What should legal entities wait for after the first september?

Amendments into the Civil Code of the RF (Russian Federation) entered into force.

The main principle concerning the new developments is confined to the following: the actions undertaken by the founders (members) of a legal entity prior to September 1, 2014 (incorporate or liquidate the organization, introduce the amendments into the Articles of Association etc.) shall be governed by the existing laws; legal relations which will arise from September 2 will be governed by new rules (p. 3 of Art. 3 of Law No. 99-FZ).

From September 1, 2014 the particular procedure for confirmation of the adoption of resolutions by the General Meeting of Members/Shareholders and the composition of the Members/Shareholders being presented therein will be in force.

In limited liabilities companies to confirm the resolution and the composition of the members it will be required to apply to a notary (subclause 3 of clause 3 of Art. 67.1 of the CC (Civil Code) of the RF. The law permits not to perform this requirement unless other way of confirmation is prescribed by the members in the Articles of Association or in the unanimously adopted resolution of the General Meeting of Members.

It is possible to amend the Articles of Association prior to or after September 1.

The Members may prescribe the following ways of confirmation of the adoption of a resolution and the composition of the Company’s Members:

— to adopt the resolution to amend the Articles of Association by fixing therein the most convenient confirmation procedure (for example, certification of the minutes by the seals of the chairman and the secretary of the Meeting being the Company’s Members);

— to adopt the resolution on the way of confirmation each time when holding the General Meeting (this way is applied if all Members are always presented, formally it is sufficient to adopt such resolution on a single occasion. There are no legal precedents on this issue yet, that’s why it’s better to “play safe”);

— to apply to a notary to confirm the adoption of the resolution at the General Meeting of Members and the composition of the Members (the difficulty consists in the fact that the Members shall appear directly before the notary, the date, time and place of the Meeting shall be agreed with the notary in advance, otherwise the procedure for convening the Meeting is violated).

— the use of the technical means permitting to confirm the fact of adoption of the resolution (audio, video records and other) (the difficulty consists in the fact that it is required to confirm the personality of the persons participating the video and all the more the audio record);

— other ways consistent with laws (in addition, no restrictions are prescribed by the law).

Attention: these requirements are not applied to the companies where the resolutions are adopted by the Sole Member, as they are established only with regard to the Meeting of the Company’s Members.

In joint-stock companies: for confirmation it is required to apply to the person maintaining the registry of shareholders and performing the functions of the counting commission. In non-public company the law permits not to perform this requirement if the adoption of the resolution and the composition of shareholders is confirmed by a notary (subclauses 1, 2 of clause 3 of Art. 67.1, clause 4 of Art. 97 of the CC of the RF).

The sole constituent document of a legal entity will be its Articles of Association.

Any Articles of Association shall contain the information on the name of the legal entity (clause 4 of Art. 52 of the CC of the RF). Accordingly, if the company is required to make its name in compliance with the new rules of the Civil Code of the RF, it will be required to amend the Articles of Association with regard to such name.

However, it is not required to do this at once. Such obligation may be performed when amending the constituent document for the first time (clause 7 of Art. 3 of Law No. 99-FZ).

But it is not expedient to delay the amendment of the Articles of Association as if the amendments are not introduced:

  • The company shall be simultaneously covered not only by the rules of new chapter 4 of the CC of the RF, but the previous provisions of Federal Law On Joint Stock Companies No. 208-FZ of December 26, 1995 (hereinafter referred to as “the Law On JSC”). As a result, uncertainty may arise with regard to what rules shall govern one or another situation (for example, in case of alienation of shares): the new rules of the Civil Code of the RF or the provisions of the Law On JSC.
  • Problems with counterparties may arise. Not all members of the civil circulation agree to enter into contractual relation with the organization which delays the procedure for bringing the constituent documents to conformity with the new edition of the Civil Code of the RF.

Conclusion: It is required to amend the Articles of Association of the LLC to the extent concerning the procedure for confirmation of the resolution of the General Meeting of the Members of the LLC and the composition of the Members (it is not applied to LLCs with one members), and JSCs shall bring their Articles of Association to conformity with Federal Law No. 99-FZ of May 05, 2014, i.e. as a minimum to change the legal form (name) of the legal entity, OAO (Open Joint Stock Company), into public joint stock companies, and ZAO (Closed Joint Stock Company) into non-public joint stock companies.

With best regards,

Head of the Legal Arbitration Practice

Mikhail Cherepnov