RS Q & A Transactions on sale of equities

Transactions on sale of equities

Two foreign companies founded a Russian LLC. One of them decided to sell its stake to the other, allowing the latter to exercise its right as a pmember of an LLC to be the first in line to buy the stake in the company offered by another member. The transaction is conducted abroad. What is the procedure for selling stake in this case?
What documents does the Russian LLC have to provide to the national registry of legal entities to register the change in its members?

Under Federal Law No 14-FZ dated Feb 8 1998 On Limited Liability Companies, members of an LLC may sell or give away their stakes in the share capital of the LLC to one or several of the other members or to a third party. The procedure for selling stakes in the LLC is defined by the law and by the articles of association of the company.

Members of an LLC have a pre-emptive right to buy stakes sold by other members, meaning that when a member of an LLC wants to sell its stake, it has to first offer it to the other members by notifying them in writing about its intent to sell the stake. The member must also notify the company.

If the stake is sold to another member exercising its pre-emptive right after accepting the offer of the member willing to sell its stake (or part thereof), the transaction does not have to be certified by a notary. The stake in the share capital becomes property of the buyer as soon as a record of the sale is made in the national state registry of legal entities.

To register the transfer of a stake in an LLC in the national registry of legal entities following one of the members exercising its pre-emptive right to purchase the stake, an application signed by an authorised person must be submitted to the registration authority. The signature of the authorised person must be notary-certified.

If the member of an LLC is a legal entity the authorised person may be:

  • The head of a permanent executive body of the legal entity, or
  • Another person authorised to act on behalf of the legal entity without a power of attorney
  • Any natural person representing the legal entity under a power of attorney.

In addition to the application, documents must also be provided confirming the sale of the stake (or part of a stake). In the case of two members being foreign companies and concluding the transaction outside Russia, such documents will include the offer of the member selling the stake and the formal acceptance of the offer by the member buying the stake.

The law does not specify any deadlines for when all this information must be submitted to the registration authority, however, title to the stake only transfers to the new owner after state registration of the transfer.

Prepared by experts of the GARANT Legal Consulting Service
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