Important Developments in the Legislation on Limited Liability Companies


Legal Update No. 2

Goltsblat BLP advises that Federal Law No. 312-FZ “On Amendments to Part One of the Civil Code of the Russian Federation and Certain Legislative Acts of the Russian Federation” (hereinafter – the “Federal Law”) was adopted on 30 December 2008, introducing fundamental changes to the regulations governing the setting up and operations of limited liability companies (LLC).

An agreement on founding an LLC is no longer considered a foundation document. The foundation agreement should determine the procedure for making joint efforts to set up the LLC, the size of the LLC’s charter capital, the size and par value of participation shares held by participants in the LLC and other conditions stipulated by the Federal Law on LLCs. If the LLC is made liable for the obligations of the LLC’s founders relating to setting up the LLC, this liability cannot exceed one fifth of the paid-up charter capital of the given LLC.

The LLC charter becomes the sole foundation document of an LLC; consequently, the provision for the charter to override the foundation agreement has been deleted.

A revolutionary novelty, with implications that cannot all be foreseen at the moment, is that the founders of (participants in) an LLC are granted the right to enter into an agreement on exercising the rights of participants in an LLC, the participants being entitled to undertake to exercise their rights in a certain manner and (or) refrain from exercising them, including by voting in a certain manner at a general meeting, selling a participation share or part of it at a certain price and (or) subject to certain conditions, refraining from disposing of a participation share until certain events are triggered and taking other coordinated actions to set up, manage, reorganise or liquidate an LLC.

The size of an LLC’s charter capital is to be a fixed amount of not less than 10 thousand roubles. The requirement for the LLC charter to state the amount and par value of shares owned by the participants has been deleted. These data have to be recorded in the Unified State Register of Legal Entities (the “Companies Register”) in accordance with the Federal Law on State Registration of Legal Entities. Also, LLCs now have to keep a register of LLC participants, indicating data on each participant, the share it holds and other information.

A provision has been introduced that a part of a share in the charter capital of an LLC unpaid by the relevant participant shall pass into the ownership of the LLC and the LLC will be obligated to sell the share.

Essential changes have been introduced into the procedure for changing ownership of a part of a share from one LLC participant to other participants in the LLC and third parties, including for the LLC participants to exercise their pre-emptive right to purchase the share. The new developments generally allow LLC participants to preclude access to participation in the LLC for any new parties in a more efficient manner.

Share disposal (subject to certain exclusions) and pledge transactions will be void unless certified by a notary. The notary must verify the authorities to dispose of the share and submit to the state authority in charge of legal entity registration an application from the LLC participant disposing of or pledging the share for relevant changes to be introduced into the Companies Register. The notary bears full material liability for any damage caused by an unlawful notarial act or refusal to perform a lawful notarial act and divulgence of information on notarial acts. The damage is to be reimbursed from the insurance indemnity under the civil liability insurance contract entered into by the notary for the purposes of performing notarial activities. A change of ownership of a share may be challenged only by a relevant claim being filed with the state arbitration court.

The Federal Law introduces the possibility of a party demanding recognition of its right to a share in an LLC if said party has lost the share as a result of its purchase by a bona fide purchaser from a party that was not entitled to dispose of the share. An LLC share acquired by a bona fide purchaser at public bidding shall be deemed to be owned by the purchaser.

Another drastic development is the right granted to LLC participants to join in arbitration proceedings on a suit entered by another LLC participant seeking assignment thereto of the rights and obligations of the purchaser of a share purchased in violation of the pre-emptive right of participants to acquire said share.
A rule has been introduced to stabilise LLCs by allowing a participant in an LLC to withdraw from the LLC only if this possibility is envisaged by the charter of the LLC and to dispose of its share in favour of the LLC. In cases when such withdrawal is permitted but the LLC is unable to pay the real value of the share (for instance, when the LLC satisfies the insolvency test), the LLC may, on the basis of an application from the withdrawee, reinstate it as a participant in the LLC and transfer to it the relevant share in the LLC charter capital.

A general meeting of LLC participants no longer enjoys exclusive competence. The Board of Directors of an LLC may ultimately be charged with any charter-related matters that are beyond the scope of the powers of the general meeting or an executive body of the LLC. The powers of the sole executive body of an LLC may be delegated to an executive manager without this being expressly provided for in the LLC charter.

Certain new provisions have been introduced to regulate transactions performed by an LLC in which LLC participants or other eligible parties have a vested interest. The provisions on major deals concluded by an LLC have been developed further.

The procedure for applying certain LLC reorganisation methods has been clarified, basically by the restrictions on LLC transformation being lifted in that an LLC may now be transformed into any type of commercial entity (other than a unitary enterprise).

Relevant changes have been introduced into the legislation on state registration of legal entities. The new provisions also establish that, as a general rule, the registration authority does not have to analyse the format of the submitted documents (with the exception of an application for state registration) or the data contained therein from the viewpoint of compliance with the legislation.

The Federal Law will be effective from 1 July 2009, after which charters and foundation agreements of LLCs will be applicable to the extent that they do not run counter to the legislation. Both types of document will have to be brought into line with the Federal Law before 1 January 2010.

For additional information, please contact:

Anton Rogoza, Partner,
Corporate / M&A,
Goltsblat BLP
T: +7 495 2874444

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