Key changes in the Business Entities Law in Belarus 2021
On January 27, 2021 Law of the Republic of Belarus No. 95-З dated 05.01.2021 “On amending the laws pertaining to business entities”. The law amends the procedures used to regulate the activities of business entities (LLCs, ALCs, CJSCs, OJSCs) as from April 28, 2021.
1. Business entities with one participant are no longer prohibited to create another business entity
Business entities with one participant are no longer prohibited to create another business entity with sole participant. Annulment of this prohibition allows reorganisation by way of spinning-off a new entity with sole participant.
2. Shareholder agreements
After evaluating the procedure in the Hi-Tech Park, now all participants/shareholders of all business entities are allowed to conclude shareholder agreements (participants’ rights agreements) comprising all participants of such business entities. Earlier, where a business entity had only two participants, they were not allowed to conclude such an agreement. In 2018 the prohibition was lifted for HTP residents, and now – for all other business entities.
3. Redefined re-organisation procedure
For such forms of re-organisation as merger and accession, a broader redefined list of material conditions of merger/accession agreements has been introduced. With respect to split-off, spin-off and transformation, they redefined the list of matters to be specified in a re-organisation decision.
For each type of re-organisation, a number of votes has been defined that are requisite for decisions approving articles of association of a newly created (transformed) business entity, separation balance sheet / transfer deed (at least three quarters of votes of persons present at a meeting) and election of management bodies (at least 50% of votes of persons present at a meeting).
Also, they redefined the list of data to be included into a re-organisation notice forwarded to creditors, and specified that an alteration of a joint-stock company (from an open company to a closed one, and vice-versa) is not a ‘transformation’.
4. Financing of business entities and statutory fund
4.1. A time period is now definitely prescribed by legislation within which a business entity must decide on decreasing its statutory where its net asset value decreases below the amount of its authorised share capital – 6 months after the end of respective financial year. Therewith, where such value decreased below a statutory amount of statutory fund (for joint-stock companies) or to a negative value (for LLCs or ALCs), such business entity shall, within 6 months after the end of respective financial year, decide to wind up (unless its net asset value has, during such period, increased up to a prescribed amount).
4.2. Participants/shareholders of business entities are now entitled, for the purpose of financial support of business activities, to make non-repayable contributions to business entity’s property that do not increase its statutory fund or change its participants’ equity shares (nominal value of stock/shares). Such contributions to business entities’ property shall be made by virtue of agreements to be concluded between a participant and a business entity. However, such contributions are still subject to income tax and VAT for both assignors and assignees. This questions workability of this procedure before respective changes to tax laws be introduced.
4.3. Business entities’ debts may now be refunded by way of accepting creditors as participants/shareholders and set-off of respective monetary claims.
5. Business entities are now entitled to transfer equity shares/stock to employees (so-called option plans)
LLCs and ALCs are now entitled to transfer gratuitously or sell equity shares to company employees, while OJSCs and CJSCs are now entitled to issue additional stock to be transferred gratuitously or sold to company employees. Thus, the mechanism of so-called employee stock option plans is now in place in Belarus. This mechanism is widely used around the globe to motivate top managers and key employees: after meeting certain criteria an employee may acquire/buy an equity share or stock of a business entity and draw dividends.
6. Managerial bodies of business entities
6.1. It has been specified that a general meeting of participants/shareholders or a meeting of board of directors (including those held in the ‘in absentio’ or mixed form) may be held remotely by way of using remote service systems.
6.2. The amended legislation no longer requires to hold annual general meetings only ‘in presentio’. From now on, matters pertaining to the approval of annual reports, annual accounting/financial statements, profit and loss sharing, election of members of board of directors, members of internal audit board (internal auditor) may be as well proceeded using the ‘in absentio’ form of meeting.
6.3. The amended legislation directly specifies that business entities are entitled to send notices of general meetings to participants’ telephone numbers or electronic mail addresses.
6.4. The amended legislation specifies that a meeting of board of directors may be held not only at chairman’s initiative, but also at request of other company’s bodies (director, internal auditor, member of board) and/or auditor; also a new procedure of convening a meeting and notifying members of board has been introduced.
6.5. The amended legislation specifies that, similarly to decisions of general meetings of participants/shareholders, a decision of board of directors may be contested in a court of law, where it has been adopted in violation of legislative requirements of articles of association and/or infringes rights and/or legitimate interests of a participant (former participant) or a member of board. Such decision may be contested in a court only by a participant (former participant) or member of board, only within two months after such person has been notified (or should have been notified) of such decision. Therewith, in certain cases a court may uphold such decision of board of directors.
6.6. Boards of directors are now entitled to suspend powers of executive body (director), where such measure has been stipulated by articles of association.
6.7. Boards of directors of joint-stock companies are now entitled to settle disputes between management bodies of joint-stock companies, establish corporate rules and exercise control over corporate management efficiency.
7. Affiliated persons
The amended legislation provides an altered list of affiliated persons of business entities. Deputy directors and their relatives are now acknowledged as affiliated persons, while representatives of state in management bodies of business entities are no longer classified as affiliated persons.
For the avoidance of ambiguous construal, the amended legislation specifies time periods for statutory affiliated persons to notify general meetings of participants and/or boards of directors of any actual or prospective transactions in which they may act as a related party. This period is now 5 days from the date when such affiliated person learnt of such actual or prospective transaction. Amendments have been introduced to the Business Entities Law specifying responsibility of affiliated persons should they fail to furnish respective information to their respective companies.
8. Information on business entities’ activities
The amended legislation specifies restricted access of minority shareholders to account forms and accounting/financial statements, as well as to minutes of meetings of boards of directors (supervisory boards) – this information may be now requested only by participants holding in aggregate at least 10 percent of equity shares (stock) of a business entity. Thus, access to sensual data has been restricted for raiders that purchase minimal bundles of shares (stock) of business entities.
Therewith, OJSCs are now obliged to publish their corporate strategies, other estimate documents and forecasts in mass media.
9. New mechanisms for turnover of CJSCs’ stock
The amended legislation specifies, with respect to CJSCs, no limit of shareholders (against the previous limitation of at most 50 shareholders), unless such restriction be stipulated by articles of association, and no prohibition on selling CJSCs’ stock to third parties, including the pre-emptive right of other shareholders, CJSC itself or a third person specified by such CJSC (unless such restriction be stipulated by articles of association). Moreover, there are no restrictions on inheriting CJSCs’ stock by heirs, i.е. shareholders are no longer entitled to prevent heirs to become shareholders (as earlier).