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Re-registration — second round

The Ministry of Economic Development and Trade published on its website a statement of intent to radically reshape regulations for corporations.

The result of these innovations, the government promises, will merge the current divisions of CJSC and OJSC. At the same time, various legislative regulations are being planned for public-traded companies and private companies. Rather stringent demands will be implemented for the disclosure of information and corporate management regarding OJSCs, while companies that are not planning to list on a stock exchange will be able to operate according to more flexible rules.

The bill promises to increase the scope of functions of a publicly-traded company’s managing bodies will change significantly.
 The general meeting of shareholders will have more responsibilities, with the range of their responsibilities determined by both the Law on Joint-Stock Companies and the company’s charter.

The board of directors’ jurisdiction will be widened. Charters will be able to endow the board the right to consider any issue which does not fall under the jurisdiction of any other regulatory body. Furthermore, the executive board’s term of office would be increased from one to three years, although shareholders maintain their right to call early elections. A system of electing “replacement” directors would be introduced so that elections do bring company activities to a halt. 

The corporate secretary would be introduced as a mandatory administrative position for OJSCs to keep notes from board meetings and shareholder general meetings, to protect shareholder interests and to make sure all administrative steps are recorded. For companies with private status, the board of directors would decide whether or not to have a corporate secretary.

Note that the institution of corporate secretaries is not a novelty. The Code of Corporate Conduct specifies the requirements for applicants for this position – as well as their status and power – in such detail that it takes up a whole chapter. Many major corporations already have corporate secretaries and there are many professional training courses offered for them.

Moreover, the bill will more clearly regulate issues of disclosing information regarding public, as well as private, corporations. Penalties for offenders who refuse to share information would be toughened. The writers of the bill consider Article 15.19 of the Russian Administrative Offences Code for punitive sanctions ineffective, and Article 93 of Corporate Law on payment of damages for neglecting to disclose interest as dysfunctional because proving the infliction of such damages and defining their amount is often impossible.

It is still difficult to predict what problems may face joint-stock companies in light of the impending changes, or to argue about the pros and cons of the new proposals. It is necessary to wait to see what specific amendments will be introduced to Russia’s Civil Code and the Federal Law “On Joint-Stock Companies” and “On the Stock Market.” There is not yet any information about when the bill will be ready or when it will go to the State Duma. One thing is evident; the headache regarding corporate re-registration is unavoidable and not easy.

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