New Administrative Penalties Came in Russia

Main Changes in the Code of Administrative Offenses of the Russian Federation.

Upon April 13 the amendments to the Code of Administrative Offenses of the Russian Federation introduced by the Federal law from February 9, 2009 №9-FZ are in effect. The new provisions set and increase the liability costs for violation of legislation on security market, joint-stock and limited liability companies.

Since the amounts of penalties increase significantly (up to 1 million rubles) it is particularly important for business to comply with the current legislation in order to avoid committing offenses and bearing the burdens in regards to the Code of Administrative Offenses of the Russian Federation.

In this article by Anna Kraeva, Senior lawyer, you will find the information on the most important changes as well as a set of guidelines to follow in view to comply with the new legal requirements.

New Types of Offenses

Code of Administrative Offenses introduces new types of offenses concerning the liability of joint stock company (AO), limited liability company (OOO) and their executives (director/general director). Furthermore, Code of Administrative Offenses concretizes the list of corporate officials who in addition to executives incur liability for acts and decisions violating the law as follows: the members of the boards of directors (supervisory board), collegial executive bodies as well as counting, auditing and liquidation committees.

Custody of Corporate Documents

One of the newly introduced provisions concerns default in obligation of custody of corporate documents in accordance with the procedures set by the laws and regulations on the securities market, taxes, accounting, joint-stock companies and limited liability companies. Such offense incurs penalties for corporate executives an company itself in amount ranging from 2 500 rubles to 5 000 rubles and from 200 000 to 300 000 respectively.

The set of the documents in concern is broken between numerous laws, subordinate acts and regulations. It means that there is no any universal act or panacea offering a problem solution. We can say with more or less certainty that in case any control body like tax authority decides to examine company activities and documents it will find a lack in their set.

Indispensably any company must keep custody of constituent documents, documents certifying the titles to property and assets, decisions of shareholders (members) meetings, minutes of the board of directors meetings, other company internal documents, annual accounting statements and other accounting documents, list of affiliates, provisions on subsidiary companies. Joint-stock company (AO) (and limited liability company (OOO) in case it issues bonds) must keep custody of offering prospectus, public offering statements and other documents with regard to the laws and regulations on the securities market. However this list is not exhaustive, there are still lots of other documents.

The documents should be kept in custody at address defined in the Unified State Register of Legal Entities (EGRUL) as company address.

Term of documents custody may vary on the document status. For instance, accounting documents are kept in custody within 5 years; withholding agent (tax agent) shall ensure the document custody necessary for calculation, deduction and transfer of taxes within 4 years, etc.

Prepararion of Company General Shareholders Meetings

Another newly introduced provision of the Code of Administrative Offenses of the Russian Federation concerns company and its executives liability with regard to preparation and holding of joint-stock company general shareholders meetings and limited liability company members meetings.

Preparation and holding procedures for general shareholders meetings are provided under the joint-stock company's and limited liability company's by-laws. This regulation is completed by several subordinate acts and regulations.

In event a company, its executive or a member of the board of directors commits the following:

  • refusal to convene or evasion of a general shareholder meeting or refusal to amend the candidates list to the companies bodies with respect to the shareholders proposal;
  • violation the notification procedures or terms for the general shareholders meeting and for the provision of specified information in accordance with the federal laws;
  • violation of requirements with regard to the term, duration and place of a general shareholders meeting;
  • holding of a general shareholder meeting in a lack of a quorum or introduction of a general shareholder meeting agenda changes after shareholders notification;
  • violation of requirements by a chairman of a secretary of a general shareholders meeting with regard to the minutes of a general shareholders meeting tenor, procedure or timing or failure to sign it.

The corporate executive(-s) and a company itself incur penalties from 20 000 rubles to 30 000 rubles or disqualification or from 500 000 rubles to 700 000 rubles respectively.

The only immunity from liability is provided for a member of a joint-stock company (limited liability company) board of directors who votes against the decision which resulted in a breach of the requirements of the federal law and respective regulations.

New Types of Disciplines and New Amounts of Penalties

The amendments to the Code of Administrative Offenses of the Russian Federation which are in effect as of April 13, 2009 for the specified types of offenses introduce increased amounts of administrative penalties and a new type of discipline – a disqualification. This fact proves that state interests in this field have become particularly important being secured by a set of means including administrative and judicial procedures, control authorities inspections, etc.

With regards to this matter it is necessary to note that the liability incurs simultaneously a company and its official.

New Type of Disciplines

Disqualification in the sense of the Code of Administrative Offenses of the Russian Federation means deprivation of a right to hold corporate executive positions, administer and manage a company in any other manner in cases provided by the laws of the Russian Federation.

Disqualification can be imposed for a specified period of time within the limits provided in the article. A judge only is authorized to impose this type of discipline.

New Amounts of Penalties

The penalties in amount from 500 000 up to 700 000 rubles for companies are provided for:

  • violation of offering procedures;
  • obstruction to the rights certified by the securities;
  • violation of preparation and holding of a general shareholders meeting procedures (company executives incur qualification up to a year);
  • failure to submit to the Federal Commission for the Securities Market the information required by law or submission of misleading information.

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