New rules pose new questions in preparation of corporate documents

Article by Artem Eretenko for the Clerk Magazine

Federal Laws Nos. 287-FZ and 305-FZ[1] introduced several key changes in corporate laws, some of which took effect as early as September 1, 2024. The changes, among other things, have affected the mandatory notarization of corporate resolutions adopted by an LLC on the appointment of a permanent executive body, the holding of remote meetings, and the redistribution of powers between the management bodies in an LLC and a non-public JSC. Since the legislative changes are aimed at improving corporate governance mechanisms, it is necessary to pay special attention to correct paperwork in order to avoid corporate conflicts and difficulties that may arise with the registration authority. However, the new rules will inevitably raise new questions relating to the preparation of corporate documents, and we will try to come up with answers to those questions below.

To what situations do the new rules for executing resolutions on the appointment of the CEO of an LLC apply?

Important changes in the procedure for appointing the CEO of an LLC took effect on September 1, 2024. From now on a resolution on the election or appointment of the CEO of a company requires mandatory notarization[2]. These rules will apply regardless of who adopts a resolution—whether the general meeting of members or the board of directors—and of the form in which a resolution on the appointment of the CEO is adopted. Notarization of resolutions on the appointment of the CEO of an LLC is required even if the company’s articles of association do not require notarization of the adoption of a resolution. The requirements for notarization apply only to the appointment of the CEO—i.e., an individual. These rules will not apply to appointing a collegial executive body or transferring powers to a manager. In practice, this may raise several questions about how the new rules for executing resolutions on the appointment of the CEO of an LLC will apply to various situations.

1. Notarization of a resolution on the appointment of the CEO. First of all, the question remains whether resolutions on the appointment of the CEO upon the formation of an LLC should be notarized, and whether this implies mandatory notarization of any resolutions on the formation of an LLC. On the one hand, applicable laws formally require this, without making exceptions for a resolution on the formation of a company. On the other hand, notaries do not currently require notarization of a resolution on the formation of an LLC, at the time when a resolution on the appointment of the CEO is adopted. One can agree with their approach, because at the time of the adoption of a resolution, a company is not yet considered formed. The notary cannot certify the adoption of such a resolution. This problem also poses a question of whether corporate resolutions can be executed abroad. Notaries, the registration authority, and banks may have questions about a resolution of the general meeting of members that is de facto adopted in the presence of a foreign notary outside Russia. Foreign notaries do not certify the adoption of a resolution, but as a rule, they only certify the authenticity of the signatures affixed by the members to the minutes. Furthermore, the legislation on notaries provides that a certificate[3] is to be issued evidencing the legitimacy of a resolution. Applicable laws do not provide for any alternative methods of certifying resolutions. Therefore, it appears impossible to execute corporate resolutions abroad, including at consulates that do not perform notarial acts to certify corporate resolutions[4].
2. Form of adoption of a resolution on the appointment of the CEO. The notarization requirement applies regardless of form. It should be emphasized that in practice, notarization of the adoption of a resolution at a meeting in the form of absentee voting is not possible, because to perform this notarial act, the notary needs the members to be physically present[5]. However, this does not exclude the possibility of establishing in the future the procedure for notarization of the adoption of a resolution at the meeting in the form of absentee voting.
3. Notarization where the CEO’s powers are extended. In addition, there is another practical question: Will notarization be required to have the CEO’s powers extended? Considering that the extension of powers actually means the re-election of the executive body for a new term, and applicable laws do not recognize the extension of powers as a separate action, the provision on mandatory notarization should also apply to such re-election.
4. Changes in filing applications. In conclusion, as regards the provisions on the election of the CEO, it should be noted that changes have been made to the procedure for filing applications for the state registration of the change of the CEO. While previously, it was the CEO to be appointed that acted as an applicant who would sign an application to be filed with Russian tax authorities, from now on, starting from September 1, 2024, this duty has passed to the notary that acts as an applicant filing documents with Russian tax authorities necessary for the registration of relevant changes in the Unified State Register of Legal Entities (“USRLE”)[6]. It is understood that these changes will help reduce the incidence of illegal appointments in companies, preventing the so-called ‘hostile takeovers’ of companies. However, it remains unclear how to avoid abuse by persons (potential participants/members of management bodies) who may appoint new managers without their knowledge, especially given the fact that starting from September 1, 2024, a new manager is no longer an applicant—i.e., he is not required to visit a notary. In practice, this can create difficulties for persons appointed as CEOs without their consent. These persons will at least need to inform the registration authority that inaccurate data have been entered into the USRLE. Additionally, the risk of emerging so-called ‘abandoned’ companies due to the appointment of nominal directors in them is increasing. As a result, these changes to the procedure for filing applications for state registration are aimed at protecting companies from illegal actions by third parties. However, the new rules raise some questions about the risk of abuse in appointing CEOs without their consent, which requires increased attention to the procedure for appointing such CEOs.

What do you need to know about holding meetings remotely and doing related paperwork?

The changes related to holding general meetings of shareholders (members) remotely will take effect on March 1, 2025. Effectively, these changes will incorporate in the Law On Limited Liability Companies[7] and the Law On Joint-Stock Companies[8] the provisions that have previously existed in the general civil law provisions, but in a more detailed form. As you may remember, now a company may hold a general meeting of members (shareholders) remotely, if that is provided for by law or its articles of association. This option is now available to all companies, regardless of their legal form. Furthermore, LLCs and non-public JSCs have the right to set out in their articles of association their own rules for holding general meetings remotely that may differ from generally accepted statutory rules, provided that those rules do not deprive eligible voters of the opportunity to participate in adopting resolutions and receive information about the meeting[9]. The key adopted provisions governing holding general meetings remotely include:

1. Identification of participants (members) of a body of a legal entity. From now on the articles of association may provide for methods of identification of participants in the bodies of a legal entity and for methods of signing ballots for electronic voting as long as these measures do not impose any restrictions on persons who have a right to vote as regards participation in adopting resolutions and receiving information about meetings to be held. Effective from March 1, 2025, a notice of a meeting must, among other things, include information on the procedure for accessing remote participation, including methods of identification. Effective from September 1, 2027, remote participants may be identified using an enhanced qualified electronic signature (EQES). However, before that date, the articles of association can provide for the use of an enhanced unqualified signature, identification through the Russian Public Services Portal (Gosuslugi) or the Unified Biometric System. Proxies will be required to be identified and present a power of attorney or another document of his authority in electronic form in machine-readable form. The law provides that in case of remote participation in a meeting, the notary will confirm the identity with the use of an EQES with trusted timestamping, and the powers of a proxy and his right to participate in a meeting, through the verification of electronic documents signed with an EQES that are sent to the notary through the notary’s unified information system[10]. This brings up a question: Will the notary be able to notarize a resolution adopted at a remote meeting, if the participants do not have an EQES? It is understood that the notary will not be able to do so, because now the law does not provide for any other methods of identification and submission of documents (without the use of an EQES).
2. Broadcasting of meetings. All persons who have a right to vote should be able to participate in a meeting in real time via broadcast.
3. Voting information. The company’s articles of association may provide for mandatory access to information about the voting process in real time to all participants in a meeting.
4. Keeping of records. Companies are required to keep records of broadcasts of meetings along with their minutes, and the law does not establish requirements for any medium on which to keep such records. It should be noted separately that the rules for holding general meetings remotely will also apply to meetings of the board of directors and the management board.

Transfer of powers in LLCs and non-public JSCs: What is important to know and how to formalize it correctly?

As you may remember, as set forth in the JSC Law, as a general rule, matters that fall within the competence of the general meeting of shareholders may not be transferred to the executive body (management board) for consideration. However, the Russian Civil Code allows certain powers to be transferred to the board of directors or the management board. The latest changes are aimed at eliminating it, allowing the delegation of some of the powers to the board, including:

• Paying (declaring) dividends based on the results of the first quarter, the first six months, and the first nine months of the reporting year;
• Approving the company’s annual report and annual financial statements;
• Adopting a resolution for the company to participate in financial and industrial groups, associations, or other groupings of commercial organizations.

The changes also establish that the delegation of powers to the board of directors or the management board will deprive shareholders of the right to demand the redemption of their shares by the company. As you may remember, shareholders will have this right, e.g., if changes are made to the company’s articles of association that restrict the rights of shareholders, and where the general meeting of shareholders adopts resolutions on the reorganization of the company, the approval of a major transaction, the delisting of shares in the company or the termination of the public status of the company. In relation to an LLC, the changes have expanded a list of powers that may not be transferred to the board of directors, including, inter alia:

• Transferring additional rights and additional obligations for participants (including their termination);
• Approving monetary valuation as part of paying for interests in the statutory capital;
• Approving a major transaction if the value of the assets under such a transaction exceeds 50% of the company’s assets.

The matters that may not be transferred to the board of directors in accordance with the amendments may not be transferred to the collegial executive body of the company, either. It is planned that certain powers may be transferred to the board of directors (management board) of LLCs and non-public JSCs or excluded from the competence of those management bodies under a resolution adopted by the general meeting of members (shareholders) of the company unanimously. Furthermore, the provisions related to such a transfer may be provided for by company’s articles of association upon its formation or included in the articles of association by making appropriate amendments.

Conclusion

There has been a positive trend in the development of corporate laws. The changes are aimed at adapting the laws to modern realities. The regulation of remote meetings should clarify the procedure for decision-making by the management bodies of the legal entity. The delegation of certain powers at non-public companies should make it more flexible to take managerial decisions and to provide for the mandatory notarization of resolutions on the appointment of executive bodies at LLCs. At the same time, special attention should be paid to the preparation of documents taking into account the above changes so as to mitigate potential risks that may arise if documents are executed incorrectly.

[1] Federal Law No. 287-FZ dated August 8, 2024 On the Introduction of Amendments to the Federal Law On Joint-Stock Companies and Certain Legislative Acts of the Russian Federation and Federal Law No. 305- FZ dated August 8, 2024 On the Introduction of Amendments to Articles 48 and 66 of the Federal Law On Joint-Stock Companies and Certain Legislative Acts of the Russian Federation.

[2] This provision does not apply to companies that are lending institutions, non-lending financial institutions, or specialized companies formed under the applicable Russian laws on securities (para. 2 of Article 40(1) of Federal Law No. 14-FZ dated February 8, 1998 On Limited Liability Companies).

[3] para. 1 of Article 103.10, para. 1 of Article 103.10-1 of The Fundamentals of the Notarial Legislation of the Russian Federation.

[4] para. 2 of Order No. 20795 of the Russian Ministry of Foreign Affairs, Order No. 209 of the Russian Ministry of Justice dated September 29, 2022 On the Approval of Instructions for Consular Officials on How to Perform Notarial Acts.

[5] Article 67.1(3)(2) of the Russian Civil Code and para. 6.1 of Letter No. 2405/03-16-3 of the Russian Federal Chamber of Notaries dated September 1, 2014 On the Distribution of the Guidelines on the Notarization by a Notary of the Adoption by a General Meeting of Members of a Company of a Resolution and of the Composition of the Members of the Company who were Present at the Time of Adoption Thereof.

[6] para. 13 of Article 103.10, para. 3 of Article 103.10-1 of The Fundamentals of the Notarial Legislation of the Russian Federation.

[7] Federal Law No. 208-FZ dated December 26, 1995 On Joint-Stock Companies.

[8] Federal Law No. 14-FZ dated February 8, 1998 On Limited Liability Companies.

[9] Articles 52(5) and 66.3(3)(5) of the Russian Civil Code, Article 32(1) of Federal Law No. 14-FZ dated February 8, 1998 On Limited Liability Companies.

[10] para. 1 of Article 103.10 of The Fundamentals of the Notarial Legislation of the Russian Federation.