Law On Amendments To The Law On Joint Stock Companies
Sep 10, 2001
Source: Beiten Burkhardt Newsletter (CENTRAL AND EASTERN EUROPEAN NEWS, 9/2001)
A widely discussed Law on Amendments to the Law on Joint Stock Companies was finally passed on August 7, 2001. This Law becomes effective as of January 1, 2002, except Par. 35 of Art. 1 regulating powers of the General Shareholders Meeting and Par. 36 of Art. 1 regulating voting at the General Shareholders Meeting which took effect commencing on August 9, 2001.
The Law provides that the Articles of Association of all Russian joint stock companies must be brought in line with the provisions of the Law no later than July 1, 2002.
The adoption of this Law likely results from the mostly multiple breaches of minority shareholders' rights during placement of new issues of shares or reorganization of Russian companies. The new Law is aimed at protecting minority shareholders from forced dilution of their holdings. However, some of the provisions are less favorable for minority shareholders than under the old law.
The General Shareholders Meeting makes decisions by a simple majority, unless otherwise provided by the Law. Contrary to the provisions of the old law shareholders are not entitled to agree on unanimous or other majority voting, unless it is not explicitly determined in the Law.
The Law provides for stricter rules as to decisions on increase of the registered capital by placement of additional shares, open subscription for additional shares and reorganization of joint stock companies. A decision to increase the registered capital by placing additional shares must be made by unanimous voting of the Board of Directors of the company. The decision on amendments of the Articles of Association relating to an increase of the registered capital must be adopted by not less than a two-thirds majority vote of the Board of Directors. Previously, the decisions on the aforementioned issues could be made by a simple majority of the members of the Board of Directors.
Closed placement of the shares (securities convertible into shares) of the company or open placement of the shares (securities convertible into shares) in amounts exceeding 25% of the shares already placed can be executed only upon decision adopted by a three quarters majority vote at the General Shareholders Meeting. Under the old law the decision making procedure regarding placement of additional shares was not as detailed and such a decision could also be adopted by a unanimous vote of the Board of Directors.
It is the first time the Law provides, that in the event of reorganization of the joint stock company by split-up or split-off, the shareholders, who did not vote or voted against the reorganization, acquire shares in each company proportionately to their current holdings.
The shareholders of the privileged shares have the right to vote at General Shareholders Meetings only in cases provided by the amended Law (e.g. reorganization or liquidation of the company). The right to vote at General Shareholders Meetings cannot be granted to shareholders of preference shares by the Articles of Association any more. In case of violation of the shareholder's rights, the new Law entitles the shareholder to turn to the courts for protection within three months in case of sale of shares with violation of pre-emptive rights of shareholders and within six months when challenging decisions of the General Shareholders Meeting.
Under the amended Law the company may pay only annual dividends. Previously, the company was entitled to make decisions on payment of dividends quarterly, biannually or yearly. The new Law has simplified the procedure of holding the General Shareholders Meeting in joint stock companies where one shareholder holds all the voting shares of the company. In such companies all decisions on issues related to the competence of the General Shareholders Meeting are made in writing by the sole shareholder of the voting shares without observing the usual terms of preparation Shareholders Meeting.
For further information:
Dr. Oxana Balayan, Ms. Marina Tarassova, Beiten Burkhardt Moscow or [email protected]
A widely discussed Law on Amendments to the Law on Joint Stock Companies was finally passed on August 7, 2001. This Law becomes effective as of January 1, 2002, except Par. 35 of Art. 1 regulating powers of the General Shareholders Meeting and Par. 36 of Art. 1 regulating voting at the General Shareholders Meeting which took effect commencing on August 9, 2001.
The Law provides that the Articles of Association of all Russian joint stock companies must be brought in line with the provisions of the Law no later than July 1, 2002.
The adoption of this Law likely results from the mostly multiple breaches of minority shareholders' rights during placement of new issues of shares or reorganization of Russian companies. The new Law is aimed at protecting minority shareholders from forced dilution of their holdings. However, some of the provisions are less favorable for minority shareholders than under the old law.
The General Shareholders Meeting makes decisions by a simple majority, unless otherwise provided by the Law. Contrary to the provisions of the old law shareholders are not entitled to agree on unanimous or other majority voting, unless it is not explicitly determined in the Law.
The Law provides for stricter rules as to decisions on increase of the registered capital by placement of additional shares, open subscription for additional shares and reorganization of joint stock companies. A decision to increase the registered capital by placing additional shares must be made by unanimous voting of the Board of Directors of the company. The decision on amendments of the Articles of Association relating to an increase of the registered capital must be adopted by not less than a two-thirds majority vote of the Board of Directors. Previously, the decisions on the aforementioned issues could be made by a simple majority of the members of the Board of Directors.
Closed placement of the shares (securities convertible into shares) of the company or open placement of the shares (securities convertible into shares) in amounts exceeding 25% of the shares already placed can be executed only upon decision adopted by a three quarters majority vote at the General Shareholders Meeting. Under the old law the decision making procedure regarding placement of additional shares was not as detailed and such a decision could also be adopted by a unanimous vote of the Board of Directors.
It is the first time the Law provides, that in the event of reorganization of the joint stock company by split-up or split-off, the shareholders, who did not vote or voted against the reorganization, acquire shares in each company proportionately to their current holdings.
The shareholders of the privileged shares have the right to vote at General Shareholders Meetings only in cases provided by the amended Law (e.g. reorganization or liquidation of the company). The right to vote at General Shareholders Meetings cannot be granted to shareholders of preference shares by the Articles of Association any more. In case of violation of the shareholder's rights, the new Law entitles the shareholder to turn to the courts for protection within three months in case of sale of shares with violation of pre-emptive rights of shareholders and within six months when challenging decisions of the General Shareholders Meeting.
Under the amended Law the company may pay only annual dividends. Previously, the company was entitled to make decisions on payment of dividends quarterly, biannually or yearly. The new Law has simplified the procedure of holding the General Shareholders Meeting in joint stock companies where one shareholder holds all the voting shares of the company. In such companies all decisions on issues related to the competence of the General Shareholders Meeting are made in writing by the sole shareholder of the voting shares without observing the usual terms of preparation Shareholders Meeting.
For further information:
Dr. Oxana Balayan, Ms. Marina Tarassova, Beiten Burkhardt Moscow or [email protected]