Coronavirus or not, it is time to hold annual general meetings of shareholders in Russian companies
This is to remind you that there is very little time left to hold annual general meetings of shareholders. Annual general meetings should be held:
a) no later than April 30, 2020 in limited liability companies (OOO);
b) no later than June 30, 2020 in joint stock companies (AO)[1].
Companies often do not pay enough attention to issues related to the holding and documenting of annual general meetings. This, in turn, gives rise to unnecessary risks and errors associated with internal control, relations with business partners and compliance with Russian law. In our legal practice, we see more and more cases where companies have to work their way through the consequences of non-compliance with requirements for documenting corporate decisions, i.e. minutes of general meetings of shareholders, minutes of board meetings, corporate policies and approvals.
We would therefore like to draw attention to the actions necessary for proper documenting of annual general meetings of shareholders.
What should be done?
It is extremely important to ensure that all procedures related to the holding of annual general meetings are duly documented. These procedures are as follows:
a) Preparation by the general director of annual report and report on related-party transactions concluded in the reporting year;
b) Convening of meeting of board of directors for adoption of a decision to call the annual general meeting;
c) Preparation of additional materials for annual general meeting attendees;
d) Convening of annual general meeting;
e) Holding of annual general meeting;
f) Drawing up of minutes of general meeting.
Please note that according to the latest Russian Supreme Court rulings, the signatures affixed by limited liability company shareholders on decisions/minutes have to be notarized since December 25, 2019 unless another way of certifying decisions/minutes is specified in the company charter or a notarized corporate decision adopted unanimously.[2] These changes do not apply to the approval of minutes/decisions of joint-stock companies.
On what matters should decisions be adopted at annual general meetings?
Approval of annual results of activities, annual reports and other issues provided in the law on joint stock companies and the law on limited liability companies are among the main matters on which decisions should be adopted at general meetings of shareholders. Company charters may also provide for other matters to be considered at annual general meetings. These matters are, as a rule, the election of board members, appointment of general director, profit distribution and approval of auditor.
Should a general meeting be held when companies have only one shareholder?
Yes. Even in this case, the sole shareholder must adopt a decision on matters to be considered at annual general meetings, and such decision must be duly documented.
What are the consequences if no annual general meeting is held?
In case of violation of the requirements for convening, preparing and holding general meetings, companies and their officers could be brought to administrative liability[3]. A fine of up to RUB 700,000 (about EUR 10,000) could be imposed on companies, and a fine of up to RUB 30,000 (about EUR 400) could be imposed on company officers. In some cases, company officers could be disqualified instead of being fined and could lose their right to hold office for up to one year.
Annual meetings at which annual balance sheets are approved cannot be held by absentee ballot. The shareholder representatives must attend these meetings in person.[4] This requirement of in-person attendance at meetings is particularly relevant in the context of coronavirus. If you would like some advice on the possible options for holding annual general meetings, please do not hesitate to contact us.
We would also be pleased to offer our services for compliance with this requirement and for preparation of appropriate documentation for annual general meetings.
If you would like to discuss this matter further or have any questions, please write to Anton Kabakov.
Truly yours,
The Forte Tax & Law team
[1] АО or ООО charters may provide for shorter periods for holding annual general meetings.
[2] Item 2 Review of Case Law on Certain Matters of Application of the Law on Business Entities approved by the Russian Supreme Court on December 25, 2019
[3] Article 15.23.1 Russian Code of Administrative Offenses
[4] Article 38(1(2)) Federal Law N 14-FZ On Limited Liability Companies dated February 08, 1998; Article 50(2) Federal Law N 208-FZ On Joint-Stock Companies