24.05.10

SAC Rules On Changes To LLC Law
Leonid Romanov, Senior Lawyer,
Alinga Consulting Group

The Supreme Arbitration Court of the Russian Federation (SAC) has released Informational Letter #135 dated 03-30-2010 “On Issues Related to the Application of Article 5 of Federal Law #312-FZ (12-30-2008) ‘On Introducing Changes to Part One of the Russian Civil Code and to Other Legislative Acts of the Russian Federation.’”

It is worth commenting on some of the key points of the Informational Letter which affect many companies in Russia.

Re-registration Revisited

The SAC does not consider refusing to register changes to one’s charter documents to be illegal if the re-registration procedure was not performed in conjunction with amendments to the legislation on limited liability companies (LLCs). Consequently, if a company has not brought their charter into line with the existing legislation, it is required to do so when introducing any changes to its charter (such as changes to the company name, the size of its charter capital, its location, etc.) As a result, shareholders’ decisions to change the charter will not be able to be implemented if the company has not re-registered, and this could significantly affect its business activities.

It should be noted that if a company does not re-register its charter documents in accordance with the legislation, this is not considered a violation that will inevitably result in tax authorities forcing the company to liquidate. If such a legal action occurs, tax authorities may give the company a reasonable time period within which to bring its charter into line with the amendments to the federal law on LLCs. Only if the company fails to do this will it be subject to liquidation.

Furthermore, if a company does not re-register its charter documents, this  cannot be grounds for any of the following actions: invalidating the company’s transactions, for banks to refuse to give the company credit or to conduct business with it, for the registration authorities to deny the company its right to obtain or hold property, for notary officials to refuse to notarize transactions involving shares in the company’s charter capital, for the registration authorities to refuse to enter changes to the company’s information in its database, even if the changes are not to the company’s charter (this includes changes pertaining to transfer of shares), or to refuse to enter changes made as a result of the company’s reorganization to the Unified State Registration of Legal Entities.

It is evident that the SAC’s position is central to many issues affecting business owners. After changes to the federal law on LLCs  were introduced, problems with its application and interpretation began to emerge quite often among banks, notaries, and the tax inspectorate itself in Russia. It was not uncommon for banks to unjustifiably refuse to open accounts for companies that had not reregistered, for notaries and registration authorities to refuse to render legal services to the company, and so forth.

Founding Agreements

A significant change to the federal law on LLCs is the elimination of requiring a founding agreement as part of the required articles of incorporation for any given company. The SAC also specified that the parties who are concluding such founding agreements have the right to change the agreement’s conditions or to terminate it on a mutual basis provided for by Russia’s Civil Code. Additionally, as of July 1, 2009, changes to or termination of a founding agreement is not subject to registration by the tax inspectorate.

Oftentimes foreign companies keep lists of shareholders along with information on the amount of shares each of them holds. The SAC explains that such information, which can be included in the company’s charter and in the information supplied during the company’s re-registering procedure, cannot be used as grounds for the tax inspectorate to refuse to register the company. It is also necessary to keep in mind that information in the company charter about size of shares does not require the company to also change information on share sizes that is recorded in the Unified State Register of Legal Entities. It is important to note that information on the size of shares given to the Unified State Register of Legal Entities is an affirmation of the shareholder’s right to ownership in the company.

Register of Shareholders

According to Article 31.1 of the federal law on LLCs, each company should keep a register of its shareholders. This document should include information on each of the company’s shareholders, the amount of shares they own in the company’s charter capital and their returns, as well as the amount of shares belonging to the company and when they were transferred to the company or when the company acquired them.

The SAC explains that companies created before the changes to the LLC legislation were implemented on July 1, 2009 should begin keeping registers with all the necessary information from that date forward. Any information pertaining to shareholder changes or the amount of their shares that occurred prior to July 1, 2009 is not required to be recorded.

Since keeping a register of shareholders is a new business practice for most companies in Russia, we recommend preparing detailed instructions for properly maintaining these records.

It should be noted that if a company does not keep a proper register of its shareholders, Article 13.25 of the Code of Administrative Offenses states that it may be subject to fines between 200,000 and 300,000 rubles.

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