Regulation of Transactions in Relation to Russian LLCs
The Russian Federal Law No. 14-FZ “On Limited Liability Companies” (the LLC Law) has been subject to substantial revision and modernization during the last few years. Another set of changes to the LLC Law came into force on January 15, 2016.
Under the amendments to the LLC Law, as a general rule, the title to a participation interest in the charter capital of a Russian limited liability company passes to an acquirer of that participation interest at the moment the relevant record of that transfer is made by the state registration authority in the Unified State Register of Legal Entities. The general requirement for the notarization of transactions involving title transfer remains unchanged.
As a result of these amendments, the moment of transfer of title to a participation interest now falls outside the control of the parties to a sale and purchase agreement. Accordingly, completion mechanisms where the payment of the purchase price and the transfer of title in an LLC could previously be achieved simultaneously no longer work in this manner.
The LLC Law further establishes the long-awaited procedure for the exercise of an option to purchase a participation interest in an LLC: the relevant agreement can be exercised by means of notarial certification of an irrevocable offer and (subsequently) by notarial certification of its acceptance. The irrevocable offer is deemed accepted as of the day of notarial certification of its acceptance. It is provided that the exercise of an offer may also be made subject to fulfilment of certain conditions.
In addition, the amendments change the time periods for performance of various registration actions by notaries. In particular, it is now possible to extend (upon the agreement of the parties) the term for filing an application for state registration of the transfer of title to a participation interest in the charter capital of an LLC (the statutory term being two business days).
Statutory Inspections of Joint Stock Companies
With effect from January 2016, the Russian Central Bank introduced regulations in relation to the manner and grounds for conducting official inspections and audits over joint stock companies, shareholders and some other categories of participants of corporate relationships (Instruction of the Bank of Russia No. 3795-У, dated September 13, 2015). The aim of the regulations is to ensure compliance of the target companies and persons with the applicable corporate and securities legislation. The regulations provide for distant and field inspections which are differentiated depending on the scope and purposes of the audit. In particular, field inspections may involve the authorities visiting the place where a general shareholders’ meeting is being held to verify the compliance of the procedural aspects of such a meeting with applicable legal requirements. The regulations do not affect limited liability companies.
Disclosure of Ultimate Owners of Real Estate
Following recent amendments to the Russian tax legislation, foreign companies which own immovable property in Russia are now obliged to notify the Russian tax authorities of the owners of such companies and their beneficiaries and managers in the manner prescribed by tax legislation. The same requirement relates to owners of Russian real estate who do not constitute a legal entity. Failure to notify exposes the relevant person / entity to an administrative fine that may be equal to the amount of respective property tax (which in certain cases may be quite significant).