High-tech, fast-growing non-public cos to be permitted to issue multi-voting preferred shares - draft bill
MOSCOW. Sept 6 (Interfax) - All non-public joint stock companies (NJSC) in Russia could be permitted to issue "superprefs" - preferred shares with several votes, according to a draft bill published for public discussion by the Economic Development Ministry. Some high-tech and fast-growing NJSCs will even be able to retain such securities when transitioning to the status of public companies, but they will have to confirm high rates of business growth or their "high-tech" status.
Russian law does not allow companies to issue shares that give holders more than one vote. However, the issue of multi-voting shares by companies abroad is popular. It is also used by companies registered abroad with business in Russia. For example, the family trust of Yandex founder Arkady Volozh controls more votes in Dutch Yandex N.V . than it would hold in the company's share capital.
For several years, the Economic Development Ministry has been working on a document that would allow residents of special administrative districts (SARs) to issue multi-voting shares. In the summer of 2022, the law was passed. It allows residents of such districts operating as NJSCs to temporarily - through January 1, 2039 - issue new multi-voting shares under Russian law, but only by unanimous shareholder resolution. Prior to that, this right was exclusive to residents who retained the "old" multi-voting shares during redomiciliation and continued to operate under foreign law.
MULTI-VOTING SHARES FOR ALL
The Economic Development Ministry is now proposing that all Russian NJSCs be allowed to issue multi-voting preferred shares, provided this option is fixed in their charters.
"The possibility of flexible forms of participation in charter capital of joint-stock companies will allow them to attract additional sources of long-term investment," the document's authors said. This legal instrument may be in demand by large companies, potential investors, the explanatory note to the document reads.
RESTRICTIONS IN EVENT OF PUBLIC TRANSFORMATION
If a non-public joint-stock company then decides to transform into a public joint-stock company, according to the draft bill, as a general rule it will have to give up its "superprefs" and convert them into single-voting shares. However, the bill provides for three exceptions when an organization will be able to become a public company and retain the multi-voting shares it already has.
Firstly, it will be possible if the general meeting of shareholders when making a decision on transition of the company to public status simultaneously provides for a plan to include its shares in a special list of securities of the high-tech (innovative) sector of the economy within six months. The rules for classification of shares, bonds and investment units to such securities are established by government decree.
Secondly, companies whose intangible assets exceed 25% of the book value of assets, but no less than 100 million rubles at the end of any of the last two completed reporting years will be able to retain their "superprefs". Thirdly, such an opportunity will be available to companies whose revenue growth over the last four years has exceeded 30%.
If these conditions are not met, the company will have to convert multi-voting preferred shares into shares with one vote.
At the same time, restrictions are set for multi-voting preferred securities. First, one shares may not provide more than 10 votes. Secondly, the minimum validity period of the charter provision on the number of votes of one "superpref" is 10 years. Its extension is possible, but by a unanimous decision of the shareholders.
Third, multi-voting preferred share cannot be traded on the stock exchange. Fourth, in the event of a change in ownership, the securities will be automatically converted into single-voting shares. Fifth, the right to vote on them is not transferred when they are pledged or transferred to REPO.
According to the draft bill, "superprefs" can be only "old" ones, which were issued when the company was not public. Issuance of new multi-voting shares by public companies is forbidden.
NEW RULES FOR HOLDERS OF MULTI-VOTING SHARES
In the company's charter, shareholders will be able to provide for issues on which the consent of the holders of multi-voting shares will be required for a decision to be taken. As a general rule, a decision will be adopted if a simple majority of the votes of the holders of "superprefs" who participated in the meeting are in favor of it. However, the bill also envisages that the company's charter may provide for a greater number of votes required to obtain the consent of the holders of "superprefs".
At the same time, there will be a shortened range of situations when they will be able to demand that the company buy out their shares due to disagreement with decisions made. Unlike shareholders of "ordinary" Russian companies, they will not be able to insist on it if they disagree with the conclusion of a major transaction with property worth more than 50% of the book value of assets. They will be entitled to demand a buyout only if they disagree with amendments to the charter restricting their rights, with reorganization, with termination of its public status and with delisting of shares.