At the end of January 2021, a set of long-awaited amendments to the Belarusian law “On Commercial Companies” was officially published. The amendments introduce a significant number of changes concerning various aspects of company law and will enter into force on 28 April 2021.
Our Corporate and M&A team has prepared an overview of the most important changes.
Abolition of the prohibition of one-shareholder company chains
For a long time, Belarusian law prohibited the establishment of so-called chains of companies with only one shareholder, i.e. a situation when a company with only one shareholder is the sole shareholder of another company. Following the entry of the amendments into force, this outdated prohibition will be eliminated, and no general restrictions or requirements will remain regarding the composition of shareholders in Belarusian companies.
Share capital loss regulations to become harsher
The law obliges companies to reduce their share capital to their net asset value in case upon the declaration of the results of the second and any subsequent financial year the latter becomes lower than the share capital.
While this requirement has already been in place for a long time, the amendments to be introduced modify the procedure related to such share capital reduction, namely:
- establishing a deadline to carry out the reduction, which is six months after the end of the respective financial year;
- requiring an indication in the annual report of the company’s executive body information about the dynamics of the net asset value and the measures necessary to ensure its correlation with the share capital.
Furthermore, in case the net asset value becomes lower than the statutory minimum amount of share capital (for joint-stock companies) or zero/negative, the company will be obliged to make a decision on liquidation within six months of the end of the respective financial year unless this ground for liquidation is eliminated within this six-month period.
Another positive change introduced into the company law is permission to set off the obligations of a creditor to pay a contribution to the share capital against the debts of the company towards this creditor. This will simplify the structuring of debt-equity conversions, which until recently have been directly regulated only for residents of the Hi-Tech Park.
Gratuitous contributions to companies’ assets
A potentially useful novelty was introduced with regard to the contributions of shareholders. In addition to the usual share capital contributions, shareholders will be allowed to make contributions to companies’ assets not affecting the overall amount of the share capital or the allocation of shares among the shareholders.
The only issue that may hinder actual use of these new type of contributions is the lack of a specific exemption from the corporate income tax rate of 18% with regard to such contributions. If this exemption is introduced, this kind of contribution may become a viable alternative to other means of financing companies.
Removal of the limit on the number of shareholders in closed joint-stock companies
The statutory limitation on the maximum number of shareholders in joint-stock companies will become optional and will only apply if stipulated in the articles of association. It will also become possible to change the limit, which is currently 50 shareholders, and set it to any other number.
Transfer of shares in closed joint-stock companies
Further changes applicable to joint-stock companies relate to the statutory pre-emptive right of the shareholders and the company to purchase shares sold by other shareholders. After the entry of the amendments to the law into force, this pre-emptive right will no longer be mandatory and may be excluded from the company’s articles of association.
In addition to this, provisions regulating consent for the transfer of shares to the heirs and successors of a shareholder will be excluded from the law. As a result, heirs and successors will automatically become shareholders of the joint-stock company, contrary to currently established court practice.
Transfer of shares to management and employees
The amendments to the law “On Commercial Companies” specifically mention the right of the company to issue and transfer its own shares to its management and to other employees. The new provisions allow transfer of shares free of charge and may be used to structure employee and management share option plans.
Shareholders agreements involving all shareholders of the company
A strongly criticised provision in the Belarusian company law was the prohibition on concluding shareholders agreements between all shareholders of the company. Under the current law, at least one shareholder had to be left out of a shareholders agreement. This criticism was finally noted, and from the end of April this prohibition will cease to exist.
Remote meetings of shareholders and board meetings
The amendments also take into consideration present-day reality and allow for meetings of shareholders and board meetings to be conducted remotely with the use of electronic communications, information systems and technologies. Remote mode may be used both for “on-site” meetings and voting with voting papers.
However, the new provisions of the law do not specifically regulate the procedure for remote meetings; hence, it will be up to shareholders to develop and formalise such procedures in the articles of association or other company regulations.
Updated provisions concerning board of directors
The amended law “On Commercial Companies” clarifies the procedure for electing members of the board of directors and establishes a limitation that only one member of the collegial executive body may also serve as a board member.
Furthermore, the new provisions of the law establish procedures for convoking and conducting meetings of the board of directors, including the list of persons who can request a meeting, as well as terms for considering the request, convoking the meeting, and notifying board members about the meeting.
Finally, the amendments also clarify the procedure for challenging a decision of the board of directors. Contrary to previous practice, the standard three-year statute of limitation will no longer apply to such claims, and instead a shortened two-month period will be applicable.
Reorganisation procedures clarified
The amendments introduce additional regulation of reorganisation procedures, in particular requirements for mergers, spin-offs and similar agreements, as well as increasing the number of votes necessary to make certain decisions in the course of reorganisation, mainly related to the formation of bodies of reorganised companies and the approval of their articles of association.
Major transactions and transactions with interest of affiliates
One of the changes introduced to the law “On Commercial Companies” clarifies the procedures for corporate approval of amendments to major transactions and transactions with interest of affiliates. The latter type of the transaction may be amended only upon the approval of the management body that has made a decision to conclude the initial transaction, while for major transactions the amended law grants an opportunity to refer all non-crucial amendments (which do not concern the parties, subject matter, or the material terms and conditions of the transaction) to the competence of the company’s executive body.
The changes to the law also amend the list of affiliates by excluding from it representatives of the state in state-owned companies and adding to it deputies of the company’s director.
In addition to that, multiple other clarifications have been added, including ones related to liability for failure of the affiliate to provide information, definition of interrelated transactions, as well as exceptions to the requirement to obtain corporate approval for transactions with affiliates.
Companies will be obliged to ensure compliance of their articles of association with the amendments introduced into the law when making changes to their articles of association for the first time after the entry of the amendments into force.
If you need advice on any legal issues you are facing, just write to our team.