In 2024, any transactions (operations) with shares in the authorized capital (stocks) of Russian companies, carried out with persons from unfriendly states, if the current sanctions regulations, in particular, the clarifications of the Ministry of Finance, do not provide for appropriate exceptions, will require obtaining permission from a government commission.
List of unfriendly countries HERE
In accordance with the provisions of Decrees of the President of Russia No. 81 of 01.03.2022, No. 618 of 08.09.2022 and No. 737 of 15.10.2022, the special procedure for the implementation (execution) of transactions (operations) that directly and (or) indirectly entail the establishment, change or termination of the rights of ownership, use and (or) disposal of shares (stocks) in the authorized capital of LLCs or JSCs or other rights that allow determining the conditions for the management of such LLCs or JSCs and (or) the conditions for their entrepreneurial activities, also applies to transactions (operations) related to the purchase of shares (stocks) in LLCs or JSCs. It follows from the provisions of the above-mentioned Decrees of the President of the Russian Federation that if a party to a transaction (operation) in relation to a share (stocks) in a Russian company is a person from an unfriendly state, it will not be possible to carry out this transaction (operation) without permission from the state commission.
Possible dual interpretation of the provisions of the above-mentioned Decrees of the President of the Russian Federation concerning the circle of persons covered by the regime for carrying out transactions (operations) with shares (stocks) of LLCs (JSCs) is excluded. It does not matter whether a participant (shareholder) of a Russian company from an unfriendly state leaves this company or, conversely, tries to join its participants (shareholders), this action (transaction) cannot be performed without the permission of a government commission.
This position is also confirmed by the Bank of Russia: “The regulation established by subparagraph “a” of paragraph 1 of the Decree of the President of the Russian Federation dated 01.03.2022 No. 81 applies to any transactions (taking into account the features established by paragraph 5 of the Decree of the President of the Russian Federation dated 04.05.2022 No. 254), regardless of which party is the person from a foreign state committing unfriendly actions.” As we understand, when applying Decrees of the President of the Russian Federation No. 618 of September 8, 2022 and No. 737 of October 15, 2022 in relation to shares in LLCs, the approach will be similar.
As in the case of a purchase, the establishment of an LLC or JSC by a person from an unfriendly state will require obtaining permission from a government commission (Letters of the Ministry of Finance of Russia No. 05-05-05/113005 of November 24, 2023 and No. 05-06-11/12558 of February 14, 2024).
It follows from the provisions of the Civil Code of the Russian Federation, the Laws on LLCs and JSCs that as a result of the payment by the founder of an LLC or JSC of his share (stocks) in the authorized capital of such LLC or JSC within the period specified in the agreement on the establishment of the LLC or JSC, or in the case of the establishment of an LLC or JSC by one person by a decision to establish an LLC or JSC, such founder acquires the rights of ownership, use and (or) disposal of the said share (stocks), as well as other corporate rights established by the Civil Code of the Russian Federation, the Laws on LLCs and JSCs (Articles 89, 90, 98 and 99 of the Civil Code of the Russian Federation, Articles 11 and 15 of the Law on LLCs, Articles 9, 25, 31 and 32 of the Law on JSCs).
The establishment of LLCs or JSCs by persons from unfriendly countries entails the establishment of their rights of ownership, use and (or) disposal of shares in the authorized capital of such a company, which means that it is necessary to obtain the appropriate permission from the government commission.
A person from an unfriendly country may become a member of a Russian company (LLC) by accepting this person as a member of the LLC based on an application from this person (Article 19 of the Law on LLCs), but, as in the above cases, only based on the permission of the government commission.
Requirements for transactions with shares (stocks) of Russian companies concluded with persons from unfriendly states are contained in RF Government Resolution No. 295 of 06.03.2022 and Protocols No. 171/5 of 07.07.2023 and No. 193/4 of 26.09.2023.
The requirements contained in the said protocols of the Ministry of Finance apply only to cases where a share (stocks) belonging to a person from an unfriendly state in a Russian company is alienated, and not to cases where a person from an unfriendly state wants to become a participant (shareholder) of a Russian company, establish it or buy a share (stocks) from a resident or enter it as a new participant through an additional contribution to its authorized capital, the requirements specified by the Ministry of Finance are not applicable. This follows from a literal reading of the provisions of the said protocols.
The requirements contained in the RF Government Resolution (paragraphs 4, 5, 5.(1) and 5.(2) of the Resolution) essentially boil down to a list of mandatory documents attached to the application for the subcommittee to issue permission to complete a transaction with an unfriendly party. In order to successfully obtain permission to complete a transaction to purchase a share from a foreign participant in the subcommittee, it must fully comply with the requirements of the Ministry of Finance.
For the “classic” situation, when an unfriendly party sells shares (stocks) in a Russian company, without fulfilling the mandatory requirements of the Ministry of Finance, the subcommittee will not grant permission for a transaction with a party from an unfriendly state.
In particular, such requirements include:
1) Availability of an independent assessment of the market value of assets and an expert opinion of this report by an SRO of appraisers.
2) The price of the acquired asset is no more than 50% of its market value.
3) An obligation to “voluntarily” send funds to the federal budget in the amount of at least 15% of the market value of the relevant assets, as indicated in the report on independent valuation of the market value of the assets
4) KPI for buyers of businesses from persons from unfriendly states.
5) The terms of the buyback must provide for the “temporary” owner to have an economic benefit.
6) Transfer of funds when making a transaction with a foreign person from an unfriendly state in one of the ways provided for by the Decrees of the President of the Russian Federation and the requirements of the Ministry of Finance (for example, to a type C account, to an account in a Russian bank or to an account in a foreign credit institution).
7) The applicant has other permits provided for by the legislation of the Russian Federation, necessary for the transaction, information about which is provided by the applicant.
Following the logic of a literal interpretation of the content of the above-mentioned protocols, it is obvious that of the above requirements for the case when a person from an unfriendly state acquires shares (stocks) in a Russian company or establishes it, only one can be applicable, namely, the establishment of KPI for acquirers of shares (stocks). As for the remaining requirements, the question remains open.
As indicated above, in addition to the requirements imposed on transactions by persons from unfriendly states by the Ministry of Finance, there are also requirements established by the Decree of the Government of the Russian Federation. However, as in the case of the requirements of the Ministry of Finance, the requirements of the Government of the Russian Federation will also be at odds with the situation that may arise in practice, namely, if an unfriendly person acts as a buyer, and not a seller, of a share (stocks) in a Russian company.
How to register an LLC for a citizen from a friendly country, see HERE
The article was prepared by lawyers of the “GeoBuro” company on 12.08.2024.