Company charter: what to check right now and which risks are hidden

You open the company charter to clarify the procedure for approving a transaction or distributing profit, and you see wording written many years ago. Since then, the law, the composition of participants and the scale of the business have all changed. It would seem simple enough to take and amend a couple of clauses. In practice, it is precisely the charter that becomes the cause of corporate conflicts and counterparties refusing to proceed with a transaction.

In Kazakhstan, a company charter must comply with the mandatory provisions of the legislation on limited liability partnerships and joint-stock companies. If it still contains provisions that contradict the law, they do not apply, but they create confusion. Most often, the risks relate to the competence of the bodies, the procedure for approving transactions and the exit of participants.

Company charter: what to check right now

A company charter in Almaty is not a folder of dusty pages but a working document by which disputes are resolved, transactions are formalised and inspections are conducted. When a conflict arises between participants, a bank requests confirmation of authority or the tax authority checks transactions, the first thing opened is the charter. If a director has signed a contract outside the scope set out in the charter, the transaction may be recognised as invalid, and the company may incur losses.

It is worth checking the company's charter before a problem arises, not after. In Almaty this is a typical situation: the document was drawn up from a template when the LLP was registered and has not been changed since, even though the participants, shares and types of activity are long different. Start with the sections on the competence of the bodies, major transactions, distribution of profit and the procedure for amending the charter itself — that is where the levers of influence and the risk areas are hidden.

• Powers of the director: which transactions he signs himself and which require the consent of the participants
• Major transactions: the value threshold and the approval procedure
• Distribution of profit: when and how the participants receive dividends
• Procedure for amending the charter and convening the general meeting
• Term of office of the director and the procedure for his re-election

When a company's charter is outdated and creates risks

Over time, the actual structure of a business almost always outgrows what is written in its constituent documents. New participants appear or the ratio of shares changes, branches and representative offices are opened, some powers are transferred to a manager or a supervisory board, while the outdated company charter continues to exist in its old version.

The most dangerous situation is when the document does not correspond to the actual structure. Provisions on major transactions, distribution of votes, competence of the bodies and the approval procedure are often missing. In a dispute, it is difficult for the parties to confirm that a decision was taken lawfully, so an outdated charter is worth checking before a transaction or a corporate conflict.

• Several versions and it is unclear which one is in force.
• No clauses on major transactions and the approval procedure.
• The composition of participants and the shares do not match reality.
• The board of directors or the manager are not described.
• The seals and details in the document are out of date.

Who in the company takes decisions under the charter

The director's powers under the charter and the competence of the general meeting of participants are not a formality but a working tool. If the boundaries in the charter are blurred, the director signs what the participants consider unacceptable, and the meeting votes on matters that are not within its remit. In practice, a dispute over management begins not with stolen money but with the question of who was entitled to take the decision.

The management bodies in a company's charter should be examined in two places: what is assigned to the exclusive competence of the meeting and which transactions the director carries out only with the consent of the participants. Separately, check who convenes the meeting, how votes are counted and how approval is recorded. In a conflict, it is precisely these clauses that determine whether the manager is acting under the charter and, in the case of a major transaction, whether he was entitled to sign the contract without approval.

If the charter does not set a limit on the director's transactions, the consent of the participants is as a general rule not required.

The company charter and transactions: where mistakes are most often made

When the charter has no clear criteria for a major transaction, or they are worded vaguely, the contract may be held invalid, and the party will have to return what it received. A major transaction should be described in the company charter through clear thresholds: a percentage of the balance sheet value of assets, types of property, and a list of matters requiring the consent of the participants.

Whether the charter contains a threshold for a major transaction and the approval procedure.

A separate risk area is a transaction with interest under the charter. If the document does not state who is considered an interested person and how the conflict is disclosed, challenging the contract and losses become a real prospect. Check:

• Whether the persons whose transactions require consent are specified.
• Whether the mechanism for disclosing interest is set out.
• Whether there are consequences for a transaction without approval.

What documents are needed to review the company charter

To understand the real state of affairs, ask the company for the current version of the charter with all amendments. Check it against the minutes of general meetings of participants or resolutions of the sole participant on the basis of which the amendments were made. Without the minutes, it is impossible to confirm that the amendments are lawful and were adopted by an authorised body.

The company charter documents should be reviewed as a whole: the state registration certificate, the certificate of registered amendments, and the text of the charter itself. A review of the company charter also includes internal acts if the charter refers to them. This way you will see whether the actual management structure matches the records in the register.

• The current charter in its latest version
• Minutes of meetings or resolutions of the sole participant
• State registration certificate and certificate of amendments
• Documents on all registered amendments

If a document is missing, that is already a risk: the gap will have to be closed before a deal or a dispute.

Typical mistakes in a company charter in Almaty

In practice, the most common mistakes in a company charter are those carried over from an old version: the document was adopted under previous legislation, then piecemeal amendments were made, and now the provisions on branches, the competence of bodies or the procedure for disposing of a share contradict the current rules. A separate category is the absence of mandatory provisions: the procedure for convening the general meeting, the method of confirming decisions, the rules on withdrawal and pre-emptive rights are not set out.

Amendments are often formalised incorrectly: the minutes are drawn up with a backdated date, it is not stated which clause is being changed, the full new version is not attached, and only the sheet of amendments is filed with the justice authorities. If you are looking for a company charter in Almaty, a lawyer first checks the version against the certificate of registration, reviews the minutes and only then decides what needs to be corrected. Mistakes in the clauses on major transactions and the powers of the director are the most costly.

• Outdated version or non-compliance with the law
• Absence of mandatory provisions on the meeting and decisions
• Contradictions between the charter and internal documents
• Amendments formalised by minutes without a full new version
• Amendments made to registration data but not reflected in the charter

What to do with the company charter next

Start by recording the discrepancies: write down which provisions of the outdated charter contradict the actual management structure, the composition of participants and the procedure for transactions. These notes will form the basis for amendments to the company charter — do not try to fix everything at once, work through the specific inconsistencies.

Bringing the company's charter into order is only possible through the official procedure: prepare a new edition, hold a general meeting of participants with a minutes record, and register the changes with the justice authorities. After registration, update the internal documents that refer to the charter's provisions.

• Record the discrepancies in writing
• Prepare a draft of the new edition of the charter
• Hold a meeting of participants and draw up the minutes
• Register the changes with the justice authorities
• Update internal regulations and policies

A company's charter only works when its provisions are specific and comply with the current law. Vague wording on the director's competence and the procedure for approving transactions is a direct path to a corporate dispute and the challenging of contracts.