Shareholders Agreement

The corporate (shareholders') agreement as a way to avoid conflicts between partners. In 2014, article 67.2 on the corporate agreement appeared in the Russian Civil Code. A corporate agreement does not replace the charter, as might first appear — it supplements and refines it. Its purpose is to help business partners agree in advance how to act in various situations, so as to avoid conflicts and, where they arise, to resolve them successfully and without damage.

Below are the provisions that it is advisable to include in a corporate agreement so that it serves the purposes for which it is made.

Key provisions to include

• Warranties and representations. Governed by article 431.2 of the Civil Code, these allow recovery of losses, payment of a penalty, unilateral withdrawal, or other negative consequences for a party that breaches its representations — a deterrent against bad faith.

• Financing the company. The agreement may set out how the company is financed: ordinary contributions to charter capital, loans, or transfer of other property.

• Additional financial duties of participants. Partners may agree extra funding obligations in case of losses or insufficient working capital.

• Ban on disposing of a share for a period. Under article 67.2, the agreement may prohibit disposing of a share (shares) for a defined period or until a certain event — for example, achieving a set financial result.

• Ban on encumbering a share. To exclude the risk of new participants entering the company, it is sensible to prohibit not only sale but also encumbrance of a share.

• Pre-emptive rights. The agreement can shape pre-emptive rights to acquire a departing partner's share.

• Tag-along and drag-along. Provisions allowing a minority to join a majority's sale (tag-along) or a majority to compel a minority to sell (drag-along) protect both sides on exit.

• Deadlock resolution. Mechanisms such as mediation, buy-sell ("Russian roulette", "Texas shootout"), or a casting vote break deadlocks between equal partners.

• Voting arrangements. Partners may agree how to vote on defined questions, and how to fill management positions.

• Dividend policy. Rules on distributing profit reduce a common source of conflict.

• Non-compete and confidentiality. Restrictions on competing with the company and on disclosing its information.

• Liability for breach. Penalties and compensation give the agreement teeth.

• Dispute resolution and governing law. A clear forum and law — including arbitration — matter especially where partners are from different jurisdictions.

Why it matters for joint ventures with foreign partners

For international joint ventures, the corporate agreement is the single most important instrument for aligning partners and managing conflict. It converts good intentions into enforceable rules: how the business is funded, how shares may move, how deadlocks are broken, and how a partner exits. Without it, disputes fall back on the charter and default statutory rules, which are often too blunt for a cross-border venture. A well-drafted agreement — with clear exit and deadlock mechanics and a sensible dispute-resolution clause — is what keeps a partnership workable.

Related materials

• Exclusion of a participant

• Investment contracts