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      Changes to the Russian Civil Code to benefit business

      Amendments to the Russian Civil Code, aimed at improving the business environment in Russia, are expected to come into effect early this year.

      The changes to the Civil Code being introduced in Russia demonstrate a tougher stance by the Government and a shift towards protecting the rights of corporate entity participants by providing them with additional guarantees.

      All change for corporate entities
      One of the key changes being introduced is streamlining the types of commercial entity available to businesses operating in Russia, in particular the use of closed joint stock companies (CJSCs).

      A CJSC may choose to become a Limited Liability Company (LLC) or producers co-operative by 1 July 2013, or maintain its legal form as a joint stock company. New regulations for CJSCs will apply after 1 July 2013. When deciding on the future of a CJSC it is worth noting that the authorised capital cannot be less than 100,000 roubles.

      The practically non-existent additional liability company will disappear from the Russian Civil Code.

      Tightening control
      To further strengthen the legal framework and prevent manipulation of the law when creating and operating corporate entities, the reforms introduce the concept of ‘affiliated entities’, which include spouses and relatives, in addition to those controlling the corporate entity.

      Individuals controlling a corporate entity can influence its actions directly or indirectly through third parties and independently or jointly with related affiliated entities.

      The list of affiliated entities is fairly open and could be interpreted quite broadly and subjectively. The liabilities of controlling persons have also increased and they will bear responsibility, along with persons under their control, for losses borne by the latter and their participants.

      Requirements for registering bodies
      The new Civil Code will require registering bodies to inform related parties of changes made to the Unified State Register of Legal Entities. Related parties will have the right to object to changes and the registering body will need to consider these objections and determine whether or not they are justified. The procedure for making changes will be suspended until all objections have been fully examined.

      To help safeguard participant interests, if an agreement cannot be reached or an alternative approach found to confirm a resolution made by a general meeting of commercial company participants (including those present at the meeting), then notarised authorisation will be required and participants will have to be present when adopting the resolution.

      The Civil Code Bill also requires registering bodies to check the authenticity of data included in the register. This regulation is geared, first and foremost, towards doing away with fictitious firms that exist for a short period of time.

      Rules on reorganising and liquidating corporate entities will be modernised so that the restructuring of more than one organisation can be carried out in a single phase.

      Regulating transactions and obligations
      Changes have been made to the way in which potentially invalid transactions are considered, with the aim of reducing the number of formal transaction disputes. Only disputed transactions that violate the rights or lawful interests of its entity will be considered invalid.

      An interesting new change concerns entering into a transaction with an authorised person. If the transaction party finds out that the other party did not have the power to enter into such a deal, it can withdraw from it.

      Moreover, under a new special rule, if a contract to perform commercial activity is considered invalid, the parties have the right to enter into an agreement whereby special consequences of its invalidity are envisaged.

      Other changes brought in by the new Code include an ability to use an irrevocable power of attorney when conducting commercial activity and an extension of the scope of an independent guarantee, with commercial organisations, as well as credit institutions and insurance organisations, able to issue such guarantees.

      It is likely that a new type of contract will soon appear in Russia. A framework contract will be a concluded contract and set out the terms under which individual contracts will be made in the future, bringing more structure and certainty to legal relations.

      For more information:
      Elena Yuzhakova
      ICLC, Russia
      T +7 (495) 623 9346
      E yuzhakova@iclcgroup.com


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