Changes to legislation: transfer of powers of the general meeting to the board of directors (management board)

On July 23, 2024, the Russian State Duma passed, in its third reading, Draft Law No. 444871-8 that makes it possible to transfer certain matters that fall within the competence of the general meeting of shareholders of a non-public JSC and of members of an LLC to the board of directors or the management board.

Transfer of certain powers in non-public joint-stock companies

Generally, according to the JSC Law, the matters assigned to the competence of the general meeting of shareholders may not be transferred to be decided by the company’s executive body (management board)[1]. Furthermore, the Russian Civil Code provides that certain powers may still be transferred to the board of directors or the management board^[2]. This draft law is aimed at eliminating this contradiction, allowing non-public JSCs to delegate to the management board some of the powers of the general meeting of shareholders, 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 reports and financial statements; and
• Adopting a resolution for the company to participate in financial and industrial groups, associations, or other groupings of commercial organizations.

The draft law also establishes that this delegation of powers to the board of directors (management board) will deprive shareholders of the right to demand the redemption of shares by the company. As you may remember, shareholders will have this right, for example, where changes are made to the company’s articles of association that restrict shareholders’ rights and where the general meeting of shareholders adopts resolutions on reorganizing the company, approving a major transaction, delisting shares of the company or terminating its public status[3].

And what about the transferability of powers in limited liability companies?

It should be noted that currently, the LLC Law contains a list of matters that may not be assigned by the company’s articles of association to the competence of the company’s other management bodies, including:

• Approving the company’s articles of association (making changes to them), changing the company’s statutory capital, name, and location;
• Electing and early terminating the powers of the company’s internal audit committee (internal auditor);
• Approving the company’s annual reports and financial statements;
• Adopting a resolution on the distribution of net profits; and
• Adopting a resolution on reorganizing or liquidating the company (including appointing a liquidation commission and approving liquidation balance sheets).

Passed in its third reading, the draft law provides for a number of powers that may not be transferred to the board of directors. These are:

• Providing for additional rights and imposing additional obligations on members (including terminating them);
• Approving monetary valuation as part of paying for interests in the statutory capital; and
• 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 (management board) of the company, either. Furthermore, it is prohibited to delegate the following powers to the management board:

• Determining the main areas of the company’s activities, and adopting resolutions on participation in associations and other groupings of commercial organizations;
• Electing and early terminating the powers of the company’s internal audit committee (internal auditor); and
• Adopting resolutions on the issue of debentures or other issuable securities by the company.

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.

In addition to the above amendments, this draft law makes some other changes. For instance, it has been proposed to extend the period of simplified registration of international companies in special administrative regions until December 31, 2025.

It is understood that the draft law, if approved by the Russian Federation Council and signed by the Russian President in its current version, will take effect on the date of its official publication.

We would be pleased to assist you in developing any internal documents of your company (including modifications or amendments to their current versions) in connection with the transfer of certain matters assigned to the competence of the general meeting of members (shareholders) to the board of directors and/or the management board.

Still have questions or want to discuss something? Send an email to Julia Talagaeva or Artem Eretenko.

[1] Article 48(2) of the Federal Law On Joint-Stock Companies

[2] Articles 66.3(3)(1) of the Russian Civil Code

[3] Article 75 of the Federal Law On Joint-Stock Companies