The new law on LLC. What’s new for business?

Recently, a new law «On Limited and Additional Liability Companies» entered into force. It introduces a number of changes in the order of creation and functioning of enterprises that exist in such organizational forms. In this article we offer you a brief overview of the main innovations that are established by this law.

Initially, you should pay attention to the fact that from the moment the Law «On Limited and Additional Liability Companies» enters into force, those provisions of the Law «On Business Companies» concerning LLCs and ALCs lose their force. However, all the conditions of the charters of LLCs and ALCs that met norms of the «old» law, they remain valid after the beginning of the «new» law. Thus, in disputes with regulatory authorities, other legal or individuals, companies can refer to the norms of their «old» charters until they bring them in accordance with the «new» law. And the charter should be brought into line with the «new» law within a year from the moment the law comes into force, namely from 17.06.2018.

In the «new» law, only three mandatory points are indicated, which should be included in the charter, namely:

– full and abbreviated name of the company;

– management bodies of the company, their competence, the order of their decision-making;

– the procedure for joining and exiting the company.

All other information is defined as such that can be included in the charter. The charter under the new law should not contain information on the size of the authorized capital, the size of shares and the composition of the participants in the company. The indicated information is reflected only in the Unified Register of Legal Entities, Individual Entrepreneurs and Public Associations.

Also, you should pay attention to the fact that the number of LLC participants is no longer limited to the «new» law (in the «old» law there was a limit to 100 participants).

The next significant issue that has undergone changes is the procedure for the formation of the authorized capital. The «old» law contained time limits on the time for participants to pay their shares in the authorized capital, namely: one year from the date of state registration of the company. The «new» law reduces this period to six months, but gives participants the right to determine a different term in the charter. Such a decision can be made solely by unanimous decision of all participants in the company.

In case of non-payment by one of the participants of the company of his share within the prescribed period, a warning about this is sent to him and an additional period for payment is provided (no more than 30 days). The warning is sent by the director of the LLC, he also determines the specific period for payment (if this period is not provided for in the charter).

If the share is not paid within this period, then, at the request of the director, a general meeting is convened, which must take one of the following decisions:

1) on exclusion of a participant that has arrears;

2) on the reduction of the authorized capital by the amount of the unpaid part of the share of the participant in the company;

3) on the liquidation of the company;

4) on the redistribution of the unpaid share (part of the share) between other members of the company without changing the size of the authorized capital of the company and payment of such debt by the relevant participants.

The votes of the debtor are not taken into account when resolving the issue.

In addition, the changes also affected the management bodies of the companies. From now on, instead of the revision committee, the supervision of the activities of the director of the company should be carried out by the supervisory board. Unlike the revision committee provided for by the «old» law, the creation of a supervisory board by the «new» law is recognized as optional. The difference from the audit committee is that the members of the supervisory board do not have to be members of the company. Members of the Supervisory Board conclude civil law contracts or employment contracts. On the part of the company, these agreements (contracts) are signed by a person authorized by the general meeting (not necessarily a director).

The «new» law also contains absolute innovations in the field of creation and activity of LLC and ALC. The law introduced such a document as a corporate contract. This contract is concluded between the participants in the company and actually fixes agreements on the coordination of actions to achieve the goal of the existence of the company. Despite the fact that a corporate agreement may provide for conditions or a procedure for determining the conditions under which a participant has the right or obligation to buy or sell a share in the authorized capital (part thereof), as well as determine cases when such a right or obligation arises, the corporate agreement can be considered as part of the charter. The content of the contract is not subject to disclosure, and is confidential, unless otherwise provided by the charter or law. This does not apply to cases where a party of the contract is a state, territorial community, state or communal enterprise or legal entity, in the authorized capital of which 25 or more percent directly or indirectly belong to the state or territorial community. In these cases, the contract is made public by the relevant legal entity.

Also, the «new» law amended the implementation of the right to leave. The procedure for a participant to leave the company on his own free will in accordance with the new law depends on the size of the share of such a participant in the authorized capital. Those participants, whose share is less than 50%, can leave the company at any time without the consent of other participants. In turn, participants with a share of 50% or more can withdraw only with the consent of all other participants within one month from the date of the consent of the last participant. The right to leave of the controlling participant is blocked if there is at least one of the participants who gives no consent to leave, regardless of the size of the share of the participant, who is against.

The participant is considered to have left since the state registration of his exit. Moreover, the law does not require the convening and holding of a general meeting to make an appropriate decision on leave, or to amend the charter of the company. For state registration of the leave, one participant who leaves the company submits to the state registrar an application for leaving the company, the authenticity of the signature on which is notarized. In the event that a participant leaves with a share of 50% or more, the consent of other participants is additionally submitted, the authenticity of the signatures on which is notarized. Simultaneously with the registration of the leave, the state registrar makes an entry on reducing the size of the authorized capital by the size of the corresponding share in the authorized capital. On the day of registration, the registrar sends the company and other participants an extract on the results of the registration of the exit.

The «new» law also introduced changes to determine the value of the share upon the leave and its payment. An undoubtedly positive novelty of the law is that the value of a participant’s share is determined based on the market value of the aggregate of all shares of the company’s participants, in proportion to the size of the paid share of such a participant. Now the value of the share was mainly determined based on the balance sheet of the enterprise. As a result, the participant could receive a payment that is significantly lower than the real market value. The share rate determines the company itself as at the day preceding the day the documents were submitted to the state registrar. Payment is made within one year from the day when it knew or should have known about the participant’s leave.

In addition, this law provides information on the holding of the annual General Meeting of Participants. According to the law, a meeting is convened within six months of the year following the reporting year (now the deadline is 1 year). The agenda of the annual general meeting of participants must include questions on the distribution of the company’s net profit, on the payment of dividends and their amount.

New mechanisms for holding the meeting have also been introduced. Another innovation is the possibility of absentee voting – to participate in the general meeting of participants by submitting their will to vote on agenda items in writing. In addition, there is the possibility of a survey, but here the order is somewhat different. A decision shall be considered adopted if all members of the Company have voted for it. Unless otherwise provided by the charter of the Company, the date of the decision shall be considered the last day of the period during which participants must send their answers to the initiator of the written decision. The Charter of the Company may provide for other ways of holding a general meeting of participants that are not prohibited by law, namely teleconferencing, videoconferencing, or using other means of electronic communications, but provided that each of the participants can simultaneously participate with all other participants in the discussion and voting on issues made for consideration by the general meeting.

According to the law, the payment of dividends is carried out at the expense of the net profit of the Company to persons who were participants of the Company on the day of the decision on the payment of dividends, in proportion to the size of their shares.

However, the Company is not entitled to pay dividends in the following cases:

– pay dividends to the participant, who fully or partially did not contribute;

– make a decision on the payment of dividends or pay dividends if the Company has not made settlements with the participants of the company in connection with the termination of their participation in the Company or with successors of the participants of the Company;

– if the property of the Company is not sufficient to satisfy the claims of creditors or it will not be enough as a result of a decision on the payment of dividends or payment.

Another innovation is the definition of a list of documents, the Company is obliged to keep. The law states that the company is required to keep the following documents (subject to storage throughout the entire life of the Company, except for accounting documents, the storage periods of which are determined in accordance with the law), namely:

– minutes of the meeting of the founders of the company (decision of the sole founder);

– charter of the company and amendments to the charter;

– minutes of general meetings of participants;

– company documents governing the activities of company bodies, and amendments to them;

– Regulation on the branch (representative office) of the company in case of their creation (opening);

– minutes of meetings of the supervisory board of the company and the collegial executive body of the company, orders and instructions of the executive body of the company;

– audit reports and results of other audit services;

– annual financial statements;

– reporting documents that are submitted to the relevant state authorities;

– documents related to the issue of equity securities;

– other documents stipulated by law, the charter of the company, decisions of the general meeting of participants, the supervisory board and the executive body of the company;

– documents confirming the company’s rights to property;

– accounting documents.

Responsibility for the storage of documents of the Company lies with the executive body of the company and the chief accountant (in case of appointment) – according to accounting documents and financial statements.

In addition, the «new» law establishes requirements for the so-called «major transactions». When making a transaction, if the value of the property, work or services that are the subject of such a transaction exceeds 50 percent of the value of the company’s net assets at the end of the previous quarter, it necessarily requires the consent (decision) of the general meeting of participants.


July 6, 2018

Get in touch

Whatever your question our team will point you in the right direction

Start the conversation
x
x

Share to:

Copy link:

Copied to clipboard Copy