Co Ru Le Augu www For fu Mosc Serge +7 49 serge Alexe +7 49 alexe Serge +7 49 serge St. P Maxim +7 81 maxim Bake CIS, White 9 Les Mosc Tel.: Fax: Bollo 4a G St. Pe Tel.: Fax: orporate ssia egal ust 2014 w.bakermcken urther informa cow ei Voitishkin 95 787 27 00 ei.voitishkin@b ey Frolov 95 787 27 00 ey.frolov@bak ey Krokhalev 95 787 27 00 ey.krokhalev@ etersburg m Kalinin 12 303 90 00 m.kalinin@ba er & McKenzie Limited e Gardens, 10 snaya Street cow 125047, R +7 495 787 27 +7 495 787 27 evCenter, 2nd rivtsova Lane etersburg 190 +7 812 303 90 +7 812 325 60 e & M& Alert nzie.com ation please co bakermckenzi kermckenzie.co @bakermckenz kermckenzie.c e — 0th Floor Russia 7 00 7 01 d Floor 0000, Russia 0 00 0 13 &A t ontact ie.com om zie.com com Russia 1 Septe Amendmen regulations new busine Below we o broader Civ taken in ord Recent d Public and Companies companies other secur traded on a will be regu constituent In contrast, their corpor competence establishing to procedur meetings an governing b Existing join will be deem them as suc by including designed fo All other joi deemed pri The “Dual Companies will act joint charter. Thi 1. These are No. 99-FZ. 2. Note that u Law “On Join joint stock com n Corpo ember 2 nts to the Rus more flexibl ess demands outline the m vil Code refo der to prepar developm d private com s will be divid are defined rities convert stock excha ulated in deta documents. private com rate set-up. T e among var g rules for co re and timelin nd documen bodies and th nt stock com med public re ch. Joint stoc g the word “p or public com nt stock com ivate. Signature” s are allowed tly or indepe is rule will be amendments to under Federal L nt Stock Compa mpanies to the e orate Re 2014 ssian Civil C e and moder s will come in ost importan rms, and sug re companies ments mpanies: ne ded into two c as those join tible into sha ange. Corpor ail by law, lea mpanies will e There will be rious govern onvening and nes for notify nting their res heir functioni mpanies whic egardless of ck companie public” in the mpanies will a mpanies and rule: new o d to have mo ndently, dep e helpful in st o Chapter 4 of aw No. 218-FZ anies” relating to extent they do n eforms to ode designe rnize the Cod nto force on 1 nt of these ch ggest practic s for the new ew regulator categories: p nt stock com res are place rate rules ap aving less roo enjoy much g more freedo ing bodies of d holding gen ying shareho sults), and fo ng. h meet the c whether the es will also be company na apply to them limited liabili pportunities re than one c ending on th tructuring joi Part I of the Civ effective from 2 o open joint sto not contradict th o Start o ed to make co de’s provisio September hanges which cal steps whi w rules. ry approach public and pr panies whos ed through p pplicable to s om for regula greater flexib om for reallo f such comp neral meeting olders and co or forming co criteria for pu eir company n e able to opt ame, and in t m.2 ity companie s for govern chief execut he provisions nt ventures a vil Code envisa August 2014 ock companies he Civil Code. on orporate ons in line wit r 2014.1 h are part of ch should be h rivate. Public se shares or public offering uch compan ation by their ility in model cating anies, and in gs (with resp onducting llective blic compan names identi t for public st this case rule es will be nance ive officer wh s in the comp as well as in aged by Federa provisions of Fe shall apply to th e c g or ies r ling n pect ies ify tatus es ho pany al Law ederal public Corporate & M&A 2 Legal Alert August 2014 other instances where from a risk management perspective the company should be represented by two or more persons during the execution of any significant documents, effecting payments, etc. Location and address of a legal entity — what changes must be made to the charter? According to the new rules, a legal entity’s address must be recorded only in the Unified State Register of Legal Entities (the “Companies’ Register”). It is no longer necessary to specify the address in the company’s charter, which previously required charters to be amended every time the company moved to a new address. Accordingly, the charter may now be amended to change information about the company’s location, indicating only the municipality or city where the company is located. Shareholders agreements: new rules and opportunities The amendments consolidate and develop the regulation of shareholders agreements (“SHA”) by introducing the concept of “corporate agreements” in the Civil Code. As a general rule, an SHA is entered into between shareholders of the company. The Civil Code expressly makes it possible for creditors or other persons to contract with shareholders, in which case general rules governing SHAs will apply to such arrangements. The Civil Code prohibits parties to an SHA from claiming that it is invalid because of its inconsistency with the company’s charter. Previously, courts often had to deal with disputes when a party, finding it disadvantageous to comply with an SHA it signed would challenge the agreement claiming that it formally contradicted the charter. The new rules aim to prevent such situations. It will now become possible to challenge decisions passed by a company’s governing bodies which contravene the SHA, provided that all company participants are parties to the SHA. For public companies information about an SHA must be disclosed in the manner and on terms set by the law. As regards private companies (both joint stock and limited liability companies): their participants need only to notify the company about the conclusion of the SHA, without the need to disclose its contents. If the charter or the SHA grants to a participant rights that are disproportionate to its equity interest in the company, under the new rules information about this and the scope of such rights must be included in the Companies’ Register. Liability of the parent company for its subsidiary’s transactions The principal company (partnership) is deemed jointly and severally liable for transactions concluded by its subsidiary not just in cases when it instructed the subsidiary to enter into the transaction but also when it gave its consent for the transaction. It is expected that this rule will be elaborated in special laws, in particular, in draft amendments to the laws on joint stock companies and limited liability companies which are currently under discussion. Corporate & M&A 3 Legal Alert August 2014 New rights and duties of a participant/shareholder Participants in a company (partnership) are now obliged to participate in those corporate decisions without which the company cannot continue to do business in accordance with the law. Participants are entitled to demand the expulsion of another participant from a private company (partnership), in accordance with the procedure established by law. That is a significant new development that may affect the stability of joint ventures and should be addressed when structuring new projects, as well as by partners in existing JVs. New rules for documenting shareholder resolutions The amendments envisage that decisions taken by a general meeting of shareholders of a public company must be certified by a professional registrar maintaining its shareholders register. For a private joint stock company such function can be performed either by a professional registrar or by a notary. In a limited liability company such decisions can be certified either by a notary or by other means envisaged in the company’s charter or under a unanimous decision taken by its participants. For limited liability companies it may be helpful to set a concrete method for documenting decisions taken by the participants, so as to take decisions without involving a notary. It does not seem practical, however, to rule out the possibility of notarial certification completely as this may be useful to document the most important decisions taken by the participants. Ban on limiting top managers’ liability and general principles for such liability The amendments prohibit agreements limiting or exempting from liability of persons serving on a legal entity’s governing bodies for bad-faith actions, and in the case of public companies, for both bad-faith and unreasonable actions. The amended Civil Code systematizes general principles for liability of members of companies’ governing bodies, but also envisages liability for losses incurred on a company by persons who while not being on its governing body but are actually in a position to determine the company’s actions. Prohibition for CEOs and for members of collective governing bodies (management board) to chair boards of directors This ban previously applied to CEOs only. External audits and internal financial control Under the new rules all joint stock companies, both public and private, must undergo audits performed by independent auditors. The Civil Code disallows establishing an internal audit commission in a private joint stock company, which is convenient for companies using other instruments of financial control where the old requirement to have such commission was cumbersome. Reorganizations of entities of different corporate form It will be possible to carry out reorganizations combining several methods (such as merger, spin-off, etc.), as well as involving several legal entities, including entities of different types (such as joint stock companies and Corporate & M&A 4 Legal Alert August 2014 limited liability companies), in cases provided by law. Rules for transformation have been simplified in terms of notification of the creditors. Actions to consider Consider bringing the company’s constituent documents and its company name in line with the amended Civil Code. This should be done when the company first amends its constituent documents after 1 September 2014. Until then, provisions of the constituent documents will apply to the extent they do not contradict the restated Civil Code. This is true for all companies — both joint stock companies and limited liability companies. Appropriate changes to data on record in the Companies’ Register, as described above, will also be required. When contemplating amendments to constituent documents, ongoing projects should be considered, as these may require the introduction of such amendments after 1 September 2014. Tax authorities may refuse to accept such changes unless the charter is simultaneously made consistent with the new rules set out in the Civil Code. Any amendments to constituent documents should take into account the new opportunities offered to optimize corporate procedures. An external auditor must be appointed for a joint stock company and a contract with the auditor must be concluded. When forming the company’s governing bodies, mind the ban on combining the chairmanship of the board of directors. New rules which could trigger joint and several liability of a parent under transactions made by its subsidiary with the parent company’s consent should be taken into account when structuring relations with subsidiaries. The new rules should also be considered when structuring JVs (e.g., the risk of expulsion of a shareholder, new rules providing flexibility in structuring corporate governance, the “dual signature” principle). As regards earlier shareholders agreements, information about such agreements entered into with respect to public companies must be disclosed, and with respect to private companies, notices about the existence of such agreements must be sent to the company. This LEGAL ALERT is issued to inform Baker & McKenzie clients and other interested parties of legal developments that may affect or otherwise be of interest to them. The comments above do not constitute legal or other advice and should not be regarded as a substitute for specific advice in individual cases.