Government measures to further stimulation of small entrepreneurship

2. Subjects of medium entrepreneurship – individual entrepreneurs without legal entity with an average annual number of employees over 50 persons and legal entities engaged in private entrepreneurship, with an average annual number of workers over 50, but not more than 250 persons or average annual asset value per year not exceed 556 725 000 tg (325000 x MCI established by the “Law on Republican Budget” for the fiscal year).

3. Subjects of large entrepreneurship –legal entities engaged in private entrepreneurship, with an average annual number of workers more than 250 persons or total asset value for the year more than 556 725 000 tenge (more than 325.000 x MCI established by the “Law on Republican Budget” for the fiscal year). [16]

Organizational and legal forms of entrepreneurship in Kazakhstan.

To the future entrepreneurs before establishing the business, it is necessary to decide how they will conduct it. A lot of things will depend on what form of business they will choose. What issues they need to solve?

They are:

• features of registration and business;

•  accounting statements;

• amount of financial risks

• taxes

• profit

• legal liability, etc.

Many entrepreneurs began their business with such form as individual enterprise (IE), and further with development, established companies, such as limited liability partnership (LLP).

Various forms of entrepreneurship in the Republic of Kazakhstan.

In the Republic of Kazakhstan there are two major forms of entrepreneurship: individual enterprise (IE) and legal entity (LE).

 

 

 

 

 

 

IE is an initiative activity of individuals aimed at income generating, based on the property of citizens themselves and carried out on behalf of citizens for their risk and under their liability (property). [17]

IE is carried out without LE formation by one citizen (private entrepreneurship) or a group of citizens (joint entrepreneurship). There are three main types of joint entrepreneurship:

 

Table 2

Three main types of joint entrepreneurship

Spousal entrepreneurship	Family entrepreneurship	Particular partnership
is carried out on the basis of  joint property of the spouses (matrimonial assets).	is carried out on the basis of  joint property of peasant farm or joint property on privatized housing (the property of the farm belongs to his members on the right of joint ownership if the contract between them provides otherwise).	is carried out on the basis of common ownership (under the contract of ordinary partnership the parties undertake to act jointly to generate revenue or to achieve a goal not contrary to law)
Note – made by the author on the basis of internet site - http://www.damu.kz

Peasant farm (PF) is one of the IE types. It is family and labor association of persons where the entrepreneurship is inextricably associated with the use of agricultural lands for agricultural production, and with the processing and sale of these products.

Legal relationship connected with peasant farms is regulated by the Law of the RK “On peasant farm” # 214-1 dated March 31, 1998 and other regulations. Members of PF are spouses, children, adopted children, parents and other close relatives who are conduct a common household together. PF has the following forms:

- family entrepreneurship;

- private entrepreneurship;

- particular partnership based on common share ownership under the contract on joint activity.

PF is established on a voluntary basis and is considered to be established from the moment of state registration of the right of land use. Land parcel is granted to citizens of the Republic of Kazakhstan on the right of private ownership or on the right of temporary paid land use for up to 49 years to maintain PF, and to maintain distant-pasture cattle tending (seasonal pastures) on the right of temporary gratuitous land use. Granting the right of private ownership on agricultural land parcel for PF is based on payments. Citizens who will conduct their business personally, citizens with special agricultural knowledge and skills, with practical experience in agriculture and who is living in this area, city, aul (village) have a preferential right to obtain land parcel for peasant (farm) business. [18]

Individual entrepreneurship and peasant farm belongs to small entrepreneurship.

Legal entity is the organization with the right of property, economic management or operating management of separate property and addresses with this property to its obligations, may acquire and carry out on its own behalf property and personal non-property rights and obligations, be sue or to be sued in the court. Legal entity has to have independent balance or estimate. Commercial legal entity is the organization pursuing commercialization as a main goal of its activity.

The following types of legal entities are:

- General partnership (GP);

- Limited partnership;

- Limited liability partnership (LLP);

- Partnership with additional liability (PAL);

- Joint-stock company (JSC);

- Production cooperative (PC).

Partnership is recognized general when its members at insufficiency of property of GP are jointly and severally liable for its obligations with all their property. A citizen can be a member of only one unlimited partnership.

Partnership is recognized limited that includes as members with full responsibility (called general partners), and members with limited liability (limited partner). Liability of partners is limited to the amount of contribution, and they don't take part in partnership business activity. It means that in this case the participation of at least two individuals is necessary. One (general partner) controls the company and assumes all risks connected with business activity of the company, and meets for the company debts with all his personal property. While the second (limited partner) only invests in authorized capital, he risks only his contribution to the authorized capital, but almost does not participate in company management. It can be compared with the bank depositor.

LLP is the partnership established by one or more persons. Authorized capital of LLP is divided into shares of certain amount according to the constitutive documents. Participants of LLP are not liable for its obligations and bear risk of losses associated with the activity, within the value of their contributions. Participants of the LLP are its founders, as well as those who have the right to share in the property of the partnership after its establishment.

PAL is the partnership where its members are responsible for its obligations by their contributions to the authorized capital, and at insufficiency of all these contributions by their own property in the amount as a multiple of their own contributions. Regulations on the LLP are applied to the PAL. 

JSC is the legal entity issuing stocks to raise funds to perform its activity. Shareholders of the company are not liable for its obligations and bear risk of losses associated with the activity of the company in the value of their stocks, except for the cases provided by the legislation.

PC is a voluntary association of citizens on the basis of membership for a joint business activity based on their personal labor participation and property contributions (shares) of its members. [20]

Small entrepreneurship in Kazakhstan.

  Small entrepreneurship in the Republic of Kazakhstan is understood as such type of activity in all sectors of the economy that is carried out by individuals registered as entrepreneurs, and enterprises of any organizational and legal form determined by sustainable qualitative and quantitative indicators (legal entities).

As it was mentioned above, subjects of small entrepreneurship are individual entrepreneurs and legal entities with the number of workers no more than 50 persons and average annual asset value (entrepreneur’s or legal entity’s property, reflected in the balance) for the year not over 60.000 of MCI that in 2013 is 102 780 000 tg.

Individuals without formation of legal entity and legal entities cannot be recognized as subjects of small entrepreneurship, if their business activity is engaged in:

- activity related to drug, psychotropic substances and precursors trafficking;   

- production and (or) wholesale distribution of excisable products;

- activity related to the grain storage at grain-points;

- lottery;

- activity in the sphere of gambling and show business;

- activity related to the oil, petroleum products, gas, electric and thermal energy production, refining and realization (sale);

- activity related to the circulation of radioactive materials;

- banking (or certain types of bank operations) and insurance (except insurance agent);

- auditing;

- professional activity in the securities market;

- activity of credit bureaus;

- security activity. [21]

All small enterprises quickly respond to external conditions and alter the final product, following the demand, mastering new products. Economic risk tolerance of small business and their ability to respond to the perspective areas of scientific and te chnical progress provide them a wide field for innovative activity where their achievements can be especially significant. World experience shows that small business makes innovations per one employee in two times more than larger ones. These facts do not only put them in the rank of a special type of business, but also require an appropriate support for their activity from the society. [22]

Today many people understand that exactly the entrepreneurship is the major driving force for production development, and, therefore, society as a whole. Foreign countries are prospering thanks to entrepreneurs, and entrepreneurs - thanks to their countries and national support. Thus, small business development is a matter of national importance, and is complex and comprehensive, concerning all citizens of the republic.

 

1.2 The role and importance of small business in the economic development of society

In the majority of the countries of the world growth of small entrepreneurship is of great importance for development of all economy and increase of its efficiency. Small-scale enterprises are a base of economy, in the long term is its steadiest part, only with development of small business probably creation of steadily functioning market economy. [23]

There is an opinion that in the conditions of the market probably only large entrepreneurship, small is impractical. The history showed that actually small business successfully competes with large business as it more flexible, more mobile, and steadier in the conditions of crisis and is capable to develop constantly. Foreign experience of the countries with the developed market economy testifies that entrepreneurship carries out the major functions in national economy. The Japanese economy after World War II was quickly restored thanks to small and medium-sized enterprises, and there was "a Japanese economic miracle". In the seventies last century even such formula – "Small perfectly was well-known! “According to the Program of development of the United Nations, in world economy the number of small-scale enterprises exceeds 95% from total of all enterprises. Over 60% fall to their share busy, and their share in gross domestic product reaches 50%. These are the average world indicators. And in Japan, for example, the share of small and medium sized business makes 99, 6% from total number of the companies, 55% of gross domestic product and 80% of number occupied in the industry. In the USA - more than 50% of gross domestic product, more than a half of innovations, more than 2/3 national labors are involved in small entrepreneurship. [24] Today in Kazakhstan every fifth of the able-bodied active population is occupied in small and medium business. From them nearly a half – individual entrepreneurs. And from all registered enterprises and entrepreneurs more than 90% are the shares of sector of small and medium business. In this regard it goes practically on an equal basis with the average world indicators. At the same time, if to compare a share of small and medium business in gross domestic product, in Kazakhstan are about 20%. And, for example, in Great Britain – 52%, Italy – 55%, Germany – 57%. [25]

Value of small entrepreneurship for development in the republic of effective market economy is defined by its role as structure-forming factor which provides:

- completeness of employment of the population;

- development of the competitive environment;

- market saturation by goods and services and revival of national crafts;

- strengthening of economic base of local authorities;

- development of villages, small and average cities.

Small entrepreneurship is a mobile and productive sector of economy. It really creates a considerable share of gross domestic product and in it the most part of able-bodied population works. It is important not only for industrially developed states, but also for the countries with an economy in transition, as Kazakhstan.

Entrepreneurship, quickly reacting to market condition change, gives to economy necessary flexibility. The small companies are capable to react quickly to change of a consumer demand and at the expense of it to provide necessary balance in the consumer market. Business makes an essential contribution to formation of the competitive environment that for our highly monopolized economy has paramount value.

Entrepreneurship is characterized by the presence of the innovation moment - whether it is producing a new product, change of activity of an enterprise or flotation a new enterprise. The new system of production management, quality management, the introduction of new methods of production or new technologies - is also the innovative aspects.

Development of business bears in itself a set of important advantages:

- increase in number of owners, so, formation of middle class — the main guarantor of political stability in democratic society;

- growth of a share of economically active population that increases the income of citizens and smoothes disproportions in welfare of various social groups;

- selection of the most vigorous, capable identity for which small business becomes primary school of self-realization;

- creation of new workplaces with rather low capital expenditure, especially in a services sector;

- employment of the workers released in a public sector, and also representatives of socially vulnerable groups of the population (refugees from "hot spots", disabled people, youth, women);

- training at the expense of use of workers with limited formal education who gain the qualification on a work place;

- development and deployment of technological, technical and organizational innovations (seeking to survive in competitive fight, small firms are more often inclined to take the risk and carry out new projects);

- indirect stimulation of production efficiency of the large companies by development of the new markets which solid firms consider insufficiently capacious (from a subsoil of small business quite often grow not only the large companies, but also the most modern knowledge-intensive branches and productions);

- liquidation of monopoly of producers, creation of the competitive environment;

- mobilization of material, financial and natural resources which differently would remain unclaimed, and also more their effective use (for example, small business will mobilize small savings of the citizens, not inclined to resort to services of a banking system, but ready to invest money in own enterprise; thus owners seek to save and start up the capital in a turn even if their income is insignificant);

- decrease in a capital-labor ratio and capital intensity when releasing more labor-consuming production, fast payback of investments (for example, in the USA at the companies with number of the occupied less than 100 people of sale is dollar assets more, than at the large companies, not only in such branches as service, financial insurance, wholesale trade, but also on transport, and also in manufacturing industry);

- interrelation improvement between various sectors of economy. [26]

All these and other economic and social functions of small entrepreneurship put its development in the category of the major state tasks, do it integral frequent reforming of economy of Kazakhstan.

Practice shows that the technical progress, the fullest satisfaction of a consumer demand in many respects is defined today by overall performance of the small enterprises. High rates of introduction of innovations, mobility of technological changes, introduction of inventions, rapid growth of a services sector and employment, the intense price and not price competition conducting, on the one hand, to reduction of prices, and with another to that the consumer receives production and quality services, opportunity for the state to receive large sums in the form of tax revenues – all this and makes a contribution of small-scale enterprises to national economy.

In the report Chairman of the board of JSC “Fund of Development of Small Entrepreneurship” Amrin G. K. noted that the role of small entrepreneurship in national economy of Kazakhstan traditionally is defined by three main functions.

1. The institutional effect is estimated through a share of small business in managing subjects and here it reaches a record share – more than 92,4%. That is efforts of the government on creation of preferential modes of the taxation and the simplified registration in Kazakhstan reached the results. And the highest rates the number of individual entrepreneurs that is bright result of effectiveness of special tax modes for small business grows.

2. Traditionally small business makes a big contribution in population employment (social effect).

3. Economic effect is estimated through a contribution of volumes of made production to country gross domestic product. Volumes of made production small business increase every year, but growth rates of all economy are much higher therefore the contribution of MT to gross domestic product of the country decreases and now on a loss of 15,7%. In the developed countries this indicator reaches 50%. [27]

In the conclusion it would be desirable to note that this sector of economy creates the necessary atmosphere of the competition, provides necessary mobility in the conditions of the market, is capable to react quickly to any changes of market conditions, to fill forming niches in the consumer sphere, creates additional workplaces, and welcome the most important, he creates that Wednesday and spirit of business without which the market economy is impossible. Importance of small enterprises is also that conducting fierce competitive fight for a survival, they are compelled to develop and adapt constantly for the current conditions of the market, after all to exist it is necessary to receive means of livelihood, so to be better than others that the profit got of.

Thus, it is difficult to overestimate the importance of development of small entrepreneurship for national economy as a whole where it is capable radically and without essential capital investments to expand production of many consumer goods and services (first of all — for the poorest layers making the majority of the population) with use of local sources of raw materials, to solve an employment problem, to accelerate scientific and technical progress and to make positive alternative to criminal business.

 

CHAPTER 2. ANALYSIS OF SMALL BUSINESS DEVLOPMENT IN KAZAKHSTAN

 

2.1 Stages of formation of small entrepreneurship in Kazakhstan

 

Formation of small entrepreneurship (SE) in Kazakhstan started right after Kazakhstan gained independence – at the period of severe commodity shortage, hyperinflation, and decline in the living standards of population. At that time there was no legislative framework for the development of business section. It was a really rough time. And worst of all, in the pubic spirit entrepreneurs were regarded mostly negatively as black marketers, exploiters, and plunderers of public property.

In order to understand more clearly current situation regarding SE development in Kazakhstan one should take into consideration some historical events. For this purpose, SE development was divided into 5 stages. Each of these has its own distinguishing characteristics.

First stage – as it was mentioned above, price liberalization (1991-1992). At that difficult and critical situation, under the conditions of crisis taking place in Kazakhstan in the beginning of 1990s, when huge enterprises stopped and thousands of people lost their jobs, the only possible decision for the government was price liberalization. Price liberalization means transition from the prices set by government (state pricing) to the system of free market prices (market pricing). [28] First subjects of market economy – small enterprises – appeared in the period of liberalization. At that time the first regulatory document was adopted and formulated which laid a foundation to the SE development in Republic of Kazakhstan; dated July 4, 1992 – Law of the Republic of Kazakhstan “On the protection and support of private entrepreneurship”. This law defined main forms and methods of small business protection and support. It strengthened the politics of refusal from immediate inference from the government into private business activity, full freedom of private entrepreneurs, and protection of commercial secrets. According to this law, state support is implemented through establishing preferential taxation, allowance of credit on favorable terms, creating attractive terms in foreign economic activity, state communication, financing events on small business development from the supporting fund. At that time in Kazakhstan there were created and operated 34, 5 thousands of subjects of small business. There were employed 6,0% from the total number of all employed people in the country, the ratio of products, work and services made by them was 7, 0% of the country’s GDP. Right in the end of 1992 there was the first Forum of entrepreneurs of Kazakhstan with the participation of the President of Kazakhstan and the government. At that Forum there was defined for the first time in the history of CIS the program of development of enterprising in Kazakhstan – State program for development and support of enterprising for 1992-1994. One can definitely say exactly at that time enterprising sector took its important place in the life of society. [29]