Is it the right time for your company to get rid of your paper Charter and make your life easier?

The Order of the Ministry of Economic Development of Russia as of 01.08.2018 N 411 “On the approval of Model Charters, on the basis of which limited liability companies can operate” introduced the concept of Model Charters into Russian corporate law. The Order provides for the opportunity for an LLC to switch to a Model Charter. To start using one, the company needs to pass a corporate decision on having one and submit an application to the tax authority.

Model Charters facilitate the process of creating an LLC: there is no need to draw up a constituent document, bring the Charter to a notary, or provide it to counterparties (e.g., banks). They also do not contain information about the name, location and size of the authorized capital of a company, which means that when these data change, there is no need to adjust the Charter. Further, no amendments are required due to changes to the legal regulation of LLC activities; they will be made in unified way by the authorized state body.

Who can use a Model Charter?
Model Charters can be used by almost every LLC. An exception is made for those companies with a more sophisticated corporate structure, in particular, companies with more than 15 members, companies that are obliged to create an audit commission, and/or companies with a board of directors. Model Charters do not contain provisions on these corporate bodies, which means that such organizations will not be able to switch to one.

How to switch to a Model Charter?
To start using one, it will be necessary to conduct a shareholders’ meeting and pass the relevant decision, and also a formal application has to be submitted to the tax authority for state registration. Such application is free from payment of state duty. Please note that a Model Charter will not be available for a company that has a board of directors and which does not plan to abandon it. Since there is no information on boards of directors in Model Charters, a company would have to disband it.

How to choose a Model Charter?
Model Charters are drafted by the Ministry of Economic Development. A total of 36 Model Charters were prepared for the public. They differ in the shareholders’ approach to the following issues:

– if it is possible for the shareholder to leave the company;

– if it is necessary to obtain the consent of the LLC shareholders to alienate the share to third parties;

– if there a pre-emptive right to purchase a share;

– if it is allowed to alienate the share to other shareholders without the consent of the others;

– if it is possible to transfer the share to the heirs and successors of the shareholders without the consent of the others;

– whether the director is elected separately or each member of the company acts as a director by default;

– whether a notary certifies the decision of the general meeting of shareholders of the company and the composition of the shareholders present at its adoption.

You can choose a suitable Charter using the Tax Authority’s free service (available in Russian only)

What are the Pros and Cons?
There are serious advantages to switching to a Model Charter. For example, it will help get rid of the following:

  • the duty to maintain the compliance of the Charter with legislation, if it changes. Changes to the Model Charter are made by the Ministry of Economic Development of Russia;
  • the duty to keep to keep the current data of the Charter, i.e., to register changes of name, address of the shareholders; increase/decrease of capital (each change requires the holding of a corporate meeting and relevant voting on the approval of the new version of the Charter);
  • the duty to submit it to counterparties, a notary or a bank;
  • the duty to keep the original Charter in the company’s office and, if lost, request a duplicate from the Tax Authority;

The main disadvantage of the Model Charter is the inability to change or customize it. This relates to those cases when the shareholders want to create a sophisticated corporate structure or internal processes (i.e., specific rules for approving interest-party transactions, alternative methods of sending the notification of the convocation of a general meeting, etc.).

Model Charters provide an opportunity to save costs and the time spent on the drafting and registration of the Charter of a company, and amendments to it, avoid undesirable bureaucracy, and are suitable for all LLCs with certain exceptions.

Please note that this is for information purposes only. The information contained herein shall not be considered as legal advice.

This article was prepared by Vlad Rudnitskiy, partner of the Moscow office of PETERKA & PARTNERS and Daria Noskova, paralegal.