A bill allowing international companies to be established through incorporation in a SAD has been passed in the first reading

On 16 May 2023, the State Duma passed in the first reading a bill (No. 337661-8) that allows international companies (ICs) to be established through incorporation in the territory of special administrative districts (SADs) and provides additional options for ICs in terms of the formation of management bodies and the structuring of equity capital (“the Bill”).

It will be recalled that Federal Law No. 290-FZ “Concerning International Companies and International Funds” (“the Law”), passed in August 2018, allows foreign companies to be redomiciled to the territory of a SAD in Russia. Access to SADs was later extended to international public benefit foundations and international private foundations.

Requirements for the establishment of an IC through incorporation

According to the Bill, an IC may be registered in a SAD through incorporation if the following conditions are all met:

1. The founder (or co-founder) of the IC to be established is a foreign corporate entity established no later than 1 March 2022 (the Government of Russia may set a later date), provided that:

• the redomiciliation of the entity concerned to the territory of Russia is provided for or is not prohibited by the personal law of the foreign entity; and
• securities of the foreign entity are listed on organised foreign exchanges as at 1 March 2022;

2. The founder (or co-founder) of the IC to be established has undertaken to make investments in the territory of Russia (within one year of the registration of the IC and in an amount not less than 50 million roubles);

3. The founder (or co-founder) of the IC to be established has applied to conclude an agreement on the conduct of activities in the territory of the SAD;

4. The founder (co-founder) of the IC to be established is registered in a state or territory which is a member of FATF, Moneyval, EAG, APG, ESAAMLG, GAFILAT, MENAFATF, CFATF, GIABA or GABAC.

Additional investments when establishing an IC through incorporation

According to the Bill, in addition to making investments amounting to at least 50 million roubles, the foreign founder must transfer to the newly established IC assets valued in its financial statements at no less than 800 million roubles. The time limit for fulfilling this obligation is one year from the registration date of the IC.

Stabilisation clause

Under the Bill, an IC, whether established through redomiciliation or through incorporation, would not be subject to provisions of civil legislation which:

• entered into force after the date of state registration of the IC, and
• limit the rights of participants (shareholders) in the IC in relation to the IC and other participants (shareholders) relative to the rights determined for them as at the date of state registration of the IC.

The Bill establishes an exhaustive list of cases in which rights are deemed to be limited, including:

• the withdrawal from participants (shareholders) in an IC of rights conferred on them by the IC’s charter, including rights to vote in the general meeting of participants (shareholders) in the IC;
• the confiscation (compulsory redemption) of participating interests (shares) held by participants (shareholders) in the IC;
• the changing of requirements relating to the definition of a quorum for the general meeting of participants (shareholders) in the IC and/or the voting majority required for the adoption of decisions of the general meeting of participants (shareholders) in the IC;
• the granting of the right to vote in the general meeting of participants (shareholders) in the IC and other corporate rights relating to the IC and/or its management bodies to persons that are not participants (shareholders) in the IC other than in accordance with the IC’s charter.

The “stabilisation clause” does not apply to acts adopted for the purpose of protecting the foundations of Russia’s constitutional order, public morals and the health, rights and legitimate interests of other people and for the purposes of national defence and state security.

Additional options relating to the formation of the management bodies of an IC

The Bill lays down additional options relating to the management bodies of an IC in terms of the manner in which they are constituted and their competence. In particular, the charter of an IC may provide for:

• the formation of a collegiate management body of the IC based on rotating membership and allowing for the early termination of office of one or more members of the collegiate management body without the need for the termination of office of all members in the event of the termination of office of any one of them;
• different classes (categories) of members of the collegiate management body of the IC with different terms of office and different decision-making powers and rights, including a right of veto for certain members on particular matters;
• the delegation to the collegiate management body of the IC of decision-making on matters falling within the exclusive competence of the general meeting of shareholders;
• the creation by the collegiate management body of the IC of committees consisting of members of that body to discuss and adopt final decisions on certain matters within the competence of the collegiate management body;
• meetings of shareholders owning particular categories (types) of shares to be held on certain matters specified in the IC’s charter, and for decisions on certain matters falling within the competence of the general meeting of shareholders to be adopted only on condition that the agreement of holders of particular categories (types) of shares is obtained in the manner prescribed by the IC’s charter;
• other special arrangements relating to the formation of management bodies and the exercise of their powers.

Additional options relating to the structuring of the equity capital of an IC

Effective from March 2022, the Law allows for an IC to have different kinds of ordinary and preference shares. The Bill builds on this approach by expanding the ways in which an IC may structure its equity capital. According to the Bill, an IC may issue different categories (types) of ordinary and preference shares, including:

• with different numbers of votes attached to different categories (types) of shares,
• with the right to vote on all or specific matters that are put to a vote,
• with differences in the priority of payment and/or amount of declared dividends,
• with differences in the priority of payment and/or value of property to be transferred in the event of the liquidation of the IC,
• with different redemption terms or conditions for the alteration or termination of rights conferred by shares,
• shares of categories (types) conferring special rights or authorities on shareholders owning those shares, including shares not conferring voting rights and/or the right to receive dividends and shares that are convertible into ordinary shares in the IC of a particular category (type) or are redeemable on the terms specified in the share issue decision.

Furthermore, an IC’s charter may, according to the Bill, provide that shares issued by the IC will be redeemed upon the occurrence of circumstances specified in the charter regardless of the will of the holders of those shares, and may establish the consequences of such redemption (e.g., the payment of a specified sum of money to the holders).

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The B1 team would be happy to provide its support in organising redomiciliation to a SAD, company registration and the preparation of foundation documents.