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24 September 2018
Restrictions on share transfers by law
Can minority shareholders alter or restrict changes to share capital structures?
When must shareholders notify changes to their shareholding to a regulatory authority?
Can companies buy back their shares? Which limitations apply?
Exiting a company
This article examines share transfers and company exits in Russia.
The stock of public joint stock companies and open joint stock companies is freely transferable subject only to contractual limitations. Shares in non-public companies can be transferred to other shareholders and third persons. However, as regards limited liability companies, each shareholder – and, if the bylaws so provide, the respective company – enjoys the right of first refusal of the shares sold by other shareholders to third parties. Shareholders in non-public joint stock companies enjoy a right of first refusal if that right is provided in their company's bylaws. In the case of closed joint stock companies, whose bylaws have not been adapted to new laws, the right of first refusal applies even if not provided in the bylaws.
Additional limitations for limited liability companies
The following additional limitations apply to limited liability companies:
Limitations on share transfers in both joint stock companies and limited liability companies can be provided for in shareholders' agreements. As Russian law on shareholders' agreements is new, there is no practice or certainty as to the extent of such contractual limitations. It is understood that shareholders cannot completely waive their right to transfer shares.
Share capital increases
Shares which are issued in the course of a share capital increase from the company's funds can be distributed only among the shareholders.
As regards shares issued in the course of share capital increases from new shareholders' funds, the shareholders enjoy a pre-emption right. If a joint stock company's shares are to be distributed among a certain group of persons, only shareholders which voted against the relevant resolution of the shareholders' meeting enjoy the pre-emption right. Shareholders in limited liability companies are protected against an undesired distribution of shares among a certain group of persons by the requirement of unanimity of the general meeting regarding the resolution.
A company's minority shareholders can restrict changes to its share capital structure by:
Shareholders must notify the regulatory authority of changes to their shareholding in the following cases:
Joint stock companies
Joint stock companies can acquire their own shares if:
However, joint stock companies can acquire shares only if the following conditions are met:
Limited liability companies
Limited liability companies can repurchase shares only if a shareholder exercises its right to resell its shares to the company.
Joint stock companies
Shareholders of joint stock companies can demand that the company repurchase their shares if it has voted against or not voted on a decision of the general meeting on:
The board of directors will determine the price for the repurchase, which cannot be less than the shares' market value as determined by an independent expert. In the event of a termination of a public joint stock company's public character or a de-listing of its shares or securities convertible into shares, the price should not be less than the average price in the organised trades of the past six months. The total price for all repurchases, the right to which was caused by a decision of the general meeting, must not exceed 10% of the joint stock company's net assets.
Each shareholder of a non-public joint stock company can initiate court proceedings on the expulsion of another shareholder from the company against payment of the actual value of its shares. This applies only if that shareholder has either:
Public joint stock companies
A shareholder in a public joint stock company which, after having made a mandatory or voluntary offer to purchase other shares, acquires more than 95% of the shares in the joint stock company, must make an offer to purchase the shares from the remaining shareholders. The purchase price cannot be lower than the:
Alternatively, the shareholder can make an offer to purchase the remaining shares at their market price, provided that this is not lower than the minimum prices.
The Central Bank must be notified of these offers.
Limited liability companies
Shareholders of limited liability companies can demand that the company repurchase their shares if they:
Each shareholder can initiate court proceedings on the expulsion of another shareholder, on the same conditions as a shareholder of a non-public joint stock company.
The limited liability company must pay to the withdrawing shareholder the actual value of its shares in cash or in assets. The 'actual' value is determined on the basis of the limited liability company's accounting reports for the previous reporting period. However, payments can be made only:
An earlier version of this article was first published by Thomson Reuters.
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