The “shareholders’ agreement” is a relatively new concept in the Russian legal system. In the past, joint ventures in Russia have typically been organized through offshore holding companies, with agreements between shareholders and other legal documentation governed by foreign law. Investors argued that such arrangements were necessary to provide legal certainty and stability.
In response to such concerns, Russia adopted changes to its laws on joint stock companies and limited liability companies in 2008 and 2009. The amendments provided an express legal basis for agreements between shareholders, thus encouraging investors to choose Russian law and offering guidance to Russian courts and other authorities.
However, a number of important aspects of shareholders’ agreements under Russian law remained unclear, such as the scope of rights that may be governed by such an agreement. Recent court practice on such matters has not been encouraging. For example, in one recent case, the court found many provisions in a shareholders’ agreement to be invalid. These included the obligation to vote unanimously on certain matters, the right of a particular participant to nominate the general director, certain share transfer restrictions, and a call option in case of deadlock.
New proposed amendments. To further promote the use of Russian law–governed shareholders’ agreements, draft amendments to the Russian Civil Code were submitted to the Russian parliament in April 2012. The new legislation would clarify the rules governing shareholders’ agreements for Russian companies and provide additional flexibility on certain issues. Key changes would include:
- The decision of a company’s management body that breaches the shareholders’ agreement may be challenged in court, provided that (1) all shareholders were parties to the agreement when the decision was adopted and (2) revoking the decision would not violate the rights of third parties.
- Shareholders will be required to inform the company that they have entered into a shareholders’ agreement. For public companies, details of the agreement must be disclosed.
- Shareholders will be free to choose the governing law of the shareholders’ agreement, whether Russian or foreign law. However, the choice of law will not affect the mandatory rules of the country with jurisdiction over corporate governance. Accordingly, if English law is selected to govern a shareholders’ agreement with respect to a Russian company, this will not override the mandatory rules of Russian corporate law with respect to such matters as shareholder voting and minority rights. Still, this change may facilitate the use of familiar concepts from Western practice such as put and call options upon exit or termination of the agreement.
It is expected that the new amendments may lead to an increase in Russian law–governed shareholders’ agreements, especially in joint ventures with state-owned companies that may have a strong preference for transaction documents governed by Russian law.