A List of Participants in an LLC: Needless Formality or Instrument of Protection?

Pavel Karpunin
Partner
Capital Legal Services

The widely discussed amendments to the Federal Law “On Limited Liability Companies” (hereinafter the “LLC Law”) have introduced, among other things, the requirement for companies to maintain a List of Participants starting from July 1, 2009 (hereinafter the “List of Participants”).

The new chapter of the LLC Law, which is purported to settle this issue, consists of only one article, describes the contents of the List of Participants and merely has a brief description of the procedure for maintaining it, which has caused a number of discrepancies in practice.

Consequently, although almost a year has passed after this norm was enacted, as of today, not all LLCs maintain the List of Participants, and most companies that have such a List of Participants in one form or another have not settled on a procedure for maintaining such a list. Let us try to grasp what maintaining such a List of Participants entails and what its legal nature is.

It should be noted that Lists of Participants are often rightly compared to the register of shareholders in joint stock companies, as these documents are similar in content. Both the List of Participants and the register of shareholders contain information on participants (or shareholders) of a company and must be maintained. There, however, the similarities between these documents end, because of the following.

Alena Slivkina
Associate
Capital Legal Services

First of all, unlike the register of shareholders of a joint stock company (hereinafter the “JSC”), the information on the share of a participant in an LLC does not confirm the title — as pursuant to the LLC Law, the ownership title of a participant in an LLC to a share is confirmed by information in the Unified State Register of Legal Entities (hereinafter the “State Register”). Given that, in the event that information in the State Register is inconsistent with the information in the List of Participants, the information in the State Register prevails.

The above leads to the second important distinction between the documents: The procedure for maintaining a register of shareholders of a JSC is much more formalized, and the procedure for maintaining the register provided by law is mandatory for all companies. In addition to the Federal Law on Joint Stock Companies and the Federal Law on the Securities Market, the requirements for the procedure for maintaining the register of shareholders of a JSC are defined by a set of statutory acts of the Federal Service for Financial Markets. Regarding the List of Participants, there is no such regulatory document (a number of restrictions are only established in the LLC Law).

At the same time, the List of Participants — which is less regulated and formalized and which does not confirm the ownership title — still must be maintained. Thus, in accordance with the LLC Law, notices regarding general meetings must be sent to participants at the addresses specified in the List of Participants, and improper maintaining of the List of Participants may result in giving an improper notice of the general meeting to a participant and, consequently, administrative liability for the company.

Given that fact, the principal question is how companies should maintain the List of Participants, as it is obvious that more is required than just creating a document under the title of “List of Participants” and including in it the information specified in the LLC Law. Each company may settle these issues individually by developing and adopting internal regulations for maintaining the List of Participants.

The information to be included into the List of Participants needs to be specified in such regulations and, depending on the profile and ownership structure of the LLC, such information may be clarified or expanded. Also, it is important to settle the procedure for maintaining the List of Participants, introducing amendments into it, providing excerpts and other matters. Such regulations also should define the procedure for appointments and the scope of activities of those people responsible for maintaining the List of Participants. In addition, the regulations should establish the procedure and format for how the participants should provide information for introducing amendments into the List of Participants and obtaining information from it.

It is also important to settle the issue of granting access to information in the List of Participants, as the information may contain participants’ personal data and may be subject to Russian legislation on protection of personal data. In particular, in accordance with the Federal Law on Personal Data, a company would be an operator of personal data, bearing responsibility for ensuring the confidentiality of such information, i.e. for preventing its disclosure without the consent of the subject of personal data or some other lawful grounds. Consequently, in view of that, the regulations for maintaining the List of Participants should set out what information from the List of Participants may be accessed by third parties or by the company’s participants, or it should establish a requirement for obtaining consent of each participant of the company for disclosing information about that participant.

It should be noted that, apart from additional formalities and the possible adverse consequences of a failure to maintain the List of Participants, there are some positive aspects to introducing into LLC Law the norms for maintaining the List of Participants. Those include a protection of participants’ personal data in case it is necessary to provide statutory documents to contractors; an absence of a requirement for introducing amendments into statutory documents in the event of a change in information on participants; and more.

Furthermore, to a certain degree, maintaining the List of Participants may protect both the companies and their participants from a hostile takeover, as it ensures greater transparency in the participant structure of the LLC, both for the company and its participants, and a procedure for obtaining information about the transfer of shares and about changes in participants’ information. Consequently, all parties to this process are interested in proper keeping of the List of Participants. That provided, a great degree of flexibility in regulating the procedure for maintaining the List of Participants allows for the creation of an efficient and convenient procedure for maintaining such a List of Participants for a specific company.