.

Terms contrary to mandatory rules of law are invalid, and a discrepancy with the charter gives rise to a dispute that is best avoided. It is impossible to oblige a participant to vote contrary to a direct prohibition of law, or to deprive them of the right to withdraw or the right to a share upon liquidation. The same applies to provisions that circumvent the competence of the general meeting and replace a decision of the body with a private transaction.

• terms contrary to mandatory rules of law
• obligation to vote contrary to a prohibition of law
• deprivation of the right to withdraw from the LLP or the right to a share upon liquidation
• replacement of decisions of the general meeting with a private transaction
• provisions creating obligations for third parties
• mechanisms falling within the exclusive competence of the general meeting

How a corporate agreement protects shares and management in an LLP

A corporate agreement in an LLP is an agreement between the participants governing their mutual rights and obligations alongside the charter. The Law of the Republic of Kazakhstan on Limited and Additional Liability Partnerships contains dispositive norms that allow additional arrangements to be fixed. The agreement does not replace the charter but supplements it.

Protection of a share rests on mechanisms: restricting the transfer of a share to third parties, a pre-emptive right of purchase for existing participants, and a ban on splitting a share without the partners' consent. Provisions on options and on the procedure for increasing the charter capital prevent one participant from gaining control at the expense of the others, protecting against dilution of shares.

• The procedure for approving transactions with shares and the ban on transferring them without the consent of the other participants.
• The pre-emptive right to purchase a share when it is sold to a third party and the mechanism for determining the price.
• Voting rules at the general meeting, including the list of matters decided unanimously.
• The terms for appointing and removing the executive body, as well as control over its decisions.
• The procedure for resolving deadlock situations and for a participant's exit without prejudice to the others.
• Liability for breach of the arrangements and the means of protecting violated rights.

A corporate agreement works only where it has enforcement mechanics: who does what and at what point, rather than general assurances of good faith.

How to conclude a corporate agreement: procedure and formalities

A corporate agreement between the participants of an LLP governs their mutual rights and obligations in managing the company and disposing of shares. It operates between the participants who have signed it and does not replace the charter: the charter remains the constituent document and is binding on third parties.

The parties agree on the subject matter: voting on specific matters, the procedure for selling a share, a ban on competing transactions, and mechanisms for resolving deadlock situations. Preparation includes verifying information about the company and the participants and checking the draft against the current charter.

Written form, signature by all participants and a date are required. Notarisation or registration is not a general requirement: the agreement is not a constituent document, and information about it is not entered in the National Register of Business Identification Numbers.

Who can be a party to a corporate agreement

The range of parties to a corporate agreement is defined by the Law of the Republic of Kazakhstan on Limited and Additional Liability Partnerships. The parties are primarily the LLP participants themselves at the time of signing.

The participants may specify the procedure for voting, approving transactions and allocating seats in the management bodies. The agreement does not replace the charter or cancel it, but fixes arrangements that the parties do not wish to disclose publicly. Signing depends on whether a participant acts in person or through a representative under a power of attorney.

The participants may also assume obligations towards an external person — a creditor, an investor, a future buyer of a share. Such terms are set out expressly, and the scope of that person's rights cannot contradict the charter and the law.

Amendment and termination of a corporate agreement

A corporate agreement is an agreement between the participants of an LLP on mutual rights and obligations: voting, agreeing on candidates, restrictions on the disposal of a share. The charter remains the constituent document, and the agreement operates between the participants without replacing it. Amendment is possible by agreement of the parties, unless the agreement provides for a different procedure, and is formalised in the same way — as a single document or an addendum.

Termination is by agreement of the participants or by court order in the event of a material breach of the terms by one party. The agreement ends on expiry of its term, on performance of the obligations, or on a participant's exit, if so provided. The parties may establish their own grounds for early termination.

• Amendments are made by common consent of the parties, unless the agreement establishes a different procedure.
• An addendum is drawn up in writing and signed by all parties to the agreement.
• Termination is possible by agreement of the parties or by a court decision in case of a material breach.
• The contract terminates upon expiry of its term, upon performance of obligations, or upon a participant's exit, if so provided.
• Termination of the contract does not cancel obligations that arose and were not performed before that moment.
• The LLP Charter remains in force regardless of amendments to and termination of the corporate agreement.

Liability for breach of the corporate agreement

Relations between the participants of an LLP are governed by the Law of the Republic of Kazakhstan on Limited and Additional Liability Partnerships. A corporate agreement does not replace the charter and does not override mandatory rules of law, but it creates additional obligations between the parties. Liability is designed precisely for their non-performance.

A breach takes the form of voting contrary to an agreed position, selling a share to a third party without offering it to the partners, or refusing to approve a candidate for director. The consequences depend on the remedies provided in the text. The working instrument is a penalty: it is recovered for the very fact of departing from a term without proving the amount of losses.

• recovery of a penalty for departing from agreed terms
• compensation for losses, including lost profit
• a claim to perform the obligation in kind
• transfer to oneself of the buyer's rights and obligations where a share was sold in breach of a pre-emptive right
• the obligation of the breaching party to sell the share to the partners under a pre-agreed price formula

Corporate agreement and charter: what to put in each document

The LLP Charter is a constituent document binding on all participants and on the partnership itself. An agreement between participants operates between them and does not replace the charter, so terms that must be known to third parties are set out in the charter. Personal arrangements between partners that do not require disclosure are moved into the corporate agreement. This approach defines the relationship between the charter and the corporate agreement: not to duplicate, but to delimit.

The practice of corporate agreements shows: the more detailed the charter, the less parties argue about procedures. The charter records what concerns the management structure and dealings with third parties. The corporate agreement records what governs the conduct of the participants among themselves.

• The competence of management bodies and the procedure for convening meetings — in the charter.
• Additional obligations of participants, restrictions on disposal of a share, the procedure for voting on specific matters — in the corporate agreement.
• The procedure for distributing profit and covering losses — in the charter, if it affects third parties.
• Options, the procedure for determining the price of a share, mechanisms for resolving deadlocks — in the corporate agreement.
• Confidentiality and non-compete terms — in the corporate agreement.
• Rules on major transactions and interested-party transactions — in the charter.

The terms set out in both documents must be consistent in meaning; in case of discrepancy, the charter as the constituent document prevails.

Typical mistakes when drafting a corporate agreement

Relations between the participants of an LLP are governed by the Law of the Republic of Kazakhstan on Limited and Additional Liability Partnerships, and a corporate agreement does not replace the charter but operates alongside it. Mistakes begin with the document being treated as a formality and a standard template being signed. As a result, the parties end up with a paper that affects neither voting, nor profit distribution, nor exit from the partnership.

Some of the shortcomings stem from the absence of enforcement mechanisms. If the text contains no consequences for breach of the agreements, the obligation remains a declaration. It is unclear how to vote on a particular agenda item, what counts as a breach and what measures apply to a participant — such a document is difficult to use in a conflict.

• Check every clause against the charter and, where they diverge, amend the charter rather than leaving a conflict between the two documents.
• Set out exactly how a participant votes on predetermined matters and what happens if they refuse.
• State the consequences of breach: the procedure for buying out the share, compensation, and a penalty.
• Remove wording that can be read in two ways: "where possible", "as a rule", "if necessary".
• Establish a procedure for resolving deadlocks, where votes are split and no decision can be taken.
• Set out who confirms the performance of obligations and in what manner, and how breaches are recorded.