HOW TO SUCCESSFULLY REDUCE CHARTER CAPITAL IN YOUR LLP?

Author: Zhanibek Dairov, Ayan Kuanyshbekov

An LLP’s charter capital may be decreased by pro rata-based way (proportionally decreasing the size of the contributions of all the LLP's participants/shareholders) or by fully or partially redeeming the participatory interests of specific participant/shareholder.

Procedure for Decreasing

Adopt a participants’/shareholders’ resolution to decrease the charter capital, and to amend the constituent documents or adopt them in a new version.
Sign the amendment to the constituent document;
Send a notice to creditors within 2 months from the date of the resolution or issue announcement in an official publication. Creditors have a right to demand additional guarantees from the LLP or early termination or fulfilment of the LLP's obligation and reimbursement of losses within one month from the date of receipt of the notice or publication of the announcement.
Re-register the LLP with the registering authority after the one-month period during which creditors have the right to submit their claims.

In the Event of an Unsuccessful Decrease of the Charter Capital

If within six months from the date of the resolution, no application for re-registration is filed or the necessary proof of fulfilment of the claims of the claiming creditors or the absence of objections from the claiming creditors against the registration of the decrease, the decrease of the charter capital shall be deemed to have failed. In this case, the reduction of the authorised capital may only be made by a new resolution is a same manner described hereabove;
decrease of the charter capital in case of violation of the procedure for notification of creditors is the basis for liquidation of the partnership by court resolution at the request of interested parties.

Reasons for Decrease in Charter Capital

when an LLP participant does not timely contribute its participatory interests (parts of it) to the charter capital;
if the LLP buys out the participatory interests of one of the participants (voluntarily or by court procedure), the LLP is obliged to offer these participatory interests to the other participants. If the latter are refusing to purchase it and the LLP’ constituent documents prohibit the sale of the participatory interests to third parties, the redeemed participatory interests is extinguished. This leads to a decrease of the charter capital and redistribution of participatory interests among the remaining participants;

This infographic does not cover participant payouts or tax-related issues

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