On August 8, 2024, amendments* to the Federal Laws “On Joint Stock Companies” and “On Limited Liability Companies” (the “JSC Law” and the “LLC Law”, respectively) came into force aimed at improving and increasing the efficiency of corporate governance and streamlining the management of the so-called “lost” shareholders.
Transfer of powers of the general meetings
Shareholders of non-public joint stock companies and LLC participants are now able to delegate certain powers of the general meeting, not only to the board of directors but also to a collegial executive body (e.g., the management board). However, delegation of any powers of the general meeting to a sole executive body (such as a general director) remains prohibited.
In a non-public JSC, the powers of a collegial executive body may now include, for instance:
Compared to the previous version of the JSC Law, the list of matters that can be delegated to the board of directors in a non-public company (but not to the collegial executive body) has been extended by the issue of placement of shares (or other securities convertible into shares) via private subscription. Otherwise, the list of matters transferable to the board of directors remains unchanged.
In contrast, for LLCs, the collegial executive body can only be delegated “the resolution of other matters provided by this Federal Law or the company’s charter” (subparagraph 13, paragraph 2, Art. 32 of the LLC Law). The transfer of issues exclusive to the general meeting of participants remains expressly prohibited. For instance, matters that can be transferred to the collegial executive body include:
The board of directors of an LLC can now be delegated the authority to elect an internal audit commission (previously it was the matter of the exclusive competence of the general meeting of participants) and other issues as permitted by the LLC Law or the company charter, provided they are not listed as exceptions.
Notably, the new LLC Law introduces a radical shift in determining which issues can be transferred to the company’s bodies. Previously, a blanket prohibition covered matters listed under specific paragraphs of Article 33 and “other issues within the exclusive competence of the general meeting of participants in accordance with this Federal Law”. Now, any matter from the general meeting’s competence can be transferred, except for explicitly named exceptions.
Composition of the board of directors
In addition to amendments related to the competence of management bodies, both the JSC Law and the LLC Law now include an updated requirement to the composition of the board of directors. In addition to members of a collegial executive body, the persons performing the functions of a sole executive body (irrespective of their number) may not constitute more than one-quarter of the company’s board of directors and may not serve as its chairperson.
This amendment takes into account the possibility of forming several sole executive bodies in a company or distributing these powers among several individuals, while limiting the influence of all executive bodies on decisions made by the board of directors.
Working with the “lost” shareholders
Further amendments* to the JSC Law allow companies to refrain from sending notices and materials about general meetings to shareholders who have not updated their contact information in the shareholder register for two or more years and are unreachable at their registered address. The decision to suspend the sending of notices (or absentee voting ballots) to such “lost” shareholders is made by the board of directors or the body responsible for preparing and conducting the general meeting. This suspension is lifted once the shareholder updates their details.
Similarly, a joint stock company may suspend dividend payments to a shareholder if, over the preceding two years, dividend transfers to the registered details were unsuccessful.
However, a non-public joint-stock company’s charter may stipulate that these provisions on the suspension of meeting notifications and/or dividend payments do not apply to that particular company.
Conclusion
Expanding the scope for delegating general meeting powers to the board of directors or the management board is designed to reduce the burden on general meetings and simplify corporate governance. Routine decisions on the company’s operations can now be made more swiftly by the board of directors or management board, avoiding the significant time and cost involved in convening general meetings. Meanwhile, suspending notifications and dividend payments should encourage inactive shareholders to update their information, while also reducing the costs for companies in dealing with “lost” shareholders.
* In Russian
Authors:
Artashes Oganov, Partner
Anastasia Dukhina, Senior Associate
Stepan Gritsay, Associate