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Corporate contract in the system of civil law

Although the fact that initially corporate relations doctrine of Russia was fully borrowed from foreign law orders though it has immediately gained originality which can be briefly characterized as “life by regulations”.

In practice legal regulation of relations inside of the major commercial corporations – Ltd. and JS (CJS) companies were tending to come to clear determined rules which were set either by a corporate law (Law on Ltd. Federal law dd. 08.02.1998 # 14-FZ “On limited liability companies” or Law on JS Federal law dd. 26.12.1995 # 208-FZ “On joint-stock companies”.) or, in cases legally permitted, Bylaws of the corporation Here and hereinafter the term corporation should be interpreted as an economic company – Ltd., JSC or CJSC. (association). Members of the corporation, of course, had an opportunity to enjoy corporate rights of their own will but the content of these rights however was set by law or bylaws and their volume – by a size of an association member’s share in the authorized capital stock.

However in case when clearly determined rules in the relations between an association and its members should be recognized as a benefit it is obvious that there was not enough space within the bylaws for the relations between members of the corporations. The existence of clearly determined rules in the corporate law often tended to limit members in enjoying their rights. For example, toughly set by law a necessity of getting some fixed “threshold” quantity of votes during the process of decision-making on certain questions did not allow minority members to exercise the right to participate in managing an association during handling such questions. Another example is when members owned some share (so-called “threshold share”) necessary for exercising certain rights but still were limited in the carrying out of the latter.

In the corporations where the number of the members was enough these questions were quite a burning issue and therefore behind-the-scenes struggle sometimes turned to become pretty large-scale one. Members of the corporations, of course, tended to unite with each other, were making agreements to act in a certain way, to vote in a certain way, to boycott questions of the agenda which were non-advantageous for them. However these agreements were a kind of some conspiracy or separate treaty. The law made no provision for them and therefore they often had no legal protection.

In all fairness it should be said that formally the law did not prohibit for the members of a association to enter different contract relations with the aim of exercising their corporate rights. Agreements between companies of Russia were being concluded earlier already however in case of deviation of the content of these agreements from the standards of the corporate law the courts of Russia were applying norms of law ignoring terms and provisions of the contract concluded between shareholders. Thus legally protected could be only those contracts terms and provisions of which were developing legislative norms and standards. Special voting method agreements were reckoned among legitimate terms and provisions, for example, in case when votes of shareholders were combined together when forming single executive body. Agreements containing such norms are used to be conventionally called "minorities agreements”.

For performing other tasks members preferred either to subordinate corresponding agreement to foreign law (which absolutely was not a guarantee of proper legal protection in court of Russia Decree of FAS Western-Siberian district dd. 31st of March 2006 # A75-3725-g/04-860/2005. Judgment of Court of Arbitration of Moscow city dd. 26th of December 2006 on the case # A40-62048/06-81-343.) or to build more complicated corporate structure thus forming an additional link – special Russian association’s parent company under foreign jurisdiction and then make a shareholder’s agreement in relation to a parent company in accordance with foreign law.

In the international practice shareholders’ agreements According to a traditional understanding a shareholders’ agreement is a contract between some or all of the company’s shareholders and often a company itself. The main objective of concluding SHA is organizing company management, defining peculiarities of profit distribution among shareholders and regulation of issues linked up with alienation of stocks, finding a way out of deadlock situations. are a wide-spread instrument for efficient regulation of relations between shareholders, for organizing company management process and providing for ways of resolving conflict situations. Specialists note that “necessity in using shareholders’ agreements is caused by objective impossibility of settling many of the relations being formed between shareholders by means of articles of association (bylaws). Using the mechanism based upon agreements in the corporate relations makes it possible to legally provide a members agreed balance of economic interests which is unique in every exact situation and moreover is prone to change all the time”.

It was clear that in case of not using the most efficient tools of corporate law developed in the course of international practice Russian organizations would inevitably lag behind, would be less flexible and responsive in comparison to the foreign corporations. Apparently the understanding of the fact of convergency of Russian and international corporate law being inevitable made legislative body undertake first timid steps in the field of legalizing relations which actually have long become conventional and used to be applied.

In the years 2008-2009 changes have been made to the Law on Ltd. Federal law dd. 30.12.2008 # 312-FZ. or Law on JS Federal law dd. 03.06.2009 # 115-FZ.. in the Law on Ltd. the new institution acquired a name of association members rights exercising contract and in the Law on JS – shareholder agreement. Legal essences of both are identical. Procedure of regulation fixed in the Law on JS was more detailed but still quite terse, too. It is significant that both names of the new corporate law institution did not comply with the main point of this phenomenon. Firstly, this was not a shareholder agreement in the sense implied in the same case in the international practice and first of all because our shareholder agreement could not influence both the Association itself and its managing bodies. Members’ rights exercising contract is quite inaccurate, too, and reflects only a part of opportunities which members were lawfully able to agree under the protection of law. In order to avoid misunderstandings further on hereinafter in this article we will name both shareholder agreement and members rights exercising contract as “corporate contract” This name is used in the Article 67.2 of The Draft of the new Civil Code of RF.

According to the sense of the new norm an objective of a corporate contract is to bring actions of its members (linked up with managing of an association, its creation, activity, reorganization and its liquidation) into accordance with each other. It was pretty clearly determined in the law what exactly can be agreed in the corporate contract however this list is not closed (classified) because it is provided for that besides actions clearly fixed in the law members have the right to agree some “other actions linked up with managing of an association, its creation, activity, reorganization and its liquidation”.

It is necessary to consider at that a corporate contract cannot:

  • Oblige its members to vote in accordance with the instructions of the bodies of the association;
  • Oblige a member to alienate a right for participation in managing separately from his share (stock) including the right to vote at the members general meeting;
  • Determine the structure of the bodies of the association and the procedure of adopting decisions in contradiction to the rules of Civil code and the law on economic associations;
  • Contain other provisions contradicting to the Civil code, law on the economic associations and (or) infringing on rights of other members of the association as well as provisions not complying with the essence of corporate relations.

Legal structure of any contract always has one firm condition – condition on the subject of the contract. It is exactly a subject of a contract by which first of all one type of a contract can be distinguished from another. Traditionally in the Russian legal doctrine subject of the contract means "the right for somebody else's actions”. This means that one person who is a party (creditor) under the contract has the right to demand from another person (debtor) fulfilling some actions i. e. a creditor has so-called right for legal claim.

For example, in the contract of purchase and sale the subject of a contract is some action – transfer of ownership for an article. This is the sign according to which civil contracts classification is being formed in the system of Russian law.

  • Contracts for transfer the ownership for an article (purchase-sale, barter, rent, transfer of ownership of an article as a gift, lending)
  • Contracts for transfer articles into use (lease, renting, loan)
  • Contracts for performing works (services)
  • Co-operation contracts (particular partnership)
  • Contracts for actions to the benefit of somebody else and at somebody else’s expense (fee, contract of agency, contract of commission).

Corporate contract in the Civil code of RF has no item name that’s why some uncertainty occurs – which legal norms should be used to regulate relations under such a contract. It’s clear that because of the fact that corporate contract is still a civil contract norms and regulations of part one CC RF shall be applied to it. Concerning the possibility of applying terms and provisions of special part of The Civil Code of RF to the corporate contracts it is necessary to point out that such a possibility will depend on how a corporate contract will be categorized in the system of civil law. In other words which category of contracts it will be related to in the list of the civil code. The issue of legal categorizing of a corporate contract is even more important because laws on corporations contain virtually no regulating norms and rules relating to the corporate contract.

Type of the contracts are distinguished from each other by their subject and a subject of any contract means some actions that’s why first of all it is necessary to define which actions are the subject of a corporate contract?

Distinguishing by subject. About what are members of an association absolutely allowed according to the law to conclude a corporate contract?

1. Contract about voting in a special way.

First of all it is possible to agree to vote in a special way at the general meeting of the members of an association on this or that question of the agenda. For example, members have agreed to vote “con” on the question of electing Ivanov I.A. as a general manager. Here members agree that each of them shall either use his vote in a special way or not use his votes in a way which is not admissible for all the members of the contract.

Subject of the contract is voting in a special way or refraining from voting in an inadmissible way. First of all what is worth paying attention to is the fact that this contract is not mutual or bilateral because obligations of each member of a contract to vote in a special way do not correspond to the counter-obligation of another member of a contract to vote in a special way using his stocks. Another member of a contract has also an obligation to vote in a certain way but this is not a counter-obligation but a parallel one. This means that it doesn’t matter whether members have fulfilled their obligations or not and independently from each other a member shall use his votes exactly in a way as it is stated in the contract. If an aspect of mutuality is missing it automatically means that a corporate contract is excluded virtually from all categories contracts because the only type of contract with parallel obligations of parties provided for in the CC of RF is a contract of particular partnership.

However corporate contract cannot be related to the contracts of particular partnership because of the fact that the latter means combining of some contributions of members as well as their joint actions to achieve common goal. In the contract for voting in a special way we find neither the former nor the latter. Members combine no contributions moreover they act not in a joint but in an independent manner. Some authors express an opinion that contracts according to which not all of the members are obliged to the same actions are inadmissible. Here one can agree with this position only in relation to the contracts which oblige one member to vote according to the direction of another one or to the contracts in which one member is obliged to vote in a certain way and another one has no such an obligation at all. In the first case such a contract is inadmissible because of understanding of the fact that in contracts with parallel obligations of parties all members of the contract should be entrusted with such obligations equally. However equality of obligations being entrusted with does not mean that by volume and content these obligations shall be identical. Usually this is merely impossible because one member owns one number of votes and the other one owns a different one. In our opinion contracts under which not all the members are obliged to some special behavior are inadmissible however those contracts are admissible in which behavior members are obliged to fix in a different way for different members.

Thus a contract about a special way of voting can be related to no type contracts listed in CC of RF. Speaking about types of contracts not listed in CC of RF but still widely applied the above is the most similar to organizational contracts.

2. Contract about coordinated voting.

The law specifies a possibility to coordinate between members some certain way of voting as one of admissible actions which can be the subject of a corporate contract.

As a matter of fact we are speaking about holding some “quasi-meeting” at which members under the contract coordinate with each other a voting scenario for the main real general meeting of the members of an Association.

In this case the same as in the previous one, obligations of parties under a contract are parallel. However here there is a joint activity of parties in a form of participating in coordinating a certain way of voting. However categorizing this type of corporate contract as a contract of particular partnership is also impossible because of main sign missing – combining of contributions. This type of contract should be also categorized as organizational one.

3. Contract about coordinated sale (purchase) of members shares.

The subject of this type of contracts is also actions in a special way in the part of using share (shall not be confused with votes) by a member in this or that situation. In addition to that the law offers the following possible situations:

  • Members shall sell their share in case of occurrence of some certain circumstances;
  • Members shall sell their share in case of occurrence of some certain circumstances but for certain agreed prices only
  • Members shall refrain from alienating a share or a part of a share unless some certain circumstances occur.

This type of a corporate contract should be distinguished from a preliminary contract widely known to the civil law. There are quite many differences between them. For example, the only obligation of parties under preliminary contract is an obligation to conclude the main contract on certain conditions. The Civil code of RF does not provide for a possibility to subject concluding of a main contract to delaying (suspensive) condition that is to connect an occurrence of an obligation to conclude the main contract with a circumstance in relation to which it’s unknown whether it occurs or not. The matter is that preliminary contract according to article 429 CC of RF contains unconditional obligation to conclude the main contract on conditions stipulated in it. Preliminary contract shall absolutely specify a term during which the main contract to be concluded. Some certain term of fulfilling of preliminary contract on the one hand and occurrence of obligations under the contract upon occurrence of circumstance in relation to which it’s unknown whether it occurs or not (a bargain under delaying or suspensive condition) on the other hand are if not mutually exclusive then they are conditions contradicting each other in many cases. They can be combined in the preliminary contract if it is provided for that the obligation to conclude the main contract occurs in case of occurrence of some certain circumstance but not later than the term stipulated in the preliminary contract. However concluding preliminary contract under delaying or suspensive conditions occurrence of which is limited by no terms is impossible. According to the general rule of clause 4 of article 429 CC of RF parties shall conclude the main contract not later than a year since concluding a preliminary one.

It is unknown in the corporate contract about coordinated sale of share whether this sale takes place at all. In addition to that the subject of the preliminary contract is actions of parties on concluding (signing) of the main contract on conditions agreed earlier and the subject of a share coordinated sale contract is agreeing conditions in case of occurrence of which such a sale shall take place as well as coordinating sale price.

A corporate contract does not contain obligations to unconditionally conclude share purchase-sale contract.

The second distinguishing feature is that a preliminary contract should be concluded between the same persons who are supposed to conclude the main contract in future. In the corporate contract parties are always members of association and it absolutely not obligatory at that that they are the ones who will also sell their share to each other at agreed price or at agreed circumstances. Coordinated sale of share to third parties is pretty much possible too.

The law does not determine the exact purchase-sale contracts in relation to the one who purchases. It is supposed that both a member(s) of an association and the Association itself as well as third parties can be a purchaser.

In case when from the conditions of a corporate contract it follows that parties have agreed about price and conditions of sale of shares to the third parties then a preliminary purchase-sale contract is impossible because in this case it turns out that a preliminary contract is concluded between members and the main contract – between a member and a third party which should not take place.

In addition to that such a contract cannot be considered as a share purchase-sale contract fulfilled under delaying or suspensive condition because a purchaser of a share is not a party under the contract. In addition to that selling a share to third parties is admissible only by consent of other members of an association Item 2 Article 21 of the Law on Ltd.. Such a contract should be categorized as a contract on determining of conditions of sale. As a matter of fact it contains no obligation to sell because it is unknown whether a third party wants to purchase a share; there is only an obligation to offer a share for sale at a certain price in case if some certain conditions occur.

But in the case when pursuant to the conditions of the corporate contract it appears that one of the participants of the company acts as a participation purchaser such an contract should be classified as a share sales contract conducted under the suspensive condition Provided that all significant conditions of a share purchase-sale contract are agreed (size of share being sold, par value, sale price)..

Let’s consider first the contracts for coordinated sales of the shares between the participants to the company. In foreign legal orders the terms of shareholder agreements, according to which upon the occurrence of concrete conditions the certain participant is obliged to sell his/her shares (ownership interest) to a certain participant at a specified price, are widely used. In other words, the kind of pre-emptive right is setting up.

The pre-emptive right on share purchase in general and pre-emptive right on share purchase at a predetermined price are the subject to regulation of clause 4 to 6 of Article 21 of the Law on Limited Liability Companies. With reference to the said legal provisions the following conclusions can be drawn:

The pre-emptive right on share purchase at the offer price arises for participants of the company in case of sale of shares to third parties only. Upon sale of the shares to the participants of the company the pre-emptive right does not arise. But there is a question arising whether the participants can set up such a rights by entering into the agreement between themselves. We believe the answer to this question shall be affirmative even in case the pre-emptive right is setting up where it is not required by law, for example, to the participants of the company, or to the shareholders of JSC.

However, it will be not exactly the same (precisely, not the same at all) pre-emptive right on shares purchase. First of all, an obligation to sell an ownership interest to a certain participant at a specified price set by the corporate contract is not the pre-emptive right, but the incorporeal right, that is, the contractual right, whereas the pre-emptive right on purchase of an ownership interest has in rem effect. Upon the violation of the pre-emptive right on purchase of an ownership interest established by law the holder of the said right shall have the right to require the transfer of the rights and obligations of an ownership interest buyer to himself/herself. Upon the violation of the contract for consensual sales of the shares there is not and cannot be such a request, whereas these rights are so belong to the affected party. The only thing the affected participant may require from an offender is the common liabilities for infringement of the obligations (losses, fines, penalties).

There is, although, quite an interesting question - whether the defrauded participant, in the case of breach of the obligation to sell an ownership interest to a certain participant at a specified price, can file a claim for compulsion to fulfill the obligation in kind. It seems that such a claim would be lawful, provided the concluded contract is an contract for sale and purchase of an ownership interest conducted under the suspensive condition. In case concerned, the conclusion of the contract for sale and purchase of an ownership interest in the share capital is obligatory for the participant of the company by virtue of voluntarily assumed obligation (bargains - the contract on performing of the rights of the participant of the company) according to Articles 309, 310, 429 of the Civil Code of the Russian Federation and other laws (Paragraph 3 of Article 8 of the Law on Limited Liability Companies).

When avoiding of the said participant of conclusion of a contract for sale and purchase of an ownership interest in the share capital of the company, another participant of the company has a right to file a claim in the court for compulsion to enter into the contract and for damages caused hereby (Paragraph. 2 of Clause 1 of Article 421, Clause 5 of Article 429, Paragraph 4 of Article 445 of the Civil Code of the Russian Federation).

Generally, although the contracts on coordinated sales of the shares can be considered as an element of self-regulation of corporate relations, by virtue of their outer shell, they, nevertheless, constitute sales and purchase contracts which legal regulation is quite defined.

The contracts wherein it is intended to sell an ownership interest at an agreed price to third parties are not the sales and purchase contracts at all and, to this extent, are more corresponding to the nature of a corporate contract.

Here there is also a question relevant - whether the third party has the right to require the performance of such an contract in kind, if it has not been executed. It seems the third party has not such a right. According to the Article 428 of the Civil Code of the Russian Federation a buyer is entitled to request the transfer of res in nature providing only there is a concluded contract of sale with him/her. There is also no right of the third party to require a compulsion to enter into a sales and purchase contract, since corporate contract is not a preliminary contract and the third person is not a party thereto.

However, there is one interesting point here.

We believe that namely this kind of contract is referring to in Paragraph 3 of Clause 11 of Article 21 of the Law on Limited Liability Companies. According to this provision, if a participant of the company, who has entered into an contract that establishes the obligation to perform, in the event of occurrence of certain circumstances or the performance of the mutual obligation by the other party, a transaction aimed at disposition of an ownership interest or part of an ownership interest in the share capital of the company unlawfully refuses to notarize the transaction aimed at disposition of an ownership interest or part of an ownership interest in the share capital of the company the acquirer of an ownership interest or part thereof, who has committed the actions aimed at execution of the said contract, shall have the right to request the transfer of an ownership interest or part of an ownership interest in the share capital of the company in a judicial proceeding. In this case, the arbitration court decision on the transfer of an ownership interest or part of an ownership interest in the share capital of the company is the ground for the state registration of the respective alterations to the Unified State Register of Legal Entities.

In the legal community there were conducted for a long time (and rather sluggish) disputed what is that the contract that establishes the obligation to perform, in the event of occurrence of certain circumstances or the performance of the mutual obligation by the other party, a transaction aimed at disposition of an ownership interest. The majority leaned towards the idea that it is the preliminary contract. But as was shown above a preliminary contract cannot be concluded under the condition. Others suggested it to be a certain unnamed contract, but found it hard to determine its legal nature. We then believe the legislator had in mind namely a corporate contract for coordinated sale of the shares to a third party.

4. The contract for the performance of coordinated actions related to the management of the company, to the incorporation, operation, reorganization and liquidation of the company.

The subject of this contract following from its name are coordinated actions related to:

a) the incorporation of the company - it is not completely clear what the legislator had in mind, since there is the incorporation contract dedicated to the aligning the efforts of the founders aimed at creating a company Item 5 Article 11 of The Law on Ltd., and is inappropriate to duplicate the relevant provisions in the other contract.

b) the reorganization of the company – it is also not implicitly understandable contract. According to Article 33 of the Law on Limited Liability Companies a decision on the reorganization of the company is an exclusive competence of the general meeting. Hereafter, the participation of participants of the company in the reorganization process is limited to the approval on the general meeting of the various reorganization documents - the dividing balance sheet, transfer certificate, merger contract etc. Consequently, the only thing the participants can negotiate in the contract on coordinated actions upon the reorganization - is how they would vote on certain issues of reorganization of the company. In other words, as a matter of fact all comes down to the agreement to vote in a certain way. It is not clear, what was the meaning to distinguish such a kind of corporate contract in the law.

Similar arguments have a place in respect of the contract on coordinated actions upon liquidation.

The participants actions of managing the company (management of the company, by the way, includes the reorganization and liquidation) are also come down to voting in a certain way. Therefore, we shall repeat it over - it is not clear what the legislator had in mind by allocating the considered category of corporate contracts.

Whereas the waiver of the coordinated management of the company was meant, it should be kept in mind that the Russian courts interpret these provisions as a waiver of rights, being contrary to Article 9 of the Civil Code of the Russian Federation.

As for the coordinated management of the company, it must be borne in mind that the treaties providing for the establishment of parallel managing bodies (for example, "Board of Directors"), the parallel corporate procedures (for example, the need for coordination of the draft item in the agenda of the meeting with the parties to the contract) are not permitted anyway. Such contracts being concluded can bind only the parties to contract and cannot be considered as a part of the corporate relations. In other words, if the item of the agenda is not agreed upon with the parties, it will be included in the agenda anyway and this action will be lawful.

Much more interesting are the contracts for the coordinated performance of the rights of the participants of the company. We are talking about the cases when the law makes the existence of the right conditional on the number of shares of the person appealing for the performance of the right. The following can be mentioned by way of example:

The participants being collectively the owners of not less than 2% of the voting shares of the company are entitled to put a question before the agenda of the annual general shareholders meeting and to recommend the candidates for the Board of Directors, the collective executive body, the Audit Commission and the Counting Commission of the company, as well as a candidate for the single executive body.

Sometimes the law allows for the performance of the rights subject to the presence of a particular set of votes of the group of shareholders. Thus, participants of the company whose aggregate amount of the shares constitutes not less than 10% of the share capital of the company have the right to request in judicial proceedings the exclusion of the participant from the company Article 10 of the Law on Ltd..

In all these cases, the law allows for the performance of the respective right by the persons jointly owning the required rate of the participation in the share capital of the company. Combining participation interests to perform a certain right may well be the subject of corporate contract. It would be more correct to qualify such a contract as an agreement on the coordinated right performance appeal.

This is the only case which we managed to find which does not exclude the possibility of occurrence of other corporate contracts which will accord with the signs of a particular partnership where the corporate contract possesses all the characteristics of the single partnership contract, as it assumes both the merger of the contributions (votes) and the joint actions (right performance appeal) of the participants.

3. Problem points while concluding the corporate contract.

Despite the negligible practice in respect of the extent of use of such a tool as a corporate contract, there are already now revealed problems which often do not have a unique solution. We will dwell on the ones most interesting therefrom.

1. Which individuals may be the parties to the corporate contract? It would seem the law gives a definite answer - only the participants of the company.

Should all the members of an association participate in the corporate contract.

Currently existing legislation does not contain requirement according to which all the members of an association are obliged to be parties under a corporate contract. Such a claim could have been laid in case if a corporate contract could regulate organizational structure of an association or control management bodies. However this king of organizational and managing relations in an association could be regulated only by law or articles (bylaws) of an association. At the same time a corporate contract has strictly an innate feature of obligation in its nature and obliges only parties under the contract to a certain behavior while actually it is not applied neither to an association itself with its bodies nor to the members of an association who are not parties under a corporate contract, nor to third parties.

Taking into consideration an essential feature of obligation in a corporate contract and freedom of the will principle of the parties under the contract there is no necessity to demand all the members of an association to conclude a contract. In relation to persons who are not parties under a corporate contract it will merely not be applied to.

Regulating the issues by a corporate contract in case when according to the law they can be regulated by articles (bylaws) of an association.

Laws on the corporations often contain optional (provisional) norms allowing members of an association to select a model of regulation of certain corporate processes themselves. However such a choice should be fixed exactly in the articles (bylaws) of an association. If a regular optional reference sounds as follows: “unless otherwise is stipulated by the contract” then in the laws on corporations the optional norm's wording is "unless otherwise is stipulated by the bylaws (articles of association)” or "the members have a right to stipulate in the bylaws…”.

That’s why changing optional (provisional) rule in corporate contract was illegal. Optional reference exactly to the bylaws is made in the law intentionally because bylaws:

  • firstly, is obligatory for all the members of an association and association itself, and not only for the members of a corporate contract,
  • secondly, it has a feature of being publicly authentic and credible which means that information in it is authentic and credible for third parties while conditions of a corporate contract usually are not known to the third parties.

Such an approach is caused by the reason of publicity of a legal entity and which is reflected exactly in the bylaws and not in the independent agreements of the members of an association, and which is provided by registration made by state authorities both of the bylaws and changes to it.

Exactly because of these circumstances a corporate contract cannot regulate issues which according to the law can be regulated by the bylaws even if all the members of an association participate in the corporate contract.

A contract on vote transfer between members.

This question is being considered in terms of a concept of coordinated voting. Here above we mentioned the issues of concluding a contract according to conditions of which parties are obliged to gather before a general meeting of an association and develop a coordinated way of voting of the members of a corporate contract at the forthcoming general meeting. After developing voting scenario each of a member of a contract acts independently complying with the role according to the scenario. However another option is also possible when no coordination takes place and one of the members determines the way of voting for other members or members issue a power of attorney for determining member to vote on behalf of them.

There are no direct prohibitions or contradictions to the law in such contracts. However by its content they do not belong to a type of coordinated actions contracts and should not be legally protected though it will be hard or impossible to prove.

General meeting decision-making threshold level coordination.

Taking into consideration the fact that decision-making at the general meeting of an association is related to the corporate but not contractual elements and are a part of organizational framework of an association they can be regulated only by law or by bylaws. Concluding a contract on fixing other threshold values than those already fixed by law or bylaws even taking into account the condition that law allows members to stipulate these thresholds in the bylaws themselves, even more taking into account the condition that all the members of an association participate in the contract, will not have those legal consequences which could have occurred in case if the same threshold value had been fixed in the bylaws by the parties after coordination of them at the general meeting.

However in case if in the corporate contract all the members of an association have agreed an obligation to vote at the general meeting pro fixing some certain threshold the general meeting becomes merely a formal event provided that a; the members fulfill their obligations.

However if somebody of the members votes “con” thus contradicting the contract decisions of the meeting shall not be recognized void because of voting in contradiction to the contract. In this case there is a possibility to claim in court for enforcing fulfillment of the obligation specifically. However recognizing in court that voting took place according to the conditions of the contract could be far more perfect a mechanism. However such a means of civil rights protection is not provided for by the CC of RF so far.

Summary:

Analysis of legal norms which deal with the issues of corporate contract allows us to make the following summary:


    1. On the one hand a corporate contract is a regular bargain which is subordinate to the norms and rules of obligatory law provided for by CC of RF. On the other hand a corporate contract is under a passive limitative influence from the side of the corporate law in the sense that terms and provisions of the corporate contract and direction its results tend to cannot contradict to the corporate procedures and rules stipulated by laws on corporations and by the bylaws of economic associations.

    2. Despite the obligatory nature of legal relations occurring when concluding a corporate contract the parties during its conclusion mean achieving a corporate result which consists in influencing a corporation in a way not provided for by corporate institutions.

    3. Currently existing legislation and judicial practice do not admit achieving immediate corporate effect by means of concluding a corporate contract. Legal result of a corporate contract will be always obligatory in its essence and only a number of cases it can be trasformed into a corporate result by means of corporate procedures. So for example, a promise of the parties fixed in the contract to vote in a certain way does not give a corporate effect by itself and in no way influences corporation and third parties related to the corporation. Only after a coordinated voting procedure has been passed the exact corporate result is achieved the parties were actually seeking when concluding a corporate contract.

    4. A corporate contract is undoubtfully in demand, relevant and useful for the members of economic associations because it makes possible for them to regulate their own relations as to exercising corporate rights not specifically but using a way of concluding a contract which is recognized legitimate and can enjoy legal protection though in relation to the parties of the contract only.

    5. In the system of the civil law corporate contracts can be partially related to:

    • organizational contracts (contracts about coordinated voting),
    • contracts of particular partnership (contract about a coordinated reference for exercising a right)
    • contracts of share purchase-sale which is concluded under delaying or submissive condition (contract on coordinated sale of share between members of an association).

    6. Non-fulfillment of the obligations under a corporate contract cannot cause corporate procedures which comply with the laws on corporations and bylaws requirements to become void.

    7. A corporate contract cannot fill gaps of the corporate law according to the principle that “everything which is not regulated by law or bylaws” because a corporate result can be provided only by procedures and norms directly stipulated in the law or bylaws.

    8. Intensifying a corporate effect of a contract can be done by means of fixing in the law a possibility of recognizing in court actions of a participant of a contract as fulfilled ones in accordance with a contract as a way to protect rights. For example, in case if in the contract on coordinated voting members obliged themselves to vote “pro” though one of them voted “con” at the meeting the rest of the members have the right to sue in order to recognize the results of voting at this meeting as those they could have been in case if a violator had fulfilled his obligation in accordance with a contract that is to say as if he had voted “pro”.