Management of Affairs of a Limited Partnership (Commandite Partnership)

📘 I. General Characteristics of the Article

A limited partnership (LP) by its legal nature is a two-tier association in which:

· general partners manage the affairs and bear unlimited liability;· limited partners (contributors) are passive investors and do not participate in management.

Article 75 of the Civil Code of the Republic of Kazakhstan establishes the key principle of management in a limited partnership — exclusive authority of general partners to manage, and the exclusion of limited partners from management activities, except when acting under a power of attorney.

📑 II. Commentary on the Provisions of the Article

🔹 1. Management of affairs is carried out by general partners

“Management of the affairs of a limited partnership is carried out by the general partners.”

🔍 This means that:

· Only general partners are entitled to make decisions on the economic, financial, and legal activities of the LP;· Only they are authorized to:

o conclude transactions,o dispose of partnership property,o represent the partnership in court and before other bodies.

📎 Related provisions:

· Article 70 of the Civil Code of the RK — participants of a general partnership may act without a power of attorney;· Articles 67–68 of the Civil Code of the RK — general principles of business partnerships.

📌 Judicial practice:In case No. 2-3532/2021, the court declared invalid a transaction concluded by a limited partner of LP “Orda”, as the person acted without a power of attorney and was not a general partner.

🔹 2. Application of the rules on general partnerships

“…is determined in accordance with the rules on general partnerships.”

🔍 The management model of a limited partnership with respect to general partners fully corresponds to the rules governing:

· distribution of voting rights;· sole or joint management;· the possibility of limiting the authority of individual partners.

📎 Article 70 of the Civil Code of the RK:

· management may be carried out by all general partners or by one of them (if agreed);· in the event of disagreements — decisions are made by majority vote or resolved by court.

🔹 3. Exclusion of limited partners from management

“Limited partners are not entitled to participate in the management of affairs… except by power of attorney.”

🔍 This means that:

· Limited partners may not make any decisions regarding business operations;· However, they may:

o represent the partnership under a duly executed power of attorney;o exercise control by reviewing financial documentation (Article 73 of the Civil Code of the RK).

📌 Important:If a limited partner de facto manages the partnership (even without a power of attorney), the court may qualify such actions as managerial, which creates the risk of loss of limited partner status and imposition of unlimited liability.

📘 Judicial practice:

· Resolution of the Supreme Court of the Republic of Kazakhstan dated 19.11.2019:a limited partner who signed a contract on behalf of the LP without a power of attorney was held liable as a person who acted beyond the scope of authority and outside passive participation.

🔹 4. Limited partners are not entitled to challenge the actions of general partners

“…are not entitled to challenge the actions of the general partners in managing the affairs of the partnership.”

🔍 This is an absolute restriction:

· Limited partners may not file claims seeking revision of managerial decisions of general partners;· Their protection is limited to:

o the right to withdraw from the partnership (Article 73 of the Civil Code of the RK);o the right to receive information and profits;o challenging actions only in cases of abuse that caused direct harm to the limited partner, provided a causal link is proven.

📌 Legal position:This prohibition logically follows from the role of the limited partner as a non-managing and liability-limited participant.

📘 Legal risks:In the event of a conflict of interests between limited partners and general partners, a limited partner is entitled to:

· withdraw from the LP;· apply to court not to challenge management decisions, but to protect property rights (e.g., non-payment of profits).

⚖️ III. Comparison with International Practice

🔑 Universal principle:If you do not manage, you are protected from unlimited liability. This is the core guarantee for a passive investor.

📚 IV. Related Articles and Regulatory Acts

📝 V. Conclusions and Recommendations

1. General partners are the sole managers in a limited partnership.
2. Limited partners may not challenge decisions, participate in meetings, or vote unless acting under a power of attorney.
3. If a limited partner engages in de facto management, they may be recognized as a de facto general partner, resulting in unlimited liability.
4. In case of a conflict of interests, a limited partner should consider:

o withdrawing from the LP (Article 73, para. 2, subpara. 4);o demanding payment of profits or a share of property;o reviewing the constituent documents — additional protective mechanisms may be provided there.

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