Economic partnership - a new legal form of commercial entity.

10.01.2012

Legal Update No. 308

Goltsblat BLP advises that:

  • Federal Laws No. 380 of 3 December 2011 "On Economic Partnerships"  and No. 393 of 6 December 2011 "On Amending Article 50 of Part I of the Civil Code of the Russian Federation following adoption  of the Federal Law "On Economic Partnership"" will come into effect on 1 July 2012.

The Laws introduce economic partnerships - a new form of commercial corporate entity expanding the existing range of commercial organisations incorporated as partnerships, companies, production cooperatives and state and municipal unitary enterprises. Furthermore, the Laws define the relevant legal status; incorporation, reorganisation and liquidation procedures and the rights and obligations of their members.

Economic partnerships and their participants

An economic partnership (the "Partnership”) means a commercial organisation created by two or more individuals (but no more than 50) and/or companies and managed by its members and other parties within the scope and to the extent specified in the partnership management agreement.

The Partnership maintains a register of participants providing information about all participants therein, their individual ownership interests in the joint capital, ownership interests held by the partnership itself, etc. 

Activities of the Partnership

The Partnership may carry out any activities other than issuing bonds or other securities or advertising its business unless they are forbidden by law. The Partnership may not found (participate in) other corporate entities (other than unions or associations). Other limitations may be specified in the partnership management agreement or the charter. 

Liability within the Partnership

The partners are not liable for the Partnership’s obligations and bear the risk of damages associated with its business within the scope of their contributions to its capital. The Partnership is not liable for any of its members' obligations, with its own liability for any obligations it undertakes being limited to the amount of its assets.  If, owing to insufficiency of the Partnership's assets, execution is to be levied on its exclusive rights to IP activity results, its obligations may be discharged by any participant(s) therein acting on its behalf and having right of recourse against it.

Management of the Partnership's business

The Partnership members manage its business in proportion to their ownership interests in its joint capital, unless the Partnership management agreement specifies otherwise.

Charter of the Partnership

The Partnership charter is considered as its constituent document providing general information about the Partnership (including its name, address, the value of its joint capital, etc.) Furthermore, the Charter is to supply information about availability or unavailability of the Partnership management agreement in the Partnership, specifying whether or not the Partnership itself participates therein.   

Partnership management agreement 

If a Partnership management agreement is to be concluded, its parties must include all its members, with the Partnership itself and other parties also being entitled to participate therein.  The agreement is intended for detailed regulation of the Partnership's business and may specify any terms for managing the Partnership or its business, or for arranging its reorganisation or liquidation, unless they run counter to the legislation.  In particular, the Agreement should specify the procedure for increasing or reducing the ownership interests held by the Partnership members in its joint capital and for settling disputes between them. The Agreement may also cover the members' rights to non-proportional participation in the Partnership management (including the right to veto) and profit distribution; limit their rights to sell their ownership interests freely or to demand that their ownership interests be sold, purchased or bought out; specify special terms for joining or  withdrawing from the Partnership; require its parties not to compete with the Partnership, prescribe individual procedures for establishing the Partnership management bodies and for organising their working practices (if they are established), detail how obligations arising there from are to be secured, envisage civil liability remedies (damages, default interest, compensation, and so on), etc. 

The agreement must be certified and kept by a notary but it does not need to be registered with any state authorities nor is there any requirement for entering any agreement-related information in the Companies' Register. Should the agreement be amended, each of its parties has one vote, irrespective of the ownership interest held thereby in the joint capital of the Partnership or the terms of the agreement on the members' rights to participate in its management.

The single-member executive body of the Partnership provides information about the agreement to third parties entering into civil relations therewith, including details pertaining to the Partnership management bodies' powers to sign and approve transactions. The single-member executive body may provide this information by consenting in writing to a third party familiarising itself with the agreement. In this case, the single-member executive body's signature subscribed to its written consent must be notarised, otherwise the consent may be invalidated.

Joint capital of the Partnership

The threshold value of Partnership joint capital is not specified. The Partnership members may not be released from their obligation to make contributions to the joint capital of the Partnership.  The Partnership management agreement may specify items covered by civil rights that may not be contributed thereto.

Unless the Partnership management agreement specifies otherwise, if contributions are to be made in instalments, any partner failing to discharge this obligation with respect to the first instalment of a relevant contribution shall pay interest on the arrears and, should the partner fail to discharge this obligation for any subsequent instalment, it passes to the other partners in proportion to the size or value of their ownership interest, with the obligation to make said contribution also passing thereto, pro rata their ownership interests.
 
Transactions with ownership interests in the joint capital of the Partnership.Withdrawal from the Partnership

Unless the Partnership management agreement specifies otherwise:

  • no partner may pledge any ownership interest held thereby in the joint capital to any other partner or third party;
  • any partner may sell or otherwise alienate its ownership interest in the joint capital of the Partnership to the Partnership itself, any participant(s) therein, or  any third party;
  • in  relations with third parties, the Partnership and its members enjoy the pre-emptive right to purchase ownership interests in the joint capital in the manner prescribed by said Federal Law, which may be amended by the management agreement;
  • during transfer of any ownership interest, a relevant portion of the transferor's  rights and obligations also passes to the transferee, who accepts the management agreement in its entirety

The Partnership members may demand that their ownership interests be purchased by the Partnership itself or the other members or third parties only in the events specified by the Partnership agreement.

The Partnership members may withdraw there from if this is envisaged by the Partnership management agreement.

If so demanded by the other partners, any partner, under certain circumstances, may be expelled from the Partnership by court decision or, when a partner fails to make a requisite contribution, by unanimous decision of the other partners (with the right to appeal through a court of law).

Any ownership interest sale and purchase transaction must be notarised, otherwise it is considered invalid. The buyer of the ownership interest exercises and discharges the Partnership member rights and obligations, respectively, once the Partnership is informed of the transaction.

Management bodies of the Partnership

The system, the structure and the powers of the Partnership management bodies, the manner in which they are established and  the procedure for organising their working practices are determined by the Partnership management agreement.

The single-member executive body of the Partnership (an individual only) is elected from among its members. The Partnership may not operate without it.

The Partnership management agreement may prescribe additional approval required for any decisions by the single member executive body.

No management body, other than the single-member executive body, may act for the Partnership in its relations with a third party.

Specifics of reorganisation of the Partnership

The Partnership may not be reorganised unless this results in its conversion into a joint stock company.

For additional information, please contact:

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

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

to Yuliana Kan
Associate, Corporate / M&A
Goltsblat BLP
T: +7 (495) 287 44 44,
E: info@gblplaw.com


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