This article examines share transfers and company exits in Russia.
Restrictions on share transfers by law
The stock of public joint stock companies and open joint stock companies is freely transferable subject only to contractual limitations. Shares in non-public companies can be transferred to other shareholders and third persons. However, as regards limited liability companies, each shareholder – and, if the bylaws so provide, the respective company – enjoys the right of first refusal of the shares sold by other shareholders to third parties. Shareholders in non-public joint stock companies enjoy a right of first refusal if that right is provided in their company's bylaws. In the case of closed joint stock companies, whose bylaws have not been adapted to new laws, the right of first refusal applies even if not provided in the bylaws.
Additional limitations for limited liability companies The following additional limitations apply to limited liability companies:
- Shares can be transferred only to the party to which they are paid.
- If shares are sold in public sales, they do not pass to the acquirer until all of the company's shareholders have given their consent.
- In the event of a charge on the shares, the company or other shareholders can prevent the share transfer to a third party by paying out the actual value of such shares to the creditors.
- The limited liability company's bylaws can provide for further limitations (eg, the prohibition of share transfers to third parties and the requirement of prior consent).
Shareholders' agreements Limitations on share transfers in both joint stock companies and limited liability companies can be provided for in shareholders' agreements. As Russian law on shareholders' agreements is new, there is no practice or certainty as to the extent of such contractual limitations. It is understood that shareholders cannot completely waive their right to transfer shares.
Share capital increases Shares which are issued in the course of a share capital increase from the company's funds can be distributed only among the shareholders.
As regards shares issued in the course of share capital increases from new shareholders' funds, the shareholders enjoy a pre-emption right. If a joint stock company's shares are to be distributed among a certain group of persons, only shareholders which voted against the relevant resolution of the shareholders' meeting enjoy the pre-emption right. Shareholders in limited liability companies are protected against an undesired distribution of shares among a certain group of persons by the requirement of unanimity of the general meeting regarding the resolution.
Can minority shareholders alter or restrict changes to share capital structures?
A company's minority shareholders can restrict changes to its share capital structure by:
- exercising their right of first refusal when shares are being sold to a third party (only limited liability companies, non-public joint stock companies and closed joint stock companies);
- refusing to consent to the sale of shares if consent is required by the charter (only limited liability companies);
- exercising their pre-emption rights granted during a capital increase; and
- not approving a disproportionate sale of the company's own shares among its shareholders or to third parties (only limited liability companies).
When must shareholders notify changes to their shareholding to a regulatory authority?
Shareholders must notify the regulatory authority of changes to their shareholding in the following cases:
- The acquisition of shares which leads to the acquirer directly or indirectly holding more than 25%, 50% or 75% of the voting shares in a joint stock company or one-third, half or two-thirds of the shares in a limited liability company may require the Russian antitrust authority's prior approval, depending on the scale of business of the acquirer and the target and their position in the Russian market. This approval is not required if the acquirer and the target belong to the same group.
- The acquisition by a company of more than 20% of another company's share capital must be notified to the Federal Register of Russian Companies.
- The direct or indirect acquisition of shares in a strategic Russian company (ie, a company with strategic significance for the country's defence and state security) may require prior approval of, or notification to, the Russian competent authorities.
- Each direct acquisition of more than 10% of the shares in a company by a person registered with the Russian tax authorities must be notified to the tax inspectorate (until 31 December 2014, this obligation applied to all share acquisitions regardless of the fraction of share capital acquired).
- The Central Bank must be notified of the acquisition of 5% or more of the voting shares in a public joint stock company or a company issuing publicly traded bonds and of each subsequent transaction under which the amount of shares passes any of the following thresholds: 5%, 10%, 15%, 20%, 25%, 30%, 50%, 75% or 95%.
Can companies buy back their shares? Which limitations apply?
Joint stock companies Joint stock companies can acquire their own shares if:
- the general meeting has taken a decision on a reduction of the share capital by reducing the amount of shares, provided that this reduction is permitted by the joint stock company's bylaws and will not lead to the share capital being reduced to less than the minimum share capital;
- the general meeting or board of directors has taken a decision on the repurchase of shares, provided that the repurchase is permitted by the joint stock company's bylaws and the nominal value of the shares held by other shareholders will be less than 90% of its share capital; or
- a shareholder demands the acquisition.
However, joint stock companies can acquire shares only if the following conditions are met:
- The company's share capital is fully paid.
- There are no indications of the joint stock company's insolvency (bankruptcy) and such indications will not be caused by the envisaged acquisition of its own shares.
- The amount of the net assets is no less than the joint stock company's share capital and reserve funds and will not become less due to the envisaged acquisition of own shares.
- There are no outstanding obligations to repurchase own shares.
Limited liability companies Limited liability companies can repurchase shares only if a shareholder exercises its right to resell its shares to the company.
Joint stock companies Shareholders of joint stock companies can demand that the company repurchase their shares if it has voted against or not voted on a decision of the general meeting on:
- entering into a material transaction, the subject of which is property with a value of more than 50% of the balance value of the company's assets;
- the joint stock company's reorganisation;
- the amendment of the joint stock company's bylaws, which restricts the respective shareholders' rights; and
- the termination of a public joint stock company's public character or the delisting of its shares or securities convertible into shares.
The board of directors will determine the price for the repurchase, which cannot be less than the shares' market value as determined by an independent expert. In the event of a termination of a public joint stock company's public character or a de-listing of its shares or securities convertible into shares, the price should not be less than the average price in the organised trades of the past six months. The total price for all repurchases, the right to which was caused by a decision of the general meeting, must not exceed 10% of the joint stock company's net assets.
Each shareholder of a non-public joint stock company can initiate court proceedings on the expulsion of another shareholder from the company against payment of the actual value of its shares. This applies only if that shareholder has either:
- caused damages by its action or non-action to the company; or
- otherwise obstructed its activities and the reaching of the goals for which it was established – in particular by being in gross breach of its obligations under the company's laws and foundation documents.
Public joint stock companies A shareholder in a public joint stock company which, after having made a mandatory or voluntary offer to purchase other shares, acquires more than 95% of the shares in the joint stock company, must make an offer to purchase the shares from the remaining shareholders. The purchase price cannot be lower than the:
- purchase price of shares under the mandatory or voluntary offer; and
- the highest price for the purchase of shares after the expiry of the mandatory or voluntary offer.
Alternatively, the shareholder can make an offer to purchase the remaining shares at their market price, provided that this is not lower than the minimum prices.
The Central Bank must be notified of these offers.
Limited liability companies Shareholders of limited liability companies can demand that the company repurchase their shares if they:
- have exercised their right, provided in the bylaws, to exit from the limited liability company (not being the sole shareholder of the limited liability company);
- cannot assign their shares to a third person because:
- such assignment is prohibited by the bylaws of the limited liability company and the other shareholders deny the acquisition; or
- according to the company's bylaws, the shareholder needs its consent or that of other shareholders and such consent is denied; or
- have voted against, or not participated in the voting on, a decision of the general meeting to:
- increase the share capital at the cost of new shareholders contributions; or
- enter into a material transaction.
Each shareholder can initiate court proceedings on the expulsion of another shareholder, on the same conditions as a shareholder of a non-public joint stock company.
The limited liability company must pay to the withdrawing shareholder the actual value of its shares in cash or in assets. The 'actual' value is determined on the basis of the limited liability company's accounting reports for the previous reporting period. However, payments can be made only:
- from the limited liability company's net assets; and
- on the condition that there are no indications of the company's insolvency (bankruptcy) and no such indications will be caused by the payment.
For further information on this topic please contact Thomas Mundry at Noerr by telephone (+7 495 799 56 96) or email ([email protected]). The Noerr website can be accessed at www.noerr.com.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.
An earlier version of this article was first published by Thomson Reuters.
