Modified dividend payment (profit distribution) timeframe and procedure.

17.01.2011

Legal Update 209.

Goltsblat BLP advises that Federal Law No. 409-FZ of 28 December 2010 “On Amendments to Certain Legislative Acts of the Russian Federation Pertaining to Payment of Dividends (Profit Distribution)” (the Federal Law) came into effect on 31 December 2010.

The Law’s purpose is to provide a more detailed regulatory framework for the timeframe and procedure for joint-stock companies (AO) to pay dividends and for limited liability companies (OOO) to make partial profit distributions.

Under the Federal Law, both the dividend payment/profit distribution timeframe and procedure are determined by the articles of association (charter) of an AO or OOO or are established by resolution of a general meeting. The current maximum term for distributing dividends/profit is 60 days from a relevant decision endorsing distribution, whereas the periods were longer in the past. The same timeframe applies if no specific term has been established for distribution purposes by the articles/charter or a resolution by a general meeting.

The Federal Law forbids preferential timing of dividend payments to specific holders of certain share classes (types), meaning that dividends now have to be paid to all holders of a share class (type) simultaneously.

The Federal Law defines the rights of shareholders if the maximum term for dividend payment or profit distribution is exceeded. For instance, the affected shareholder has three years from the elapsed payment deadline to demand that the company pay dividends/distribute profits (this claim period may be increased to five years by the company articles). Any dividends/profit unclaimed by shareholders are to be subsequently booked as retained earnings in the company accounting. These amounts are not, of course, included in the corporate profit tax base (this tax provision applies to relations emerging after 1 January 2007).

Please note that the dividend payment may be claimed if the above claim period has not expired by the Federal Law’s effective date (if the claim period cannot be determined, the standard three-year period before the effective date of the Federal Law is applied).

In addition, in a move to ensure more comprehensive protection of shareholder rights, the Federal Law established a six-month period, running from its effective date, for shareholders to demand that the relevant company pay dividends/distribute profit accrued within the three years preceding the effective date of the Federal Law.


For additional information, please contact:

Anton Sitnikov, Partner, Head of Corporate/ M&A, Goltsblat BLP
T: +7 (495) 287 44 44,
E: info@gblplaw.com

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