LLC Board Appoints CEO in Russian Federation: Amendments Effective 1 September 2024
As of 01.09.2024, the Law on LLC (as amended by the Federal Law No. 287-FZ of 08.08.2024) amends Clause 1 of Article 40, which is supplemented by Clause 2, which we will quote in full:
"The fact of making a decision on the election (appointment) of the sole executive body of a company shall be certified by a notary. The above provision does not apply to companies that are credit organisations, non-credit financial organisations, specialised companies established in accordance with the legislation of the Russian Federation on securities".
Decisions of the general meeting on the election (appointment) of the chairman of the board of directors
In those cases where the election (appointment) of the sole executive body (CEO) falls within the competence of the general meeting (GM), everything is clear in principle. Just like the increase of the authorised capital (Article 17, Paragraph 3 of the LLC Law), the consent to the conclusion of a convertible loan agreement (Article 19, Paragraph 1, Paragraph 9 of the LLC Law), the decision on the election (appointment) of the sole executive body at the general meeting of participants must be notarised. And this, of course, is fully in accordance with par. 3 p. 3 of Article 67.1 of the Civil Code of the Russian Federation, which establishes the general rule that the adoption of a resolution by the general meeting of participants (and the composition of the participants present at the adoption of the resolution) is confirmed by a notarial deed. It should be noted that participants (including foreign participants) may issue a power of attorney to represent their interests at the General Meeting, in which case their personal presence is not required.
Resolutions of the Boards of Directors on the Election (Appointment) of the CEO
However, as is well known, the power to elect (appoint) the CEO may also be delegated to the level of the LLC's Board of Directors (subparagraph 2, paragraph 2.1, Article 32 of the LLC Law). And here the question arises: in this case, is it necessary to notarise the resolutions on the CEO's election (appointment) adopted by the board of directors? It should be recalled that the prevailing position is that a member of the board of directors may not issue a power of attorney for participation in a meeting of the board of directors to another member of the board of directors or to a third party (which the author of this note considers ambiguous, but which is not the subject of discussion here and now).
On the one hand, it does not follow from clause 1 of Article 40 of the LLC Law, as amended and in force since 1 September, that the amendments apply only to the adoption of resolutions by the general meeting of shareholders. In particular, the first paragraph of this provision states that the managing director is elected by the general meeting of shareholders or, if the articles of association so provide, by the board of directors.
On the other hand, all other norms - the general norm of the Civil Code of the Russian Federation (clause 3 of Article 67.1), special norms of the Law on LLC for similar situations of increasing the authorised capital or approving the conclusion of a convertible loan agreement - in all cases explicitly mention only resolutions of the general meeting of shareholders, but not of the board of directors. For the sake of fairness, it should be noted that both the increase of the authorised capital and the approval of the conclusion of a convertible loan agreement fall within the exclusive competence of the general meeting of shareholders, so that the law could not provide otherwise.
In addition, the Fundamentals of Notarial Legislation (especially after the amendments introduced by the same Federal Law No. 287-FZ, which came into force on 1 September 2024) leave no doubt that "notarial" meetings of the board of directors are perfectly permissible. The norm now also includes provisions on remote participation in a meeting, whereby a notary establishes the identity of a participant (member) of a body of a legal entity by checking the person's Enhanced Qualified Electronic Signature.
The disappointing conclusion we come to is that, from 1 September 2024, decisions on the election (appointment) of CEO taken by the board of directors will require notarisation.
This is likely to seriously complicate the adoption of such decisions, especially in the situation with foreign board members (who, of course, do not have an Enhanced Qualified Electronic Signature recognised in the Russian Federation), as is often the case in Russian companies with foreign participation.
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