Changes Proposed in Russian Company Formation and Governance

Proposed Civil Code amendments, mostly concerning charter capital and formation of companies, will be submitted to President Dmitri Medvedev for review by the end of the year. The draft amendments include increased charter capital requirements: 500,000 rubles (~$20,000) for limited liability companies, five-million rubles for “private corporations” (a new name to replace closed joint stock companies), and 100 million rubles for “public joint stock companies” (replacing open joint stock companies). Capital will have to be paid in money (instead of the current practice of allowing contribution of rights and other property), and three-quarters will have to be paid upon registration of the company. Registration will be handled by the Justice Ministry and its local divisions, rather than by the tax authorities, and registration can be denied when foundation documents do not conform to the law. Management rights will be closely tied to partners’ shares in a company, which will reduce the flexibility of shareholders’ agreements. The stricter requirements for creating companies are designed to combat fraud and illegal hostile takeovers, but some observers argue that sophisticated fraud will not be prevented, and that honest small businesses will suffer from the amendments.
http://www.vedomosti.ru/newspaper/print/2010/11/15/249553