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Procedure for
Changing the Company
CEO / Head of Branch
or Representative Office
Practice shows that a large part of foreign companies conducting their activities in Kazakhstan through a subsidiary or branch / representative office have no idea or are mistaken about the legal status and procedural intricacies of the Republic of Kazakhstan’s (RK) legislation governing the appointment and dismissal from office of the CEO of such subsidiary or head of the branch / representative office (“CEO / Head”). However, changing the CEO/Head without engaging legal advisors (for economical or other reasons) often turns into losses for such companies due to: (i) expenses required to pay fines for failure to comply with statutory requirements, (ii) expenses required to pay compensation for a forced absence at work of the CEO / Head unlawfully dismissed and, therefore, judicially reinstated in job, (iii) suspension of business in Kazakhstan due to impossibility to effect operations in the bank accounts of the company/branch/representative office, etc.
AEQUITAS labor practice team has prepared a handy guide containing
the key local legislative requirements to be taken into account when changing the CEO / Head. The structure and order of the document sections are easy to navigate and to verify the correctness and timeliness of employer’s actions.
Version of 1 June 2015
Procedure for
Changing the
Company CEO /
Head of Branch
or Representative
O
ffi
ce
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It is universally known that a CEO / Head is a person actually and legally managing a company/branch/representative office. However, the following should be paid attention to:
A CEO / Head is not only an officer authorized under the corporate documents, but also an employee of the company which (or whose structural subdivision) it manages. Accordingly, if changing the CEO / Head, labor relations with the old CEO / Head are terminated, and the hire for work of the new CEO / Head is formalized.
When implementing the state (record) registration of a company (branch/representative office), its CEO / Head is registered as such by the authorized agencies in the RK State Legal Entities Database (“SLED”). Subsequent changes of the CEO / Head entail, on a mandatory basis, the update of SLED data.
The CEO / Head is by default the employee responsible for state budget settlements and, accordingly, signs all tax statements of the company/branch/representative office. Same as in case of SLED data, if changing the CEO / Head, it is necessary to update the data at tax authorities.
Normally, the CEO / Head is the only person authorized to dispose of the company/branch/representative office’s bank accounts. A change of CEO / Head entails suspension of
operations in bank accounts for the period of bank authorization of the new CEO / Head, or requires additional actions, such as, for instance, prior authorization of another signatory with the bank.
What You
Should Know
About a CEO/
Head
Regardless of the reasons that served as a ground for changing the CEO / Head, this process boils down to the following actions / stages:
Termination of former CEO / Head’s powers and labor relations with him / her
The company’s authorized body adopts a corporate resolution to terminate the CEO/Head’s powers and his/her employment agreement, such resolution to specify the ground (according to the RK Labor Code) and the procedure for labor relations termination (date of powers termination, payment of compensation, etc.) after which, depending on the chosen ground for CEO/Head powers termination, the company’s authorized representative and the former CEO/Head sign the relevant employment documents on labor relations termination.
Appointment of the new CEO / Head and formalization of labor relations with him/her
Same as termination or the former CEO / Head’s powers, appointment of the new CEO / Head is to be documented by a corporate resolution of the company’s authorized body (as a rule, termination of the former CEO / Head’s powers and appointment of the new CEO / Head are documented by the same resolution). The employment agreement with the new CEO/Head is signed by a person authorized by the corporate documents (for example, the company charter) or based on a power of attorney.
In case the new CEO / Head is a citizen of another state, except for the countries that are parties to the Eurasian Economic Union Agreement, a foreign labor engagement permit is required to enter into the employment agreement.
Procedural
Stages of CEO/
Head Change
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New CEO / Head’s authorization with the servicing bank
Pursuant to the bank’s internal procedures, in order to change the person authorized to sign the banking documents and, accordingly, to dispose of the money in bank accounts, it is necessary to submit a certain set of documents, including cards with sample signatures of the new CEO / Head and the impress of the company / branch / representative office corporate seal. The said cards must be notarized. In its turn, the notary would notarize the cards only after having verified the new CEO / Head’s powers, including, as per the current RK practice, check the data on the current CEO / Head in the Unified Notarial Information System (“UNIS”), which implies the need for prior notification to the justice authorities about the change of CEO / Head and the relevant update of the SLED data.
Notification to the employment authorities about engagement of a foreign citizen for the position of the Head of a branch/representative office
In case a foreign citizen is appointed to the position of the Head of a branch / representative office of a foreign company, it is required to accordingly notify the employment authorities.
The CEO of a company, unlike the Head of a branch/representative office, is the head of its executive body, which entrusts him/her with a special status and gives the employer an additional ground to terminate at any time the CEO’s official powers and labor relations with him/her (resolution of the legal entity’s property owner, or a person (body) authorized by the owner, or the authorized body of the legal entity, to early terminate the labor relations). Given that in practice the said special ground for employment agreement termination applies only in case of irresolvable conflict between the company founders and the CEO or in case of the CEO’s gross violation of his/her official duties, otherwise, the labor relations are normally terminated on the grounds statutorily provided for ordinary employees (subject to certain specifics of the CEO’s position).
The Head of a branch/representative office, although managing the company’s structural subdivision, is an ordinary employee whose labor relations are terminated in a general procedure. It should be mentioned that liquidation of a branch/representative office is not “employer liquidation” for the Head of such branch/representative office; hence, labor relations with the Head cannot be terminated on employer’s initiative on the ground of “employer liquidation.” In case of conflict situations with the CEO / Head, it is necessary to
Choice of Grounds for
Termination of Labor
Relations with the Former
CEO / Head
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Completion of the
CEO/Head Changing
Procedure
As practice shows, complying with all the above notification procedures does not guarantee that the CEO/Head change has been fully and successfully completed in the databases of authorized agencies. Situations are more and more frequent where, due to the so-called “human factor” or software malfunction, new data are not fixed in the databases of authorized agencies. One has to re-submit the necessary documents or contact the immediate persons-in-charge at the authorized agency to correct the data.
Unfortunately, the current procedure for authorized agencies notification about the change of CEO/Head does not contemplate the issuance of any documents to support the fact of the data amendment. In fact, after having submitted the documents to the authorized agency, the applicant only keeps in hands the second counterparts (copies) of the notifications/applications or a documents acceptance slip. Therefore, after submitting the documents, it is recommended to:
Check via the e-Government portal the data about the CEO / Head;
Request at Centre for Acceptance and Processing of Information from Legal Entities and Individual Entrepreneurs a SLED
Notification of legal entity registration and verify the data in this document.
Yuliya Chumachenko Partner
Kazakhstan's leading labor practice lawyer according to Best Lawyers, Who’s Who Legal and Legal 500 international rating agencies.
Larissa Yemelyanova Senior Associate Karina Sultanaliyeva Senior Associate Alexandr Chumachenko Associate Yuliya Lazareva Associate AEQUITAS LABOR LAW PRACTICE TEAM
Please find detailed information on aequitas
lawyers on their personal pages at www.aequitas.kz.
We hope our instructions and recommendations will prove to be helpful for your business.
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