Charter capital and contributions
The charter capital of an LLC is divided into participatory interests (“doli”). Unlike the shares issued by a joint-stock company, these participatory interests are not classified as securities and therefore do not need to be registered with the Central Bank of Russia (the “CBR”¹).
Each holder of a participatory interest is referred to as a “participant”.
The minimum charter capital of an LLC is currently RUB 10,000 (EUR 143²). The amount of the monetary fund for the charter capital must not be less than amount of the minimum charter capital.
The decision of the general meeting of participants to increase the charter capital and the list of members that were present at the relevant general meeting have to be confirmed by a notary.
Contributions to the charter capital of an LLC may be made in cash or in kind (e.g. securities, property or other tangible or intangible rights or assets having a monetary value). Any contribution in kind must be valued by an independent appraiser.
A participant may not be released from the obligation to pay its agreed contributions to the charter capital. In case of a charter capital increase, contributions to the charter capital can be made by set off against any existing monetary debt that the company owes to the participant, provided that all the participants agree.
Exemptions from import duties and import VAT may be available for certain types of equipment contributed to the charter capital of a company by a foreign participant.
Net asset requirements and creditor protection
An LLC must ensure that the value of its net assets does not fall below the amount of its charter capital. Failure to comply with this requirement may result in the company being required to decrease its charter capital accordingly or to increase the value of its net assets by one of the available ways.
Also, if the value of the company’s assets is less than the minimum charter capital amount, it may be subject to compulsory liquidation.
If the number of participants in the company exceeds 50, the company is obliged either to reduce the number of participants or to re-register as a joint-stock company within one year. Failure to do so may lead to compulsory liquidation.
All LLCs must maintain a register of participants. This register sets out the names of the participants and the number of participatory interests that each participant has in the company.
As a general principle, the participants’ liability for the company’s debts is limited to the payment (in full) of the amount of their participatory interests. In a limited number of cases, the corporate veil can be pierced, resulting in participants having unlimited liability for the obligations of the company. This can happen if, for example, a participant gives binding instructions to the company that lead to the insolvency of the company.
All LLCs must know who their ultimate beneficial owners are and take steps to collect certain information on them from the participants in the LLC. Such information must be disclosed to Russian state authorities upon request.
The managing bodies of an LLC are:
- the general participants’ meeting;
- the collective management body – board of directors (optional);
- the collective executive body – management board (optional); and
- the sole executive body (one or several executives) – general director.
Major decisions, such as amending the company’s charter, changing the charter capital, distributing profits and approving the annual reports and balance sheets of the company must be taken by the general participants’ meeting.
The annual general participants’ meeting must be held not earlier than two months, and not later than four months, after the end of the company’s financial year (which always corresponds to the calendar year). Extraordinary general participants’ meetings may be held at any time. General participants’ meetings must be convened according to the procedure set out in the company’s charter and the LLC Law unless all participants attend the meeting.
Unless otherwise expressly provided for by the company’s charter, a participant’s number of votes at the general participants’ meeting will normally correspond to the proportion of the company’s charter capital that such participant holds.
Generally, decisions are adopted by a simple majority of votes of all participants except for those matters in respect of which the LLC Law requires a qualified majority (e.g. liquidation of the company). In addition, a qualified majority can be set out by the company’s charter for other matters at the discretion of the participants.
Most decisions (except approval of the company’s annual reports and balance sheets) may be adopted without holding a participants’ meeting through absentee voting.
The general participants’ meeting has exclusive competence in respect of the list of matters specified by the Civil Code and LLC Law. This list can be extended in the company’s charter at the discretion of the participants.
Resolutions of the general participants’ meeting must be certified by a notary unless otherwise provided for by the charter or a notarised unanimous resolution of the general participants’ meeting.
A board of directors is an optional supervisory body. Its authority typically includes appointing/dismissing the general director or approving certain types of transactions or transactions the value of which exceeds certain thresholds.
The LLC can also have a management board. By law, the general director chairs the management board. Unlike the general director, however, members of the management board must obtain a power of attorney from the general director in order to enter into transactions on the company’s behalf.
Powers of the board of directors and the management board are to be defined by the charter at the discretion of participants.
The general director (sole executive body) manages the day-to-day running of the company and deals with all other issues not falling within the authority of the other management bodies. The general director acts on behalf of the company, represents its interests, enters into transactions on its behalf, issues powers of attorney and hires and dismisses employees. The general director represents the company without a power of attorney. The general director’s powers may be limited by the company’s charter and his/her employment contract.
The powers of the sole executive body can be provided to several executives of the company for individual or joint representation, which must be reflected in the Unified State Register of Legal Entities. However, this Register has not yet been amended to allow reflecting the particular authorities of each of the executives. As a result, the general rule that all executives indicated in the Register have equal and unlimited authorities applies and, thus, the four-eyes principle cannot currently be implemented vis-à-vis third parties.
A foreign national may be appointed as the general director of an LLC subject to compliance with work permit regulations (please see the Employment and migration chapter).
The general participants’ meeting may transfer the general director’s authority to a management company (in whole only). In such case the management company will act on the basis of the management agreement entered into with the company.
The charter may provide for an internal auditor (either an individual or an internal audit commission established under the company’s own charter). In some cases a company must have an internal auditor – as with companies having more than 15 participants – without which the general participants’ meeting will not be able to approve the company’s annual reports and balance sheets (as they must first be approved by the internal auditor).
An external auditor may also be appointed by the general participants’ meeting to audit the company's financial and business activity. If certain turnover or asset value thresholds are exceeded, or if the company conducts certain regulated activities, an external auditor must be appointed.
Transfer of participatory interests
Participatory interests are freely transferable between participants. However, the charter may specify that a transfer of participatory interests requires the consent of the other participants and/or the company.
A participant may transfer its participatory interest to third parties, subject to a statutory pre-emption right in favour of the other participants and, if so provided for by the charter, in favour of the company itself.
The procedure for selling participatory interests and for determining their offer price is set out in the LLC Law, although the company’s charter and/or participants’ agreement may provide a different procedure.
A participatory interest transfer agreement must be notarised. The participatory interest is deemed transferred after the information on the transfer is registered in the Unified State Register of Legal Entities. This creates difficulties in the context of settlements between the parties to Russian agreements for the sale and purchase of participatory interests since the registration of the transfer may take up to seven business days and is outside of the parties’ control.
The charter may prohibit the transfer of participatory interests to third parties or make such transfer subject to the consent of other participants or the company. If such consent is not given, the company itself is obliged, by law, to purchase the relevant participatory interests.
Right to withdraw
Participants in an LLC are entitled to withdraw from the company without the consent of other participants if: (i) this is permitted by the company’s charter; or (ii) the transfer of participatory interest to a third party or another participant is prohibited and/or blocked by other participants; or (iii) the general meeting of participants approved a major transaction or a charter capital increase (in this event, the right to withdraw is granted to any participant who voted against such decision or did not attend the meeting). The application of a participant for withdrawal from the company has to be notarised.
If a participant withdraws from the company, it has to serve a withdrawal notice to the company. Such withdrawal notice must be certified by a notary. After receipt of the notarised withdrawal notice, the general director has to apply to the Unified State Register of Legal Entities to register the relevant transfer of the participatory interest to the company. The company is then obliged to pay the exiting participant the “actual value” of its participatory interest in cash. The company may, however, pay the exiting participant in kind provided that the participant agrees to this.
The “actual value” of the exiting participant’s participatory interest is calculated in accordance with accounting data as provided in the LLC Law. The statutory payment procedure and timing may be varied in the company’s charter.
Expulsion of a participant
Company participants holding more than 10% in the company’s charter capital (in aggregate) are entitled to apply to the court for the exclusion from the company of a participant that commits a gross violation of its duties or whose actions or failure to act renders the company’s operation impossible or significantly impairs it.
Where a creditor of a participant enforces against the latter’s participatory interest, the LLC and/or the other participants are entitled to pay the actual value of such participatory interest to the creditor. If they do so, the participant withdraws from the LLC and its participatory interest is transferred to the other participants and/or to the LLC (depending on which of them satisfied the claim of the creditor).
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