According to the recently amended Russian Civil Code the consequences of non-compliance with the rule of maintaining the balance between the amount of charter capital and the value of net assets of a company have been amended.

The new rule is identical both for limited liability companies and joint stock companies. This rule provides that the value of a company’s net assets should remain not less than the company’s charter capital at the end of the second and every subsequent fiscal year. If this condition is not fulfilled, a company will have to increase its net assets up to the amount of its charter capital, or to register a decrease in its charter capital as prescribed by the law. In the event that a company’s net assets become less than the minimum charter capital required by law, the company will become subject to liquidation. However, since the legislation is new it is not clear how the liquidation requirement will work in practice until further clarifications are adopted.

The above rule to a certain extent contradicts the provisions of the Law on Limited Liability Companies and the Law on Joint Stock Companies. At the same time, the enactment of the legal instruments that introduced the amendments to the Civil Code states that the existing legislation will be applied for so long as it does not contradict the revised Civil Code. Accordingly, companies should follow the Civil Code provisions with regard to the net assets rule.

Considering the said requirement, we recommend calculating and assessing the value of a company’s net assets based on the balance sheet for the third quarter of the current year as soon as possible, so as to determine whether any such problems may exist.