The Gazette 1993

GAZETTE

GEM N

JUNE

1993

Recently a special Constitutional

Court was established, whose task is

to ensure that the recently adopted

laws and regulations do not

contradict the existing Constitution.

Any natural or legal person has the

right to appeal to this Court.

Developments towards business law

For anybody intending to carry out

business activities in Russia company

law, foreign relations law and

property law are of most interest. As

mentioned above, the Russian

economic system did not need

company or business law, and until

1967, economic law was not even

admitted as a branch of legal

science, and problems connected

with regulation of economic

relations, when not dealt with by

plans and planning bodies, were

dealt with by the civil law.

In 1987, the USSR Joint Venture

Decree No. 49 permitted the

formation of the first Soviet legal

person for commercial purposes.

This decree permitted foreign

participation in Soviet Joint Venture

companies provided that at all times

the foreign partner had a minority

shareholding and the chairman of

the board was always a Soviet

citizen. These restrictions were

removed in 1989.

Joint Venture law is very basic and

was following the demise of the

USSR replaced by a Joint Stock

Company Law NO. 509 dated July,

1990 which envisaged more

sophisticated company structures

including private and public

companies.

This Joint Stock Company

legislation is however, also very

sketchy and lacking in detail and

definition. Furthermore, as the

whole concept of limited liability

companies is new to Russia many

Russians both at State and business

level do not clearly understand the

principles. It is, therefore, advisable

when drafting Joint Stock Company

documents for Russia and other

Eastern European ventures generally

to include much detail in the

foundation documents. The

constitution and operation of the

various elements of the corporation

structure such as shares, meetings or

voting are not dealt with in any

detail in the general legislation and

so it is advisable to use the

foundation documents to legislate

for the- company.

". . . as the whole concept of

limited liability companies is new

to Russia many Russians both at

State and business level do not

clearly understand the

principles."

Joint Stock Company foundation

documents consist of a Charter and

Agreement. The Charter is registered

with the Ministry of Finance of

Russia and so must contain all

provisions regarding the operation of

the company's affairs and its

objectives, and the agreement is used

to set out any additional matters

agreed between the parties. The

greatest care must be devoted to

drafting these documents and to

legislate for the company. It is also

recommended that any disputes

arising under these documents

should be determined by arbitration

which should take place outside

Russia as the Russian Courts have

great difficulty understanding and

interpreting the new economic laws

and have very few precedents. The

International Chamber of Commerce

in Stockholm is considered to be an

acceptable venue for such arbitration

as there is a long history of Soviet

use of Stockholm Arbitration in

state international contracts under

the old regime.

Property law in its infancy

The newly emerging political

economic and legal structure in

Russia causes confusion to reign

everywhere. For this reason patience

is required at every level of dealing

there from negotiations with

potential partners to registration of

documents at state agencies.

The 'cannot do' approach is still

very prevalent, but take heart, it can

usually be overcome.

"patience is required at every

level of dealing there from

negotiations with potential

partners to registration of

documents at state agencies. The

"cannot do" approach is still

very prevalent, but take heart, it

can usually be overcome."

Property law is also very much in its

infancy and in a constant state of

change. The State owns all of the

freehold in all of the land. Up to 2

years ago the concept of leasehold

did not exist and the only form of

ownership permitted to citizens and

enterprises alike was the right to use

buildings.

Leases of buildings and land are now

permitted by law but are more

difficult in practice. Leases of

buildings up to 100 years are easier

to obtain as many citizens and

enterprises have been granted

"ownership" of the buildings they

occupy under recent privatisation

legislation. The situation regarding

land is far less clear as over the

years the State's interest in the land

vested in different State bodies such

as local authorities, government

departments, regional authorities and

collective farms. Now there is much

conflict among these entities as to

who owns what and in many

instances it is likely that more than

one State organisation claims the

right to the land.

A long lease of a building at market

rent without title to the land is a

comon title now on offer in Moscow,

for example, but such a deal should

be approached carefully to ensure

that no further significant change

will be made for the ground rent

when the land is finally carved up

because at present the State

envisages levying high ground rents

on users and lessees of buildings.

Changing nature of regulations

Anybody carrying on business in

Russia or throughout the old Eastern

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