Bryan Cave Leighton Paisner (Russia) LLP (formerly Goltsblat BLP in Russia) advises that the following federal laws have been passed:
Federal Law No. 252-FZ “On Amendments to the Federal Law ‘On Limited Liability Companies’ with Regard to Improving the Procedure for Entering Information about Participants’ Withdrawal from Limited Liability Companies in the Unified State Register of Legal Entities”. This Law, which improves the procedure by which a participant withdraws from a limited liability company (“LLC”), came into force on 11 August 2020 (“FZ-252”); and
Federal Law No. 297-FZ “On Amendments to Article 12 of the Federal Law ‘On Amendments to Certain Legislative Acts of the Russian Federation with Regard to Unification of the Contents of Annual Reports Filed by State Corporations (Companies) and Public Law Entities, and with Regard to the Specifics of the Regulation of Corporate Relations in 2020 and on Suspension of Certain Legislative Acts of the Russian Federation’ and Suspension of Certain Legislative Acts of the Russian Federation”. This Law, which sets forth special requirements on holding general meetings in 2020, came into force on 31 July 2020 (“FZ-297”).
The amendments introduced by FZ-297 relating to the COVID-19 pandemic will be primarily relevant to companies that have not yet held their ordinary (general) meetings in 2020.
Withdrawal by a Participant from an LLC
Transfer of the Title to a Participatory Interest to an LLC if a Participant Withdraws
FZ-252 aligns the procedure for transferring a participatory interest to an LLC if a participant withdraws with the general model for transferring the title to participatory interests in an LLC’s authorised capital. The key changes to the withdrawal procedure are described below.
Before the Amendments
After the Amendments
A participant submits a notarised application to withdraw if such a right is provided for by the Articles of Association.
The LLC must submit an application for changes to be made in the Unified State Register of Legal Entities (the “Companies Register”) within one month of receiving the withdrawal application1
The notary who certifies the participant’s withdrawal application must, within two business days performing the certification, submit to the relevant authority an application for changes to be made in the Companies Register
The participant’s interest will pass to the LLC once the latter receives the withdrawal application
The participant’s interest will pass to the LLC once the relevant entry is made in the Companies Register
The LLC must pay the withdrawing participant the actual value of its participatory interest determined from the company's accounting reports for the last reporting period preceding the withdrawal application date
The LLC must pay the withdrawing participant the actual value of its participatory interest determined from the company's accounting reports for the last reporting period preceding the date when the withdrawing participant’s interest passes to the company
Any amendments relating to transferring a participatory interest to a company become effective for third parties once a relevant entry is made in the Companies Register
Within one business day of an application being submitted for changes to be made in the Companies Register, the notary will furnish the company with: (i) the participant’s notarised withdrawal application and (ii) a copy of the application for changes to be made in the Companies Register
The table shows that the previous system for transferring the withdrawing participant’s title could trigger abuses by the company by evading filing documents for state registration of amendments relating to a participant’s withdrawal and create legal uncertainty for third parties concerning the list of participants2.
Discretionary Nature of the Rules on Participants’ Withdrawal from an LLC
FZ-252 allows the LLC to establish optional treatment of participants’ withdrawal in its Articles of Association, in particular:
1) to grant the withdrawal right only to certain LLC participants (specifically named or meeting certain criteria, such as holding a certain participatory interest);
2) to make the participant’s withdrawal conditional on a certain circumstance occurring or not occurring, a specific period or a combination of these two conditions;
3) to make the right to withdraw conditional on a unanimous decision of the general meeting of participants (the “GMP”) indicating the participant to which the right to withdraw is granted and the period during which it may exercise its right. Exercise of the participant’s right may be conditional on compliance with or occurrence of the conditions listed in clauses 1-2 above.
These new developments make M&A structuring much simpler, particularly when a JV is being set up, and allow the LLC’s Articles of Association to include such arrangements that used to be only in the SHA.
Recommendation for Structuring Transactions
Given Clause 3, when structuring acquisition of participatory interests in an LLC, we recommend making sure in advance that the LLC’s Articles of Association do not provide the GMP with such an additional right and, if such a right has indeed been granted, finding out whether or not the GMP has approved a unanimous decision permitting the relevant participant to withdraw. We also recommend that a sale and purchase agreement for participatory interests in an LLC include relevant warranties on the part of the seller.
Applying the New Developments to Credit Institutions
Please note that the changed procedure for transferring the title to participatory interests in an LLC’s authorised capital and including discretionary rules for participant withdrawal do not apply to credit institutions incorporated as LLC.
Ordinary GMPs in 2020
Absentee Voting at an LLC
According to FZ-297, in 2020, GMPs with agenda including approval of annual reports and accounting balance sheets may be held in the form of absentee voting, which generally may not apply to considering the issues in question3.
You might remember that, in the context of the pandemic, the 2020 ordinary (annual) meeting may be held by 30 September 2020. At the same time, all explanations relating to absentee voting on issues that may not, by law, be decided by absentee voting have been provided only with respect to joint-stock companies (“JSC”)4.
Annual General Meetings of Shareholders (“GMS”) in 2020
Nomination to Governing Bodies
FZ-297 clarifies that, for the purposes of the annual GMS, in 2020, the deadline for shareholders to submit proposals on the agenda and nominations to governing bodies (Board of Directors, Collegial Executive Body, Audit Commission and Ballot Committee) must be at least 27 days prior to the annual GMS.
At the same time, shareholders holding shares within the established limits (2% or more of the voting shares in the JSC) are provided with the following additional rights:
1) to make proposals in addition to those received earlier;
2) to make new proposals instead of those received earlier (the previous proposals will be deemed revoked).
The JSC should receive shareholders’ proposals at least 27 days before the GMS date specified in the relevant notice.
Please note that the above provisions apply to annual GMS on which notifications were sent out before 31 July 2020 (when FZ-297 came into force).
New Changes in Meetings of JSC Governing Bodies
FZ-297 extends the term for preparing documents relating to meetings held in 2020:
1) GMS minutes are prepared within six business days of the meeting being closed (general rule: within three business days5), BoD minutes — within six days of it being held (general rule: within three days6);
2) protocols of GMS voting results should be prepared within six business days of the GMS closing date or the closing date for ballot sheet acceptance if the meeting is held in the form of absentее voting (general rule: within three business days7);
3) in 2020, persons on the relevant list should be notified of decisions made by GMS and voting results within eight business days of the GMS closing date or the closing date for ballot sheet acceptance if the meeting is held in the form of absentее voting (general rule: within four business days8).
1 We understand that, until 2016, there were a variety of positions on who was supposed to act as the applicant for the purposes of registration: the withdrawing participant or the company. As explained by the Russian Federal Tax Service, the applicant should be a person entitled to act on behalf of the LLC without power of attorney, i.e., the company should act as the applicant (see paragraph 5, Clause 4 of Letter of the Russian FTS No. GD-4-14/52 dated 11 January 2016 “On Certain Aspects of Applying Federal Laws No. 67-FZ dated 30 March 2015, No. 209-FZ dated 29 July 2015 and No. 391-FZ dated 29 December 2015”).
2 See, for example, Decision of the Moscow Commercial Court No. А40-41509/18-34-260 dated 13 June 2018, Resolution of the Central Circuit Commercial Court No. F10-1453/2018 dated 23 May 2018 on case No. А14-9160/2017, Resolution of the Ninth Commercial Court of Appeal No. 10АP-3165/2017 dated 17 April 2017 on case No. А41-71082/16, Resolution of the Thirteenth Commercial Court of Appeal No. 13АP-18936/2016 dated 21 October 2016 on case No. А56-5543/2016.
3 Paragraph 2, Clause 1, Article 38 of Federal Law No. 14-FZ of 8 February 1998 “On Limited Liability Companies”.
4 Article 2 of Federal Law No. 50-FZ dated 18 March 2020 “On Acquisition by the Government of the Russian Federation of Ordinary Shares in Public Joint-Stock Company Sberbank of Russia from the Central Bank of the Russian Federation and Recognition of Individual Provisions of Legislative Acts of the Russian Federation as Inoperative”, Information Letter of the Bank of Russia No. IN-06-24/48 dated 3 April 2020 “On Holding Meetings of Shareholders in 2020”.
5 Clause 1, Article 63 of Federal Law No. 208-FZ dated 26 December 1995 “On Joint Stock Companies” (the “JSC Law”).
6 Paragraph 2, Clause 4, Article 68 of the JSC Law.
7 Clause 1, Article 62 of the JSC Law.
8 Clause 4, Article 62 of the JSC Law.
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