Russian business law: the essentials. Отсутствует

out inspections of company’s financial and economic activities, and has access to all documentation concerning a company’s activities at any time. The company’s audit committee (auditor) shall carry out an inspection of company’s annual reports and balance sheets, before their approval by the general meeting of participants of the company.

      4.1.2.3. Joint Stock Company (JSC)

      4.1.2.3.1. The Legal Nature of a JSC

      The JSC is one of the most common organizational-legal forms of legal entities in Russia. Its charter capital[37] is divided into shares belonging to the JSC’s participants. The company is not liable for the shareholder’s obligations. The shareholders are usually not liable for the company’s obligations either, except in a situation when they have not fully paid for their shares.

      Public JSC, as well as a non-public JSC with more than 50 shareholders, are obliged to disclose information in accordance with the Federal Law on Joint Stock Companies.

      4.1.2.3.2. The Features of the Establishment of a JSC

      In accordance with the Clause 1 of Article 98 of the CC of the RF, founders of a JSC are obliged to execute a contract among themselves upon the founding a JSC, which shall define some aspects of the company’s creation. Such a contract must be concluded in writing.

      This contract is not a constituent document of the JSC.

      4.1.2.3.3. The Shareholders

      Both individuals and legal entities may be JSC participants. The JSC may have a single shareholder (another company having a single participant cannot appear as such a shareholder, in accordance with Clause 6 of Article 98 of the CC of the RF).

      4.1.2.3.4. The Shares

      A public company has the right to allocate shares, and issue securities which are convertible to shares, through open subscription. A non-public company does not have the right to offer (to an unlimited group of persons) such securities for acquisition.

      A non-public company may provide for in its charter the pre-emptive rights of the shareholders to the acquisition of shares being alienated by another shareholder (on paid transactions). Additionally, the charter may include a requirement to obtain the consent of stockholders for the alienation of the shares.

      The JSC has the right to allocate several types of shares, as well as special types such as preferred shares. The JSC charter specifies the dividend amount and/or the cost paid, in the event of a company’s liquidation of preferred shares. The preferred shares do not grant the right to vote at the general shareholders’ meeting. An exception to this rule is for meetings when certain issues are being considered, such as making amendments and additions to the company's charter, limiting the rights of the preferred share owners, as well as other issues.

      4.1.2.3.5. The Payment of Dividends

      The general shareholders’ meeting may decide to pay dividends to the shareholders on a quarterly, biannually, or annual basis.

      4.1.2.3.6. The Increase and the Reduction of JSC Charter Capital

      The increase of charter capital may be implemented:

      i) by increasing the share’s par value, or

      ii) by issuing additional shares.

      A reduction of the charter capital is implemented by:

      i) the reduction of the share’s par value, or

      ii) the acquisition of a part of the shares, with the purpose of reducing their total number.

      4.1.2.3.7. JSC Management Bodies

      JSC management bodies are:

      i) The General Shareholders’ Meeting

      The general shareholders’ meeting is the highest management body of a JSC. All shareholders have the right to participate in it. The most important issues of the JSC’s activities are addressed by the general shareholders’ meeting.

      ii) Board of Directors (supervisory board).

      Forming a board of directors is not obligatory for a JSC, which has less than 50 shareholders with voting shares. The general shareholders’ meeting elects the members of the board of directors (supervisory board) by a cumulative vote. The responsibilities of a company’s board of directors (supervisory board) includes the resolution of issues of the general management of company’s activities, except for the issues that federal law assigns to the responsibility of the general meeting of shareholders.

      iii) A Sole Executive Body

      The sole executive body manages the company’s current activities. The general shareholders’ meeting or the board of directors (supervisory board) elect the sole executive body, which is accountable to them.

      iv) Executive Board

      The forming of a executive board is not obligatory for a JSC. If a executive board has been formed, it shall manage the current activities of the JSC together with the sole executive body. The general shareholders’ meeting or the board of directors (supervisory board) elect the executive board, which is accountable to them.

      v) An Audit Committee

      The general meeting of shareholders elects an audit committee. It controls the company’s financial-economic activities.

      4.1.3. Economic Partnership

      There are two types of economic partnerships in Russia:

      i) general partnerships,[38]

      ii) limited partnerships (special partnership)

      Only individual entrepreneurs and profit organizations can be participants (partners) of the partnerships. The partners carry out entrepreneurial activities on behalf of the partnership.

      The participants jointly bear subsidiary liability for the obligations of the partnership. The person can be a participant of only one general partnership. Management of the general partnership’s activities is carried out with the consensus of all partners, unless otherwise provided by the founding agreement. Due to the aforementioned features, Russian entrepreneurs rarely create economic partnerships.

      A founding agreement may provide the following models for the management of general partnership:

      i) by all partners jointly (decision-making requires the consent of all partners),

      ii) by each partner separately,

      iii) by individual partners.

      In accordance with Clause 3 of Article 73 of the CC of the RF, the participant of a general partnership has no right to execute transactions on its behalf, for the benefit of the third parties without the consent of the remaining participants if such transactions are similar to the subject of general partnership’s activities. The profit and losses are distributed among the partners in proportion to their contributions, unless otherwise specified by the founding agreement.

      The partner has the right to transfer his share to the third party only with the consent of all partners.

      In the case when a single participant remains in a partnership, the partnership is subject to liquidation, if the last partner does not transform the partnership into an economic company.

      4.1.3.1. Limited Partnership

      A limited partnership, along with the general partners, includes the investors (limited partners) therein, who do not participate in the management of the partnership, as well as in conducting its affairs, and bear the risk of the losses from the partnership's activities, within the limits of their contributions to the capital. Any individuals and legal entities can be investors to a limited partnership. Their number may not exceed 20.

      4.1.4. Peasant (Farmer) Economies[39]

      Currently in the Russian legislation peasant (farmer)

37

See chapter 4.1.2.1.C for the minimum amount of JSC charter capital.

38

The general partnership should not be confused with the simple partnership, which is not a legal entity.

39

The words «peasant» and «farm» are synonym in this entitlement.