Amendments to the Law on Business Entities – Innovations 2021

In April 2021, long-awaited amendments to the Law of the Republic of Belarus dated December 9, 1992 No. 2020-XII “On Business Companies” came into force, as a result of which new institutions of corporate relations were introduced and the existing legal norms were significantly improved.

Thus, the main innovations and changes in legislation include:

1. Cancellation of the ban on the creation of a business company (LLC, ADO, CJSC, OJSC) by another business company with one participant

Thus, the previously existing restriction on the “matryoshka” principle is canceled as it does not meet modern requirements for the activities of business entities. The legislator also established that if a decision is made to liquidate a legal entity that is the only participant in a business company, a decision must also be made to liquidate this company.

2. Cancellation of the ban on concluding a shareholder agreement and an agreement on the exercise of the rights of participants (corporate agreements) by all participants simultaneously

Corporate agreements make it possible to provide for obligations to exercise their rights in a certain way or to refrain from exercising them, for example, to vote in a certain way at a general meeting of participants, to agree on a voting option with other participants, to sell shares at a certain price or upon the occurrence of certain circumstances, as well as to carry out other coordinated actions related to the management of the company, the creation, operation, reorganization and liquidation of the company (for example, obligations to provide loans, and so on).

Before the ban was lifted, a company with 2 participants did not have the right to enter into such agreements; an exception was provided only for residents of the Hi-Tech Park.

3. The mechanism for converting the company’s debts into shares (shares) has been determined.

The possibility of increasing the authorized capital of a company is provided by offsetting the monetary claims of participants/shareholders and (or) creditors of business companies. This will allow you to convert accounts payable into shares (shares) of the company and will have a positive impact on the value of net assets. Conversion of debt is possible only by a decision of the general meeting of participants, adopted by all participants unanimously (for an LLC/LCD) or by a decision of a general meeting of shareholders, adopted by ¾ of the votes of the persons participating in the meeting (for an OJSC/CJSC).

4. Participants are given the right to make free contributions to the company’s property that do not lead to an increase in the authorized capital of the business company and a change in the size of shares or the nominal value of shares

The new version of the law provided for a new source of financing the economic activities of business entities. Shareholders/participants can make contributions to the company's property free of charge (any property: money, securities, property rights, etc.), i.e. transfer property without creating a debt to shareholders/participants. Such a contribution will not lead to an increase in the authorized capital and the size of shares (par value of shares) belonging to its participants. This contribution can be made in order to provide the society with financial and economic support and, as a result, to increase the size of net assets. Also, such a contribution will not be regarded as a gift in relations between commercial organizations, and is also irrevocable.

Please note that as of May 25, 2021, no changes have been made to the Tax Code of Belarus regulating the transfer of such deposits or equating them to contributions to the authorized capital, i.e. tax consequences arise in the form of non-operating income for the receiving company, as well as VAT for the participant contributing the property. It is expected that the necessary changes will be made in the next edition of the Tax Code.

5. The possibility of implementing option programs has been introduced

The possibility of gratuitous transfer or sale of shares (shares) to members of management bodies and other employees of a business company is established for the purpose of motivation and personal interest of these persons in the development of the business company.

Receipt by an employee of a share/shares automatically gives him certain rights as a participant:

• the right to participate in voting on decisions of the general meeting;
• the right to receive dividends when distributing company profits.

These rights can be limited or modified through amendments to the charter or by concluding an agreement on the exercise of the rights of participants, but it is impossible to completely deprive a participant of these rights in society.

6. It is stipulated that a general meeting of participants (shareholders) or a meeting of the board of directors (including those held in absentia or mixed forms) can be held remotely using remote service systems

7. Time limits for procedures have been established for reducing the value of net assets

The period within which the company is obliged to make a decision on liquidation in the event of a decrease in the value of net assets: six months after the end of the relevant financial year, if the basis for liquidation of the company has not disappeared within the specified period. Thus, it is now differentiated in more detail that the basis for liquidation is a decrease in the value of net assets based on the results of the second and each subsequent financial year:

• for a joint stock company (JSC) - below the minimum size of the authorized capital established by law;
• for LLC - to zero or a negative value.

Pauline Antonenko,

Lawyer,

GRATA International, Belarus