The Ministry of Economic Development proposed to incorporate some market practices into the shareholders’ agreements and participants’ agreements governed by Russian law

The Ministry published draft changes to the laws on joint-stock, limited liability companies and securities markets concerning shareholders’ agreements and participants’ agreements (available in Russian only).

Revisions mostly aim to recognize and systematize the existing market practices, which market players already apply referring to the “freedom of contract” principle. Inter alia, corporate agreements can contain: options to enter into a contract (art. 429.2 of the Civil Code of Russia) and option agreements (art. 429.3 of the Civil Code of Russia); the right to engage a third-party to confirm the occurrence of conditions triggering the option exercise; the right to issue an irrevocable power of attorney to ensure coordinated voting of shareholders / participants. The draft also includes a detailed description of the drag-along and tag-along mechanisms.

From the practical standpoint, specification of these practices in the applicable laws shall acknowledge their legitimacy, and reduce doubts of shareholders and participants as to their permitted application and enforcement within the Russian legal model, thus making it more attractive for both Russian and foreign clients.

It should be noted that penalty as a form of contractual liability of the shareholders / participants becomes a more effective remedy since its reduction will require a higher level of proof than now. Besides, draft legislation provides a description of procedure for challenging corporate resolutions adopted in violation of the corporate agreement. Whenever such resolutions have not been taken, they still can be recognized adopted when the failure to approve was due to the rejection of certain person to vote pursuant to the agreement.