Russia expands policies to improve its business climate

Further to the Russian government’s measures to streamline the process of registering a business in Russia and improve corporate governance, the Ministry of Economic Development issued an order* that approved 36 model charters for limited liability companies (“LLCs”). Also, to protect the interests of minority shareholders, the government proposed a draft federal law* that excludes organisations that are controlled by persons or entities with interests in a given transaction from voting when approving such an interested-party transaction.

The more standard charters, the better

As early as 2014, the law allowed LLCs to operate on the basis of a standard charter. But it was only recently, on 24 September 2018, that the Ministry published the order approving the forms of model charters.

This development is meant to make it easier to launch business operations and conduct business in Russia, primarily for small and medium-sized companies. When the member of a company is also its sole executive body (i.e. general director), there is no need to develop more complex or detailed provisions in the charter than the mandatory norms found in Russian legislation.

The approved model charters offer several options regarding the obligation to obtain consent for the transfer of participatory interests to third parties and other participants, the procedure for certifying the decision of the general meeting of participants, and the exercise of power by several general directors in the company’s sole executive body (jointly or separately).

Starting from 25 June 2019, when the order comes into force, the founders and participants of an LLC (either a newly established company or an existing one) will be able to decide which of the 36 standard charters will form the basis of their company.

Choosing to operate on the basis of a model charter will:

• facilitate the company registration process for the founders since it will no longer be necessary to draft a separate charter and submit it for state registration; and
• make it unnecessary to amend the charter when information such as the company’s name, location and size of the charter capital changes, or when changes have been made in the legal regulation of the activities of LLCs. In the first case, it will be sufficient to file information about any changes with the Unified State Register of Legal Entities, and in the second case, the authorised body will make the relevant changes in the model.

Those “controlled” do not vote

To eliminate risks when approving interested-party transactions involving LLCs and joint-stock companies, the draft law limits the list of entities who can participate in a vote on interested-party transaction: shareholders who are controlled by a person or entity with a conflict of interest regarding the transaction are excluded from the vote.

Earlier this year, the Supreme Court of the Russian Federation developed* a similar approach that was intended to fill this obvious regulatory gap. The Russian government then made the decision to entrench this policy at the legislative level.

Recommendations

In view of the possibility of adopting a model charter for a particular company (either a newly created or existing business) from June 2019, it is recommended that business owners find out more about the contents of the approved forms of model charters. If the participants in a company decide that it makes sense for a company to operate on the basis of a standard charter, it will be necessary to file an application with the registering body. If a company is established after 25 June 2019, the founders will have to vote in favour of a resolution to operate on the basis of a model charter.

Also, those companies that have provided certain procedures in their charters and other corporate documents for approving interested-party transactions should take into account the new rule that participants (shareholders) controlled by parties with an interest in a given transaction will not be able to vote.

For more information on this eAlert, please contact Artashes Oganov or your regular contact at CMS Russia.

* In Russian