The State Legal Directorate of the President of the Russian Federation has included a new article on affiliated parties in the draft amendments to the first and second sections of the Civil Code (the "Draft Amendments"). The term "affiliated parties" is currently defined in the Federal Law "On Protecting Competition".

The most important innovation is the definition of the affiliation of individuals. Current legislation does not regulate this matter.

Currently, shareholders and participants of legal entities with shares exceeding 20% are most often recognised as affiliated parties.

The Draft Amendments envisage dividing affiliated parties into two types: (i) interdependent parties and (ii) associated parties.

The first group includes a controlling party and subordinate party, e.g. the founder of the legal entity and the legal entity itself.

The second group includes three sub-groups:

  • parties directly associated with a legal entity (general director, members of the management board and board of directors, and others);
  • parties indirectly associated with a legal entity (relatives of the parties who are directly associated with the legal entity); and
  • parties associated with an individual (direct relatives, dependents, adoptive parents and adoptees). 

Correspondingly, the Draft Amendments expand and spell out in detail a list of affiliated parties, including the relatives of shareholders and those of the managers of companies.

The Draft Amendments are also intended to define the term "controlling entity", which is considered to be the party with the ability to determine directly or indirectly the decisions of a subordinate legal entity. Specifically, a controlling entity is recognised as the entity with the right to dispose of more than 50% of the shares or participatory interests of the legal entity's charter capital.

The Draft Amendments also concern state companies. They envisage that legal entities which are under the general control of the Russian Federation or regional or municipal authorities will not be considered affiliated parties. This matter is not currently regulated by legislation.

If adopted, the Draft Amendments should simplify the process by which legal entities evaluate the relationships between various affiliated parties, i.e. for antimonopoly and corporate law purposes. Legal entities should also be aware that the courts and state authorities will also use the adopted provision to assess the relationships between parties.

[Article 55.4 of the Draft Amendments to the first and second sections of the Civil Code of the Russian Federation (please see the link to the Russian text: http://www.vedomosti.ru/politics/news/2011/08/23/1346554)]