Russian Federation: Investment Partnerships Now Recognized Under Russian Law, But The Disadvantages May Outweigh The Advantages

Last Updated: 28 May 2012
Article by Evgenia Korotkova and Andrey Dukhin

In an effort to respond to investors' concerns about the lack of a simplified legal structure for carrying out joint investment activity, a new law was adopted on November 28, 2011, introducing a new legal structure called an Investment Partnership, which is established and operated based on an investment partnership agreement (IPA). An investment partnership is designed to work like a limited partnership in other countries.

Before this new law, Federal Law No. 335-FZ "On Investment Partnership" (IP Law), came into effect, the law already recognized two different types of partnership – simple partnership (простое товарищество) and trust partnership (товарищество на вере). Although not legal entities they could be used to make collective investments. However, due to a number of legal peculiarities, these legal forms have never gained momentum with Russian and foreign investors engaged in joint investment activity.

Under an IPA, two or more persons undertake to combine their contributions and conduct joint investment activity without incorporating a legal entity for the purposes of deriving profit. An IPA may regulate a broad scope of the activity of the Investment Partnership, including rights and obligations of the partners, their contribution obligations and liability for breaching such obligations, the procedure and rules of the management of the general activities by the managing partners, as well as other rights and obligations provided for by the IP Law.

Major Advantages

The IP Law establishes a clear framework for Investment Partnerships, while at the same time allowing broad flexibility as to the terms that may be agreed/specified between the partners in an IPA.

Clear Framework. According to the IP Law, investment activity that may be conducted jointly by partners on the basis of an IPA include purchase and sale of "non-publicly" traded shares, bonds of commercial companies and partnerships, financial instruments of forward deals (derivatives) and shares in the share capital of economic partnerships. The IP Law spells out the type of organizations that may be parties to an IPA, namely: (i) Russian and foreign commercial organizations, (ii) non-commercial organizations once they are granted such status by relevant law and once the investment activity serves the purpose for which it was established, (iii) individuals (Russian or foreign citizens) registered as individual entrepreneurs under Russian law, and (iv) foreign organizations that are not legal entities under foreign law, functioning under the terms and conditions established for such organizations by international treaties and Russian law. Partners may be parties to an unlimited number of IPAs; any limitation of this right is not permissible, including under a contract. Advertising the activities conducted under an IPA, as well as public offers to third parties to join an IPA are prohibited by law.

Flexibility. According to the IP Law, parties to an IPA have the right to agree on a broad range of issues including, the amount and structure of contributions, the terms of their payment, the share size of each partner in the jointly owned property of the Investment Partnership and the procedure for changing such share size, provisions on running the business activities of the partnership, transferring rights by a partner under an IPA, profit distribution, etc.

An IPA should also include a policy for conducting partnership activities (investment declaration), which, inter alia, would set out the parameters for investments under the IPA (the Policy).

The IP Law further provides that:

  • the IPA should be concluded for a specific term or for a period necessary to achieve a specific goal, with an absolute maximum term of 15 years;
  • the number of partners entering into an IPA cannot exceed 50;
  • an individual (Russian or foreign citizen) cannot be a party to the IPA unless he/she is registered as an individual entrepreneur under Russian law;
  • the IPA should have a name, which should contain the words "investment partnership";
  • the IPA, including the Policy and all annexes and addenda to it, any agreements on full or partial transfer of rights and obligations of the partners under the IPA and the power of attorney for partners to carry out partnership activities should be notarized by a Russian notary;
  • the IPA cannot provide that its existence should not be disclosed by the partners to third parties; any agreement restricting this provision is void;
  • the IPA may be amended based on the agreement of all partners or based on a court decision (inter alia, in case of breach of material terms of the IPA by one of the partners); and
  • the IPA may be terminated based on a court decision upon a claim of a partner(s), inter alia, in case of a breach of material terms of the IPA; upon expiration of its term, achievement of its goal, or if only one partner is left in the Investment Partnership.


There are certain features of the Investment Partnerships that are unlikely to contribute to their popularity among investors. One of the downsides is the limitation on investing in publicly traded shares, which is typically an important segment of investment activity for investors. Also, among other things, the IP Law over-legislates what needs to be in IPA and who can be a party to it.

Another disadvantage is that all partners (including the managing partners) may be jointly and severally liable under non-contractual obligations (except for tax obligations) as well as under contractual obligations in relation to "non-commercial" parties (those which do not conduct entrepreneurial (commercial) activity). However, given the flexibility of the provisions, subject to specification by the partners in an IPA, it may be possible to limit/prohibit an Investment Partnership's activity vis-a-vis non-commercial persons/entities.

Types of Partners and their Contributions

There are two types of partners provided for under the IP Law in an Investment Partnership: (i) partners that are not responsible for the activities of the Investment Partnership (Partners), and (ii) partners that are responsible for the activities of the Investment Partnership (Managing Partners). In an Investment Partnership, any Partner has the right to earn part of its income from participating in the Investment Partnership, access all documents of the Investment Partnership, receive a refund of its share in the Investment Partnership if the IPA is terminated, and to participate in making decisions as provided by the IP Law.

Partner. A Partner cannot manage the general activities of the Investment Partnership. A Partner may only make cash contributions to the Investment Partnership's general business (вклад в общее дело). Unless otherwise provided by the IPA, a Partner is entitled to assign its rights and obligations under the IPA to another Partner or to a third party. A Partner cannot prematurely exit the Investment Partnership unless otherwise provided by the IPA (in such case, the IPA should provide for terms, conditions, and consequences of such exit).

Managing Partner. A Managing Partner (solely or together with other Managing Partners) is responsible for managing the affairs of the Investment Partnership. A Managing Partner has the right to make cash and in-kind contributions to the Investment Partnership's general business. In-kind contributions can be made, inter alia, by contributing proprietary rights and other rights having monetary value, professional and other knowledge, skills, abilities, and business reputation of a Managing Partner. However, it should be noted that the IP Law prohibits contribution of excisable goods (e.g. alcohol or tobacco products). In addition, an IPA may provide for the obligation of the Managing Partner to make contributions to the property (вклад в имущество) of the Investment Partnership. The Managing Partner is not entitled to assign its rights and obligations under the IPA to any third party (any agreement allowing such assignment is void). A premature exit of a Managing Partner from the Investment Partnership is allowed only with the written consent of all Partners. Anу agreement establishing another procedure for the premature exit of a Managing Partner from an Investment Partnership is void. If a Managing Partner terminates its participation in an IPA, provided that the IPA is not terminated, such Managing Partner shall be liable under the obligations of the Investment Partnership, which occurred during the period of the Managing Partner's participation in the Investment Partnership, for a period of 3 (three) years after termination of the IPA.

Managing the Common Affairs of an Investment Partnership

All Partners. Decisions on the general activity of the Investment Partnership are made by the unanimous consent of all Partners, unless otherwise provided by the IP Law or the IPA. The IPA may provide that such decisions may be made by a special vehicle, such as an investment committee (Investment Committee).

Investment Committee. If the IPA provides for an Investment Committee, the IPA should also provide for the related procedure for its establishment, convocation, and decision making rules. The Investment Committee would consist of the duly authorized representatives of the partners. Unless otherwise provided in the IPA, the competence of the Investment Committee includes the following authorities: (i) modifying and changing the Policy, (ii) approving transactions entered into by the Managing Partner(s), without the authority to do so, etc. Each member of the Investment Committee has one vote. Decisions are adopted by a simple majority of the votes cast by the members, unless otherwise provided in the IPA.

Managing Partners. Management of the general activity of the Investment Partnership may be conducted by one or several Managing Partners, appointed by a simple majority of all Partners of the Investment Partnership and cannot be carried out by Partners who are (i) not Managing Partners or (ii) foreign entities without a permanent representative office (представительство) in Russia. Any agreement that allows a non-Managing Partner to participate in the management of the Investment Partnership is void. The IPA must contain detailed provisions related to the activity, cooperation and authority of the Managing Partners responsible for managing the general activities of the Investment Partnership. In the course of managing the general activities of the Investment Partnership, the Managing Partner(s) acts based on a power of attorney issued by all other Partners. The IPA may establish specific rules/restrictions with respect to transactions entered into by the Managing Partners and their affiliates. The authority of the Managing Partners to manage the general activities of the Investment Partnership may be terminated by a court, based on a claim of one or several Partners or by a simple majority decision of all of the Partners of the Investment Partnership, if so provided by the IPA (such termination, the IPA with such Managing). If provided by the IPA, the Managing Partners may be compensated for their management activity.

Authorized Managing Partner. In accordance with the terms of the IPA, one of the Managing Partners should be appointed as an unauthorized Managing Partner, who is responsible for accounting matters, establishment of bank and depository accounts for the Investment Partnership, and maintenance of tax records. It should be noted that only a legal entity may be an authorized Managing Partner under the IP Law. Based on the procedure and timeframe provided by the IPA, an authorized Managing Partner should provide the other Partners with information on expenses incurred in the interest of the Investment Partnership, the amount of remuneration of the Managing Partners, and the share of each Partner in the property of the Investment Partnership.


Investment Partnerships represent a new promising tool for joint investment activity in Russia that could someday become useful and convenient for investors. However, there are a number of concerns and potential disadvantages that need to be clarified by further amendments to the IP Law before the Investment Partnership could become attractive to investors.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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