THE MODEL CHARTER DETERMINED IN A NEW EDITION: WILL THERE IT SOMETHING FOR BUSINESS?

Large / medium-sized companies tend to prepare charters on their own. For smaller companies, without an extensive structure of the founders, the model charter approved by the Cabinet is also quite suitable. Recently, the government presented it in a new edition, and in this article you will find out what you need to prepare for.

The basis of any enterprise of private law is its charter. It describes the name, the governing bodies, their competence, the procedure for their decision-making, etc. The preparation of a quality charter is painstaking and time-consuming work. At the same time, in order to simplify this process (first of all, for small enterprises), the HKU and a number of other regulatory acts allow private law enterprises in the form of an LLC to act on the basis of a model charter. It is common to any LLC operating on its basis, and contains the majority of the mandatory provisions for any enterprise.

So, by the resolution dated March 27, 2019 No. 367, the Cabinet of Ministers outlined the model charter in the new edition. And we note that this is not just a new edition of the model charter. This is a new approach to filling it up – by giving the founders the opportunity for a detailed choice of certain provisions (from among several pre-proposed options). In particular, the term for making contributions to the authorized capital, the frequency of payment of dividends, etc.

Wherein:

– the possibility of such a choice will be only if the documents for state registration will be submitted in electronic form. Otherwise, the founders will be deemed to have selected the options “by default” (they are highlighted in the form of a model charter with an asterisk “*”). Therefore, as you can see, registration in electronic form will be preferable;

In order to ensure the possibility of choosing one or other options in the provisions of the model charter, the Ministry of Justice should ensure modernization of the electronic services web portal by May 15, 2019.

– An LLC may at any time change the positions it has chosen earlier by electing alternative options proposed by the form of a model charter. They will be applied from the date of state registration of specific changes.

The model charter in the new edition has been earned since April 28, 2019 (the day following the day of official publication in the newspaper Uryadovy Kurs’ur, No. 82, dated April 27, 2019). At the same time, in relation to the companies already existing at that date, operating on the basis of the model charter in the old version:

– until June 18, 2019 – nothing changes (i.e., in this period, the legal regulation of the model charter in the old version remains unchanged);

– after that – they are considered to be transferred to work under the model charter in the new edition. And with the choice of “default” (see above).

Next, we propose to look at as an example several provisions proposed by the model charter in the new edition.

Transactions in excess of 50% of the net assets of LLC. As you remember, in the first time after the entry into force of the Law on LLC, his position was for many a surprise. And now – in the order of things, before entering into any contract, specify the amount of net assets, both our own and the counterparty.

The model charter in the new edition also settled this issue, and quite unusual. There are two options:

– in itself, the execution by the executive body of a transaction that exceeds the criterion on net assets does not require the adoption of a separate decision by the general meeting on granting consent to its execution. It is required only when this transaction simultaneously meets one of the criteria of materiality (from the number provided for in the model bylaws – donation, transfer of LLC property as collateral, etc.);

Note that in the part of the list of significant transactions, the model charter also provides the right to choose and a number of options “by default”.

– the second option implies the need to obtain consent for each transaction in excess of the criterion on net assets.

Deadline for making contributions. The following options are available: month, 3 months, 6 months (this option is set to “default”), a year from the date of state registration. This provision follows from Part 1 of Art. 14 of the Law on LLC, which also allocates a period of 6 months as an option “by default”.

The model charter also indicates the time limit for issuing a warning to the participant in case of violation of this duty by him (a period within 30 days set by the executive body is the “default” option). At the same time, the specific consequences of such a violation in the model charter are not limited – that is, in such a case, the general meeting can make any decision provided for by Part 2 of Art. 15 of the Law on LLC (exclusion of the participant, reduction of the share capital, etc.). And this, we note, is correct, since the charter in this matter cannot and should not limit the freedom of the general assembly.

Dividend payment. The frequency of dividend payment is any period that is a multiple of a quarter (the “default” option), a year, any other period determined by a decision of the general meeting. At the same time, as you can see, the “default” option and the third option with the decision of the general meeting do not differ in essence, since both imply the establishment of a specific periodicity in the decision of the general meeting. Thus, as you can see, the model charter in the new edition is quite convenient and allows you to approach the creation and regulation of the LLC’s activities more flexibly than its old edition. The main thing is that its technical (including electronic) implementation should not fail.

Author: Kristina Vorozhbitova

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