Сontribution to the assets of a joint-stock company
Pepeliaev Group LLC advises that Federal Law No. 208-FZ “On joint-stock companies” dated 26 December 1995 (the “Joint-Stock Company Law”) has been supplemented with article 32.2 “Contributions to company’s assets that do not increase the company’s issued capital”*.
At present, as opposed to provisions of tax legislation (specifically, article 251(1)(11) of the Russian Tax Code), the legislation regarding limited liability companies and the case law, the current legislation regarding joint-stock companies does not contain any rules that would allow shareholders to hand over money or other property on a free-of-charge basis as a contribution to the assets of the company of which they are shareholders.
As it follows from the Explanatory Note to the draft of the Federal Law the draft is intended to expand the possibilities for joint-stock companies to raise financial aid and resources from their shareholders. Moreover, the above amendments may serve as an additional anti-crisis tool helping, if required, financial resources to be redistributed from interested shareholders to the joint-stock company to improve its financial standing without making use of the mechanism for increasing the issued capital through additional contributions from members.
Therefore, with the above amendments coming into force, we may say that the legislature will put an end to disputes over whether article 27 of the Federal Law No. 14-FZ “On limited liability companies” may be applied by analogy to joint-stock companies and will determine the rules for making contributions to assets for joint-stock companies.
Below, we will enumerate the main new provisions.
Common rules for public and non-public joint-stock companies:
- Provisions of the Russian Civil Code regarding a gift contract are not applicable to contracts for contributions to a company’s assets.
- Shareholders will be entitled at any time to make unremunerated contributions to the company’s assets in the form of money or in another form.
- The assets to be contributed should fall under the categories specified in article 66(1).1 of the Civil Code.
- Each contract for assets to be contributed at the will of a shareholder should be approved by the Board of Directors in advance. An exception is granted to non-public joint-stock companies, which is mentioned below.
For non-public joint-stock companies (NPJSCs):
- NPJSCs will be able to amend their charters provisions regarding the obligation to make contributions, for which a resolution of the general meeting is needed.
- NPJSCs may oblige all or certain shareholders to make contributions to company’s assets by adopting a resolution to this effect.
- Unless the NPJSC’s charter or a resolution of its general meeting of shareholders provide otherwise, a contribution to its assets (where there is an obligation to make one) should be made in money.
- A resolution that contributions be made to a company’s assets by all shareholders must be adopted unanimously.
- A resolution regarding the obligation to make contributions that applies to only those shareholders that hold a certain category (type) of shares is deemed to have been adopted by a ¾ majority of the votes of shareholders who attended the general meeting, provided that all shareholders that are obliged to make contributions to the NPJSC voted unanimously.
- If any shareholder of an NPJSC fails to make a contribution, either the NPJSC itself or another shareholder may apply to court seeking to enforce the obligation.
- Only those persons that were shareholders at the date the obligation arose will be obliged to make contributions to a NPJSCs’ property.
In addition to the above, the Federal Law has supplemented article 81(2) of the Joint-Stock Company Law with a paragraph excluding the provisions of article 81 of the Joint-Stock Company Law from being applied to transactions involving contributions being made to a company's assets. The above article 81 relates to interested-party transactions.
What to think about and what to do
With regard to the new additions that have been adopted, we would recommend you to:
- review the relevant company’s constituent documents and internal regulations, shareholder’s agreement (in case of any) and (if and where applicable) eliminate any differences and bring the documents in line with the amendments to the Joint-Stock Company Law;
- think over the technical matters directed to serve the interests of both parties in terms of the procedure, conditions and deadlines for making contributions;
- draft a template contract for contributions to assets to be made and standard wording of a resolution of the board of directors approving such contract.
Based on article 32(2-3).2 of the Joint-Stock Company Law, we advise that an NPJSC think over the procedure to follow and the specifics of making contributions and, where required, amend its charter accordingly.
Help from your adviser
Given the above and considering other previous amendments in the legislation relating to joint-stock companies resulting, among other things, from joint-stock companies being divided into public and non-public, Pepeliaev Group's experts may assist you with the following:
- analysing and reviewing your corporate documents (including the charter and internal regulations governing the operations of the company’s management bodies) as to their compliance with current legislation;
- eliminating all ambiguities and contradictions and drafting amendments required to be made to the charter or draft a new version of same;
- drawing up a template contract for a contribution to be made to the assets and wording for draft resolutions of the board of directors and the general meeting of shareholders.
Furthermore, our lawyers will advise you on various issues of corporate law, liability for breaking it and the ways to mitigate offences, if any.
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* Amendments are made by the Federal Law “On amending the Federal Law “On joint-stock companies” (the “Federal Law”) dated 15 June 2016. This was adopted by the State Duma on 29 June 2016 and has been approved by the Federation Council of the Federal Assembly of Russia.