Russia's ongoing President Dmitry Medvedev and Justice Minister Alexander Konovalov. Source: ITAR-TASS
Russia's President Dmitry Medvedev took further steps on Monday to improve the country's business climate as he strives to leave a legacy of lasting change and protect his business-friendly policies. Medvedev said he had submitted amendments to the Civil Code to the country's Parliament, in a move analysts say was long overdue. The president said the amendments should "help to strengthen the foundations of our economic life and improve our country’s investment climate." "It [the draft law] concerns practically every aspect of property relations in our country," Medvedev told an ad-hoc meeting of his senior administration officials at his Gorky residence outside Moscow.
The policy thrust of the Kremlin’s draft bill is to improve good
governance practices and transparency of legal entities operating in the
country. Through a raft of amendments to the Civil Code, the Kremlin
has tried to streamline and simplify procedures for registration of
legal entities and to set new rules for economic activities, such as
bankruptcy and mortgage lending, Justice Minister Alexander Konovalov
told reporters in the Kremlin on Monday. Some familiar forms of legal
structure, such as additional liability companies and closed joint-stock
companies, will cease to exist in Russia, Konovalov said. "The novelty
of this draft law is that it systematizes the organization of legal
entities, and first of all, that of commercial organizations and NGOs."
Konovalov said legal entities in Russia will henceforth be delineated
into public companies and private companies, while every legal entity
will be expected to prepare its financial statements and shares-issue in
line with the new regulation.
provisions in the draft bill, the Kremlin hopes, may also persuade
Russian companies not to register their businesses abroad. "It's common
knowledge that big Russian businesses are increasingly moving to foreign
jurisdictions these days," Konovalov said. "We must create adequate
legislation and its enforcement in our country that would prevent
businesses from going abroad to sue each other or resolve conflicts, but
enable them to do this in our country." Many Russian businesses, which
operate solely or primarily in Russia, are owned by holding companies
registered abroad, meaning that the company can use foreign
jurisdictions in case of legal disputes, the Associated Press reported
on Monday. Russian business people often prefer European law and courts
for their legal battles because the Russian legal system is seen as
arbitrary and laws are outdated and vague, the agency said.
Medvedev ordered the Justice Ministry to prepare amendments to the bill
in November, saying that they had to be ready by February 1, 2012.
During a February 2 meeting in the Kremlin, Konovalov assured the
president that the passage of the amendments will ensure that the
"interests of investors and creditors will be protected in Russia in a
substantially more reliable, modern and more correct way than they are
now." He added that the amendments "offer new judicial and legal
opportunities for the benefit of those who are investing and are engaged
in business in Russia." "A considerable amount of effort has been
invested to ensure that contractual rights and liabilities, property
transactions, deals and contracts – that is, everything that constitutes
economic relationships in Russia today – are legally guaranteed,"
However, the draft law still includes some
controversial provisions, including requirements for offshore companies
operating in Russia to disclose their beneficiaries. Konovalov said the
provision was necessary to increase the transparency of the Russian
economy and to prevent tax evasion. In order to fight sham companies,
the minimum share capital for limited liability companies has been
increased to 300,000 rubles, or $10,000, and up to one million rubles,
or $33,000, will now be required to form a joint stock company.
legal experts have taken issue with some of the provisions in the draft
law. The increase in the minimum amount of capital required to start a
company will have a negative impact on entrepreneurs willing to launch
legitimate small and medium-sized business, according to legal experts
at the law firm Muranov, Chernyakov & Partners. “Businesses will
have to seek additional funds to increase their share capital. And the
only way they can do this is by increasing the cost of goods, services
or works,” said the experts. “It is also likely that small businesses
that cannot find affordable finance to increase the capital may decide
not to do business in Russia at all.”
The legal experts also said the requirement that offshore companies operating in Russia disclose information about their beneficiaries is no less controversial. “First of all, it is unclear how this measure can affect transparency of business in Russia,” said the experts. “Secondly, asking offshore companies to reveal beneficiaries while information about property or assets of government officials is hidden from society is, to put it mildly, unfair.”
First published in Russia Profile.
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