Legal protection of the rights of participants in corporate conflicts
Frequent corporate conflicts and insecurity of the rights of participants in business entities led to the beginning of changes in corporate law. In 2018, amendments to the Federal Law “On Limited Liability Companies” entered into force. In this publication, the specialists of the Aegis law company, which provide services in the field of legal protection of business from the negative consequences of sudden tax audits and resolving internal corporate conflicts, will talk about the innovations that have been enacted by amendments to this law.
This law introduces the concept of a corporate agreement, by which the participants in the company determine the procedure for the implementation of mutual rights and obligations. At the same time, the parties may provide for liability of members of the company for failure to comply with certain provisions of the corporate agreement. To fulfill the terms of the corporate agreement, the law introduces an irrevocable power of attorney, which the trustee can be vested with the full rights of the participant, including the conclusion of a transaction for the alienation of a share. It is worth noting that, unlike the charter, a corporate agreement is not subject to mandatory disclosure and contains confidential information relating exclusively to the rights and interests of the parties to such an agreement.
The law also provides for a squeeze-out mechanism, which means the mandatory sale of shares by minority shareholders at the request of a majority shareholder owning more than 95% of the shares. This procedure may occur without the consent of the minority owner, since the decision of the majority participant is sufficient to write off funds. At the same time, funds for the repurchase of shares are transferred to a special escrow account. Such a mechanism has been successfully operating in European countries. However, in our country, the squeeze-out procedure needs to be finalized. In practice, the rights of minority shareholders may be violated, since the mechanism for determining the price of shares is not clearly regulated.
In addition, the law abolished the restriction on the number of participants in companies. The number of mandatory information that must be specified in the charter for the registration of a limited liability company has also been reduced. According to the law, dividends are paid out of the net profit of the LLC. Moreover, the payment of dividends for any period multiple of a quarter is carried out in a period not exceeding 6 months from the date of the decision to pay them. At the same time, the participant has not fully contributed, the payment of dividends is prohibited.
In addition to the foregoing, the new law provides for a reduction in the amount of information that must be specified in the charter, and the obligation of notarization of the charter. The order of the participant’s exit from the company has also changed. A participant who owns a 50% stake must obtain the consent of other participants to leave the company. This change is due to the need to prevent bankruptcy of the company in the event of the alienation of a significant part of the capital.
In general, the new Law “On Limited Liability Companies” protects the interests of participants in the company and contains effective international mechanisms for corporate legislation. However, some provisions require further improvement.