Russian Federation

Russian Federation

Introduces changes in the corporate governance of economically significant entities with foreign participation

04 Sep 2023

On 4 August, 2023, the President of the Russian Federation signed into law Federal Law No. 470-FZ, titled "On the Specifics of Corporate Governance in Business Companies Deemed Economically Significant Organizations". The law entered into force on 4 September 2023.

Under the new law, any Russian limited liability company or joint-stock company may be considered an "economically significant organization" if it meets certain quantitative and significance criteria and if its non-Russian parent company is connected with an "unfriendly state". The significance criteria include: if the company's aggregate revenue exceeds 75 billion rubles, if it employs over 4,000 individuals within its Russian group, if it possesses assets valued at more than 150 billion rubles, if it is designated as a "subject of critical information infrastructure," or if it provides technology or software for socially important services, or IT/communication services.

The law allows for the suspension of a foreign holding company's corporate rights with respect to an "economically significant organization" under various circumstances. These include instances where the foreign holding company avoids exercising corporate rights or takes actions that obstruct the management of mentioned organization. Consequences of such suspensions encompass the loss of voting rights at shareholder meetings, the inability to participate in or request meetings, and the forfeiture of corporate rights, such as receiving dividends or exercising preemption rights. Furthermore, the foreign holding company is prohibited from disposing of its shares.