Remember to Properly Document the Holding of an Annual General Meeting of Shareholders (Owners) of Your Russian Firm
This time of the year all Russian companies should hold Annual Shareholders Meetings. Even when a formal meeting is not held it is important to make proper records and documentation of all shareholders’ decisions. Unfortunately, corporations frequently fail to pay enough attention to these issues which leads to unnecessary risks and omissions pertinent to internal control, legal relations with business partners and Russian official requirements (e.g. taxation, competition, labor and corporate laws).
In BRICS Consulting’s legal practice we have more and more often come across situations where companies have suffered from failing to formally document corporate decisions by producing minutes of shareholders’ meetings, board meetings, company policies, and authorizations. Also, a common mistake is to ignore various notifications (and filings for governmental approvals) that by law have to be submitted to the Russian authorities. Another requirement that is often omitted by companies is the need to properly register the shares.
In this connection we want to draw your attention to the actions necessary to document the Annual Meeting of Shareholders properly.
Annual Meeting of Shareholders/Participants
The laws on Joint-Stock Companies (JSC) and Limited Liabilities Companies (LLC) provide for the obligation to conduct Annual Meeting of Shareholders (Meeting), and set time-limits and minimum requirements for the agenda thereof.
The Meeting in Closed JSC or Open JSC (ZAO or OAO in Russia) has to be held between the 1st of March and the 30th of June. The Meeting in LLC (OOO in Russia) has to be held between the the 1stof March and the 30th of April.
The obligatory issues to be resolved during the Meeting are the approval of the annual results of the company’s activity and other matters stipulated in the Law on JSC or in the Law on LLC. In addition, the company charter may contain other issues that have to be addressed during the Meeting. Usually, such issues as election of the Board/General Director, profit distribution and appointment of the auditor are also being resolved during the annual meetings.
It is very important to make the proper documentation of all the procedures related to the organization of the Meeting. Please note that proper documentation has to be done when:
(a) Calling the Board meeting to convene the Meeting;
(b) Preparing additional information for the Meeting participants;
(c) Calling the Meeting;
(d) Conducting the Meeting.
It is also important that companies with no outside shareholders (100% subsidiaries) also hold such a meeting. The requirements are set out by law, at least formally.
In case of violations when calling, preparing and conducting the Meeting, JSC or LLC could be held administratively liable under Article 15.23.1 of the Code of Administrative Offices (CAO). The said article will be effective starting April 13, 2009, and will apply to the Meetings dedicated to the results of the year 2008. Administrative liability under Article 15.23.1 of the CAO can also arise when the Meeting is not conducted or when the proper documentation is missing. The company itself as well as the officers of the company directly responsible for the described violations (for example, the General Director, the members of the Board of Directors and others) can be held liable. The administrative fine of up to 700 000 RUR (around 15 910 Euro as of March 17, 2009) is set for the companies and of up to 30 000 RUR (652 Euro as of March 17, 2009) for the company officers. Instead of applying a fine the officer of the company can be dismissed (i.e. denied the right to keep his position) for the period of up to one year.
BRICS Consulting are pleased to offer our services in complying with these requirements and in drafting the proper documentation.