New Investment Formats: Investment Partnership and Economic Partnership.

03.07.2012

Legal Update No. 364.

Goltsblat BLP advises that Federal Law No. 380-FZ "On Economic Partnerships" dated 3 December 2011 came into force on 1 July 2012, while Federal Law No. 335-FZ of 28 November 2011 "On Investment Partnerships" has been effective since 1 January 2012. The laws offer new structures for formalising innovative and investment business presence in Russia, in particular:

  • a new contractual format – investment partnership agreement,
  • a new legal entity structure – an economic partnership

Economic Partnership

Economic Partnership is a new legal format for a commercial entity. As conceived by the lawmakers and set forth in the law, Economic Partnership is currently the most flexible type of legal entity in Russia from the viewpoint of corporate governance and financing opportunities. The structure enables all matters pertaining to partnership governance and operations to be taken beyond the scope of the publicly accessible articles of association and detailed in a confidential Economic Partnership management agreement. Parties to the partnership management agreement may, in addition to the partners, include other persons, as well as the Partnership itself.

Economic Partnerships may become the legal format of choice for implementing independent (often venture) projects.

Yet the practical applications of an Economic Partnership are essentially limited through restriction of its legal capacity. For instance, the law prohibits an Economic Partnership from:

  • being a founder (member) of other legal entities (other than associations and unions),
    issuing bonds or other securities,
  • advertising its operations.

Investment Partnership

From the economic viewpoint, an Investment Partnership is essentially similar to a private equity fund. It is a collective investment tool intended for transactions with shares, bonds and term transaction financial instruments not traded on a regulated market.

In terms of its legal structure, the recently introduced Investment Partnership is very close to a Limited Partnership, which is the format of choice for the majority of private equity funds. Similarly to a Limited Partnership, an Investment Partnership does not constitute a separate legal entity but is a contractual arrangement between the partners.

There are two categories of Investment Partnership member:

  • Managing Partners control the general business of the partnership and enter into agreements on behalf of all partners on the basis of a power of attorney,
  • Ordinary Partners (investors) normally only contribute financially to the partnership’s operations.

The liability of Ordinary Partners is limited to the value of their relevant shares in the partnership. At the same time, unlike in foreign legal structures, liability is not limited with respect to tax and non-contractual obligations and relations involving contractors that are not business entities. Managing Partners are liable for joint obligations with all their property.

Members of Investment Partnerships are also subject to a number of regulatory specifics pertaining to tax payment and tax accounting procedures.

For additional information please, contact

Anton Sitnikov, Partner, Head of Corporate / M&A, by phone: +7 495 287 44 44, or by e-mail: info@gblplaw.com;

Ekaterina Dedova, Partner, Corporate /M&A, by phone: +7 495 287 44 44, or by e-mail: info@gblplaw.com;

Anton Vashkevich, Senior Associate, Corporate /M&A, by phone: +7 495 287 44 44, or by e-mail: info@gblplaw.com.
 

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