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vol.2 |
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Russian Joint-Stock Corporation Law |
| By Sato Takaaki Program Officer for the Russian Project Shiga Law Firm Lecturer, Nishogakusha University |
| In trying to develop a capital market in Russia today, there are several kinds of organizations which conduct economic activities, among them the joint-stock corporation or limited responsibility company. Of all the kinds of economic organizations, the rule of law is most important for a joint-stock corporation. |
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There are two types of law: the Civil Law (Articles 96 to 104, enforced March 1996) and the Joint-Stock Corporation Law (enforced December 1995) which regulate a joint-stock corporation. According to these laws, a joint-stock corporation is one where the capital is divided into certain amount of equity and employees (shareholders) are not liable for any company debt. They are only liable within the values of their equity they hold. If the shareholder has not paid the full amount for their equity, they are liable for the portion which they have not yet paid. (Civil Law Article 98 & Joint-Stock Corporation Law Article 2). Before Perestroika and prior to the enforcement of the Civil Law and the Joint-Stock Corporation Law, the Corporations and Corporate Activity Law, enforced December 1990, was in effect. At that time, when that law was enforced in Russia, it was welcomed as an assurance of freedom of economic activities. and it paved the way for the Joint-Stock Corporation Law. Currently, however, only small portion of this law is enforced. A joint-stock corporation is acknowledged as a corporation when it registers with the state. It has its own capital, independent balance sheet and, in the court of law, it could be a defendant or a plaintiff. Unless it violates a law, a joint-stock corporation has access to a variety of economic activities. For some types businesses, i.e. banking and insurance, it is also necessary to obtain a license. A joint-stock corporation is able to open a bank account in Russia as well as abroad. A company seal is round and indicates the official name and the address. |
The two types of limited companies in Russia are the open and the closed. (Civil Law Article 97 and Joint-Stock Corporation Law Article 7). The main difference between the two types are:
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Setting up a Joint-Stock Corporation To incorporate a joint-stock corporation, one can either establish a new company or restructure an existing corporation (newly-established merger, M&A, split or re-organization). Once again, it is necessary to register with the state. At the time of incorporation, the first thing the originators of a joint-stock corporation must do is convene a general meeting of incorporation. The originators can be either an individual(s) or a corporation. The originators are jointly responsible for any debt prior to and after the establishment of the company. It is necessary for the originators, until the corporation is actually officially incorporated, to perform all necessary procedures, set the amount of capitalization, type of equity and its payment method, and conclude in contract form the rights and obligations of the originators in writing. |
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Articles of Association for a Joint-Stock Corporation The most important thing in establishing a joint-stock corporation are the articles of association. The articles of association is the document of incorporation. The provisions outline the obligations of all agencies of the company as well as those of the shareholders to be executed. The articles of association include the following: the official name (and any abbreviation), address, whether it is open or closed, the number of issued equity, the face value amount, type of equity (ordinary or preference shares), who owns which type of equity, the rights of shareholders, capitalization, preparation and procedure to convene a general shareholders meeting, powers of the shareholders meeting, composition and rights of management and the procedures to change the articles of association. |
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Corporate Charter Capital The corporate charter capital of a joint-stock corporation (Civil Law Article 99 and Joint-Stock Corporation Law Articles 22 - 30) is composed of the face value equity the shareholders have acquired in the company. For ordinary stock, it is necessary for the face value of equity to be all the same. In a joint-stock corporation, it is possible to issue preference stock as well as ordinary stock. The corporate charter prescribes the amount and the type of stock the shareholder has acquired. An increase in capitalization could occur either by increasing the face value of the equity or by issuing additional stock. A change in the corporate charter and an increase in capitalization could be dealt in three ways: at the general shareholders meeting, within the provisions of the corporate charter or by a resolution of the general shareholders through the board of directors. |
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General Shareholders Meeting The general shareholders meeting is the highest management function of a joint-stock corporation (Civil Law Article 103 and Joint-Stock Corporation Law Articles 47 - 63). A joint-stock corporation must always convene a general shareholders meeting. The time of the meeting is prescribed in the corporate charter. However, it cannot be held more than two months prior or six months after the end of the company's fiscal year. The following are items which may be discussed and decided upon in the general shareholders meeting:
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Board of Directors Meeting The board of directors meeting will guide the entire business. Board members have a term of one year, but it is possible to be repeatedly re-elected. The composition of the board of directors is decided either by the articles of the joint-stock corporation or by a general shareholders meeting. However, if there are more than 1,000 stockholders who have the right to vote, they must select more than seven members of board of directors and if there are 10,000 stockholders who have the right of vote, they must select more than nine members. |
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Liquidation of a Joint-Stock Corporation A joint-stock corporation can liquidate itself through the decision of the general shareholders meeting. Additionally, it could be liquidated through a decision by a court. If it is a voluntary liquidation, the board of directors would ask the general shareholders meeting to decide its dissolution and to create a liquidation committee. When the liquidation committee is appointed by the general shareholders meeting, the right of management is immediately transferred to the committee. Evidently, Russian joint-stock corporations are guided by laws similar to those of the West. However, actual business operations differ. It would be accurate to say that they are still trying to determine out how to run a joint-stock corporation. |
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