Russia to Proceed With Company Law Reform, Major Amendments to JSC Law Proposed
- By Alexey Kuzmishin
- Jun. 22 2010 00:00
After changing the Russian LLC law in 2008-09, Russia is now facing the next step, reforming the JSC law. The amendments were proposed in mid-May by the Economic Development Ministry and may have a greater impact on Russian corporations and international investors because many large Russian corporations have foreign shareholders or are listed abroad.
The amendments are aimed at creating a more favorable corporate law regime in Russia. Their adoption is part of an initiative to establish an international financial center in Russia approved by the Russian government on July 11, 2009.
The basic idea of the amendments is to create different regulative regimes for public and nonpublic JSCs. The terms “open” for public and “closed” for nonpublic JSCs will remain, although with new substance. While the former will have to strictly adhere to the mandatory provisions of the JSC law, the latter will be able to deviate from them. In this way, lawmakers plan to create the flexibility required by potential investors, who currently prefer foreign jurisdictions.
A JSC will be considered “open” unless its charter indicates otherwise. Furthermore, JSCs that are listed or have over 500 shareholders will be deemed open.
The shareholders of a closed JSC (hereinafter — “CJSC”) will not enjoy preemptive purchase right for shares offered to third parties, unless otherwise provided for by the company’s charter. If such a right is stipulated, the regulatory regime will be quite similar to the one for LLCs. The number of a CJSC’s shareholders will not be limited, whereas it currently may not exceed 50. Furthermore, CJSCs will be able to issue bearer shares as well as preferred shares of different types.
The only issue to be considered annually at the general shareholders meetings will be profit and loss distribution. The list of such issues is presently much longer. The terms for holding an annual general shareholders meeting will be determined by the charter or in accordance with it.
The changes will also impact other management bodies of JSCs. In CJSCs, it will be possible to form the board of directors with both executive and nonexecutive directors. In open JSCs, the name of the board of directors will change to “supervisory board.” It will be elected for the term indicated in the JSC’s charter, which may not exceed three years. The minutes of supervisory board meetings will state how each supervisory board member voted as well as the member’s special opinion, if any.
Material changes are also expected for executive bodies. At present, a JSC is obligated to have a sole executive body and may have a collective executive body. The amendments provide either for a sole or a collective executive body, the latter consisting of several executive directors acting jointly, unless the charter provides that they act severally or together with other persons.
Open JSCs will be obligated to appoint a corporate secretary to supervise how the JSC bodies and officers safeguard the shareholders’ rights and interests.
The Economic Development Ministry expects that the amendments will be considered by the Russian government in October and then introduced by the government in the Duma in December. However, the amendments contain certain discrepancies and may be altered. Furthermore, there are several other law reform think tanks in Russia besides the Economic Development Ministry, and it is possible that there will be competition between them while the JSC law is reformed.