Supreme Court of Russia’s controversial new stance on the legal validity of companies’ documents.
*Throughout this article by the resolutions are meant both the resolutions of single shareholder and the protocols of the meeting of the shareholders in limited liability companies.
Just like any law passes a certain procedure to become legally valid and binding, any resolution has to adhere to certain rules to be deemed valid. Most commonly the question of validity arises in company’s relations with the Tax Authorities. However, any state agency is watchful when it comes to the validity of such documents, as they decide on the most important aspects of the company’s operations.
In its recent Digest of Case Law, the Presidium of the Supreme Court of the Russian Federation expressed a particular view on the matter of legal validity of companies’ resolutions[1]. Despite the fact that Russian legal system does not follow the case law, that is the rulings of one court are not binding upon the others, the Digests of the Supreme Court bear significant importance and are actively enforced in the courts of lower instances. The question arises: what do these novellas mean for Russian businesses?
Definition of legal validity.
The concept of «legal validity» is self-explanatory. On the other hand, Russian law puts forth strict requirements when it comes to the form of resolutions and their «validation». In short, Civil Code of Russian Federation contains the following forms of validation for company’s documents[2]:
- Notarization (general method);
- Other method as stipulated by the company’s charter or protocol of the shareholders, voted for unanimously.
Previously, in the companies with several shareholders, the standard practice was to include a validation issue on the agenda and the shareholders would vote to consider the protocol validated once it is signed by the shareholders, effectively avoiding visiting the notary office. Naturally, this way was less cumbersome and allowed the businessmen to preserve time and money, which would otherwise be spent in a notary office. As for the companies with one shareholder, the practice was that resolutions of such companies are validated automatically upon their signing by the sole shareholder. These practices have become regular and were considered appropriate by both state agencies and courts. However, the Digest of Case Law, dated December 25th, 2019, interferes in the current status quo and sets new rules, which need to be followed.
Novellas.
According to the Digest, the resolutions acquire the valid status only in the following situations:
- After their notarization;
- After notarization of a resolution which confirms that further resolutions will be validated via their signing by the shareholders;
- Amending the charter of the company to include provisions on the alternative methods of validation.
Another major change is that these regulations also concern companies with a single shareholder, so a simple signing a resolution does not suffice anymore like it used to.
Consequences:
The novellas
have received a controversial reception among both businessmen and lawyers.
Essentially, notarization will be playing an even larger role in the company’s
activities and the only ways to avoid constant visits to the notary office is
by amending the company’s charter or by drawing up a resolution on alternative
methods of validation, both processes requiring a notary’s involvement.
Considering the charter’s undisputed position as the main regulatory document
of any organization, it is advised to proceed with inclusion of those
provisions in the charter. In that scenario, the company will be relieved of
the constant visits to the notary office. One thing is surely determined, the
rules have changed and the businesses should pay attention to avoid disputes
with the authorities.
[1] http://www.consultant.ru/document/cons_doc_LAW_341476/
[2] Civil code of the Russian Federation clause 3 article 67.1
