Amendments to Chapter 4 (“Legal entities”), Part One, of the Civil Code of the Russian Federation

21.05.2014

Legal Update No. 461, 21 May 2014

Goltsblat BLP advises that 1 September 2014 will see the Federal Law passed by the State Duma on 25 April 2014 “On Amendments to Chapter 4, Part One, of the Civil Code of the Russian Federation and Vitiation of Certain Provisions of Legislative Acts of the Russian Federation” (Law No. 99-FZ) come into effect.

Law No. 99-FZ amends provisions of the Civil Code of the Russian Federation (RF) that are of key significance from the perspective of corporate law and relate to the legal status of legal entities and their activities.

The classification of legal entities no longer includes closed joint-stock companies and additional liability companies and specifies as follows:

  • a division of legal entities into corporations and unitary organisations on the basis, in particular, of whether the founders have participation (membership) rights therein.
  • general rules governing commercial and not-for-profit corporations.
  • a division of commercial entities into public and non-public ones, the former category including joint stock companies whose shares (or securities convertible into shares) are placed or traded publicly on the terms stipulated by the law on securities. Limited liability companies and joint-stock companies that do not meet the above criterion for being public are recognised as non-public.

Law No. 99-FZ does not envisage such commercial entities as closed joint-stock companies or additional liability companies but expressly rules that such companies do not require re-registration and that the provisions of the Federal Law “On Joint-Stock Companies” relating to closed joint-stock companies will still apply thereto until such time as their Articles of Association are amended.

Once Law No. 99-FZ comes into effect, legal entities will be set up exclusively in the corporate forms specified in the new version of the RF Civil Code.

The rules concerning the liability of management and parent companies for the debts of subsidiaries are specified:

  • The new provisions on material liability of the executives of legal entities and members of the collegial governing bodies require all such persons to reimburse any losses caused thereby to the legal entity, if it can be proven that they acted in bad faith or unreasonably in exercising their rights and fulfilling their obligations. This includes actions (omissions) on their part that do not comply with customary business practices or usual business risks.

The new developments in corporate governance include the following:

  • A corporation’s Articles of Association may grant the powers of the sole executive body to several persons acting jointly or set up several such bodies operating independently of one another.
  • Rules are secured in the RF Civil Code concerning the possibility of participants in (members of) a corporation concluding agreements on exercise of their corporate rights (corporate agreements) under which they undertake to exercise these rights in a specific fashion or to refrain from exercising them, including: voting in a specific manner at a General Meeting of Participants, taking other management decisions in concert, acquiring or divesting themselves of interests (shares) at a certain price or in certain events or refraining from divesting themselves of interests (shares) until certain events occur.
  • Decisions of a commercial entity’s General Meeting of Participants are to be confirmed by the registrar or notary or in another form stipulated by the Articles of Association or a General Meeting decision (depending on the type of company).

The rules concerning creation, reorganisation and liquidation of legal entities are updated:

  • The rules on establishment of legal entities are put in order and those concerning reorganisation and liquidation of such companies are specified in more detail. For instance, various forms of reorganisation may now be combined, the procedure for and consequences of invalidation of a reorganisation decision and recognition of the reorganisation itself as not having taken place are regulated, joint and several liability is secured of a new legal entity for the debts of its predecessor, this being on the condition that the legal successor of the obligation cannot be determined or the assets were not divided up between them in good faith and this seriously infringed on creditors’ interests.

Combating fly-by-night companies

Law No. 99-FZ also continues the fight against fly-by-night companies: if a company fails to file its accounting for twelve months and makes no operations during this period on at least one bank account, it is considered as dormant and is subject to exclusion from the Unified State Register of Legal Entities.

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