Amendments to legislation on joint stock companies: new requirements in the procedure for preparing for, calling and holding a general shareholders’ meeting

Pepeliaev Group advises that on 21 March 2011, the Russian Federal Financial Markets Service (“FFMS”) published on its official website a draft Order “On approving the Regulations on additional requirements in the procedure for preparing for, calling and holding a general shareholders’ meeting”. The draft provides for the amendment of rules for holding general meetings and for documenting the outcome of such meetings.

Amending the list of persons entitled to participate in a general meeting

The FFMS’s draft Order for the first time sets out the instances in which the list of persons entitled to attend the general meeting may be amended after it is put together but before the meeting is held:

- When there is a change in information concerning a person on the list.
- When a person entitled to take part in the meeting has their rights restored after such rights have been breached, if the data concerning the person in question were not supplied on a timely basis by the nominal holder of the shares.
- Where title to the shares are transferred to the company after the list is put together.
- When shares in the company are cancelled after the list is put together.

Quorum at a general shareholders’ meeting

The draft Order details the procedure for determining a quorum at a general shareholders’ meeting. In particular, it sets out an exhaustive list of the instances in which issued voting shares will not be counted when a quorum is determined. This includes, for example: shares which were not paid up when the company was founded and which have been cancelled; shares the ownership title to which has passed to the company; the shares of a person who has failed to make a mandatory offer in accordance with article 84.2 of the Federal Law “On joint stock companies”; and shares belonging to interested parties when an interested party transaction is being approved.

Rules for voting by ballot and the counting of votes

The Order establishes particular features for the counting of votes when they are cast by ballot. In particular, it provides that a ballot paper which is unsigned is ignored when the votes are counted, and if the vote is conducted by ballot papers being sent to the company, then a vote on such a ballot paper shall not count for determining whether the general meeting is quorate.

When the members of the auditing committee and the board of directors are elected at the same time, the votes of persons elected to the board of directors are not counted in the vote for members of the auditing committee.

The FFMS Order also establishes special new cumulative voting rules for the election of the members of the board of directors. In particular, requirements are established for the form of the ballot paper and for the voting procedure (rules for distributing votes among candidates).

Votes attaching to shares in circulation outside the Russian Federation

It is established that a person casting votes attaching to shares which are in circulation outside the Russia in the form of depositary securities must, when registering at the general meeting, inform the vote counting panel of the number of shares in respect of which such person has received instructions from the holders of the depositary securities. The casting of votes in respect of a large number of shares will be a basis for the ballot paper to be treated as invalid.

When it is determined whether a general meeting is quorate, the number of shares counted for this purpose is only that number in respect of which the person casting the vote has received instructions from the owners of the depositary securities.

Documenting the outcome of a general shareholders’ meeting

We note that both the additional requirements currently in force relating to holding general meetings as well as the FFMS’s draft Order provide for documents to be produced following a general shareholders’ meeting:

1. Minutes of the general meeting, signed by the chairman and secretary of the meeting.
2. Voting records for the general meeting, signed by the members of the vote counting panel.
3. A report on the outcome of voting at the general meeting signed by the chairman and secretary of the meeting.

The draft FFMS Order broadens the list of information which must be included in the texts of the minutes of the general meeting, the voting records and the report on the outcome of voting. In particular, these documents must now indicate the date on which the list of persons entitled to participate in the general shareholders’ meeting was formed. Moreover, they must set out separately the number of votes cast by persons registered as entitled to vote and who actually did take part in the meeting.

The FFMS’s Order must be registered with the Ministry of Justice and will come into force ten days after being officially published.

Conclusions and recommendations

It should be borne in mind that, under article 15.23.1 of the Russian Code of Administrative Offences, a breach in the preparation for and holding of general shareholders’ meetings may result in a legal entity being held liable to a fine of up to RUB 700,000 and their officers being liable to a fine of up to RUB 30,000.

In the light of this, we recommend that organisations and their chief executive officers:

- check that the forms of documents put together in connection with calling and holding general shareholders’ meetings comply with the requirements of current legislation.
- ensure that current practice is followed as the legislation requires when general shareholders’ meetings are held.
- monitor further new requirements which come into force in relation to calling and holding general shareholders’ meetings. We will also let you know when this Order of the FFMS comes into effect.

For further information, please contact:

in Moscow – Nikolai Solodovnikov, Head of Corporate Practice, at: (495) 967-0007 or by e-mail

in St Petersburg - Andrey Pekhovsky, Head of Corporate Practice (St. Petersburg), at (812) 640-60-10 or by e-mail; Olesya Shestakova, Attorney, at (812) 640-60-10 or by e-mail