It should be noted that Decree No. 618 stipulates that approval must be obtained from the Government Commission for Control over Foreign Investment in the Russian Federation in respect of transactions with entities from unfriendly states involving shares in the authorised capital of limited liability companies or rights to determine the terms of governance and conditions for carrying out business activities in relation to such companies.
According to new clarifications No. 5, the following do not fall within the scope of Decree No. 618:
1. Establishing, altering or terminating the rights to determine the terms of governance of a limited liability company as a result of resolutions passed by the general meeting to amend the articles of association, providing for the formation, determination (alteration) of the competences, or termination of the powers of the company’s governing bodies
This exemption requires compliance with the following conditions in their entirety:
- the rights to determine the terms of governance of a limited liability company and conditions for carrying out business activities are being established, altered or terminated;
- such changes to rights are the result of a resolution passed by the company’s general shareholders’ meeting; and
- the subject matter of such resolution is to amend the company’s articles of association to provide for the formation, determination (alteration) of the competences, or termination of the powers of the company’s governing bodies.
It should be noted that the Ministry of Finance of Russia had previously issued a similar clarification regarding corporate actions, stating that Decree No. 618 does not apply to cases involving the appointment (or removal) of a company’s sole executive body in accordance with the Labour Code of the Russian FederationLetter of the Ministry of Finance of Russia No. 05-06-13РМ/9424 of 3 February 2025, entitled “Official Clarifications No. 3 on the application of Decree of the President of the Russian Federation No. 618 of 8 September 2022”.
In this context, the new exemption appears to be a logical extension of the Ministry of Finance’s position, according to which matters relating to the formation of the governing bodies of a limited liability company — in a purely corporate context — should not be subject to approval under Decree No. 618.
At the same time, we believe that the new exemption should not apply to all cases where amendments are made to the articles of association, but only to those which do not entail a change in the scope of the rights of the company’s “unfriendly” shareholders, for example, on the basis of an asymmetrical procedure for the formation of governing bodies.
For example, if amendments to a company’s articles of association result in the formation of a board of directors, the majority of whose members will be appointed by an “unfriendly” minority shareholder, such amendments may, in our view, still fall within the scope of Decree No. 618, since as a result of these amendments a person from an unfriendly state will effectively acquire control (where such powers were not held by that person prior to the amendments).
Conversely, if, in the case in question, the board of directors is to be formed pro rata to the shareholders’ shares, including the shares of the “unfriendly” shareholder, amendments to the articles of association should fall within the scope of the exemption.
It is also worth noting that, according to the positionItem 10 of Letter of the Ministry of Finance of Russia No. 05-06-14РМ/99138 of 13 October 2022, entitled “Official Clarifications No. 1 on the application of Decree of the President of the Russian Federation No. 618 of 8 September 2022” previously published by the Ministry of Finance of Russia, the provisions of Decree No. 618 apply, among other things, to the conclusion of a corporate agreement. The fact that new clarification No. 5 makes no mention of a corporate agreement further emphasises that the exemption applies only to cases involving the formation/termination or alteration of the powers of a company’s governing bodies, but not to the rights of the shareholders themselves.
2. Changing the size of a shareholder’s share in the authorised capital of a limited liability company as a result of the redemption of an undistributed or unsold share or portion of the share held by the company within a statutory time limit and as a result of a corresponding reduction in the authorised capital by the par value of such share or a portion thereof
It appears reasonable to provide for such an exemption from the scope of Decree No. 618, since the shares held by the company are non-voting and, therefore, the redemption of such shares cannot result in a change in the scope of rights (votes) held by an unfriendly shareholder of the company.
Therefore, the Law on Limited Liability CompaniesArticle 24, clauses 1 and 5 of Federal Law No. 14-FZ dated 8 February 1998 “On Limited Liability Companies” provides that shares held by the company are not taken into account when determining the voting results on resolutions passed by the general meeting; furthermore, any share or portion of the share held by the company that has not been distributed or sold within the period prescribed by law must be redeemed, and the company’s authorised capital must be reduced by the par value of that share or portion thereof.
The procedure stipulated by Decree No. 618 is fully applicable to the acquisition by a company of a share in its authorised capital, the withdrawal of a shareholder from the company via the transfer of its share to the company or a request for the company to acquire a shareItem 10 of Letter of the Ministry of Finance of Russia No. 05-06-14РМ/99138 of 13 October 2022, entitled “Official Clarifications No. 1 on the application of Decree of the President of the Russian Federation No. 618 of 8 September 2022”. The exemption applies only to cases where a share is subsequently redeemed and the authorised capital is reduced.
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It appears that codifying these exemptions from the scope of Decree No. 618 will undoubtedly help to enhance legal certainty and remove unnecessary administrative barriers to corporate actions that do not result in any actual change to the scope of rights held by persons from unfriendly states in relation to companies.
