Annual General meetings: obligations and potential risks
Pepeliaev Group reminds readers that the period for holding annual general meetings is approaching and that liability may be imposed for non-compliance with the laws concerning LLCs and JSCs.
The next period for holding companies’ general meetings of shareholders (members) is almost here. It starts on 1 March and finishes on 30 June for joint-stock companies (“JSCs”) and on 30 April for limited liability companies (“LLCs”). Each business entity specifies the timelines for the convening of annual general meetings of shareholders (members) in its charter.
Annual general meetings of shareholders (members) serve as milestones for the company’s development since it is where the annual operating results are approved. Moreover, these meetings are intended to resolve other matters as prescribed by applicable corporate legislation (on JSCs or LLCs) and companies’ charters. Shareholders (members) may propose items for the meeting’s agenda.
Since annual general meetings of shareholders are of a particular importance, non-compliance with the rules for preparing for and holding them will likely result in negative consequences for businesses.
It is fairly common for companies to ignore the need to hold general meetings or avoid convening meetings by producing backdated documents instead. This practice is considered to be unlawful and may lead to civil, administrative, or even criminal liability being imposed.
For example, if a company unlawfully refuses to convene or avoids convening a general meeting of shareholders (members) it may be charged with an administrative fine ranging between RUB 500,000 to RUB 700,000. LLCs’ officers may have an administrative fine of RUB 20,000 to RUB 30,000 imposed while JSCs’ CEOs may be disqualified for a period of up to one year.
Moreover, an unlawful refusal to convene or the avoidance of convening a general meeting of shareholders may be treated as precluding or unlawfully limiting the rights of securities’ holders which may result in criminal liability being imposed.
Additionally, we would like to point out that the falsification of a resolution of a general meeting of shareholders (members) is a criminal act. The maximum penalty under this type of criminal offence may be up to five years of imprisonment with the imposition of a fine between RUB 100,000 and RUB 300,000 or equal to the convicted person's salary or other income for a period from one to three years.
What to think about, and what to note
The imposition of an administrative fine for a violation of the statutory requirements concerning the preparation for and holding of general meetings of shareholders (members) shows that the company’s responsible officers have exercised poor management practices and violated the requirements of existing legislation. This allows the company or any of its shareholders (members) to recover losses inflicted on the JSC (LLC).
In order to avoid these negative consequences we recommend that the corporate management bodies conduct their business activities adhering to the principles of reasonableness and good faith.