The Ministry of Finance clarified certain issues regarding the application of the Presidential Decree on the introduction of a permissive procedure for transactions with LLC shares
Pepeliaev Group law firm advises that the Russian Ministry of Finance has published Official clarifications No. 1 relating to the implementation of Decree No. 618 dated 8 September 2022  (the “Decree”) as formalised in Letter No. 05-06-14RM/99138 dated 13. October 2022  (the “Clarifications”).
The Clarifications substantially add specifics to the provisions of the Decree, which establishes a special procedure for completing transactions/operations that directly and/or indirectly entail the establishment, change, or termination of rights of ownership, use and/or disposal of membership interests, as well as other rights determining the conditions for managing an LLC and/or an LLC pursuing business activities with the involvement of ‘hostile’ non-residents /parties controlled by them.
Starting from 8 September 2022, such transactions/operations (with a few exceptions) may be completed/performed only with permission from the Governmental Commission for Controlling Foreign Investments into Russia (the “Governmental Commission”). More details can be found in this alert.
The rules for obtaining the Governmental Commission’s permission are set out in this alert.
Below, the most significant clarifications are considered
When defining what a resident is, the definition should be used as set out in Federal Law No. 173-FZ “On currency regulation and currency control” dated 10 December 2003 . The Ministry of Finance has issued a reminder that, according to the general rule, a Russian citizen who has another citizenship as well is considered by the Russian Federation only as a Russian citizen.
2. Parties not considered ‘hostile’ non-residents
The Ministry of Finance has stressed that, although the relevant rules are already enshrined in the Decree, the following parties are not considered ‘hostile’ non-residents, if such parties are controlled by:
Russian parties (i.e. if the beneficial owners are Russia or Russian legal entities or individuals), including if control is exercised via foreign legal entities connected with ‘hostile’ states, and if the information concerning such control has been disclosed to Russian tax authorities as provided for by article 25.14 of the Tax Code;
parties whose governing law is the law of a ‘friendly’ state, if such control was established before 1 March 2022;
a ‘friendly’ state, if such control was established before 1 March 2022.
Transactions/operations involving membership interests of an LLC with the participation of such parties may be completed without permission of the Governmental Commission, unless other parties fulfilling the criteria of ‘hostile’ non-residents take part in such transactions/operations.
3. Transactions/operations involving membership interests of an LLC with the participation of ‘hostile’ non-residents, which are completed/performed only with permission of the Governmental Commission
The Ministry of Finance has added specifics to the list of such transactions/operations and directly included in it:
the transfer of a membership interest in an LLC to a member/members of the relevant LLC, or to a third party;
the acquisition by an LLC of a membership interest in its charter capital;
the withdrawal of a member from an LLC by disposing of its membership interest to the LLC or demanding that the LLC itself acquire such membership interest;
the transfer of a membership interest in an LLC to an investment fund;
entering into an agreement with a commercial entity / an individual entrepreneur for transferring the powers of the single-member executive body of an LLC;
a contract for an LLC's members to exercise their rights;
a convertible loan agreement;
a pledge agreement for a membership interest in an LLC;
an agreement for managing a pledged membership interest in an LLC;
a voluntary reorganisation of an LLC;
a simple partnership agreement (a joint venture agreement) entered into by an LLC;
a trust management agreement, an agreement of mandate, and/or any other agreement whose subject matter is the exercising of rights corroborated by the membership interests in an LLC.
In addition, the Ministry of Finance has stressed the importance of the circumstance that a specific transaction may require the Governmental Commission's permission to be obtained on several grounds at the same time. Thus, for instance, for a transaction aimed at acquiring the shares in a Russian JSC, which is a member of a Russian LLC, if ‘hostile’ residents/parties controlled by them participate in such transaction, permissions of the Governmental Commission are needed obtained both by virtue of Decree No. 81 dated 1 March 2022 , and Decree No. 618 dated 8 September 2022.
At the same time, the Clarifications set out a number of cases when no permission of the Governmental Commission is needed for transactions/operations involving the membership interests of an LLC, even if ‘hostile’ non-residents participate in such transactions/operations.
4. Transactions/operations involving membership interests of an LLC with the participation of ‘hostile’ non-residents, which need no permission of the Governmental Commission
Among these, the following are listed:
the state registration of an international company as part of its redomiciliation;
transactions/operations completed in spite of the party's will as part of a court decision which has come into legal force.
The Ministry of Finance has issued a reminder that, according to the Decree, the condition that permission must be obtained from the Governmental Commission does not apply to legal relations in the financial and the fuel and energy sectors, which are regulated by Decree No. 520 of the Russian President dated 5 August 2022, and that it does not apply to transactions/operations in relation to membership interests in the charter capital of credit and non-credit financial institutions.
What to think about and what to do
The President has empowered the Ministry of Finance to provide its official clarifications concerning the application of the Decree. Accordingly, there are no doubts as to whether it is necessary to take into consideration the Clarifications and comply with them when planning, completing and performing transactions/operations involving the membership interests of an LLC which fall under the requirement for the Governmental Commission’s permission for such transactions/operations to be obtained.
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Pepeliaev Group provides the following types of services: providing legal support for various aspects of business regarding corporate legislation, including providing legal support for obtaining permission from the Governmental Commission in relation to transactions which require such permission in accordance with current anti-sanctions regulation.
 Published on the website of the Ministry of Finance on 14 October 2022.
 The list of ‘hostile states’ that must be taken into account when defining the notion of a ‘hostile’ non-resident (which the Ministry of Finance has confirmed in its Clarifications) is set out in Directive No. 430-r of the Russian Government dated 5 March 2022.
 As the Ministry of Finance stated in its Clarifications, when determining whether a party is controlled by parties from foreign states which are ‘hostile’, the following should be relied on: a party is considered to be controlled if one of the criteria is met that are set out in article 5 of Federal Law No. 57-FZ “On the procedure for making foreign investments in business entities of strategic importance for ensuring national defence and state security” dated 29 April 2008.
 Article 1(1)(6) of Federal Law No. 173-FZ “On currency regulation and currency control” dated 10 December 2003.
 Article 6(1) of Federal Law No. 62-FZ “On citizenship of the Russian Federation” dated 31 May 2002.
 The rules for determining the governing law of an individual and of a legal entity are determined in articles 1195 and 1202 of the Russian Civil Code, respectively.
 Article 8(3) of Federal Law No. 14-FZ “On limited liability companies” dated 8 February 1998 (the “Law on LLCs”).
 Article 19.1 of the Law on LLCs.
 Decree No. 81 of the President of the Russian Federation dated 1 March 2022 “On additional temporary economic measures to secure the financial stability of the Russian Federation”.
 The redomiciliation procedure is set out in Federal Law No. 290-FZ “On international companies and international funds” dated 3 August 2018.
 At the same time, according to the Ministry of Finance, when determining parties which are credit institutions and non-credit financial organisations, the definitions must be taken into account contained in article 1 of Federal Law No. 395-1 “On banks and banking activities” dated 2 December 1990 and article 76.1 of Federal Law No. 86-FZ “On the Central Bank of the Russian Federation (Bank of Russia)” dated 10 July 2002, respectively.