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19 March 2018
Transactions of Russian joint stock companies and limited liability companies require the consent of the general meeting or the board of directors if they qualify as material or interested party transactions. As the non-observance of the relevant requirements may be grounds for contesting these types of transaction, they should be observed not only by shareholders and members of the corporate bodies of the respective companies, but also by persons that wish to enter into such transactions with these companies.
In 2017 the laws governing interested party and material transactions were substantially improved. The key amendments are as follows:
An' interested party transaction' is a transaction with:
A 'controlling person' is a person who has the right to:
Transactions within the ordinary course of business are exempted only if analogue transactions were performed in similar conditions during a longer period.
Under the new laws, the non-interested shareholders of a joint stock company's general meeting must approve a transaction if:
Otherwise, approval must be granted by the joint stock company's board of directors.
A transaction is 'material' if its subject is the acquisition or potential alienation of assets with a value of at least 25% of the balance value of the respective company's assets as of the last accounting period. The new laws clarify that the following transactions also qualify as material:
Under the new laws, the purchase price will be considered where a transaction involves the acquisition of an asset. Where a transaction involves the alienation of an asset, the higher of the sales price or the value of the asset will be considered.
As under the previous laws, companies entering into a material transaction must obtain the general meeting's approval, provided that – in case of transactions involving assets with a value of between 25% and 50% of the balance value of the company's assets – the competence passes (mandatorily for joint stock companies and if so provided by the bylaws for limited liability companies) to the board of directors, if any.
In case of a joint stock company, a resolution regarding the approval of a transaction whose value exceeds 50% of the balance value of the company's assets falls under the exclusive competence of the general meeting and requires a majority of 75% of the votes of the shareholders present.
Under the new laws, if a company enters into a material or an interested party transaction in breach of the above provisions, such transaction may be declared invalid by a court in a suit brought by the company, a member of the board of directors or a shareholder holding no less than 1% of the votes of all shareholders if the court is provided with evidence that the other party to the transaction knew or should have known of the breach of the above provisions.
As under the previous laws, the limitation period for a court action is one year from the day on which the company or shareholder learned (or should have learned) of the transaction and the lack of approval.
The new laws provide certain exemptions from the applicability of the provisions regarding interested party and material transactions. In particular, transactions of companies which are held by only one person who is the general director are exempt.
For further information on this topic please contact Thomas Mundry or Maria Pozhnikova at Noerr by telephone (+7 495 799 56 96) or email (firstname.lastname@example.org or email@example.com). The Noerr website can be accessed at www.noerr.com.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
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