Russian Federation: Corporate Agreement: Shareholders’ Agreements Under Russian Law Reloaded

Last Updated: 15 January 2015
Article by Yana Dianova

1. Shareholders' Agreement: Foreign Law and Russian Practice

Shareholders' agreements are a tool for the contractual regulation of relations between shareholders/participants of companies and are widely used in jurisdictions of the Anglo-Saxon legal system (in particular, the UK and the US), but also recognized and regulated by the laws of countries that have continental legal systems (including Russia, Germany and Italy).

The core value of this tool is that it allows for:

  • redistributing the rights of shareholders in the domain of corporate governance, regardless of the number of votes that a particular shareholder is granted under the law based on the number of shares owned by said shareholder;
  • increasing the liquidity of shares of non-public companies by granting to shareholders additional rights to dispose of their shares under certain circumstances and by establishing corresponding obligations of other shareholders for the acquisition of such shares;
  • providing for the undertakings of shareholders related to the promotion of business development, competitiveness and the economic security of a company that cannot be established by the articles of association and internal documents of the company;
  • stipulating mechanisms for settling disputes among shareholders out of court or through arbitration.

The concept of a shareholders' agreement (as applicable to joint stock companies) and an agreement on the exercise of participants' rights (with respect to limited liability companies) was first enshrined in Russian law in mid-2009:

  1. Article 8 of the Federal Law dated 8 February 1998 No. 14-FZ,"On Limited Liability Companies" (hereinafter – the "LLC Law") was supplemented with a provision on the right of a company's founders (participants) to enter into an agreement on the exercise of participants' rights1;
  2. the Federal Law dated 36 December 1995 No. 208-FZ,"On Joint Stock Companies" (hereinafter – the "JSC Law") was supplemented by Article 32.12, which provides for the right of shareholders to enter into a shareholders' agreement pertaining to exercising of the rights granted by shares.

Prior to these legislative amendments, although it had generally been possible to enter into agreements between shareholders/participants governed by Russian law on the basis of the principle of freedom of contract established by Article 421 of the Civil Code of the Russian Federation (hereinafter - the 'Civil Code'), Russian investors and their foreign counterparts chose (and still often choose) the law of England and Wales or the law of the country of incorporation of a foreign invest to regulate their relations within joint ventures.3

Following the resonant judgements of Russian courts in 2006 that rendered invalid shareholders' agreements governed by foreign law due to the fact that their provisions violated the imperative rules of Russian civil and corporate law (Decision of the Federal Arbitration Court of Western-Siberian District, dated 31 March 2006, No.F04- 2109/2005(14105-А75-11) regarding the case of 'Megafon' JSC, and the Decision of the Moscow City Arbitration Court4 on the case of 'RusskiyStandartStrakhovaniye' JSC, dated 26 December 2006, No. A40-62048/06-81-343), the enforcement of such agreements in Russia became doubtful. Along with tax incentives provided by double taxation agreements between Russia and a number of countries, the judgement was one of the reasons for establishing multilevel holding structures that allow for entering into shareholders' agreements under English (or another foreign) law at the level of companies established in foreign jurisdictions, such as the Republic of Cyprus. Since the entry into force of amendments to the JSC and LLC laws, which introduced the concept of a shareholders' agreement and an agreement on the exercise of participants' rights (hereinafter – a "participants' agreement"), the respective agreements governed by Russian law have been actively employed by companies alongside state participation (in particular, ROSNANO OJSC, companies belonging to the VTB group), investing in innovative and/or fast-growing businesses as minority shareholders/participants.

At present, however, the courts' practice in Russia regarding disputes arising from shareholders' agreements and participants' agreements has not yet been established.5 With respect to participants' agreements, the most prominent is the decision of the Arbitration Court of Moscow, dated 24 November 2010 regarding case No. A40-140918/09-132-894 on rendering invalid the participants' agreement of VerniyZnak LLC, which was further upheld by other judicial instances, including the Highest Arbitration Court of the Russian Federation (hereinafter - the 'HAC'). The following provisions of the agreement were deemed invalid as contradicting to the imperative rules of the Civil Code and LLC Law:

  1. In terms of company management:

    • an obligation of the parties to unanimously vote on all issues on the agenda of the general meeting;
    • especial procedure for convocation (including a shortened notice period) of the general meeting of participants;
    • the right of one participant to take decisions at the general meeting regardless of the will of another participant;
  2. In terms of the rights and obligations of participants:

    • the exclusive right of one participant to nominate the executive body and deprivation of another participant of the right to vote against such a nomination;
    • disproportionate distribution of the company's profits among the participants (e.g., 90% and 10%);
    • restriction of the right of a participant to exit the company;
    • restriction of the right of a participant to dispose of their share in the charter capital;
  3. In terms of the consequences of a breach of the agreement and liability of the parties:

    • the invalidation of a transaction entered into by a participant in a breach of the agreement upon demand of another participant;
    • deprivation of the right to vote at extraordinary general meetings, the right to a share in the charter capital or to distribution of the company's profits;
    • transfer of the share of one participant to another participant for a breach of the agreement;
  4. In terms of the 'deadlocks' settlement:

    the obligation of a participant to transfer his share to another participant at a price no more than 50% of the company's net profit for a financial year in the event of the impossibility of taking a decision at the general meeting on the agenda due to voting against such a decision by one of the participants.

The abovementioned provisions were as well clearly inconsistent with the fundamental principle of Russian civil law - the equality of parties. Additionally, as it was noted by the parties to this case in a public announcement, the case was initiated solely for the purpose of establishing the position of Russian arbitration courts with respect to the relevant terms of the participants' agreement, whereby no evidence had been provided for proving that either party to the agreement had actually intended to perform their undertakings with another party.6

In relation to shareholders' agreements, exemplary among these is the Decision of the Federal Arbitration Court of Volga District on case No. A57-7487/2010, dated 7 September 2010, regarding the shareholders' agreement of Agro JSC, the terms and conditions of which were rendered invalid by the court in the first instance, since they were aimed at alteration of the procedures and methods of corporate governance of the company, while some also contradicted the principle of the balance of interests of the parties, in particular:

  1. In terms of company management:

    • the appropriation of the general shareholders' meeting competencies by one shareholder;
    • the right of the company's owner to appoint/dismiss at its sole discretion directors, their deputies and chief accountants;
    • the right of one shareholder to determine a list of transactions that require prior written approval by all the shareholders, including the transactions of subsidiaries and affiliates of the company;
    • the right of one shareholder to establish a new temporary managing body for the company endowed with the right to appoint by its decision a temporary sole executive body of the company;
    • alteration of the procedure for convening the general meeting of shareholders of the company and alteration of its quorum to a 2/3 majority vote;
  2. In terms of the rights and obligations of shareholders:

    a waiver of one of the shareholders of the right to participate in the distribution of profits, dividends, bonuses and other payments in favour of another shareholder.

Read more:


1. Clause 3 was introduced by the Federal Law dated 30 December 2008 No. 312-FZ.

2. Introduced by the Federal Law dated 3 June 2009 No. 115-FZ.

3. The popularity of English law is largely due to the dispositive provisions of corporate laws with regard to shareholder agreements, as well as the developed approach of English courts with respect to terms and conditions that may be included in such agreements.

For instance, the Companies Act 2006 provides, inter alia, for:

  • an agreement between all shareholders/participants may amend provisions of the articles, including those that under the articles can only be amended subject to certain conditions and/or procedures (Companies Act 2006 Part 3, S 22 (3) (a));
  • a shareholder agreement is regarded as a part of a company's constitution, provided that such agreement is: (a) agreed to by all the members of a company; (b) agreed to by all the members of a class of shareholders; (c) effectively binds all members of a class of shareholders, even though not agreed to by all said members (Company's Act 2006, part 23 S 1);
  • agreements between shareholders or participants of a company may impose limitations on the directors' powers under the company's constitution (Companies Act 2006 Part 4, S 40 (3) (b));
  • agreements between holders of securities that may result in restrictions on the transfer of securities or on voting rights, including agreements with respect to companies whose securities are traded on regulated markets; in this case, an annual report of the company shall disclose the information on such agreements (Companies Act 2006 Part 28, S 992 (13) (2) (g)).

4. Arbitration (or arbitrazh) courts in Russia are state courts authorized to consider economic and other disputes in connection with profit-making activities, with the participation of legal entities, individual entrepreneurs and in cases provided for by the law, with the participation of government and municipal agencies and individuals.

5. According to Article 13.2 of the Federal Constitutional Law dated 28 April 1995 No. 1-FZ, "On Arbitration Courts in the Russian Federation", the Plenum of the Highest Arbitration Court of the Russian Federation took decisions within its jurisdiction that were obligatory for arbitration courts in the Russian Federation. Following the abolition of the HAC RF and transfer of its powers to the Supreme Court of the Russian Federation (SC RF), according to the Federal Constitutional Law dated 4 June 2014 No. 8-FKZ (effected into force on 6 August 2014), clarifications issued by the HAC RF Plenum regarding the application of laws and other regulations by arbitration courts shall remain valid until issuing of the respective decisions by the SC RF Plenum. To date, no decisions of the HAC Plenum or SC Plenum have been issued with clarifications in connection with shareholder or participant agreements.

6. As mentioned in the HAC Ruling dated 12 September 2011 No. VAS-10364/11 upon the refusal to refer the case for consideration to the HAC Presidium.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions