New Restrictions Imposed on Transactions with Shares of Russian LLC

13 September 2022

The President issued Decree No 618 dated 08 September 2022, which established additional restrictions on transactions involving foreign persons in relation to shares of Russian limited liability companies.

A ban is introduced on the conclusion and execution of transactions entailing, directly or indirectly, the occurrence, change or termination of rights to shares in the authorized capital of LLC, if the parties to such transactions are:

  • residents and persons of foreign unfriendly states (including persons controlled by them);
  • persons of foreign unfriendly states (including persons controlled by them);
  • persons of foreign unfriendly states (including persons controlled by them) and persons of foreign friendly states.

The list of “unfriendly states” was approved by the order of the Government of the Russian Federation No 430-r dated 5 March 2022. However, neither the previously issued Presidential decrees (No 81 dated 1 March 2022 and No 95 dated 5 March 2022) nor the new Decree contain an exact definition of a foreign person associated with the so-called “unfriendly state”.

Foreign persons of “unfriendly” states are considered, including individuals with citizenship of “unfriendly states”, as well as individuals and legal entities, if the place of registration, the place of primary jurisdiction their economic activities or the place of their primary profit from their activities are “unfriendly states”. Thus, the list of persons associated with an “unfriendly state” is rather vague.

The abovementioned transactions can now be carried out only on the basis of a special permit issued by the Government commission for control over foreign investments in the Russian Federation.

At the same time, the abovementioned ban does not apply to:

  • transactions with shares in the authorized capitals of credit institutions and non-credit financial organizations;
  • transactions in the financial, fuel and energy spheres, the procedure for which is defined by Presidential Decrees No 416 dated 30 June 2022, and No 520 dated 5 August 2022;
  • transactions with persons of foreign unfriendly states, if their beneficiaries are the Russian Federation, Russian legal entities or individuals, and information about control over them has been disclosed to the Russian tax authorities;
  • transactions with persons of foreign unfriendly states, if they were controlled by a friendly state or a person of such a state before 1 March 2022.

Additionally, it is established that LLC, which participants have the status of strategic enterprises (or JSC) and are users of subsurface areas of the Russian Federation, have the right not to provide information about their activities to their other participants if these participants are classified as persons of unfriendly states.

Moreover, the fulfillment of obligations under bank deposit (account) agreements in foreign currency between Russian credit institutions, in respect of which restrictive measures have been introduced, and Russian legal entities is allowed in rubles in an amount equivalent to the value of obligations in any foreign currency calculated at the official exchange rate of the Central Bank on the day of fulfillment of relevant obligations.

The Government within 10 days is also obliged to introduce a procedure for issuing permits for transactions with LLC shares in respect of which the specified restriction was introduced. It appears that this procedure will be approved by modifying the current Decree of the Government of the Russian Federation No 295 dated 6 March 2022, which established the rules for issuing permits for transactions to which a foreign person associated with an “unfriendly state” is a party. At the same time, neither the Decree nor the mentioned rules contain any criteria, compliance with which is sufficient to obtain a permit.

In practice, obtaining permission from the Government commission is quite problematic. In fact, taking into account the difficulties in obtaining relevant permission, Decree introduces a ban on both the sale and acquisition by foreign persons from “unfriendly states” of shares in Russian limited liability companies, as well as the conclusion of corporate agreements.