13.11.09

Changes To The Federal Law "On Limited Liability Companies (OOOs)"
Chet Bowling, Managing Partner,
Alinga Consulting Group

On December 30, 2008 several important changes were introduced to the Federal Law “On Limited Liability Companies (OOOs)” which came into force July 1, 2009.

The main aim of the changes is to provide more transparency in regulating shareholder relations.  Thus, the changes are more important for LLCs with several shareholders and not for 100% subsidiaries. However even 100% subsidiaries need to comply with the new law.

All existing LLCs are obliged to amend their bylaws to make them compliant with the new law. As of July 1, 2009 articles of association and foundation agreements have been applicable only in that part which does not contradict the new norms.   The law also stipulates that companies should amend their documents to bring them fully in accordance with the new norms by January 1, 2010. The law does not state that companies which fail to register the needed amendments by this date will be liquidated or penalized in anyway. However, many experts are concerned that other laws may apply in this case. For example, The Association of Russian Banks has stated that according to current banking law, banks will not be able to provide services to companies who are not fully in compliance with the new LLC law. For this reason, it is highly recommended to complete the process before January 1, 2010 to avoid any confusion.

Foundation documents

A foundation agreement no longer qualifies as a foundation document, although the law still provides for its signing by founders in written form. If there is mention of the “foundation agreement” in a company charter, that clause should be removed.

Information about participants

• Information about the size and nominal value of the share of a company’s participant should not be reflected in the charter. Most charters currently contain this information and it should be removed.
• This information should be contained in the Unified Public Register of Legal Entities. At the time of registration of the new changes, this information is submitted, and will be reflected in the extract of the Unified Register.

Exit from company

The possibility of a “free exit” (without a commercial transaction i.e., no sale of interest) is excluded as it can be used as a method of evasion from property claims connected with losses of a company and its creditors. Thus, in the past, the rights and legitimate interests of a company’s participants and its creditors could have been violated with this mechanism.

The new law clearly defines how a shareholder (participant) can exit. The methods can only be exercised if set out in the charter. If no exit method is listed, then shareholders are “bound” to the LLC and cannot exit. The following are possible exit methods:  

• alienation of a share to an existing shareholder or to a third party;
• buyout of the share (participation) by the LLC itself.

As mentioned before, this is only important when a company has more than one shareholder, but as the authorities expect the charter to contain standard wording taken directly from the legislation, these rules should be clearly set out and any mention of “free exit” should be excluded.

Preferential right on acquisition

Procedure for realizing the LLC’s preferential right to acquire a participant’s share being sold to a third person is now regulated in detail. These details should be set out in the charter.

The contract of purchase and sale of a share should be certified. A contract of purchase that is not notarized is considered null and void (Point 11, Article 21). This amendment will make the corporate procedures of companies with foreign participants significantly more complex.

New obligations

A company now is obliged to keep an internal shareholder register which lists information on each participant of the company, the size of their share capital and the date the capital was paid in, and also information about the size of the (treasury) shares belonging to the company, dates of their transfer to the company or acquisitions by the company. However, the information from the Unified Public Register prevails if there is conflicting information.

New possibilities

Shareholders (participants) of the company have been granted the right to sign shareholders agreements regulating their relationship as it relates to voting rights and management of the company. This is expected to be the positive change in the new law that allows future business partners to determine important aspects of their relationship beforehand. However since this is a rather new legal instrument under Russian law the practice may be different.

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