Sale of an LLC Share Will Be Possible Without Consideration of Preemptive Rights

Russian legislation governing the activities of limited liability companies (LLCs) is preparing for significant changes. The Ministry of Economic Development of Russia has proposed a draft of amendments to the Civil Code and the Law on LLCs. 

Key Change: Elimination of Mandatory Preemptive Rights for the Purchase of Shares 

Currently, the charters of most LLCs provide for a preemptive right for existing shareholders to purchase the share of a withdrawing shareholder. This means that before selling their share to a third party, a shareholder must offer it to the other shareholders of the LLC.

They have 30 days (or the period specified in the charter) to decide on buying of share. Only after all shareholders decline or the time limit expires can the share be sold to a third party. While this procedure protects the interests of shareholders, it often creates bureaucratic barriers and slows down the process of selling shares. 

The draft proposal from the Ministry of Economic Development offers a solution: the LLC’s charter may include provisions on: 

– Non-application of the preemptive right to purchase a share. 

– Restrictions on the use of preemptive rights. 

– Conditions for the application of preemptive rights. 

The amendment to the charter that excludes preemptive rights must be agreed upon by all shareholders of the LLC and formally documented in its founding documents. 

Advantages of the New System 

– Faster Transactions: Eliminating the need to wait for 30 days (or more) will significantly simplify and speed up the process of selling shares. This is especially relevant in a fast-changing market environment. 

– Attracting Investments: More flexible conditions for the sale of shares will make LLCs more attractive to potential investors. Investors will be able to invest without lengthy waiting periods and complex procedures. 

– Increased Liquidity of Shares: Shares in LLCs will become more easily marketable, increasing their market value. 

– Simplified Procedures: Less bureaucracy, fewer approvals, and greater efficiency in the transfer of shares. 

Protection of the rights of LLC shareholders

The draft amendments include mechanisms aimed at preventing abuse of shareholder rights. 

However, the waiver of preemptive rights will not be automatic — it must be adopted by all LLC shareholders and formalized in the company’s charter. 

Additionally, the charter may provide for exceptions to this rule. For example, preemptive rights may be retained for certain shareholders or under specific circumstances. 

Changes to the charter regarding the exclusion of preemptive rights are adopted by a decision supported by at least two-thirds of the shareholders’ votes. 

These proposed changes aim to create a more flexible, transparent, and investment-friendly environment for LLCs in Russia.